N.B.C. Corporation Ltd. vs Commissioner of Service Tax

National Building Construction Corporation Limited has invoked the writ jurisdiction seeking quashing of demand-cum-show cause notice dated 19-12-2012. The primary contention in the writ petition is that the respondents have passed a best judgment assessment order u/s 72 of the Finance Act, 1994 (for short, ''the Act'') despite neither circumstance existed for making of best judgment assessment order as there is no allegation that the petitioner failed to file service tax returns or tax paid in the service tax return filed is not in accordance with law. It is stated that the petitioner was never served with notice before best judgment assessment was made. The petitioner has made reference to Section 73 of the Act and pointed out that appeals to the Tribunal are maintainable against the order u/s 73 and not against an order u/s 72 of the Act. The stand of the respondents is that no assessment order has been passed and the writ petition has been filed only against demand-cum-show cause notice. In view of the contentions raised and after analyzing, the issues we had asked learned counsel for the respondents to take instructions.

The demand-cum-show cause notice dated 19-12-2012 in the cause title refers to Section 73(1A) of the Act. Paragraph 4 of the said notice reads:-

Letters were written by this office to the assessee on 7-5-2012, 24-5-2012, 5-6-2012 and 7-11-2012 to provide figures for the period April, 2011 to Mar-2012 on the above issues for issue of subsequent Show Cause Notice. Till date no figures are provided by the assessee for the period 2011-2012. Since the Assessee has failed to provide the information, therefore. Service Tax liability for the Financial Year 2011-2012 shall be taken into account on the basis of best judgment assessment as provided u/s 72 of the Finance Act, 1994 which reads as under:-

If any person, liable to pay service tax,-

(a) Fails to furnish the return u/s 70;

(b) Having made a return, fails to assess the tax in accordance with the provisions of this chapter or rules made thereunder;

the Central excise officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

Audit of the assessee was conducted by the officers of the Service Tax Commissionerate for the period 2006-07 to 2010-11 and thereafter a different show cause notice dated 24-4-2012 was issued for the period 2006-07 and 2010-11. In the present show cause notice it is stated that as the petitioner did not produce books of accounts, the respondents had computed taxable annual turnover by increasing the turnover for previous year 2010-11, by 20%. On this basis/ratio, calculations have been made in paragraph 5 of the notice to determine the alleged non-payment.

Paragraph 6 of the said notice refers to the earlier notice dated 23-4-2012 and it is stated that the allegations and statements made in the said notice will apply to the said notice mutatis mutandis. Accordingly, Section 73(1A) stands invoked. Paragraph 6 also refers to Section 73(1) of the Act. The petitioner was, accordingly, directed to file reply within thirty days of the notice on the following aspects:

(i) The assessment of the value of taxable services provided by the party during the financial year 2011-2012 should not be made to the best of the judgment under the provisions of Section 72 of the Finance Act, 1994 as worked out in Para. 5 of this Show Cause Notice and discussed above, for the failure on the part of the party to assess themselves correctly.

(ii) Service Tax (along with Education Cess and Higher Secondary Education Cess) amounting to Rs. 2,29,16,563/- (Rupees Two Crore Twenty Nine Lacs Sixteen Thousand and Five Hundred Sixty Three Only), as detailed in Para. No. 5(A+B) of this Show Cause Notice should not be demanded and recovered from them under proviso to Section 73(1) of Finance Act, 1994 read with Sections 66 and 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, further read with Section 91 and Section 95 of the Finance Act, 2004 and Section 136 read with Section 140 of the Finance Act, 2007 for Education Cess and Higher Secondary Education Cess respectively.

(iii) Interest at the rates applicable on the amount of service tax not deposited should not be recovered from them u/s 75 of the Finance Act, 1994.

(iv) Penalty u/s 76 of the Finance Act, 1994 should not be imposed upon them for failure to pay the Service Tax in accordance with the provisions of Section 68 of the said Act read with Rule 6 of Service Tax Rules, 1994.

(v) Penalty u/s 77(2) of the Finance Act, 1994 should not be imposed upon them for contravention of Section 70 of the said Act by way of not filing the periodical ST-3 returns correctly for the relevant period.

Learned counsel for the respondents, on instructions, has clarified and stated that the amounts mentioned in paragraph 6(ii) quoted above are tentative or approximate amounts and no final order or best judgment assessment order u/s 72 of the Act has been passed. It is further stated that show cause notices dated 24-4-2012 and 19-12-2012 are still pending adjudication and have not been disposed of and the contentions and issues raised by the petitioner are yet to be decided. Thus, it is categorically asserted that no ex parte order of assessment determining the liability on merits has been passed.

We accept the said statement of the respondents.

Section 72 of the Act reads:

Section 72: If any person, liable to pay Service Tax,-

(a) Fails to furnish the return u/s 70;

(b) Having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder, the Central Excise officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

It would be difficult to call or treat Section 72 per se as an ex parte assessment procedure as ordinarily understood under the Income Tax Act, 1961. The section mandates the assessee to appear and furnish books of account, documents and material and thereupon the assessing officer is required to pass an order. Thus, the best judgment assessment order u/s 72 may not be akin to an ex parte order. Such an order will be akin to an ex parte order, when the assessee fails to produce records and the assessing officer has to proceed on other information or data which may be available or part details produced. It is well settled law that the heading of the Section is not determinative and conclusive as to the scope and ambit of a section when the language of provision is clear and free from any doubt.

We need not in the present case examine the question whether there is overlapping between Sections 72 and 73 of the Act and where and when the particular section should be invoked. This issue is left open as counsel for the respondents has stated that an assessment order shall be passed after hearing the petitioner. In the present case assessment/adjudication is sub judice and no decision has been pronounced. Counsel for the respondents, on instructions, has stated that the show cause notice can be marked to a different Commissioner/officer but learned counsel for the petitioner states that he has no objection in case the show cause notice is examined and considered by the Commissioner who had issued demand-cum-show cause notice dated 19-12-2012. At the request of counsel for the petitioner, we grant four weeks time to petitioner to file reply to the show cause notice and direct that adjudication order-in-original will be passed after hearing in accordance with law. Recording the aforesaid submissions and observations, writ petition is disposed of.