Sustainability of second show cause notice

PJ/CASE STUDY/2010-11/20

07 September 2010

PJ/Case Study/2010-11/20

CASE STUDY

Prepared By:

CA. Rajani Thanvi

Sukhvinder Kaur, LLB [FYIC]

And Megha Jain

Introduction:

If a game is over than it cannot be replayed by the players for getting a new result. In Criminal Law, the concept of Double Jeopardy provides that a person cannot be punished twice for a single crime committed by him. In Civil Law also the concept of res judicata prevails which provides that if the Civil Court has decided a matter once, then on the same facts and same contentions a subsequent proceedings cannot be initiated. Similarly, in the field of taxation, it has been provided that a second show cause notice issued on the same facts and relating to the same period cannot be sustained. In the case under study, the same situation has arisen.

In the matter of Mr. Upendra Gandhi

[Order-in-Original No. 650/ST/2009-10, Dated: 27.07.2010}

Relevant Legal Provisions:

Section 73(1) of the Finance Act, 1994: -

“SECTION 73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. — (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, [Central Excise Officer] may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :

Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,

by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.

Explanation. — Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.”

Brief Facts:

- The Noticee were engaged in providing Mutual Fund Services for a consideration/commission which fell under the category of Business Auxiliary Service on which service tax became payable w.e.f 01.07.2003.

- During the period from 01.07.2003 to 31.03.2005, Noticee received commission towards Mutual Fund services on which service tax was not paid.

- Department issued show cause notice dated 17.10.2008 to the Noticee demanding service tax with interest and also imposed penalty under Section 75A, 76, 77 & 78 of the Finance Act, 1944. It was alleged that the Noticee had contravened the provisions of Section 66, 67 & 68 of the Finance Act, 1994.

Noticee’s Contention:

¨ Noticee in his reply submitted that on the same subject, a show cause notice had been earlier issued to the noticee on 01.09.2005 wherein an order was passed on 28.06.2007. It was contended that the show cause notice dated 17.10.2008 is the second show cause notice for the same period. The Department couldn’t invoke the extended period as per the proviso to Section 73 of the Finance Act, 1994.

¨ It was further submitted that the extended period of 5 years as invoked by the Department could be issued only if there was any fraud, collusion, willful mis-statement or suppression of facts or contravention of any legal provisions contained in the Finance Act or Rules framed thereunder. But there was no fraud, collusion etc involved in his case. Moreover, the Department was well aware about the fact of non-payment of service tax since 2005 when the first show cause notice was issued. Therefore, the allegation of suppression of facts could not be levied against him.

¨ Reliance was placed by the Noticee on the case if ECE Industries Limited v/s Commissioner of Central Excise, New Delhi [2004 (164) E.L.T. 236 (S.C.)] wherein the Supreme Court had held that when the Department has earlier issued show cause notice in respect of the same show cause notice the extended period of limitation couldn’t be invoked.

¨ Reliance was also placed on the judgment given in the cases of Commissioner v/s Orient Arts & Crafts [2008 (221) ELT A80 (SC)], P & B Pharmaceuticals (P) Ltd v/s Collector of Central Excise [2003 (153) ELT 14 (SC)] and Arya Bhandar Pvt Ltd v/s Asstt. Collector of Customs, Calcutta [1994 (69) ELT 631 (Cal)].

¨ Noticee further contended that the impugned show cause notice was alleging that he has to pay service tax on the commission received for the period from 01.07.2003 to 31.03.2005. However, in the earlier order dated 28.06.2007 exemption was granted to him from payment of service tax for the period upto 10.09.2001 on the commission received by him.

¨ It was contended that the Department has not filed an appeal challenging the earlier order dated 28.06.2007 which had attained finality. Thus, the said order was binding on the Department. In support of this contention, Noticee has relied upon the judgment given in the case of Commissioner of Service Tax, Chennai v/s Lumax Samlip Industries [2007 (6) STR 411 (Tri-Chennai)] which was confirmed by the Madras High Court in judgment reported at 2001 (8) STR 113 (Mad) and was further affirmed by the Apex Court in the decision reported at 2008 (11) STR J34 (Supreme Court)].

¨ Accordingly, it was contended that since there is already an order passed earlier favouring the Noticee and which was binding on the department, the Department couldn’t take a contrary stand.

¨ It was further submitted that by virtue of the order dated 28.06.2007, the Noticee was given exemption from paying service tax upto 10.09.2004 and for the remaining period they have paid the service tax and have also filed the service tax returns.

¨ Noticee had also contended that the service tax liability as calculated in the impugned show cause notice was also not correct.

Issue Involved:

The issue involved in this case was that

Whether the demand raised in the impugned show cause notice is sustainable when the issue involved has already been adjudicated upon in earlier proceedings?

Reasoning of the Deputy Commissioner:

Ø The Deputy Commissioner observed that initially a show cause notice was issued for the period 01.07.2003 to 31.03.2005 in respect of commission received from providing Mutual Fund and IPO service both. In this notice the demand of service tax was made. However, due to oversight the second show cause notice dated 17.10.2008 for the same period was issued in respect of Mutual fund services only. The earlier show cause notice dated 08.09.2005 covered the mutual fund service as well.

Ø Accordingly, the Deputy Commissioner held that in this way double show cause notice for mutual fund services for the same period have been issued and the earlier SCN have been decided by the Deputy Commissioner confirming the demand of service tax on the commission amount received after 10.09.2004.

Ø Consequently, the proceedings initiated by the show cause notice dated 17.10.2008 are dropped.

Decision: Impugned Show cause notice set aside.

Conclusion:

The learned Deputy Commissioner rightfully set aside the proceedings initiated by the impugned show cause notice when the issue for the same period had already been adjudicated upon. Therefore, if an order has already been passed on a subject matter and has attained finality, it is not open to the Department to again issue a second show cause notice on the same subject matter. If such a practice of issuing second show cause notice is allowed, then no issue will come to rest and the assessee will have to face endless round of litigation. And multiplication of litigation, agitation and re-agitation of the same dispute between the same parties is not conducive to industrial as well to economical pace.

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07 September 2010

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