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2014 SCC OnLine Cal 9668 : (2015) 85 VST 465
(BEFORE I NDIRA BANERJEE, J.)
Infinity Infotech Parks Limited

Versus
Union of India & Ors.
For the Petitioner : Mr. J.K. Mittal, Mr. Abhrotosh Majumder, Mr. Paritosh Sinha, Mr.
Amitava Mitra, Ms. Anupa Banerjee, Ms. Dolon Dasgupta
For the Respondent Nos. 2 and 4 : Mr. N.C. Roychowdhury, Mr. K.K. Maiti.
For the Respondent No. 3 : Ms. Ranjana Guha. Judgment on : 30.04.2014
W.P. No. 21549 (W) of 2012
Decided on April 30, 2014
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.:— This writ petition has been filed challenging show cause
notice-cum-demand being C. No. V(3) 222/SCN/Adjn/Infinity/ST/l 1/457 dated 18th
April, 2012 wherein it has been alleged that service tax amounting to Rs. 9,53,69,284/
- including cess was due and payable by the petitioner-company for the service of
renting of immovable property during the period 2007-2008, 2008-2009, 2009-2010
and 2010-2011.
Under Section 65(105)(zzzz) of the Finance Act, 1994 any service provided or to be
provided to any person, by any other person, by renting of immovable property or any
other service in relation to such renting for use in the course of or for furtherence of,
business or commerce is a “taxable service”.
The impugned notice, issued on the allegation that the petitioner had not paid
service tax on the amount collected as premium during the years 2007-2008, 2008-
2009, 2009-2010 and 2010-2011, has been challenged on the ground of the same
being barred by limitation, and therefore, without jurisdiction. There is no demand
towards Service Tax on rent.
Section 73 of the Finance Act, 1994 provides as follows:
“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, the 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
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period of such stay shall be excluded in computing the aforesaid period of one year or
five years, as the case may be.
[xxx]
(2) The [Central Excise Officer) shall, after considering the representation, if any,
made by the person on whom notice is served under sub-section (1), determine the
the amount of service tax due from, or erroneously refunded to, such person (not
being in excess of the amount specified in the notice) and thereupon such person shall
pay the amount so determined:
[xxx]
(3) Where any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded, the person chargeable with the service tax, or the
person to whom such tax, refund has erroneously been made, may pay the amount of
such service tax, chargeable or erroneously refunded, on the basis of his own
ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer
before service of notice on him under sub-section (1) in respect of such service tax,
and inform the [Central Excise Officer] of such payment in writing, who, on receipt of
such information shall not serve any notice under sub-section (1) in respect of the
amount so paid:
PROVIDED that the [Central Excise Officer) may determine the amount of short
payment of service tax or erroneously refunded service tax, if any, which in his opinion
has not been paid by such person and, then, the [Central Excise Officer] shall proceed
to recover such amount in the manner specified in this section, and the period of “one
year” referred to in sub-section (1) shall be counted from the date of receipt of such
information of payment.
[Explanation 1] : For the removal of doubts, it is hereby declared that the interest
under section 75 shall be payable on the amount paid by the person under this sub-
section and also on the amount of short payment of service tax or erroneously
refunded service tax, if any, as may be determined by the [Central Excise Officer] but
for this sub-section.
[Explanation 2] : For the removal of doubts, it is hereby declared that no penalty
under any of the provisions of this Act or the rules made thereunder shall be imposed
in respect of payment of service tax under this sub-section and interest thereon.]
(4) Nothing contained in sub-section (3) shall apply to a case 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.
[(4A) Notwithstanding anything contained in sub-sections (3) and (4), where
during the course of any audit, investigation or verification, it is found that any service
tax has not been levied or paid or has been short-levied or short-paid or erroneously
refunded, but the true and complete details of transactions are available in the
specified records, the person chargeable to service tax or to whom erroneous refund
has been made, may pay the service tax in full or in part, as he may accept to be the
amount of tax chargeable or erroneously refunded along with interest payable thereon
under section 75 and penalty equal to one per cent, of such tax, for each month, for
the period during which the default continues, up to a maximum of twenty-five per
cent, of the tax amount, before service of notice on him and inform the Central Excise
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Officer of such payment in writing, who, on receipt of such information, shall not serve
any notice under sub-section (1) in respect of the amount so paid and proceedings in
respect of the said amount of service tax shall be deemed to have been concluded:
PROVIDED that the Central Excise Officer my determine the amount of service tax,
if any, due from such person, which in his opinion remains to be paid by such person
and shall proceed to recover such amount in the manner specified in sub-section (1).
Explanation : For the purposes of this sub-section and section 78, “specified
records” means records including computerized data as are required to be maintained
by an assessee in accordance with any law for the time being in force or where there is
no such requirement, the invoices recorded by the assessee in the books of account
shall be considered as the specified records.]
(5) The provisions of sub-section (3) shall not apply to any case where the service
tax had become payable or ought to have been paid before the 14th day of May, 2003.
(6) For the purposes of this section, “relevant date” means, -
(i) in the case of taxable service in respect of which service tax has not been levied
or paid or has been short-levied or short-paid -
(a) where under the rules made under this Chapter, a periodical return, showing
particulars of service tax paid during the period to which the said return relates, is to
be filed by an assessee, the date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date on which such
return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to be paid under this
Chapter or the rules made thereunder;
(ii) in a case where the service tax is provisionally assessed under this Chapter or
the rules made thereunder, the date of adjustment of the service tax after the final
assessment thereof;
(iii) in a case where any sum, relating to service tax, has erroneously been
refunded, the date of such refund.]”
On a perusal of the said Section it is amply clear that any tax not levied or paid,
short levied or short paid might be recovered from the petitioner. The show cause
notice for realisation of tax not levied or paid or short levied or short paid could be
issued within one year from the relevant date. After amendment with effect from 28th
May, 2012 by the Finance Act, 2012, the period of limitation is 18 months instead of
one year. However, in view of the proviso, where service tax has not been levied or
paid or has been short levied or short paid or erroneously refunded by reason of fraud,
collusion, wilful misstatement, suppression of facts or contravention of any of the
provisions of Chapter V of the Finance Act, 1994 with intention to evade service tax,
notice may be issued within five years instead of one year.
Admittedly, in this case, notice has been issued on 18th April, 2012 in respect of the
financial years 2007-2008, 2008-2009, 2009-2010 and 2010-2011 by invocation of
the extended period of limitation. It is apparent that the notice is hit by limitation, the
same having been issued after expiry of one year from the relevant date. The question
is whether the conditions precedent for invocation of the extended period of limitation
existed.
The reasons for invoking the extended period of time are stated in paragraphs 9 and
10 of the show cause notice, which are set out herein below for convenience:
“9.0 Here the said assessee did not disclose the material fact that they engaged in
providing taxable services and suppressed the above facts with intension to evade the
payment of Service Tax on “Renting of Immovable Property Service”. Thus, the said
assessee has failed to comply with the requirement of statutory provisions of the said
act and the said rules and have willfully suppressed the facts of providing/receiving
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the said services with intent to evade payment of Service Tax. Had the audit tern not
visited the premises of the said assessee and unearthed the material fact, the said
assessee would have been continuing the evasion. Therefore proviso to Section 73(1)
is invokable for extended period of time and they are liable for penal action under
section 78 of the said Act.”
“10.0 Thus, it appears that the said assessee has violated the provisions of section
68 of the said Act read with Rule-6 of the said rules with intent to evade payment of
Service Tax. Moreover, for delayed payment of Service Tax, they are liable to pay
interest at appropriate rate as per Section 75 of the said Act.”
The allegation against the petitioner is that the petitioner did not disclose the
material fact that the petitioner had engaged in providing taxable services and had
suppressed facts with intention to evade payment of service tax on the service of
“Renting of Immovable Property”. It is alleged that the assessee had thus failed to
comply with the requirements of the statutory provisions of the Finance Act, 1994 and
the rules made thereunder and had wilfully suppressed facts related to
providing/receiving of the said service with intent to evade payment of service tax.
The show-cause notice has apparently been issued pursuant to the observations
made by Central Excise Revenue Audit (CERA) Team of the Office of the Comptroller
and Auditor General of India which had visited the premises of the petitioner.
As argued by Mr. Mittal the CERA Audit Team of the office of the Comptroller and
Auditor General of India had no power and/or authority and/or jurisdiction to inspect
the records lying at the premises of the petitioner company, as observed by this Court
by its judgment and order dated 26th September, 2012 in WP 21053 (W) of 2011, SKP
Securities Ltd. v. Deputy Director (RA-IDT), for the reasons discussed hereinafter:
As a company incorporated under the Companies Act, 1956, the petitioner company
is governed by the provisions of the Companies Act, 1956 and is required to maintain
its accounts in the manner prescribed by the Companies Act, 1956.
The accounts are required to be maintained in a manner that gives a true and
proper picture of the affairs of the company. With the amendment of Section 209 of
the Companies Act, 1956 it is now necessary for the companies incorporated under the
Companies Act to maintain their accounts as per the mercantile system of accounting.
The accounts are required to be maintained as per accounting standards laid down by
the Institute of Chartered Accountants of India (ICAI). For preparation of accounts, all
companies maintain running account books of all receipts.
Under the Companies Act and/or rules or regulations framed thereunder, the
accounts so maintained are required to be audited by a Chartered Account and
presented in the manner prescribed in the Companies Act. In addition, the petitioner
company is also required to have its accounts audited in terms of Section 44A B of the
Income Tax Act. All the activities of a company have to be transparent. Its annual
accounts and annual report are published and circulated inter alia amongst its share
holders. The Accounts and Annual Reports are required to be filed with the Registrar of
Companies and are available for inspection. All books of accounts of a company are
available for inspection at its Registered Office.
Some of the statutes by which the petitioner company is governed contain
provisions for special audit. Under Section 233A of the Companies Act, 1956, where
the Central Government is of the opinion that the affairs of the company are not being
managed in accordance with sound business principles or prudent commercial
practices or that any company is being managed in a manner likely to cause serious
injury or damage to the interests of the trade, industry or business to which it pertains
or that the financial position of any company is such as to endanger its solvency, the
Central Government might, by the same or a different order, direct that a special audit
of the company's accounts for such period or periods as may be specified in the order,
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shall be conducted and may by the same or by different order appoint either a
Chartered Accountant as defined in Clause (b) of sub-section (1) of Section 2 of the
Chartered Accounts Act, 1949 or the company's auditor himself, to conduct such
special audit.
The special auditor appointed by the Central Government under Section 233A of the
Companies Act, has the same power and duties in relation to special audit as an
auditor of a company under Section 227 of the Companies Act. The only difference is
that in spite of making his report to the members of the company the special auditor
submits its report to the Central Government.
Section 233B of the Companies Act provides, that where in the opinion of the
Central Government, it is necessary so to do, in relation to any company required
under Section 209 to include in its books of account, the particulars referred to
therein, the Central Government might by order direct that an audit of cost accounts
of the company shall be conducted in such manner as may be specified in the order by
an auditor who shall be a Cost Accountant within the meaning of the Cost and Works
Accountants Act, 1959. If the Central Government is of the opinion that sufficient
number of Cost Accountants are not available for conducting the audit of the cost
accounts of companies, then a chartered accountant may be directed to conduct the
audit of the cost accounts of the companies.
The Income Tax Act 1961 and the Central Excise Act 1944 also contain provisions
for special audit. Section 142(2A) of the Income Tax Act provides as follows:
“If, at any stage of the proceedings before him, the Assessing Officer, having regard
to the nature and complexity of the accounts of the assessee and the interests of the
revenue, is of the opinion that it is necessary so to do, he may, with the previous
approval of the Chief Commissioner or Commissioner, direct the assessee to get the
accounts audited by an accountant, as defined in the Explanation below sub-section
(2) OF Section 288, nominated by the Chief Commissioner or Commissioner in this
behalf and to furnish a report to such audit in the prescribed form duly signed and
verified by such accountant and setting forth such particulars as may be prescribed
and such other particulars as the [Assessing] officer may require:
[Provided that the Assessing Officer shall not direct the assessee to get the
accounts so audited unless the assessee has been given a reasonable opportunity of
being heard]”
Similarly, Section 14A of the Central Excise Act, 1944 provides as follows:
SPECIAL AUDIT IN CERTAIN CASES
(1) If at any stage of enquiry, investigation or any other proceedings before him,
any Central Excise Officer not below the rank of an Assistant Commissioner or Deputy
Commissioner of Central Excise, having regard to the nature and complexity of the
case and the interest of revenue, is of the opinion that the value has not been correctly
declared or determined by a manufacturer or any person, he may, with the previous
approval of the Chief Commissioner of Central Excise, direct such manufacturer or
such person to get the accounts of his factory, office, depots, distributors or any other
place, as may be specified by the said Central Excise Officer, audited by a cost
accountant or chartered accountant, nominated by the Chief Commissioner of Central
Excise in this behalf.
(2) The cost account or Chartered Accountant, so nominated shall, within the period
specified by the Central Excise Officer, submit a report of such audit duly signed and
certified by him to the said Central Excise Officer mentioning therein such other
particulars as may be specified:
Provided that the Central Excise Officer may, on an application made to him in this
behalf by the manufacturer or the person and for any material and sufficient reason,
extend the said period by such further period or periods as he thinks fit; so, however,
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that the aggregate of the period originally fixed and the period or periods so extended
shall not, in any case, exceed one hundred and eighty days from the date on which the
direction under sub-section (1) is received by the manufacturer or the person.
(3) The provisions of sub-section (1) shall have effect notwithstanding that the
accounts of the manufacturer or person aforesaid have been audited under any other
law for the time being in force or otherwise.
(4) Deleted
(5) The manufacturer or the person shall be given an opportunity of being heard in
respect of any material gathered on the basis of audit under sub-section (1) and
proposed to be utilised in any proceedings under this Act or rules made thereunder.”
Section 72A of the Finance Act 1994, as amended, provides as follows:
72A. Special audit.- (1) If the Commissioner of Central Excise, has reasons to
believe that any person liable to pay service tax (herein referred to as “such persons”),
(i) has failed to declare or determine the value of a taxable service correctly; or
(ii) has availed and utilized credit of duty or tax paid—
(a) which is not within the normal limits having regard to the nature of taxable
service provided, the extent of capital goods used or the type of inputs or input
services used, or any other relevant factors as he may deem appropriate; or
(b) by means of fraud, collusion, or any willful misstatement or suppression of
facts; or
(iii) has operations spread out in multiple locations and it is not possible or
practicable to obtain a true and complete picture of his accounts from the registered
premises falling under the jurisdiction of the said Commissioner, he may direct such
person to get his accounts audited by a chartered accountant or cost accountant
nominated by him, to the extent and for the period as may be specified by the
Commissioner.
(2) The chartered accountant or cost accountant referred to in subsection (1) shall,
within the period specified by the said Commissioner, submit a report duly signed and
certified by him to the said Commissioner mentioning therein such other particulars as
may be specified by him.
(3) The provisions of sub-section (1) shall have effect notwithstandidng that the
accounts of such person have been audited under any other law for the time being in
force.
(4) The person liable to pay tax shall be given an opportunity of being heard in
respect of any material gathered on the basis of the audit under subsection (1) and
proposed to be utilized in any proceeding under the provisions of this Chapter or rules
made thereunder.
Explanation - For the purposes of this section,
(i) “chartered accountant” shall have the meaning assigned to it in clause (b) of sub
-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949);
(ii) “cost accountant” shall have the meaning assigned to it in clause (b) of sub-
section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959)].
It is now well settled by judicial pronouncements that an order for special audit is
required to be made upon compliance with principles of natural justice. Reference may
in this context be made to the judgment of the Supreme Court in Sahara India (Firm),
Lucknow v. Commissioner of Income Tax, Central-I reported in (2008) 14 SCC 151.
The Supreme Court held that the expression “civil consequences” not only
encompasses infraction of property or personal rights but also civil liberties, material
deprivations and non-pecuniary damages. Anything which affects a citizen in his civil
life comes under its wide umbrella.
Section 142(2-A) of the Income Tax Act, 1961 was held to entail civil consequences
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and the rule of audi alterem partem was held to be a necessary prerequisite for an
order of special audit under Section 142(2-A) of the Income Tax Act. Even though the
judgment of the Supreme Court in Sahara India (Firm), Lucknow (supra) relates to
Section 142(2-A) of the Income Tax Act, there is no reason why the same principle
should not apply to Section 14(A) of the Central Excise Act and Section 72A of the
Finance Act 1994, as amended.
The condition precedent for special audit under Section 72A of the Finance Act
1994, as amended, is reason to believe that any person liable to pay service tax, has
failed to declare or determine the value of a taxable service correctly, or has availed
and utilized credit of duty or tax paid in excess of entitlement by means of fraud,
collusion or any wilful misstatement or suppression of facts or has operations spread
out in multiple locations and it is not possible or practicable to obtain a true and
complete picture of its accounts from the registered premises falling under the
jurisdiction of the said Commissioner.
The condition precedent for an order of special audit is reason to believe that the
circumstances stipulated in the various sub-sections of Section 72A exist. Such
insinuation of wrongful act affects the citizen in his social life and would come within
the ambit of civil consequences as laid down in Sahara India (Firm), Lucknow (supra).
The Comptroller and Auditor General of India is a Constitutional Authority appointed
under Section 148 of the Constitution of India. The duties and powers of the
Comptroller and Auditor General of India are circumscribed by Article 149 of the
Constitution of India, set out herein below for convenience:
“Article 149 - Duties and powers of the Comptroller and Auditor General. - The
Comptroller and Auditor General shall perform such duties and exercise such powers in
relation to the accounts of the Union and of the States and of any other authority or
body as may be prescribed by or under any law made by Parliament and, until
provision in that behalf is so made, shall perform such duties and exercise such
powers in relation to the accounts of the Union and of the States as were conferred on
or exercisable by the Auditor-General of India immediately before the commencement
of this Constitution in relation to the accounts of the Dominion of India and of the
Provinces respectively.”
Article 151 of the Constitution of India provides that the reports of the Comptroller
and Auditor General of India relating to the accounts of the Union are to be submitted
to the President, who is to cause them to be laid before each House of Parliament and
the reports of the Comptroller and Auditor General of India relating to the accounts of
the State are to be submitted to the Governor who is to cause them to be laid before
the Legislature of the State.
In view of Article 149 of the Constitution of India the Comptroller and Auditor
General of India is to perform such duties and exercise such powers in relation to the
accounts of the Union and of the States and of any other authority or body as may be
prescribed by or under any law made by Parliament.
None of the statutes referred to above, namely, the Companies Act, 1956, the
Income Tax Act, 1961, the Central Excise Act, 1944 or the Finance Act, 1994 as
amended from time to time contain any provision for audit by the Comptroller and
Auditor General of India or any audit team subordinate to the Comptroller and Auditor
General of India, of any company incorporated or existing under the Companies Act
1956, except a government company within the meaning of Section 619 of the said
Act.
The Comptroller and Auditor General (Duties, Powers and Conditions of Service)
Act, 1971 (herein after referred to as the CAG Act) has been enacted inter alia to
prescribe the duties and powers of the Comptroller and Auditor General of India and/or
matters connected therewith or incidental thereto. The duties and powers of the
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Comptroller and Auditor General are enumerated in Chapter III of the CAG Act.
Mr. J.K. Mittal appearing on behalf of the petitioner submitted, and in my view,
rightly that there is no provision in the CAG Act which enables the Comptroller and
Auditor General of India to audit the accounts of a non government company which is
not operated out of the funds of the Union of India or any State Government or any
Union Territory or any entity owned and/or financed by them.
From Sections 13 to 15 of the CAG Act it is absolutely clear that the primary duty
and function of the Comptroller and Auditor General of India is to audit expenditure
from the Consolidated Fund of India and of each State and of each Union territory
having a Legislative Assembly and to ascertain whether the moneys shown in the
accounts as having been disbursed were legally available for and applicable to the
service or purpose for which they have been applied or charged and whether the
expenditure conforms to the authority which governs it.
The Comptroller and Auditor General of India is required to audit all transactions of
the Union and of the States relating to Contingency Funds and Public Accounts and
also audit all trading, manufacturing, profit and loss accounts and balance sheets and
other subsidiary accounts kept in any department of the Union or of a State.
In addition, where any body or authority is substantially financed by grants or loans
from the Consolidated Fund of India or of any State or of any Union territory having a
Legislative Assembly, the Comptroller and Auditor General shall subject to the
provisions of any law for the time being in force, applicable to the body or authority, as
the case may be, audit all receipts and expenditure of that body or authority and
report on the receipts and expenditure audited by him. It is nobody's case that the
petitioner was financed by, or is run out of any loan from the Union of India or any
State Government or any Union Territory.
Section 14(2) of the CAG Act provides that notwithstanding anything contained in
subsection (1) the Comptroller and Auditor General might, with the previous approval
of the President, or the Governor of a State, or the Administrator of a Union Territory
having a Legislative Assembly, as the case may be, audit all receipts and expenditure
of any body or authority, where the grants or loans to such body or authority from the
Consolidated Fund of India or of any State or of any Union Territory having a
Legislative Assembly, as the case may be, in a financial year is not less than Rupees
one crore. This section admittedly also has no application.
Under Section 16 it is the duty of the Comptroller and Auditor General to audit all
receipts which are payable into the Consolidated Fund of India and of each State and
of each Union territory having a Legislative Assembly and to satisfy himself that the
rules and procedures in that behalf are designed to secure an effective check on the
assessment, collection and proper allocation of revenue and are being duly observed,
and to make for this purpose such examination of the accounts as he thinks fit and
report thereon.
It is difficult to appreciate how the aforesaid provisions can empower the
Comptroller and Auditor General to audit the accounts of a non-governmental
company which does not receive any grant or loan or aid from any government or any
government undertaking. What the Comptroller and Auditor General of India is obliged
to do is to audit all receipts which are payable into Consolidated Fund of India.
There is a difference between receipts and receivables Receipts necessarily means
that which has been received. In other words, under Section 16 it is the duty of the
Comptroller and Auditor General of India to audit the taxes and other amounts which
have been collected and are payable into the Consolidated Fund of India or the
Consolidated fund of the State or of a Union Territory having a Legislative Assembly.
In course of such audit, the Comptroller and Auditor General of India is to satisfy
himself that the rules and procedures are designed to secure an effective check on the
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assessment, collection and proper allocation of revenue and are being duly observed,
and to make, for this purpose, such examination of the accounts as the Comptroller
and Auditor General of India might deem fit and make a report thereon.
The word “Accounts” is to be read and construed in the light of the definition of
“accounts” in Section 2(A) of the CAG Act. Unless the context otherwise requires,
“accounts” in relation to commercial undertakings of a Government are to include
trading, manufacturing and profit and loss accounts and balance sheets and other
subsidiary accounts.
In the absence of any enabling provision which empowers the Comptroller and
Auditor General of India to audit the accounts of a non-government company, Section
16 of the CAG Act is to be construed to empower the Comptroller and Auditor General
of India to examine the accounts of the government, in the context of his duty to audit
all receipts of the government which are payable into Consolidated Fund of India or of
the Consolidated Fund of a State or of a Union Territory having a Legislative Assembly.
As argued by Mr. Mittal, Section 16 of the CAG Act does not authorize the
Comptroller and Auditor General of India or any audit team under the control of the
Comptroller and Auditor General of India to audit the accounts of a non-government
company, and that too in the absence of any request either from the President of India
or the Governor of the State, as observed by this Court by its judgement and order
dated 26th September, 2012 in WP No. 21053 (W) of 2011, SKP Securities Ltd. v.
Deputy Director (RA-IDT) (Supra). The aforesaid writ petition has been referred to a
larger Bench.
Section 19(3) of the CAG Act provides as follows:
“The Governor of a State or the Administrator of a Union territory having a
Legislative Assembly may, where he is of opinion that it is necessary in the public
interest so to do, request the Comptroller and Auditor General to audit the accounts of
a corporation established by law made by the Legislature of the State or of the Union
territory, as the case may be, and where such request has been made, the Comptroller
and Auditor General shall audit the accounts of such corporation and shall have, for
the purposes of such audit, right of access to the books and accounts of such
corporation.
Provided that no such request shall be made except after consultation with the
Comptroller and Auditor General and except after giving reasonable opportunity to the
corporation to make representations with regard to the proposal for such audit.”
In this case, there was no request to the Comptroller and Auditor General by the
Governor of the State in which the petitioner company carries on its operations. A
perusal of the Regulations of Audit and Accounts 2007, framed by the Comptroller and
Auditor General of India in pursuance of Section 23 of the CAG Act, also makes it clear
that all audits are to be undertaken by the Comptroller and Auditor General of India as
per the Constitution of India and as per the CAG Act.
The only provision of the CAG Act, under which the accounts of a non government
company can be audited, is perhaps Sub-section 1 of Section 20. Audit cannot be
undertaken under the aforesaid provision, unless the Comptroller and Auditor General
is requested to do so by the President of India or the Governor of a State or the
Administrator of a Union Territory.
The condition precedent for audit of a non-government body is a request from the
President of India, Governor of the State concerned or the Administrator of a Union
Territory concerned after consultation with the Comptroller and Auditor General of
India. The conditions precedent for an audit by the office of the Comptroller and
Auditor General of India were wholly absent in the facts and circumstances of the
case.
In exercise of power conferred by Sub-section (1) read with Sub-section (2) of
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Section 94 of the Finance Act, 1994 the Central Government has made the Service Tax
Rules, 1994. Section 94(1) of the Finance Act, 1994 empowers the Central
Government to make rules for carrying out the provisions of Chapter V of the said Act,
by notification in the official gazette. Sub-section (2) of Section 94 enumerates the
matters for which rules might be made. The power conferred under Sub-section (2) of
Section 94 to make rules in respect of the matters enumerated in the said Sub-section
is without prejudice to the generality of Section 94 Sub-section (1) whereby the
Central Government has power to make rules for carrying out the provisions of Chapter
V.
Mr. Roychowdhury appearing on behalf of the respondent authorities submitted that
Rule 5A of the Service Tax Rules, 1994, which is almost in pari materia with Rule 173G
(6)(c) of the Central Excise Rules, 1994 provides for audit by an audit team deputed
by the Comptroller and Auditor General of India.
Rule 173G(6)(c) of the Central Excise Rules, 1944 and Rule 5A of the Service Tax
Rules are set out herein below for convenience:
“Rule 173G(6)(a) : Every assessee shall, on demand make available to the Central
Excise Officer or the audit party deputed by the Commissioner or the Comptroller and
Auditor General of India:
(i) the records maintained or prepared by him in terms of clause (a) of sub-rule (5).
(ii) The cost audit reports, if any, under Section 233B of the Companies Act, 1956;
and
(iii) The Income-tax audit report, if any, under Section 44AB of the Income-tax Act,
1961 for the scrutiny of the officer or audit party, as the case may be;
(a) Every assessee who is having more than one factory and maintains separate
records in respect of every factory for the purpose of audit then, he shall produce the
said records for audit purposes.
(b) Where the Commissioner or the Comptroller and Auditor General of India decide
to undertake the audit of the records of any assessee, the said assessee shall be given
notice thereof at least fifteen days before the commencement of such audit. The audit
party deputed for the purpose shall also call for in writing the records, which are
required to be produced by the assessee, either before or during the course of audit.
(c) Every assessee, who maintains or generates his records by using computer,
shall provide the required records in the form of tapes or floppies or cartridges or
compact disk or any other media in an electronically readable format as prescribed by
the Commissioner at the time of audit. The copies or records, so furnished, shall be
duly authenticated by the assessee.
(d) All records submitted to audit party in electronic format shall be used only for
verification of payment of duties of excise or for verification of compliance of the
provisions of the Central Excise Act, 1944 or the rules made thereunder and shall not
be used for any other purpose without the written consent of the assessee.”
“5A. Access to a registered premises
(1) An officer authorised by the Commissioner in this behalf shall have access to
any premises registered under these rules for the purpose of carrying out any scrutiny,
verification and checks as may be necessary to safeguard the interest of revenue.
(2) Every assessee shall, on demand, make available to the officer authorised under
sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and
Auditor General of India, within a reasonable time not exceeding fifteen working days
from the day when such demand is made, or such further period as may be allowed by
such officer or the audit party, as the case may be, -(i) the records as mentioned in
sub-rule (2) of rule 5;
(ii) trial balance or its equivalent; and
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(iii) the income-tax audit report, if any, under Section 44AB of the Income-tax Act,
1961 (43 of 1961), for the scrutiny of the officer or audit party, as the case may be.]”
As observed above the Central Government derives the power to make rules from
Section 94 of the Finance Act, 1994. Section 94 empowers the Central Government to
make rules for carrying out the provisions of Chapter V of the said Act and without
prejudice to the generality of the power to make rules for carrying out the provisions of
Chapter V, to make rules in respect of the matters enumerated in Sub-section (2) of
Section 94 of the Finance Act.
The Central Government has no power and/or authority under Section 94 of the
Finance Act, 1994 to frame rules for any purpose other than those specified in Sub-
section (2) of Section 94 of the Finance Act or for any purpose other than carrying out
the provisions of Chapter V of the said Act.
Mr. Mittal submitted that rule 5A(2) of the Service Tax Rules which provides that
every assessee shall, on demand, make available to the officer authorized by the
Commissioner, or the audit party deputed by the Commissioner or the Comptroller and
Auditor General of India, the records and documents, as specified in the said Section,
within reasonable time, is ultra vires the rule making power conferred on the Central
Government by Section 94 of the Finance Act, 1994, since there is no provision in
Chapter V of the Finance Act, 1994 which empowers the CAG to audit the accounts of
an assessee, which is a non-government company, not in receipt of any aid or
assistance from any government or government entity.
As rightly argued by Mr. Mittal, there is no provision in Chapter V of the Finance
Act, 1994, or for that matter in the CAG Act which empowers the CAG to audit the
accounts of an assessee which is a non-government company, not in receipt of aid or
assistance from any government or government entity. Sub-section (2) of Section 94
also does not empower the Central Government to frame rules for audit of the
accounts of an assessee by any audit team under the Comptroller and Auditor General
of India. There can be no doubt that statutory rules, framed in exercise of power
conferred by statute cannot introduce something not contemplated in the statute,
from which it derives its rule making power.
In the absence of any provision in Chapter V of the Finance Act 1994, for audit of
the accounts of a non-government company by the Comptroller and Auditor General of
India or any team under him, the Central Government could not have framed, and has
not framed any rules which provide for audit by the Comptroller and Auditor General of
India or any audit team under his control of an assessee which is not a government
company.
It is a well settled principle of interpretation that statutory rules must be construed
in harmony with the rule making power, in exercise of which, the statutory rule has
been made. If it were possible to interpret the statutory rule in more ways than one,
the Courts would prefer that interpretation which would make the statutory rule
workable and intra vires, to any other interpretation which would render the rule ultra
vires and invalid.
On a plain reading of Rule 5A(2) of the Service Tax Rules, the said Rule does not
empower the CAG to audit the accounts of any assessee, which is a non-government
company, not in receipt of finance, aid or assistance from any Government or
Government organization. While Sub-rule (1) of Rule 5A provides for access of any
officer authorized by the Commissioner to any premises registered under the service
tax Rules, for carrying out any scrutiny, verification or check, as may be necessary to
safeguard the interest of revenue, Sub-rule (2) of Rule 5A only casts an obligation on
the assessee to make the records and documents as specified in the said Rule
available to the officer authorized by the Commissioner, or the audit party deputed by
the Commissioner or the Comptroller and Auditor General of India within a reasonable
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time not exceeding 15 working days from the date of demand.

On a harmonious reading of Rule 5A of the Service Tax Rules with the provisions of
Chapter V of the Finance Act, 1994, as amended, it may be deduced that any officer
authorized by the Commissioner would have to be interpreted to include the members
of an audit team, an auditor or an accountant authorized by the Commissioner, and
they would all have access to any premises registered under the Rules, for the purpose
of carrying out scrutiny, verification and checks as might be necessary, including
auditing of accounts, to safeguard the interest of Revenue.
It is, however, pertinent to note the difference in the language and tenor of Sub-
rule (2) of Rule 5A under which every assessee is required, on demand, to make
available to the officer authorized by the Commissioner or the Comptroller and Auditor
General of India the records and documents specified in the said Rule, within a
reasonable time. The obligation to produce records is in harmony with the power
conferred on the Central Government to make rules for carrying out the provisions of
Chapter V of the Finance Act, 1994 including collection and recovery of Service Tax,
determination of amount of value of taxable service etc. In course of audit of revenue
receipts of the Government, if the audit team under the Comptroller and Auditor
General of India requires the records and documents specified in the Rule, the same
would have to be made available within a reasonable time from the date of demand.
The obligation to provide records to the audit party deputed by the Comptroller and
Auditor General is to be construed as an obligation to provide documents and records,
when those documents and records are necessary for audit in accordance with law,
subject to the provision of the CAG Act, for example, audit of the receipts of the
Government meant for deposit in the Consolidated Fund of India or, may be, an audit
on the request of the Governor or the President as indicated above.
On a perusal of the show cause notice there is no allegation of any conscious act on
the part of the petitioner that constitutes fraud, collusion, wilful mis-statement,
suppression of facts or contravention of any of the provisions of the Finance Act, 1994
or any rule made thereunder with intent to evade service tax. The petitioner was duly
registered with the Service Tax Authorities with effect from the year 2007. The dispute
is only with regard to service tax allegedly payable on the premium received during
the period in question.
In paragraph 9 of the impugned show cause notice, there is a sweeping statement
that if the CERA Team had not visited the premises of the said assessee and
unearthed material facts, the assessee would have been continuing the evasion.
Therefore, proviso to Section 73(1) is invocable for extending time. It, however,
appears to this Court that the reasons for invoking the extended period of limitation,
as disclosed, are totally vague and devoid of material particulars.
There is no whisper in the impugned notice of the facts which have allegedly been
suppressed. Mr. Mittal emphatically argued and perhaps rightly that, the vague
assertion that the petitioner had wilfully suppressed facts pertaining to
providing/receiving the services with intent to evade payment of service tax was
unfounded.
A notice was issued by the Office of the Commissioner, Service Tax, Kolkata dated
13th April, 2009 calling upon the petitioner to submit copies of lease agreements
including list of long term lease agreements. The requisites of the aforesaid notice
dated 13th April, 2009 appear to have been complied with.
The requisites of the notice dated 13th April, 2009 having been complied with and
the list of long term lease agreements having been furnished, it is doubtful whether
the extended period of limitation can be invoked after almost three years, when the
bona fides of the petitioner was never questioned at any earlier point of time.
Once the information is supplied pursuant to the directions of the Revenue
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Authority and information so supplied has not been questioned, a belated demand has
to be held to be barred by limitation. This proposition finds support from the judgment
of the Supreme Court in Commissioner of Central Excise, Chandigarh v. Punjab
Laminates Pvt. Ltd. reported in 2006 (202) ELT 578 (SC).
In this context, reference may also be made to the judgment of the Supreme Court
in Commissioner of Central Excise, Chennai v. Chennai Petroleum Corporation Ltd.
reported in 2007 (211) ELT 193 (SC) where the Supreme Court in effect held that
where the Department was aware of the activities of the assessee and nothing
prevented the Department from visiting the assessee's site to make enquiries, it had
to be held that there was no suppression on the part of the assessee to warrant
invocation of the extended period of limitation.
In Home Solution Retail v. Union of India reported in 2009 (37) E.L.T. 209 (Del.),
the Delhi High Court had held that rent per se was not a taxable service. The
provisions of the Finance Act, 1994 relating to the service of renting of immovable
property have since been amended by the Finance Act, 2011, with retrospective effect.
The amendment with retrospective effect from 1st June, 2007 makes rent per se a
taxable service.
The provisions of Section 73(1) of the Finance Act are in pari materia with Section
11(A) of the Central Excise Act, 1944, which is set out herein below for convenience:
“Section 11A - Recovery of duties not levied or not paid or short-levied or
short-paid or erroneously refunded. - (1) When any duty of exicse has not been
levied or paid or has been short-levied or short-paid or [erroneously refunded, whether
or not such non-levy or non-payment, short-levy or short payment or erroneous
refund, as the case may be, was on the basis of any approval, acceptance or
assessment relating to the rate of duty on or valuation of excisable goods under any
other provisions of this Act or the rules made thereunder], a Central Excise Officer
may, within [one year] from the relevant date, serve notice on the person chargeable
with the duty which has not been levied or paid or which has been short-levied or
short-paid or to whom the 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 duty of excise has not been levied or paid or has been
short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any
wilful mis-statement or suppression of facts, or contravention of any of the provisions
of this Act or of the rules made thereunder with intent to evade payment of duty, by
such person or his agent, the provisions of this sub-section shall have effect, [as if,
[***]] for the words [one year], the words “five years” were 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.”
The question of whether the proviso to Section 11A of the Central Excise Act, 1944
could be invoked to realize a demand that arose pursuant to retrospective amendment
of the law was considered, by the Supreme Court in J.K. Spinning and Weaving Mills
Ltd. v. Union of India reported in (1987 (32) ELT 234 SC). A Three Judge Bench of the
Supreme Court held:
“31. Under Section 11A(1) the Excise authorities cannot recover duties not levied or
not paid or short-levied or short-paid or erroneously refunded beyond the period of six
months, the proviso to Section 11A not being applicable in the present case. Thus
although Section 51 of the Finance Act, 1982 has given retrospective effect to the
amendments of Rules 9 and 49, yet it must be subject to the provision of Section 11A
of the Act. We are unable to accept the contention of the learned Attorney General that
as Section 51 has made the amendments retrospective in operation since February 28,
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1944, it should be held that it overrides the provision of Section 11A. If the intention
of the Legislature was to nullify the effect of Section 11A, in that case, the Legislature
would have specifically provided for the same. Section 51 does not contain any
nonobstante clause, nor does it refer to the provision of Section 11A. In the
circumstances, it is difficult to hold that Section 51 overrides the provision of Section
11A.
……………
33. There is no provision in the Act or in the Rules enabling the Excise authorities to
make any demand beyond the periods mentioned in Section 11A of the Act on the
ground of the accrual of cause of action. The question that is really involved is whether
in view of Section 51 of the Finance Act, 1982, Section 11A should be ignored or not.
In our view Section 51 does not, in any manner, affect the provision of Section 11A of
the Act. In the absence of any specific provision overriding Section 11A, it will be
consistent with rules of harmonious construction to hold that Section 51 of the Finance
Act, 1982 insofar as it gives retrospective effect to the amendments made to Rules 9
and 49 of the Rules, is subject to the provision of Section 11A.”
In the instant case too, the Finance Act, 2011, whereby the provisions of the
Finance Act, 1994, relating to the service of renting of immovable property have been
amended, does not contain any provision which enables the Service Tax Authorities to
make any demand beyond the period of limitation prescribed in Section 73(1) of the
Finance Act, 1994.
Mr. Roychowdhury's submission that the extended period of limitation had rightly
been invoked, as there was loss of Revenue and contravention of the provisions of
Chapter V of the Finance Act, and the Rules made thereunder, is difficult to accept. If
Mr. Roychowdhury's argument that the extended period would be invokable when
there was non-payment of tax and consequential loss of Revenue and/or contravention
of Chapter V of the provisions of the Finance Act, were to be accepted, Section 11A
would be rendered meaningless since all cases of non-payment of tax result in loss of
Revenue, and in a sense tantamount to contravention of Chapter V of the Finance Act
and the Rules framed thereunder.
In Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments,
Hyderabad reported in (1989) 2 SCC 127 = 1989 (40) ELT 276 (SC) the Supreme
Court held : -
“In order to make the demand for duty sustainable beyond a period of six months
and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11A
of the Act, it has to be established that the duty of excise has not been levied or paid
or short-levied or short-paid, or erroneously refunded by reasons of either fraud or
collusion or wilful mis-statement or suppression of facts or contravention of any
provision of the Act or Rules made thereunder, with intent to evade payment of duty.
Something positive other than mere inaction or failure on the part of the manufacturer
or producer or conscious or deliberate withholding of information when the
manufacturer knew otherwise, is required before it is saddled with any liability, before
the period of six months. Whether in a particular set of facts and circumstances there
was any fraud or collusion or wiful mis-statement or suppression or contravention of
any provision of any Act, is a question of fact depending upon the facts and
circumstances of a particular case.”
In Cosmic Dye Chemical v. Collector of Central Excise, Bombay reported in (1995) 6
SCC 117 = 1995 (75) ELT 721 (SC) the Supreme Court held : -
“Now so far as fraud and collusion are concerned, it is evident that the requisite
intent, i.e., intent to evade duty is built into these very words. So far as mis-
statement or suppression of facts are concerned, they are clearly qualified by the word
“wiful” preceding the words “mis-statement or suppression of facts” which means with
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intent to evade duty. The next set of words “contravention of any of the provisions of
this Act or rules” is again qualified by the immediately following words “with intent to
evade payment of duty”. It is, therefore, not correct to say that there can be a
suppression or mis-statement of fact, which is not wilful and yet constitute a
permissible ground for the purpose of the proviso to Section 11-A. Mis-statement or
suppression of fact must be wilful.”
In Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, reported in
(2005) 7 SCC 749 = 2005 (188) ELT 149 (SC), the Supreme Court held:
“…we find that “suppression of facts” can have only one meaning that the correct
information was not disclosed deliberately to evade payment of duty, when facts were
known to both the parties, the omission by one to do what he might have done not
that he must have done would not render it suppression. It is settled law that mere
failure to declare does not amount to wilful suppression. There must be some positive
act from the side of the assessee to find wilful suppression.”
In Commissioner of Central Excise, Aurangabad v. Bajaj Auto Ltd. reported in 2010
(260) ELT 17 (SC) the Supreme Court referred to and followed its earlier judgments in
Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad
(supra), Cosmic Dye Chemical v. Collector of Central Excise, Bombay (supra), Anand
Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, (supra) and held that it
was settled that mere failure to declare would not amount to wilful suppression. There
must be some conscious, deliberate act with a view to evade tax.
The proposition which emerges from the judgments of the Supreme Court referred
to above, is that mere failure to disclose a transaction and pay tax thereon or a mere
mis-statement or mere contravention of the Central Excise Act or the Finance Act,
1994, as amended or any rules framed thereunder, is not sufficient for invocation of
the extended period of limitation. There has to be a positive, conscious and deliberate
action intended to evade tax, for example, a deliberate mis-statement or suppression
pursuant to a query, in order to evade tax.
There is substance in Mr. Mittal's submission that in view of the Delhi High Court
judgment in Home Solution Retail (Supra) holding that service tax was not payable on
rent of immovable property per se, the petitioner was not liable for Service Tax on
premium. In any case, there was room for doubt as to whether renting per se was
taxable, for which the law had to be amended.
The petitioner claims to have been under the impression that no service tax would
be payable on premium and/or salami, on its interpretation of the law, which was a
possible interpretation accepted by the Delhi High Court in Home Solution Retail
(supra).
In Commissioner of Income Tax v. Panbari Tea Co. Ltd. reported in AIR 1965 SC
1871 the Supreme Court in the context of the Income Tax Act, 1961, found a
distinction between premium or salami, being the price paid for transfer of a right to
enjoy the property and the rent paid periodically to the lessor. The Supreme Court
held that while the price paid for transfer of the interest of the lessor was premium or
salami, the periodical payments made for the continuous enjoyment of the benefits
under the lease were in the nature of rent, and while the former was a capital income,
the latter was a revenue receipt.
In the unreported judgment in ITA No. 205 of 2010 (Krishak Bharati Cooperative
Ltd. v. Dy. CIT), referred to by Mr. Mittal, a Division Bench of Delhi High Court referred
to the judgment of the Supreme Court in CIT v. Panbari Tea Co. Ltd. (supra) and
refused to accept that premium/salami was advance rent which constitutes revenue
receipt.
In R.K. Palshikar (HUF) v. CIT reported in (1988) 3 SCC 594 and in Maharaja
Chintamani Saran Nath Sah Deo v. CIT reported in AIR 1961 SC 732 the Supreme
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Court held that long term lease for 99 years amounted to transfer within the meaning
of Section 12-B of the Income Tax Act, 1922 and premium or salami received was
taxable under the head ‘Capital Gain’.
Even though the judgments referred to above were rendered in the context of
Income Tax laws, the relevant provisions of the Transfer of Property Act were duly
considered and a clear distinction was drawn between rent and premium which might
have justifiably led the petitioner to believe that premium was not liable to service tax,
the same not being rent.
The next question is whether this Court should at all interfere with a show cause
notice, in view of Mr. Roychowdhury's argument that the petitioner had an efficacious
alternative remedy of recourse to adjudication by replying to the show-cause notice.
It is well settled that existence of an alternative remedy is not in itself a bar to
entertaining a writ petition. A writ petition can certainly be entertained when a notice
is impugned as without jurisdiction.
There can be no dispute that the question of limitation is a question of jurisdiction
and that the Commissioner has no authority and/or jurisdiction to issue notice after
the period of limitation prescribed in the Finance Act, 1994.
In Raza Textiles Ltd., Rampur v. The Income Tax Officer, Rampur reported in AIR
1973 SC 1362, the Supreme Court held that no authority, much less a quasi judicial
authority, could confer jurisdiction on itself by deciding the jurisdictional fact wrongly.
The question of whether the jurisdictional fact had rightly been decided or not was a
question open to examination by the High Court in an application under Article 226 of
the Constitution of India.
In Raza Textiles Ltd., Rampur (supra) the Supreme Court held that where the
Income Tax Officer had assumed jurisdiction by deciding a jurisdictional fact
erroneously, the assessee would be entitled to a writ of certiorari as prayed for, since it
was incomprehensible to think a quasi-judicial authority could erroneously decide a
jurisdictional fact and impose a levy.
In Shrisht Dhawan v. Shaw Brother reported in (1992) 1 SCC 534 the Supreme
Court followed its earlier judgment in WS Raza Textiles Ltd. and reiterated the
proposition that a Court or Tribunal cannot confer jurisdiction to itself by deciding a
jurisdictional fact wrongly.
In Calcutta Discount Company Ltd. v. Income Tax Officer, Companies District I,
Calcutta reported in AIR 1961 SC 372, a Constitution Bench of the Supreme Court
held that where the action of an executive authority acting without jurisdiction
subjects or is likely to subject a person to lengthy proceedings and unnecessary
harassment, the High Courts, would issue appropriate orders or directions to prevent
the same.
In Calcutta Discount Company Ltd. (supra) the Constitution Bench of the Supreme
Court held:
“the expression ‘reason to believe’ postulates belief and the existence of reasons for
that belief. The belief must be held in good faith; it cannot be merely a pretence. The
expression does not mean a purely subjective satisfaction of the Income Tax Officer. If
it be asserted that the Income Tax Officer had reason to believe that income had been
under-assessed by reason of failure to disclose fully and truly the facts material for
assessment, the existence of the belief and the reasons for the belief, but not the
sufficiency of the reasons, will be justiciable. The expression therefore predicates that
the Income Tax Officer holds the belief induced by the existence of reasons for holding
such belief. In other words the Income Tax Officer must, on information at his disposal
believe that income has been under-assessed by reason of failure to fully and truly to
disclose all material facts necessary for assessment. Such a belief, may not be based
on mere suspicion ………… It must be founded upon information.”
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The condition precedent for issuance of a show-cause notice by invoking the

extended limitation is reason to believe that service tax has not been levied or has
been short levied, or has not been paid or has been short paid or has erroneously been
refunded by reason of fraud or collusion or wilful suppression or mis-statement or
wilful contravention of the provisions of the Central Excise Act or the Finance Act,
1999 as the case may be or any rules framed thereunder to evade payment of tax.
Where the Commissioner asserts that there are reasons to believe that service tax
has not been levied or paid or has been short-levied or short paid or erroneously
refunded by reason of fraud; or collusion; or wilful mis-statement; or suppression of
facts; or 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 Commissioner is bound to disclose the reasons for
formation of such belief.
As observed above, mere contravention of provision of Chapter V or Rules framed
thereunder does not enable the Service Tax Authorities to invoke the extended period
of limitation. The contravention necessarily has to be with intent to evade payment of
service tax.
On a perusal of the impugned notice it appears to this Court that the Commissioner
proceeded on the basis that there had been contravention, as a result of which, some
tax payable had not been paid. The Commissioner of Service Tax did not address the
issues, which were required to be addressed, for issuing a notice by invoking the
extended period of limitation.
Moreover, it appears that the demand raised by issuance of the impugned show-
cause notice has been pre-determined. When a demand is pre-determined the same
does not remain in the realm of a show-cause notice as held by the Supreme Court in
Siemens Ltd. v. State of Maharashtra reported in 2007 (207) ELT 168 (SC). The
Supreme Court held:
“10. Although ordinarily a writ court may not exercise its discretionary jurisdiction
in entertaining a writ petition questioning a notice to show cause unless the same
inter alia appears to have been without jurisdiction as has been held by this Court in
some decisions including State of Uttar Pradesh v. Brahm Datt Sharma [AIR 1987 SC
943], Special Director v. Mophd. Ghulam Ghouse [(2004) 3 SCC 440] and Union of
India v. Kunisetty Satyanarayana [2006 (12) SCALE 262], but the question herein has
to be considered from a different angle, viz, when a notice is issued with pre-
meditation, a writ petition would be maintainable. In such an event, even if the courts
directs the satutory authority to hear the matter afresh, ordinarily such hearing would
not yield any fruitful purpose [See K.I. Shephard v. Union of India [(1987) 4 SCC
431 : AIR 1988 SC 686]. It is evident in the instant case that the respondent has
clearly made up its mind. It explicitly said so both in the counter affidavit as also in its
purported show cause.
………….
12. A bare perusal of the order impugned before the High Court as also the
statements mentioned before us in the counter affidavit filed by the respondents, we
are satisfied that the statutory authority has already applied its mind and has formed
an opinion as regards the liability or otherwise of the appellant. If in passing the order
the respondent has already dtermined the liability of the appellant and the only
question which remains for its consideration is quantification thereof, the same does
not remain in the realm of a show cause notice. The writ petition, in our opinion, was
maintainable.”
The Commissioner of Service Tax apparently issued show-cause notice in view of
the CERA audit team's observations. It is well-settled that quasi judicial authority
must act independently as held by the Supreme Court in Orient Paper Mills Ltd. v.
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Union of India reported in 1978 (2) ELT. J 345 (SC).

When a notice is issued in support of transactions spread over a period of time and
it is found that the extended period of invocation has been invoked, the notice cannot
be treated as within limitation for some of the same transactions, once it is found that
the extended period of limitation is not invokable. This proposition find support from
the judgment of the Supreme Court in Collector of Central Excise, Jaipur v. Alcobex
Metals reported in (2003) 4 SCC 630.
The entire claim except at best for, may be, four receipts is barred by limitation. It
is well-settled inter alia by the decisions of the Supreme Court in Raza Textiles Ltd.
(supra), Calcutta Discount Company Ltd. (supra) and Shrisht Dhawan (supra) that an
authority cannot invoke jurisdiction to exercise power by deciding jurisdictional facts
wrongly. In exercise of the power of judicial review under Article 226 of the
Constitution of India, this Court might examine the existence and/or correctness of the
jurisdictional facts on the basis of which jurisdiction to exercise power is invoked.
For the reasons discussed above, this Court is of the view that the conditions
precedent for exercise of jurisdiction to invoke the extended period of limitation were
wholly absent. The Commissioner has not properly and independently applied his mind
to the question of whether the conditions for invoking the extended period of limitation
existed, but has acted mechanically, swayed by the report of the CERA team, which in
itself appears to be illegal and unsustainable. The Commissioner of Service Tax has not
properly applied his mind to the issues required to be addressed for invoking the
extended period of limitation. The impugned show-cause notice has been issued by
wrongful invocation of jurisdiction.
The writ application is allowed for the reasons discussed above. The impugned show
-cause notice is set aside and quashed.
Photostat certified copy of this judgment, if applied for, be supplied to the parties
expeditiously, subject to compliance with the requisite formalities.
———
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Page 1 Friday, June 16, 2023

2014 SCC OnLine Cal 9668 : (2015) 85 VST 465

(BEFORE I NDIRA BANERJEE, J.)

Infinity Infotech Parks Limited

time not exceeding 15 working days from the date of demand.

The condition precedent for issuance of a show-cause notice by invoking the

Union of India reported in 1978 (2) ELT. J 345 (SC).

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