Simplified Explanation of the Judgment
In a recent decision, the Patna High Court set aside a service tax demand and related proceedings against a petitioner after finding that the authorities acted beyond the permissible time limits. The dispute arose from allegations of service tax evasion for the financial years 2015–2016 and 2016–2017.
The tax department had issued an initial notice under Section 73 of the Finance Act, 1994, on 21 December 2020. However, after issuing this notice, the authorities did not take any further action for more than three years. It was only on 18 January 2024 that they issued a notice to the petitioner for a personal hearing scheduled on 1 February 2024.
The petitioner appeared for the hearing and submitted a reply dated 31 January 2024. Subsequently, the department passed an order on 23 August 2024, imposing a service tax liability of ₹3,69,973 along with interest and penalties. This order also disregarded the fact that the petitioner had already deposited significant amounts against the alleged liability—₹2,55,715 in February 2021 and ₹93,606 in March 2020—leaving only ₹20,652 in dispute.
The petitioner challenged the proceedings in the High Court, arguing that the final order was passed long after the permissible period and was therefore without jurisdiction. They also sought the refund of amounts already deposited.
The government’s counsel argued that the delay was partly due to the petitioner’s lack of cooperation and suppression of information, and partly due to the COVID-19 pandemic. They claimed that the pandemic period should be excluded from the calculation of the time limit for proceedings.
The Court noted that while COVID-19 could justify some delay, this exclusion could extend only until 28 February 2022, in line with earlier judicial pronouncements. The authorities, however, acted only on 18 January 2024, meaning there was an unexplained delay of nearly 1 year and 11 months beyond even the COVID-related relaxation.
The Court also referred to its earlier decision in M/s Kanak Automobiles Pvt. Ltd. vs. Union of India (CWJC No. 18398 of 2023), which dealt with similar issues of delay and limitation in tax proceedings.
Holding that the delay rendered the proceedings invalid, the High Court quashed both the demand-cum-show cause notice dated 17 December 2020 and the final order dated 23 August 2024.
Significance or Implication of the Judgment
This judgment underscores the importance of adherence to statutory timelines in tax proceedings. Authorities cannot indefinitely delay action after issuing notices, even when considering pandemic-related extensions. For taxpayers, this decision reaffirms that significant and unexplained delays can be grounds for challenging tax demands.
For the government, the judgment is a reminder to ensure timely completion of proceedings to avoid loss of revenue due to procedural lapses. It also clarifies the extent of permissible time extensions due to COVID-19, which could influence other pending cases across the country.
Legal Issue(s) Decided and the Court’s Decision with Reasoning
- Whether the delay in completing tax proceedings after issuance of notice was permissible:
- Court held that delay beyond permissible limits, even after considering COVID-19 extensions, was not justified.
- Whether the impugned order and demand notice were valid:
- Court found them to be without jurisdiction due to excessive delay and quashed both.
- Applicability of earlier precedent:
- Court relied on M/s Kanak Automobiles Pvt. Ltd. vs. Union of India, holding that similar principles applied here.
Judgments Relied Upon or Cited by Court
- M/s Kanak Automobiles Pvt. Ltd. vs. Union of India & Others, CWJC No. 18398 of 2023.
Case Title
M/s Sanjeev Shanker Urmila and Co. vs. Union of India & Others
Case Number
Civil Writ Jurisdiction Case No. 18635 of 2024
Coram and Names of Judges
Hon’ble Mr. Justice P. B. Bajanthri
Hon’ble Mr. Justice S. B. Pd. Singh
Names of Advocates and who they appeared for
- For the Petitioner: Mr. Vaibhava Veer Shanker, Advocate
- For the Respondents: Dr. K. N. Singh, ASG; Mr. Anshuman Singh, Sr. SC, CGST & CX
Link to Judgment
86ce2c58-4e0f-4e6b-a6c9-ff6d58303af6.pdf
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