Disclaimer: This has been reported after the availability of the order of the Court and not on media reports so as to give an accurate report to our readers.
Rajasthan High Court: While considering a petition filed by the petitioner, a proprietorship concern engaged in fabrication and erection works, challenging the common Order-in-Original passed by the Joint Commissioner confirming service tax demands for Financial Years (FY) 2007-2008, 2009-2010 and 2010-2011 along with interest and penalties, the Division Bench of Arun Monga* and Yogendra Kumar Purohit, JJ., held that where the authority sleeps over the matter for years and provides no satisfactory explanation, any attempt to resurrect the proceedings amounts to arbitrary exercise of power.
Accordingly, the Court set aside the said order and stated that although the timelines under Section 73(4B), Finance Act, 1994 were directory, the Department was required to adjudicate proceedings within a reasonable period.
Background
In the present case, the petitioner was engaged in fabrication and erection of structures at principals’ sites using their materials and was registered under the service tax laws. Pursuant to work orders dated 31 January 2007 by Aditya Cement Ltd. and 6 January 2009 by Prism Cement Ltd., it executed fabrication and erection works at their sites.
For April 2008-March 2009, a show cause notice dated 1 October 2009 (2009 Notice) alleged short payment of service tax of Rs 42,60,123 on the premise that fabrication formed part of “erection, commissioning or installation” under Section 65(39a), Finance Act, 1994. However, the petitioner disputed the demand.
While this notice was pending, another notice for April 2007-March 2008 alleged short payment of Rs 81,46,056 on the same premise, invoking the extended period under Section 73(1) and proposing penalties. Yet another notice for April 2009-March 2010 demanded Rs 1,04,97,017 on identical grounds.
The 2009 Notice was adjudicated and confirmed by Order-in-Original passed by the adjudicating authority/Additional Commissioner of Central Excise. Thereafter, the petitioner’s appeal was dismissed by Order-in-Appeal passed by the Appellate Authority of the Revenue. It then appealed before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi. During the pendency, another notice dated 20 September 2011 (2011 Notice) for April 2010-March 2011 demanded Rs 1,03,44,427.
CESTAT allowed the appeal for April 2008-March 2009, yet the Department did not adjudicate the pending notices for FY 2007-2008, 2009-2010 and 2010-2011, and, on 7 March 2012, transferred them to the Call Book.
The Department challenged the CESTAT’s order before the High Court but took no steps to adjudicate the pending notices during its pendency. Pursuant to the Government’s litigation policy and the Board’s Circular prescribing monetary limits, the appeal was withdrawn.
Subsequently, the Department revived the three notices from the Call Book and, by common Order-in-Original, the Joint Commissioner held that withdrawal of the appeal on monetary limits rendered the CESTAT’s order non-precedential, and confirmed the demands with interest and penalties-
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April 2007-March 2008 – Rs 81,46,056 with penalty under Sections 76 and 78.
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April 2009-March 2010 – Rs 1,04,97,017 with penalty under Section 76.
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April 2010-March 2011 – Rs 1,03,44,427 with penalty under Section 76.
Aggrieved, the petitioner reached the High Court.
Analysis and Decision
The Court, regarding the argument of limitation raised by the petitioner, noted that three show cause notices were issued in 2010 and 2011 whereas the common assessment order was passed after 9 years, thus opined that on that ground alone, the present petition deserved to be allowed.
The Court stated that the legislative intent behind Section 73 (4B), Finance Act, 2014 is to ensure expeditious adjudication and to prevent proceedings from remaining pending indefinitely. The Court further stated that “At the same time, the phrase ‘where it is possible to do so’ indicates that the timelines are directory rather than mandatory. Nevertheless, the Department is expected to act within a reasonable period and cannot justify inordinate or unexplained delays in concluding proceedings.” The provision operates as a statutory reminder that recovery proceedings must be pursued with diligence, and prolonged dormancy or revival after long gaps may be hit with the vice of arbitrariness, prejudice, and violation of the scheme of limitation.
Considering the chronology of events, the Court stated that the assessment orders were passed beyond a period of one year after placing the case of the petitioner in the call book, awaiting the outcome of the High Court and/or CESTAT proceedings. The Court stressed that for the Assessment Years 2007-2008 and 2009-2010, show cause notices were kept pending without sending the matter to call book category until 7 March 2012. Therefore, the Revenue could not take advantage of the period of limitation as the period of limitation had already expired before they were put in the “call book” category for the first two financial years.
The Court stated that even accepting the Revenue’s explanation for keeping the matter pending, the assessment order ought to have been passed within one year thereof. However, the assessment order for FY 2010-2011 was passed beyond the one-year period prescribed under Section 73(4B). The sequence showed that after issuance of notices between 2010 and 2011, the Department kept the matters pending for over nine years by placing them in the Call Book and failed to act even after withdrawing its High Court appeal in 2018. The delay, attributable solely to administrative inaction, led to revival of proceedings after an inordinate lapse of time, causing serious prejudice to the petitioner and rendering continuation of proceedings contrary to the principles of certainty, fairness, and reasonable exercise of statutory power.
The Court held that “Once a show cause notice is issued, the statute contemplates that adjudication should be completed within a reasonable and proximate timeframe.” Thus, allowing the Revenue to revive proceedings after nine years would defeat the very purpose. The Court further stated that “Even if the timeline is treated as directory rather than mandatory, the law does not permit authorities to act after an inordinate and unexplained delay. The power vested under the section has to be exercised within a reasonable period, failing which the action becomes arbitrary and liable to be set aside.”
The Court stated that where the authority slept over the matter for years and provided no satisfactory explanation, any attempt to resurrect the proceedings would amount to arbitrary exercise of power. Moreover, during such a long period of silence, the petitioner was entitled to proceed on the reasonable belief that the matter had attained finality and reopened it after nearly a decade, frustrated legitimate expectations.
Hence, the Court allowed the petition and set aside the order passed by the Joint Commissioner, Central Excise and Goods and Service Tax. The Court further stated that “The issue raised by the Revenue in the withdrawn appeal from High Court i.e. whether fabrication falls within the ambit of “erection, commissioning or installation” as defined under Section 65(39a) of the Finance Act, 1994 is left open to be decided on merits in some appropriate proceedings in future.”
[Hazi A.P. Bava and Co. v. Commr. (GST & CE), D.B. Civil Writ Petition No. 17744 of 2019, decided on 5-2-2026]
*Judgement authored by Justice Arun Monga
Advocates who appeared in this case:
For the Petitioner: Lokesh Mathur and Prakash Kumar, Advocates
For the Respondent: Kuldeep Vaishnav and Arpit Yoganandi, Advocates