M/S Nikunjam Constructions Pvt. Ltd. v Union of India and Others

# **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** # **`PRESENT`** ``` THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS ``` # **`WEDNESDAY, THE 18[TH] DAY OF MAY 2022 / 28TH VAISAKHA, 1944 WP(C) NO. 18257 OF 2021`** ## **`PETITIONER:`** ``` M/S.NIKUNJAM CONSTRUCTIONS PVT.LTD. T.C. 4/2554(3), INDRAPRASTHAM, PATTOM-KOWDIAR ROAD, PATTOM P.O, THIRUVANANTHAPURAM - 695004, REPRESENTED BY ITS MANAGING DIRECTOR, MR. S. KRISHNA KUMAR. ``` ``` BY ADVS. JOSE JACOB JAZIL DEV FERDINANTO ``` ## **`RESPONDENTS:`** - **`1 UNION OF INDIA REPRESENTED BY SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NORTH BLOCK, NEW DELHI – 110001.`** - **`2 THE SUPERINTENDENT (AUDIT) OFFICE OF THE DEPUTY COMMISSIONER OF CENTRAL TAX & CENTRAL EXCISE - AUDIT CIRCLE I THIRUVANANTHAPURAM, GST BHAVAN, PRESS CLUB ROAD, THIRUVANANTHAPURAM – 695001.`** - **`3 THE ASSISTANT COMMISSIONER OFFICE OF THE COMMISSIONER OF CENTRAL TAX & CENTRAL EXCISE, GST BHAVAN, PRESS CLUB ROAD, THIRUVANANTHAPURAM – 695001.`** - **`4 THE JOINT COMMISSIONER, OFFICE OF THE COMMISSIONER OF CENTRAL TAX & CENTRAL EXCISE (AUDIT), KOCHI, CENTRAL REVENUE BUILDING, I.S PRESS ROAD, KOCHI – 682018.`** ``` BY ADVS. C.DINESH, CGC ``` ``` SRI.THOMAS MATHEW NELLIMOOTTIL, SC, CENTRAL BOARD OF EXCISE & CUSTOMS ``` ``` THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON ``` ``` 01.04.2022, THE COURT ON 18.05.2022, DELIVERED THE FOLLOWING: ``` ``` WP(C) NO. 18257 OF 2021 ``` ``` 2 ``` ## BECHU KURIAN THOMAS, J. =========================== ## W.P.(C) No.18257 of 2021 ============================ Dated this the 18[th ] day of May, 2022 ## JUDGMENT Petitioner is engaged in the construction of residential buildings and complexes. Though petitioner was regularly filing its returns as well as discharging its service tax liability in respect of the works contract, an audit was conducted for the period October 2016 to June 2017. Alleging that certain discrepancies were noted during the audit, petitioner was issued with audit notes. Subsequently, petitioner filed a reply and pointed out various anomalies in the audit notes. However, ignoring the objections of the petitioner, a show cause notice was issued on 16.07.2021, proposing to demand service tax, allegedly short paid by the petitioner. 2. Petitioner contends that the show cause notice, as well as the audit notes issued to it are illegal, without authority and contrary to the mandate of law. The mandatory pre-show ``` WP(C) NO. 18257 OF 2021 ``` ``` 3 ``` cause notice contemplated under the Master Circular No.1053/02/2017 dated 10.03.2017, issued by the Central Board of Excise and Customs, was not issued, thereby, rendering the show cause notice as one without legal authority and hence, sought the intervention of this Court under Article 226 of the Constitution of India. 3. A counter affidavit has been filed on behalf of the respondents 2 to 4, controverting the contentions in the writ petition and pleaded that the allegation regarding absence of DIN is not correct as the audit notes issued to the petitioner contain the DIN. However, there was a mistake in the form of an extra digit, which cannot be regarded as an absence of DIN, to regard the document as one without authority. It was further pleaded that the show cause notice had to be issued urgently, since the proceedings were getting time barred, the respondents proceeded to issue the show cause notice. It was further pleaded that the requirement of a pre-show cause notice, for enabling a consultation with the assesse, is only a direction contained in a departmental circular and not a ``` WP(C) NO. 18257 OF 2021 ``` `4` statutory requirement and since the department had already given a chance for representation to the petitioner, no prejudice has been caused. It was further pleaded that, in any event, the department is willing to issue a fresh show cause notice, after giving a pre-show cause consultation, provided the petitioner does not raise the issue of limitation. 4. I have considered the contentions of Sri.Jose Jacob, the learned counsel for the petitioner, as well as learned ASGI, Sri.S.Manu on behalf of the 1[st] respondent and Adv. Thomas Mathew Nellimootil, on behalf of respondents 2 to 4. 5. The contention regarding absence of DIN raised by the petitioner is not significant and the learned counsel for the petitioner did not persist with the said argument and rightfully so. The respondents have pointed out that audit notes have been issued with the DIN, but containing an extra digit by a mistake. On a perusal of the audit notes issued as Ext.P1 and Ext.P2, I notice that the presence of DIN in the said documents cannot be disputed, but by an inadvertent mistake, an additional digit was erroneously added to the said DIN. The ``` WP(C) NO. 18257 OF 2021 ``` ``` 5 ``` said extra digit does not ipso facto make the document null and void on the ground of absence of DIN. 6. By master circular No.1053/02/2017 dated 10.03.2017, issued by the Central Board of Excise and Customs, it is mandatory to issue a pre-show cause notice for consultation, prior to issue of a show cause notice, in cases involving demands of duty above Rs.50,00,000/-(Rupees fifty lakhs only). Paragraph 5 of the aforesaid circular is extracted as below: “5. Consultation with the notice before issue of Show Cause Notice: Board has made pre show cause notice consultation by the Principal Commissioner/Commissioner prior to issue of show cause notice in cases involving demands of duty above Rs.50 lakhs (except for preventive/office related SCN’s) mandatory vide instruction issued from F.No.1080/09/DLA/MISC/15, dated 21[st] December 2015. Such consultation shall be done by the adjudicating authority with the assessee concerned. This is an important step towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing show cause notice.” 7. A perusal of the above extracted portions of the ``` WP(C) NO. 18257 OF 2021 ``` `6` circular clearly indicates that the pre-show cause notice consultation is made mandatory from 21.12.2015 onwards, which is regarded as an important step towards trade facilitation and promoting voluntary compliance and also to reduce the necessity of issuing show cause notices. 8. A master circular issued by the department is binding upon its officers. The contention of the respondents, that the requirement of consultation contemplated therein is not binding upon Department as it is not a statutory requirement, cannot be countenanced. A circular issued by the department is binding upon the department and its officers. It is trite law that circulars are binding upon the department but not on the assessee or Courts. See the Judgment in Commissioner of Central Excise, Bhopal v. Minwool Rock Fibres Ltd. [(2012) 3 SCC 518] and State of Tamilnadu and Another v. India Cements Ltd. & Another [(2011) 13 SCC 247] 9. In view of the above proposition, the issuance of Ext.P7 show cause notice without following the mandatory ``` WP(C) NO. 18257 OF 2021 ``` `7` requirement of pre-show cause consultation is arbitrary and against the circulars. Therefore, I set aside Ext.P7 show cause notice. However, liberty is granted to the respondents to initiate fresh proceedings commencing from the stage of preshow cause notice consultation. It is clarified that if such proceedings are initiated within a period of 60 days from the date of receipt of a copy of this judgment, the period of limitation shall not stand against the respondents to initiate such actions. 10. Accordingly, the writ petition is allowed, reserving the liberty of the respondents to proceed afresh, as indicated above. **Sd/-** BECHU KURIAN THOMAS JUDGE ssa/ ``` WP(C) NO. 18257 OF 2021 ``` ``` 8 ``` ## **`APPENDIX OF WP(C) 18257/2021`** ## **`PETITIONER’S EXHIBITS`** ``` Exhibit P1TRUECOPYOFAUDITNOTENO. GADT/CIR/DT/56/2021-GRL-CGST-ADTCIR-1-TVM- ADT-KOCHI BEARING DIN 20210558X10100000EDI. Exhibit P2TRUECOPYOFAUDITNOTENO. GADT/CIR/DT/56/2021-GR1-CGST-ADTCIR-1-TVM- ADT-KOCHI BEARING DIN 20210558X10100999D1F. Exhibit P3TRUE COPY OF LETTER SEEKING EXTENSION OF TIME TO FURNISH REPLY TO AUDIT NOTES DATED 11.05.2021 AND 03.06.2021. Exhibit P4TRUE COPY OF REPLY TO AUDIT NOTES DATED 11.05.2021 AND 03.06.2021. Exhibit P5TRUECOPYOFAUDITREPORTNO. 692/ST/11/2018-19(AR.NO.86/TVM/TVM/2018- 19). Exhibit P6TRUE COPY OF LETTER TO RESPONDENT NO.3 INTIMATING DISCREPANCIES IN AUDIT NOTES DATED 11.05.2021 AND 03.06.2021. Exhibit P7TRUE COPY OF SHOW CAUSE NOTICE NO. 7/2021- 22-ST. Exhibit P8TRUE COPY OF SCREENSHOT OF SEARCH RESULT GENERATED BY THE OFFICIAL WEBSITE OF CBIC UPON VERIFICATION OF DIN REFLECTING ON AUDIT NOTE DATED 11.05.2021 BEARING DIN 20210558X10100000ED1. Exhibit P9TRUE COPY OF SCREENSHOT OF SEARCH RESULT GENERATED BY THE OFFICIAL WEBSITE OF CBIC UPON VERIFICATION OF DIN REFLECTING ON AUDIT NOTE DATED 20.05.2021 BEARING DIN 20210558X10100999D1F. ``` ``` RESPONDENTS’ EXHIBITS Exhibit R2TRUE COPY OF THE DIN. Exhibit R2(a)TRUE COPY OF THE DIN. ```