Facts of the Case

The Petitioner, MS Shyam Indus Power Solutions Pvt. Ltd., challenged an Order dated 23.08.2024 whereby the Respondent imposed:

  • Service Tax Liability: ₹30,68,03,113/-
  • Interest and Penalty: ₹30,78,71,573/-

The demand arose from multiple Show Cause Notices (SCNs) issued between 2013 and 2018 covering financial years 2008–09 to 2016–17.

The Petitioner is engaged in Engineering, Procurement, and Construction (EPC) contracts related to power infrastructure.

Key factual aspects include:

  • Contracts were split into supply and service components, with service tax paid only on the service portion.
  • The Department alleged artificial splitting of composite contracts to evade tax.
  • One SCN (2013) was initially dropped in 2015, but later remanded by CESTAT in 2018.
  • Other SCNs remained pending for 6 to 10 years before adjudication.

Issues Involved

  1. Whether inordinate delay (6–10 years) in adjudication of SCNs violates principles of natural justice.
  2. Whether proceedings can be sustained when adjudication is not completed within a reasonable period under Section 73(4B).
  3. Whether delayed adjudication without proper hearing renders the order invalid.

Petitioner’s Arguments

  • SCNs were kept pending for unreasonably long periods (6–10 years).
  • No proper hearing opportunity was granted before passing the final order.
  • Notices in 2024 were allegedly served on incorrect email IDs, violating due process.
  • Petitioner believed proceedings were dropped due to prolonged silence.
  • Relied on precedent: Vos Technologies India Pvt. Ltd. to argue that such delays invalidate proceedings.
  • Delay attributable solely to the Department.

Respondent’s Arguments

  • The Department justified the delay in adjudication.
  • Contended that there was no procedural illegality in passing the order.
  • Argued that the demand and proceedings were valid.

Court’s Findings

The Delhi High Court made the following key observations:

1. Inordinate Delay Established

  • SCNs issued between 2013–2018 were adjudicated only in 2024.
  • Delay ranged from 6 years to over 10 years.

2. Statutory Mandate under Section 73 Violated

  • Section 73(4B) requires adjudication:
    • Within 6 months / 1 year, “where possible”.
  • The phrase “where it is possible to do so” does not permit indefinite delay.

3. Reliance on Precedent

  • Court relied heavily on:
    • Vos Technologies India Pvt. Ltd. v. DG
  • Held that:
    • Delay without justification = ground to quash proceedings
    • Authorities must act with reasonable expedition

4. No Justification by Department

  • No “insurmountable circumstances” shown for delay.
  • Administrative lethargy cannot be justified under law.

5. Violation of Natural Justice

  • Long delay coupled with lack of proper hearing:
    • Prejudicial to the assessee
    • Violates fairness principles

Court Order / Final Decision

  • All SCNs dated 18.10.2013, 21.05.2014, 07.09.2015, 13.10.2016, and 01.03.2018 were QUASHED
  • Impugned Order dated 23.08.2024 was set aside
  • Petition allowed in favour of the Petitioner.

Important Clarifications

  • The phrase “where it is possible to do so”:
    • Does NOT allow unlimited delay
    • Applies only in cases of genuine impossibility
  • Authorities must:
    • Act within a reasonable time
    • Justify delays with valid reasons
  • Pending tax proceedings cannot remain unresolved for years when:
    • They impose financial and penal consequences 

Sections Involved

  • Section 73, Finance Act, 1994
    • Recovery of service tax not levied/paid
  • Section 73(4B)
    • Time limit for adjudication (6 months / 1 year)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/68020032025CW171682024_171352.pdf

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