The Karnataka High Court while dismissing the taxpayer’s plea held that the benefit of Master Circular Circular mandating Pre-Show Cause Notice for Service Tax demand beyond Rs.50 Lakh cannot be one-sided.
The appellant, M/s Novel Security Services was a proprietary concern registered under the provisions of the Central Goods and Services Tax Act, 2017 (henceforth referred to as the ‘CGST Act 2017’) and was providing personnel to man security concerns at various Government and non-Government entities and was, therefore, exigible to service tax. It is stated that on information received by the office of the respondent, an investigation was initiated against the appellant for alleged failure to remit the appropriate service tax to the Government.
Following the investigation, several notices were issued to the appellant calling upon the appellant to produce documents for verification. The respondent thereafter issued a notice dated 22.04.2021 under Section 73 of the Finance Act, 1994 read with Section 174 of the CGST Act 2017. This show cause notice was challenged before the learned Single Judge on the ground that it was in violation of the Master Circular dated 10.03.2017 and the Circular dated 19.11.2020 which provided “pre-show cause notice consultation with the assessee, prior to issuance of show cause notice in case of demands of duty above Rs.50 Lakhs (except for preventive/offence related to show cause notices), is mandatory and shall be done by the show cause notice issuing authority”.
Mr. Shashikiran Sethi counsel for the appellant Senior Counsel appearing for the appellant submitted that issuance of a pre-show cause notice was mandatory in terms of the Circular dated March 10, 2017, as well as the Circular issued by the Central Board of Indirect Taxes and Customs dated November 19, 2020. Therefore, the show-cause notice ought to have been quashed by the learned Single Judge.
On the other hand, the respondent contended that the impugned order was passed based on a submission by the learned counsel for the appellant that the show cause notice be kept in abeyance and that the appellant would appear before the show cause notice issuing authority. He, therefore, contended that the present appeal was misconceived. The counsel for the respondent has filed his statement of objections.
The division bench of Justice Satish Chandra Sharma and Justice Natraj Rangaswamy noted that every attempt made by the respondent to secure information/document from the appeal was stonewalled by the appellant. Though the show cause notice issued by the respondent which was impugned before the learned Single Judge was not preventive in nature but yet an offence report was registered against the appellant. “If the appellant desired to seek the benefit of the Master Circular dated 10.03.2017, he is expected to comply with the summons issued by the respondent seeking explanation/documents that were summoned by the respondent. The benefit of the Master Circular cannot be one-way traffic and the appellant cannot milch the Master Circular to his advantage,” the Court said while dismissing the taxpayer’s plea.
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