Revenue Cannot Rely on Call Book to Justify 9-Year Delay: Bombay HC Quashes Excise SCNs Linked to NPV Sales Tax Retention [Read Order]

In a recent ruling, the Bombay High Court observed that the Revenue could not rely on the Call Book to justify a delay of nearly nine years in adjudicating Excise show cause notices, as it defeats the very purpose of adjudication.

Computer Graphics Private Limited, a registered excise assessee engaged in manufacturing photographic colour paper, graphic art film and medical X-ray goods, was issued two show cause notices dated 16 March 2016 and 4 January 2017.

The notices alleged that the assessee had retained VAT/CST collected from buyers under a deferment/NPV scheme and had not included the retained amount in the transaction value for excise purposes, resulting in violation of Section 4(3)(d) of the Central Excise Act and Rule 6 of the Central Excise Valuation Rules. The company filed writ petitions challenging the attempt to adjudicate the notices after an inordinate delay.

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The petitioner’s counsel argued that the delay of eight to nine years was wholly unreasonable and contrary to several judgments of the Bombay High Court which had set aside old show cause notices that were not acted upon for many years. They argued that the Revenue’s explanation of placing the notices in the Call Book was not a lawful reason to keep the matter pending indefinitely and that such delay would seriously affect the assessee’s ability to respond due to loss of records and passage of time.

The Revenue argued that the show cause notices had been transferred to the Call Book under Board circulars because a related issue was pending before the Supreme Court in the case of Uttam Galva Steels Limited.

The counsel argued that the matter could not be adjudicated until the Supreme Court disposed of the pending appeal, and that steps were being taken to restore the appeals after they were dismissed on the ground of monetary limits. The Revenue maintained that the delay was linked to the pendency of the higher proceedings.

The Division Bench of Justice Bharati Dangre and Justice Ashish S. Chavan observed that the consistent view of the Court is that show cause notices must be adjudicated within a reasonable time, even when no statutory limitation period exists. The court pointed out that the pendency of the Uttam Galva matter before the Supreme Court did not create any legal bar to adjudication and that the Revenue had not explained why the notices remained dormant for several years.

The court further observed that even after the Supreme Court disposed of the appeal on 20 September 2024, the Department took no steps for over a year. It explained that such delay causes clear prejudice because both the Revenue and the assessee may be unable to trace necessary material, rendering effective adjudication impossible.

The court held that the impugned show cause notices could not now be adjudicated due to gross delay of eight and nine years and that continuing the proceedings would defeat their purpose. The Court quashed and set aside both show cause notices and allowed the writ petitions.

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