Taxpayer Cannot Invoke Section 73(4B) Limitation After Delaying Service Tax Proceedings: P&H High Court

The Punjab and Haryana High Court on 2 July held that the one year period prescribed under Section 73(4B) of the Finance Act, 1994 for passing adjudication orders in cases involving the extended period of limitation is not mandatory in all circumstances and cannot be invoked by a taxpayer whose own conduct caused delay in the proceedings.

A Division Bench comprising Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor dismissed the appeal filed by Sanjay Verma, an architect and upheld the orders passed by the adjudicating authority, appellate authority and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), holding that the delay was caused due to the appellant's failure to respond to notices and not due to any administrative inaction. It observed:

“The intendment is clearly to curb executive lethargy in concluding proceedings initiated in accordance with law. The provision is not intended to be used as a thumb rule preventing the Central Excise authorities from passing orders despite the existence of justifiable reasons for the delay occasioned in this regard.”

Verma, registered with the Service Tax Department, had been filing ST-3 returns declaring nil turnover. However, information received through Form 26AS from the Income Tax Department revealed that he had received Rs. 86.21 lakh during the financial year 2015-16 towards architectural services, on which tax had been deducted at source by service recipients.

The Department alleged that the income had not been disclosed in the service tax returns. It issued letters dated 1 December 2020 and 17 December 2020 seeking an explanation from the appellant. However, the appellant failed to respond, following which the Department issued a show cause notice on 30 December 2020 invoking the extended period of limitation.

Despite repeated hearing notices dated 19 February 2021 and 3 December 2021, the appellant did not appear before the adjudicating authority. He submitted his reply only on 24 January 2022 after the final hearing notice dated 18 January 2022. The adjudicating authority thereafter passed the order on 29 April 2022 confirming the demand.

Before the High Court, the appellant challenged the order only on the ground of limitation. He contended that Section 73(4B) of the Finance Act, 1994 requires an adjudication order involving the extended period of limitation to be passed within one year from the date of the show cause notice “where it is possible to do so”.

Since the show cause notice was issued on 30 December 2020 and the order was passed on 29 April 2022, he argued that the order was beyond the prescribed period. Reliance was placed on a CESTAT Delhi decision in Kopertek Metals Pvt. Ltd. vs. Commissioner of Central Goods and Services Tax (West), New Delhi, (2025) 29 Centax 28 (Tri.-Del.), which held that adjudication beyond the prescribed period invalidated the order.

The Revenue opposed the appeal, arguing that the appellant had failed to respond to repeated notices and hearing opportunities and could not rely on the statutory timeline after contributing to the delay.

The High Court accepted the Revenue's submission and held that Section 73(4B) was enacted to ensure expeditious completion of adjudication proceedings and prevent administrative delay. However, the use of the expression “where it is possible to do so” showed that the timeline was not an inflexible requirement applicable irrespective of the circumstances.

It held that the provision cannot be used as a thumb rule to invalidate adjudication proceedings where delay occurred due to justifiable reasons. It also noted that the Department had acted diligently by issuing repeated notices, while the appellant remained unresponsive until January 2022. The adjudicating authority had passed the order within three months of receiving the appellant's reply. The Bench observed:

“We, therefore, do not find any delay or laches of the nature intended to be curtailed by the statutory scheme.”

Accordingly, the High Court dismissed the appeal at the admission stage, holding that the delay was attributable to the appellant's conduct and not administrative failure and that there was no violation of Section 73(4B) and dismissed the appeal at the admission stage.

For Appellant: Mukesh Pandey, Advocate

For Respondent: Ridhi Bansal, Advocate