9 Year Delay in Adjudicating SCN Violates S. 73(4B) Of Finance Act, 1994: Rajasthan High Court

The Rajasthan High Court has set aside a common adjudication order raising service tax demands of over Rs. 2.89 crore against a Udaipur-based firm, holding that revival of show cause notices after nearly nine years is arbitrary and contrary to Section 73(4B) of the Finance Act, 1994. The bench of Justice Arun Monga and Justice Yogendra Kumar Purohit allowed three connected writ petitions and quashed the Order-in-Original dated 24 October 2019 passed by the Joint Commissioner, Central Excise and GST, Udaipur. The petitioner, engaged in fabrication and erection works for cement companies, had received three show cause notices for the financial years 2007–08, 2009–10 and 2010–11 alleging short payment of service tax under the category of “erection, commissioning or installation” service under Section 65(39a) of the Finance Act, 1994. Earlier, for FY 2008–09, a similar demand had been set aside by the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) on 27 December 2011, holding that fabrication did not fall within the taxable entry. The Department challenged that ruling but later withdrew its appeal before the High Court in September 2018 due to monetary limits under the Government’s litigation policy. While the appeal was pending, the Department transferred the remaining notices to the “Call Book” in March 2012, keeping adjudication in abeyance. The Court examined Section 73(4B) of the Finance Act, 1994, which mandates determination of service tax dues within six months or one year, “where it is possible to do so.” Although the provision is directory, the Bench held that the Department allowed the notices to remain dormant for over nine years. Even after withdrawal of the High Court appeal in September 2018, adjudication was not completed within one year. Administrative inaction cannot justify indefinite suspension of proceedings. Each show cause notice is an independent proceeding and cannot be kept pending merely due to similar issues being litigated elsewhere. The Court observed that reviving proceedings after such a prolonged delay defeats principles of certainty and fairness and renders the exercise of power arbitrary. Relying on the Delhi High Court’s decision in L.R. Sharma & Co. v. Union of India, the Bench reiterated that directory timelines cannot be stretched into decade-long delays. The Court set aside the Order-in-Original dated 24 October 2019, quashed the service tax demands totaling over Rs. 2.89 crore and held the adjudication unsustainable due to inordinate and unexplained delay However, the Court left open the substantive issue of whether fabrication falls within “erection, commissioning or installation” service for determination in appropriate future proceedings. Case Details Case Title: M/s. Hazi A.p. Bava And Company Versus Commissioner Citation: JURISHOUR-34-HC-2026(Raj) Case No.: D.B. Civil Writ Petition No. 17744/2019 Date: 05/02/2026 Counsel For Petitioner: Lokesh Mathur Counsel For Respondent: Kuldeep Vaishnav Click Here To Read Order Read More: Delay in Filing Inspection Report: Rajasthan High Court Pulls Up Medical & Health Dept. for ‘Willful Non-Compliance’

9 Year Delay in Adjudicating SCN Violates S. 73(4B) Of Finance Act, 1994: Rajasthan High Court

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