Natural justice requires tax authorities to deal with every material objection before confirming liability

A quasi-judicial tax order must address every material objection raised by the assessee, especially where the objection relies on binding precedent and departmental clarification. Failure to consider a substantive ground makes the adjudication unfair, arbitrary, and contrary to natural justice because a reasoned decision must show that relevant submissions were examined. On that basis, the order confirming service tax liability was found unsustainable where the material challenge to taxability of coal washing as business auxiliary service had not been dealt with.

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Issues: Whether the order confirming service tax liability was unsustainable for failure to deal with a material objection raised by the assessee.

Analysis: The appeal arose from a challenge under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. The assessee had disputed the taxability of coal washing as business auxiliary service and had relied upon binding precedent and departmental clarification. A quasi-judicial authority deciding a lis must deal with all material grounds urged before it, particularly where those grounds are founded on judicial precedent. Failure to consider a relevant and substantive objection renders the adjudication unfair, arbitrary, and contrary to natural justice because fairness must be apparent on the face of the order.

Conclusion: The order of the Commissioner was not sustainable because a material ground raised by the assessee was not considered, and the appeal failed.

Final Conclusion: The tax demand order was set aside in effect, and the appeal was dismissed with the assessee succeeding on the procedural infirmity in the adjudication.

Ratio Decidendi: A quasi-judicial tax order is vitiated when it omits to consider a material objection duly raised before it, since such non-consideration breaches natural justice and the requirement of a reasoned decision.

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