Jurisdiction for service tax demand fails where all material facts were disclosed and verified; penalties also fall away.

Section 73(1)(a) of the Finance Act, 1994 could be invoked only where there was an omission or failure to disclose fully and truly all material facts, leading to escaped, under-assessed, short-paid, or non-paid service tax. As the assessee had been registered, filed ST-3 returns, and produced the relevant contracts, bills, and other materials during verification under section 71, the department proceeded on facts already disclosed and failed to establish the necessary non-disclosure of primary facts. The show cause notice and demand were therefore without jurisdiction, and the penalties under sections 76, 77, and 78 could not survive.

---

---

Issues: Whether the show cause notice issued under section 73(1)(a) of the Finance Act, 1994 was valid in the absence of omission or failure to disclose fully and truly all material facts required for verification of assessment under section 71, and whether the consequential demand, interest and penalties could stand.

Analysis: The notice was issued after the assessee had been registered, had filed ST-3 returns, and had produced the contract, bills and other relevant material in the verification proceedings under section 71. The jurisdiction under section 73(1)(a) could be exercised only if the authority had reason to believe that there had been an omission or failure to disclose fully and truly all material facts and that such failure had resulted in escaped assessment, under-assessment, non-payment or short-payment. On the record, the authority proceeded on facts already disclosed and did not establish any non-disclosure of primary facts necessary to invoke section 73(1)(a). The earlier notices and verification proceedings also showed that the relevant transaction material was already before the department. Since the foundational conditions for invoking section 73(1)(a) were absent, the demand raised under that provision lacked jurisdiction. Once the demand failed, the penalties imposed under sections 76, 77 and 78 also could not survive.

Conclusion: The show cause notice and the resulting demand were invalid, and the consequential penalties were unsustainable. The assessee succeeded.

---