Service tax demand fails when recovery is founded on the wrong statutory provision and lacks the proper machinery basis.

A service tax demand is unsustainable where the show cause notice invokes an incorrect recovery provision and the demand is confirmed under an inapplicable or non-existent statutory reference. The governing principle is that the charging provision alone does not supply the recovery machinery; proceedings must be anchored to the proper provision under the relevant statute. Because the demand and penalty action were founded on defective statutory basis, the proceedings were treated as fundamentally vitiated and the impugned order was set aside in favour of the assessee.

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Issues: Whether the demand of service tax and the consequential penalty proceedings were vitiated by invocation of an incorrect statutory provision and by confirmation of demand under an inapplicable section.

Analysis: The show cause notice proceeded under Section 11 of the Central Excise Act for recovery of service tax, although the recovery machinery for service tax under the Finance Act, 1994 lies elsewhere. The demand was also confirmed under a non-existent reference to the Service Tax Act, 1994, and the charging provision in Section 66(1) of the Finance Act, 1994 does not by itself provide the machinery for recovery of unpaid tax. These defects were treated as fundamental and were held to vitiate the proceedings.

Conclusion: The demand of service tax was held unsustainable and the impugned order was set aside in favour of the assessee.

Ratio Decidendi: A demand of service tax is invalid where the proceedings are founded on an incorrect or inapplicable statutory provision and the recovery action is not anchored to the proper machinery provision under the governing Act.

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