Tribunal must decide service tax appeals on merits and cannot dismiss for default despite absence or stay-order noncompliance.

The Tribunal had no power to dismiss a service tax appeal for default or non-prosecution merely because the appellant or counsel was absent, including where a conditional stay order had not been complied with. Section 86(7) of the Finance Act, 1994 read with the Tribunal's statutory powers under the Central Excise and Salt Act required disposal on merits, and Rule 20 of the CESTAT Procedure Rules could not override that mandate. The appellate tribunal was therefore bound to confirm, modify, annul, or remand the impugned decision on merits. The dismissal for default was held illegal and liable to be quashed.

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Issues: Whether the Appellate Tribunal could dismiss the appeal for default or non-prosecution when the appellant or counsel was absent and there was non-compliance with the stay order, and whether the appeal had to be decided on merits.

Analysis: Section 86(7) of the Finance Act, 1994 makes the Tribunal follow the same powers and procedure as under the Central Excise and Salt Act, 1944. Section 35C(1) of that Act empowers the Tribunal to confirm, modify, annul, or remand the decision appealed against, but not to dismiss the main appeal for default. Rule 20 of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982 permits dismissal for default in case of absence, but the substantive statute governing the Tribunal requires a merits-based disposal. The principle laid down by the Supreme Court is that an appellate tribunal must decide the appeal on merits and cannot short-circuit adjudication by dismissing it for want of prosecution, including where there is non-compliance with a conditional stay order.

Conclusion: The Tribunal had no power to dismiss the appeal for default and was bound to decide it on merits; the impugned order was illegal and liable to be quashed.

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