Disclosure of adverse material and manufacture claim require fresh examination before sustaining service tax demand.

An adverse verification report used to support a service tax demand was not furnished to the taxpayer, denying an effective opportunity to rebut it. A document relied on against a party must be disclosed before it can form the basis of an adverse order. The taxpayer also contended that processing marble blocks into slabs and tiles amounted to manufacture, which would take the activity outside service tax. The matter therefore required fresh examination after supplying the report and permitting supporting documents to be placed before the appellate authority.

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Issues: Whether the impugned demand of service tax could be sustained when reliance was placed on an undisclosed verification report and the appellant's claim that the activity amounted to manufacture required fresh examination.

Analysis: The adverse report relied upon in the adjudication was not furnished to the appellant, though it formed part of the basis for the demand. A document used against a party must be supplied to afford an effective opportunity of rebuttal. The appellant also asserted that the processing of marble blocks into slabs and tiles amounted to manufacture, which, if established, would take the activity outside service tax. In these circumstances, the dispute required reconsideration after the appellant was given the report and an opportunity to place the relevant documents before the appellate authority.

Conclusion: The demand order could not be sustained as it stood and the matter was remitted for fresh decision after furnishing the report and allowing the appellant to file supporting material.

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