2025 (8) TMI 1208 - AT - Service Tax

Adjudication order quashed where SCN and personal hearing not proved served, breaching natural justice under Section 37C/73(2)

M/s Superb Fly Consultancy Versus Commissioner of Central Excise & CGST, Ghaziabad

CESTAT held the adjudication order invalid because the show-cause notice (SCN) and personal hearing notices were not proved served, rendering the ex-parte ... Violation of principles of natural justice - valid service of SCN - serving of SCN through e-mail ID - applicability of time limitation - HELD THAT:- No demand can be raised without service of SCN. In the present case, SCN was issued but there is no evidence of service on the Appellant. Further, as per the provisions of Section 73(2) of the Finance Act,1994, “The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due”. It makes it clear that order for determination of short payment or non- payment can be made subsequent to service of notice. In the case in hand, impugned order was passed without ensuring as to whether the SCN was served upon the Appellant or not. The impugned adjudication order was passed in violation of the statutory provisions and is therefore, liable to be set aside. There is no finding relating to service of letters of personal hearing upon the Appellant. It is not clear as to whether PH letters sent to the Appellant were returned undelivered by the Postal Authorities. Ex-parte order was passed without ensuring that SCN and letters of personal hearing were served upon the Appellant. It is breach of principles of natural justice. So, the impugned adjudication order passed in violation of principles of natural justice is illegal and deserves to be set aside. The manner of service of a SCN was apparently not followed in the case in hand. Manner of service of any decision or order passed or any summons or notices is provided under Section 37C of the Central Excise Act, 1944 which was also applicable in Service Tax matter as laid down under Section 83 of the Finance Act, 1994. In the case of Regent Overseas Pvt. Ltd. [2017 (3) TMI 557 - GUJARAT HIGH COURT], it has been held by the Hon’ble Gujarat High Court that in case there is no proof of service of notice and personal hearing letters, the impugned order which has been passed ex-parte is clearly in breach of principle of natural justice and the order is liable to be quashed. In view of the above decision, it is well settled legal position that in case SCN is not served as per procedure laid down under Section 37C of the Central Excise Act, 1944, the demand is liable to be dropped. In the present case no SCN was served upon the Appellant and the impugned order was passed ex-parte. So, the same is liable to be set aside. As the impugned order is liable to be dropped on account of above reasons, there is no requirement to take up other issues. As per Section 66D(e), trading of goods was under the category of negative list services. It shows that service tax was not chargeable on sale of goods. As per records submitted by the Appellant educational material like books, brochures etc., were sold of the value of Rs.41,31,324/- on which no service tax would be chargeable. It is noticed demand of service tax was made on that value treating it as value of service while it was value of goods. Hence, no service tax was chargeable. The impugned order cannot be sustained and is accordingly, set aside. The appeal filed by the Appellant is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an adjudication order under Section 73(1) of the Finance Act, 1994 is sustainable where there is no proof that the Show Cause Notice (SCN) and letters for personal hearing (PH) were served on the assessee in the manner prescribed by law, and whether passing an ex-parte order in such circumstances violates principles of natural justice. 2. Whether service of the SCN by e-mail (without statutory modes of service or proof thereof) satisfies the requirement of service under Section 73 read with the applicable service provisions (Section 37C of the Central Excise Act, 1944 as made applicable) and whether the adjudicating authority must record satisfaction of effective service on the face of the record. 3. Whether demand of service tax on amounts representing separately charged educational material (books, brochures) supplied in the course of training constitutes value of services liable to service tax, or whether such amounts represent sale/transfer of goods excluded from 'service' under Section 65B(44) and covered by the negative list (Section 66D(e)), and therefore not liable to service tax. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of adjudication where SCN/PH letters were not proved served; breach of natural justice Legal framework: Section 73(1) & (2) of the Finance Act, 1994 (requirement of serving SCN within prescribed period and adjudication after considering representation), and the requirement of service as provided by Section 37C of the Central Excise Act, 1944 (tender/personal delivery, registered post/speed post/courier with proof, affixation on business premises, last resort being notice board), made applicable to service tax proceedings by Section 83 of the Finance Act. Precedent treatment: The Court followed and relied on precedents holding that service of SCN and opportunity of hearing are essential and that an ex-parte adjudication without proof of service is not sustainable (principles illustrated by Teksons Ltd. on Section 28 Customs Act; subsequent Tribunal and High Court decisions cited that set aside ex-parte orders where service was not proved or satisfaction regarding service was not recorded). Interpretation and reasoning: The Court held that service of the SCN is an essential precondition to valid adjudication under Section 73(1) and that Section 73(2) mandates consideration of any representation after service. The adjudication order under challenge was passed ex-parte without any evidence on record that the SCN or PH letters were served in the statutory manner; there was no recorded satisfaction of service by the adjudicating authority. Sending the SCN by e-mail and subsequent production of a copy without proof of statutory modes of service did not meet the requirements of Section 37C. The Court emphasized that substituted service or affixation are last-resort measures and that the proper officer's satisfaction about service must be apparent on the record or order itself. Ratio vs. Obiter: Ratio - An adjudication order passed without proof of service of the SCN and without ensuring opportunity of hearing is violative of statutory provisions and principles of natural justice and is liable to be set aside. The requirement that the adjudicating authority record satisfaction of service on the face of the record is treated as binding in the circumstances. Conclusions: The impugned adjudication order is illegal and a nullity for lack of valid service and breach of natural justice; the order is set aside on that ground. Because the order is quashed on this fundamental ground, the Court did not find it necessary to adjudicate further issues for decision of the appeal. Issue 2 - Validity of service by e-mail and manner of proof of service Legal framework: Section 37C modes of service (personal tender, registered post/speed post/courier with proof, affixation) as applicable to service tax proceedings; principle that service must be effective and proved. Precedent treatment: The Court applied authority that absence of acknowledgment or statutory proof renders purported service invalid (citing Tribunal/High Court decisions to the effect that mere dispatch or electronic transmission without statutory proof does not amount to valid service). Interpretation and reasoning: The Court found that service by e-mail in the instant record lacked legal validity because it did not comply with the statutory modes enumerated in Section 37C and no proof of service under the statutory modes was placed on record. The adjudicating authority's reliance on departmental assertions or internal endorsements without demonstrable proof of statutory service was held insufficient. Ratio vs. Obiter: Ratio - Electronic transmission (e-mail) without compliance with statutory modes and appropriate proof cannot replace the mandated methods of service under Section 37C; absence of proof of service invalidates the proceedings. Conclusions: Service by e-mail, as shown in the record, did not satisfy statutory requirements and did not cure the defect of non-service; consequently, the ex-parte order could not stand. Issue 3 - Characterisation of separately charged educational material as sale of goods (negative list) and liability to service tax Legal framework: Section 65B(44) definition of 'service' (excludes transfer of title in goods/sale), Section 66B (charge of service tax on services), and Section 66D(e) (negative list including trading in goods) under the Finance Act, 1994. Precedent treatment: The Court referred to statutory text and earlier decisions emphasizing that service tax attaches only to services and not to sale/transfer of goods; trading of goods is a negative list item exempt from service tax. Interpretation and reasoning: The Court examined record entries showing amounts separately charged for educational material (books, brochures). Applying the statutory definition, the Court reasoned that transfer/sale of such goods constitutes sale of goods and falls outside the definition of 'service.' Since trading/sale is covered under the negative list, the value attributable to goods could not form part of the taxable value for service tax under Section 66B. The Court concluded that the demand treated that value as service value and was therefore unsustainable on substantive ground. Ratio vs. Obiter: Largely obiter with respect to the primary decision (setting aside the order for want of service), but the Court expressly held that amounts representing sale of educational material are not chargeable to service tax under the statutory scheme. Conclusions: Even on merits, the amounts corresponding to sale of educational material would not be subject to service tax because they represent sale/transfer of goods excluded from 'service' and covered by the negative list; therefore, demand on that component would not be sustainable. Relief and consequential directions Conclusion drawn from the foregoing: The impugned adjudication order is set aside for violation of statutory procedure and principles of natural justice (lack of proof of service of SCN and PH letters). Because the fundamental defect warrants quashing of the order, further contested issues need not have been decided for purposes of sustaining the order; nevertheless, the Court observed that the component of value relating to sale of educational material would not be chargeable to service tax. The appeal is allowed and consequential relief granted as per law.