Service tax demand beyond the show cause notice was held prima facie unsustainable, leading to waiver of pre-deposit and stay of recovery.

An interim service tax dispute arose over whether the adjudged demand and penalties travelled beyond the allegations in the show cause notice. The CESTAT noted that the impugned order rested on grounds not set out in the notice, while the original adjudication had involved exemption notifications and the application of tax payment under Section 68(2) of the Finance Act, 1994. On prima facie review, the liabilities were found inconsistent with the notice and therefore not sustainable at the stay stage. Pre-deposit of the adjudged dues was waived and recovery was stayed pending disposal of the appeals.

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Issues: Whether the adjudged service tax demand and penalties were prima facie unsustainable for having travelled beyond the proposals in the show cause notice, so as to justify waiver of pre-deposit and stay of recovery.

Analysis: The impugned order proceeded on grounds not contained in the show cause notice, whereas the original adjudication had rested on the availability of exemption notifications and the applicability of tax payment under Section 68(2) of the Finance Act, 1994. On a prima facie review, the adjudged liabilities were found not to be in accordance with the notice and therefore not sustainable at the interim stage.

Conclusion: Pre-deposit of the adjudged dues was waived and recovery was stayed pending disposal of the appeals.

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