2026 (1) TMI 1077 - AT - Service Tax

Classification of data analysis services for service tax: tribunal allows appeal where demand exceeded scope of show cause notice

Challenge to classification of data analysis services for service tax focused on whether demand exceeded the scope of the show cause notice and whether ... Scope of show cause notice - classification of taxable services - Demand of service tax on data analysis services under the category of ‘Survey and Exploration of Mineral, Oil & Gas Services’ under Section 65(104a) read with section 65(105)(zzv) - Benefit of doubt - allegation of suppression - HELD THAT:- The proposition is settled over the period that the authorities cannot go beyond the scope of the show cause notice to confirm the demand, contrary to what has been proposed therein. On that basis we uphold the submissions of the learned counsel for the appellant that the impugned order upholding the classification contrary to what was proposed in the show cause notice is not sustainable and needs to be set aside. The allegation of suppression is not sustainable as the Department itself was not clear on the classification of the services. The proposal for classifying the services in the SCN and the one adopted by the Adjudicating Authority substantiates the plea. In fact, in the later decision in the case of the appellant themselves [Final Order [2024 (4) TMI 36 - CESTAT NEW DELHI]], it was decided that the activity undertaken by the appellant with effect from June 1, 2007 the same pertains to mining services made taxable under Section 65(105)(zzzy) of the Act and service tax under TTA Service cannot be charged from the appellant prior to June 1, 2007. The issue being one of interpretation, the benefit of doubt should go in favour of the appellant. In the circumstances, no malafidies can be attributed to the appellant. We are afraid to agree with the justification given by the learned Special Counsel of the changed classification adopted by the Commissioner to maintain uniformity of classification. The Commissioner was required to adjudicate within the scope of the show cause notice and if he was of the view that the services in question are not covered under the proposed classification, the proper course was to drop the proceedings but he could not have substituted the classification on the basis of an earlier show cause notice dated October 23, 2008 alleging that the said services were classifiable under ‘Technical Testing and Analysis Services’. We are, therefore, of the view that the impugned order needs to be set aside as being beyond the scope of the show cause notice. The appeal is, accordingly allowed. Issues: Whether the adjudicating authority could confirm service tax by classifying the appellant's data processing and well-logging services under taxable categories different from those expressly alleged in the show cause notice (i.e., whether the impugned order is beyond the scope of the show cause notice).Analysis: The legal framework applied includes the settled principle that a show cause notice constitutes the foundational case for levy and recovery of service tax and limits the scope of adjudication. Authoritative decisions establish that no new case or classification that was not the subject of the SCN may be set up against the party; if the authority considers the proposed classification incorrect, the proper course is to drop proceedings or reissue a notice rather than substitute a different taxable category. The impugned adjudicating order confirmed tax under 'Technical Testing and Analysis Services' for the earlier period and 'Mining Services' with effect from June 1, 2007, whereas the SCN had proposed classification under 'Survey and Exploration of Mineral, Oil and Gas Services.' The adjudication therefore introduced classifications and findings that the appellant had not been required to meet in response to the SCN. The record also showed subsequent departmental treatment and voluntary payment for certain periods, but that did not validate adjudication beyond the SCN's allegations. Relevant legal consequences include that where the authority proceeds on a basis different from that in the SCN, the demand cannot be sustained and must be set aside, while benefit of doubt on interpretive issues favours the assessee.Conclusion: The impugned order is set aside as beyond the scope of the show cause notice; appeal allowed in favour of the assessee.