2026 (1) TMI 1159 - AT - Service Tax

Service tax show cause notices challenged for defective service and CBIC verification failure; impugned demand set aside on voluntary payment.

Quasi-judicial proceedings were found defective for failure to demonstrate proof of service of show cause notices and for non-compliance with CBIC ... Legality of quasi-judicial proceedings and principles of natural justice (service of show cause notice and proof of delivery) - Indiscriminate issuance of show cause notices and departmental verification of ITR-TDS reconciliation (CBIC instructions dated 26.10.2021) - Maintainability of appeals vis-à-vis threshold under second proviso to Section 35B(1) - Extended period assessment and recoverability of duty - Penalties and interest under the Finance Act, 1994 - Service of notices u/s 37C of the Central Excise Act, 1944 as made applicable by Section 83 of the Finance Act, 1994 - HELD THAT:- Appellant had claimed before the authorities below that they had not been served with the SCN and it is also a fact that there is no ‘proof of delivery’ of the SCN having been served on the appellant in terms of Section 37C of the Central Excise Act, 1944 as made applicable to matters of service tax under Section 83 of the Finance Act, 1994. In my considered view that due process of quasi-judicial proceedings in observing the principles of natural justice had not been followed in the present case. Further, the instruction of CBIC dated 26.10.2021 had not been followed diligently by the service tax authorities as required, and rather such instructions have been violated in the present case, as neither there was proper verification of the facts nor there was any attempt to check indiscriminate issue of SCNs, as two notices have been issued to the very same appellant, that too on the same day. The above situation also indicates that there was no attempt by any senior/supervisory officials to devise any mechanism to monitor or address such indiscriminate issue of SCNs. Appellant has fulfilled all the requirements for discharge of service tax liability as determined in the ex-parte adjudication proceedings. There are no strong grounds to hold that the appellants did not pay service tax in respect of the differential amount identified by the Department for the period 2014-2015, had proper opportunity to explain their case was given by the authorities below and as instructed by CBIC circular, if the departmental authorities would have conducted verification of facts during adjudication process. Therefore, do not find any merits in the impugned order of the learned Commissioner (Appeals) in upholding the order of the original authority for confirmation of adjudged demands including imposition of penalties on the appellant and in rejecting the appeal filed by the appellant. Therefore, the impugned order is liable to set aside as it does not stand the scrutiny of law. In the result, the impugned order is set aside and the appeal filed by the appellants is allowed on the basis of their voluntary payment of differential service tax amount into the account of Government exchequer Issues: (i) Whether the appellant is liable to pay service tax on the differential value of renting of immovable property services determined by reconciliation of ST-3 returns with ITR-TDS data for FY 2015-16; (ii) Whether the impugned appellate order dated 14.11.2023 upholding the original adjudication order confirming demands and penalties is correct.Issue (i): Liability to pay service tax on the differential value derived from ITR-TDS versus ST-3 returns for FY 2015-16.Analysis: The adjudication confirmed demand based solely on difference between ITR-TDS figures and ST-3 returns without independent documentary proof that taxable services were rendered, and adjudication proceeded ex parte without proof of valid service of the show cause notice in terms of statutory requirement. CBIC instructions requiring reconciliation and factual verification before issuing SCNs were applicable at the adjudication/appeal stage. The appellant made voluntary payment of the differential service tax into government account.Conclusion: Liability as adjudged cannot be sustained on the basis relied upon by revenue; having regard to voluntary payment of the disputed amount, the appellant's tax liability as determined by the adjudication is effectively discharged for the purposes of relief.Issue (ii): Correctness of the impugned appellate order upholding confirmation of demands and penalties.Analysis: The impugned order affirmed the original order without adequate appreciation of whether the SCN had been validly served and without independent examination of documents or factual reconciliation as required by departmental instructions. The original authority had issued duplicate SCNs and adjudicated on ex parte basis without establishing proof of service, thereby raising natural justice concerns. The appellant's grounds and documentary position were not properly considered by the authorities below.Conclusion: The impugned order is unsustainable and is set aside; the appeal is allowed in favour of the appellant.Final Conclusion: The appellate relief granted sets aside the confirmation of demands and penalties and allows the appeal, the practical effect being that the disputed tax demand stands discharged by the appellant's voluntary payment and the departmental orders are vacated insofar as they confirm demands and penalties.Ratio Decidendi: Valid service of show cause notice and proper factual verification (including reconciliation of ITR-TDS and ST-3 data) are indispensable for sustaining ex parte adjudication; failure to prove service and to follow verification instructions renders confirmation of demands and penalties unsustainable.