Natural justice: ex parte adjudication based solely on tax-return inputs must be set aside and matter remitted for reply.

An ex parte adjudication and recovery notice issued on the basis of automated inputs from income tax returns was set aside and the matter remitted to the stage of filing a reply, permitting the affected party to present evidence including an assertion that the demand was already satisfied. The remand requires fresh consideration of whether the services fall within the prescribed statutory classification, applicability of relevant exemptions and notifications, liability under the implementing rules, and any limitation bar, with specific directions to take prior bench observations into account.

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Issues: Whether the Order-in-Original (annexed adjudication) and consequent recovery notice, issued on the basis of information from income tax returns and without participation of the petitioner, are liable to be set aside and the matter remitted to the stage of filing reply to the show-cause notice.

Analysis: The impugned adjudication was examined in light of earlier directions and observations recorded in W.P. No.11154/2023 which required consideration of whether the services fall within Section 65B(44) of the Finance Act, 1994, whether they are on the negative list, whether exemptions such as Notification No.25/2012-ST dated 28.06.2012 apply, whether liability to remit service tax arises under Rule 2(1)(d) read with applicable notifications, and whether claims are barred by limitation. The petitioner asserted non-participation in the adjudication proceedings, bona fide lapse leading to inability to place evidence that the demand had been satisfied, and reliance was placed on the coordinate bench directions to relegate matters to the stage of reply to show-cause notice. Considering the assertion that the demand was already satisfied and the need for opportunity to file reply, the adjudication and recovery proceedings were reviewed and the matter was ordered to be returned to the stage of reply for fresh consideration by the officers, with specific directions that the observations in para-10 of W.P. No.11154/2023 be taken into account.

Conclusion: The Order-in-Original is set aside and the recovery notice is set aside; the matter is remitted to the stage of reply to the show-cause notice and the petitioner is permitted to file a fresh reply and appear before the designated authority.

Ratio Decidendi: Where an adjudication is rendered without participation and on the basis of automated inputs from tax returns, and the affected party asserts satisfaction of the demand and seeks opportunity to file reply, the appropriate remedy is to set aside the ex parte Order-in-Original and remit the matter to the stage of reply for fresh adjudication after considering statutory classifications, applicable notifications, and limitation.

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