Effective hearing is essential before confirming service tax demands and penalties; ex parte adjudication requires fresh consideration of submissions

Effective adjudication of service tax demands and penalties requires a real and reasonable opportunity to reply to the show cause notice and to be heard. Fixing a final hearing during Covid-19 restrictions may be insufficient where it does not establish an effective hearing opportunity. Written explanations previously submitted must also be considered in the adjudication order. Where taxability and the applicability of the extended period involve arguable legal interpretation, those issues require proper consideration after hearing the affected party. An ex parte adjudication lacking these safeguards breaches natural justice and should be set aside for fresh decision after granting an effective hearing.

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Issues: Whether the ex parte adjudication confirming service tax demand and penalties without reasonable opportunity to reply to the show cause notice and to be heard was sustainable.

Analysis: The order fixing final hearing during the Covid-19 restriction period was found insufficient to establish a real and effective opportunity of hearing. The appellant's earlier written explanation furnished in response to summons was also not dealt with in the adjudication order. The dispute on taxability of royalty and the applicability of the extended period involved an interpretational controversy, and those aspects required proper consideration by the adjudicating authority after hearing the appellant. In these circumstances, the adjudication was found to have contravened the principles of natural justice.

Conclusion: The ex parte order was unsustainable for breach of natural justice and was set aside, with the matter directed to be decided afresh after granting proper hearing; this issue was decided in favour of the assessee.

Ratio Decidendi: An adjudication order confirming tax demand and penalties cannot be sustained where reasonable opportunity to reply and to be heard is not effectively afforded, particularly when material written submissions remain unconsidered and the dispute involves arguable issues of legal interpretation.

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