Unproven service of a show-cause notice vitiates ex parte service-tax proceedings and warrants fresh adjudication.

The petitioner’s proprietorship reported gross receipts/income of ₹1,37,05,363 for FY 2014–15 and ₹1,36,93,440 for FY 2015–16 in its income-tax returns.

The Department issued a show-cause notice dated 25 September 2020 demanding service tax of ₹16,93,982 and ₹19,85,548 for the respective financial years, along with interest and penalties.

The proceedings were adjudicated ex parte on 29 March 2022, resulting in confirmation of a total service-tax demand of ₹36,79,531, interest, penalties under Section 78, and other penalties.

The petitioner contended that the show-cause notice and subsequent hearing communications had never been served.

The Appellate Authority dismissed the petitioner’s appeal on 15 March 2024 as time-barred under the proviso to Section 85(3A).

During the writ proceedings, the Department admitted that no postal receipt evidencing service was available and stated that communications had been sent to an email address obtained from the Income Tax Department.

The petitioner denied having access to or receiving communications at that email address.

Whether the Department established valid service of the show-cause notice dated 25 September 2020 upon the petitioner before passing the ex parte adjudication order?

Whether the appellate order dismissing the petitioner’s appeal as barred by limitation could stand when the underlying show-cause notice and adjudication proceedings were not shown to have been served upon the petitioner?

Whether the show-cause notice and appellate order were liable to be quashed, with the matter being remanded for fresh proceedings after proper notice and hearing?

The Court applied the provisions concerning adjudication and recovery of service tax, interest, penalties, and appellate limitation, namely Sections 73(1), 75, 77(1)(a), 77(1)(c), 77(2), 78 and 85(3A) of the statute referred to in the judgment as the “Income Tax Act”.

The governing procedural principle was that a show-cause notice and hearing opportunity must be effectively served before ex parte adjudication and imposition of tax, interest, and penalties; limitation for an appeal cannot be used to sustain proceedings where foundational notice is not proved.

The Court also applied the principles of natural justice, particularly the requirement of reasonable notice and a meaningful opportunity of hearing.

The Court noted that although the Department claimed to have sent the show-cause notice by post and later communications by email, it could not produce any postal receipt establishing service.

The Department’s own affidavit confirmed that the email address had been obtained from the Income Tax Department rather than being shown as the petitioner’s operative address on the relevant GST/service-tax records.

In view of the petitioner’s categorical denial and the absence of reliable proof that the notice had reached him, the Court held that the Department had failed to establish valid service of the foundational show-cause notice.

Consequently, the ex parte adjudication and the appellate dismissal on limitation could not be sustained, since the petitioner had not been afforded a proper opportunity to contest the demand.

It quashed and set aside the show-cause notice dated 25 September 2020 in SCA No. 8226 of 2024 and the appellate order dated 15 March 2024.

In the connected petitions, the corresponding show-cause notices dated 28 December 2020 and appellate orders dated 15 March 2024 were likewise quashed.

The matter was remanded to the Department to issue a fresh show-cause notice to the petitioner at hnshahlawyer@gmail.com, after which the petitioner was directed to respond promptly and cooperate with the proceedings.

The authority was directed to pass an appropriate order after hearing the petitioner within twelve weeks.