Karnataka High Court Quashes Ex Parte Service Tax Demand and Remands Matter for Reconsideration
Background and Context
The decision in Srinivas Engineering Works Vs Additional Commissioner of Central Tax before the Karnataka High Court concerns a challenge to an Order-in-Original passed under the Finance Act, 1994, which had raised a demand towards service tax, interest, and penalty. The impugned order, dated 13.12.2022, was questioned through a writ petition rather than by resorting to the statutory remedy of appeal.
Though the assessee had an avenue of appeal under Section 107 of the Act, the High Court was approached under its writ jurisdiction under Articles 226 and 227 of the Constitution. The core grievance was that the adjudication culminating in the Order-in-Original had been carried out ex parte, allegedly without proper service of notice or a meaningful opportunity of personal hearing.
The proceedings had apparently been triggered on the basis of data or information supplied by the Income Tax Department, in line with an information-sharing framework between the Central Board for Direct Taxes (CBDT) and the Central Board for Indirect Taxes (CBIC). The assessee contended that, despite the use of such shared information, the basic requirements of natural justice — notice and hearing — were not complied with.
Issues Raised Before the Court
1. Maintainability of Writ Despite Availability of Appeal
The first question was whether the High Court should entertain a writ petition when an appellate remedy under Section 107 of the Finance Act, 1994 was available. The department’s position implicitly rested on the principle that the assessee ought to have filed an appeal rather than directly invoking writ jurisdiction.
The assessee, however, argued that:
- The
Order-in-Originalwas an ex parte order. - There was no effective service of notice prior to passing the order.
- No real opportunity of hearing was furnished.
On this footing, the assessee urged that the writ was maintainable, especially since the challenge was rooted in breach of natural justice rather than purely on merits of tax computation.
2. Ex Parte Order and Alleged Lack of Notice
The assessee asserted that:
- The adjudicating authority proceeded without ensuring proper service of show cause notice.
- The impugned
Order-in-Originaldated 13.12.2022 was passed without giving the assessee an opportunity to present its defence. - The process relied primarily on information supplied by the Income Tax Department under an arrangement between CBDT and CBIC, but this did not dispense with the obligation to follow due process under the Finance Act, 1994.
3. Reliance on Precedent – Karnataka Chinmaya Seva Trust
The assessee placed heavy reliance on a prior judgment of the same Court, namely:
M/s. Karnataka Chinmaya Seva Trust Vs. Joint Commissioner of Central Tax in W.P. No.11154/2023 and connected matters dated 03.07.2024
Further reference was made to connected writ petitions such as W.P.No.20351/2024, where similar issues of ex parte orders founded on information from the Income Tax Department had arisen.
In those earlier matters:
- The concerned departmental officers had given undertakings before the Court.
- Based on those undertakings, the Court had ordered restoration of proceedings for fresh consideration with full opportunity to the concerned assessees.
The assessee in the present case, therefore, urged that the same approach should be adopted and the impugned order be set aside with a direction for reconsideration on merits after granting adequate hearing.
Submissions on Behalf of the Parties
Petitioner’s (Assessee’s) Submissions
Counsel for the assessee, Mr. G. Venkatesh, made the following key points: