Service Tax Demand Quashed Due to Improper Service of SCN and Adjudication Order

Overview of the Tribunal’s Decision

The CESTAT Mumbai in One Vibgyor Limited Vs Commissioner of CGST set aside a service tax demand on the ground that the Show Cause Notice (SCN) and the Order-in-Original (OIO) were not validly served on the assessee. The Tribunal further noted that the assessee had already paid the differential service tax amount pointed out by the department, and therefore no confirmed demand could survive. As a result, the appeal was allowed and the impugned order of the Commissioner (Appeals) was quashed.

This decision highlights two key legal aspects:

  • Strict compliance with the statutory provisions regarding service of orders and notices under Section 37C of the Central Excise Act, 1944 (made applicable to service tax via Section 83 of the Finance Act, 1994).
  • Computation of limitation for filing appeals under Section 85(3A) of the Finance Act, 1994, based on the actual date of receipt of the adjudication order, not merely its date of dispatch.

Factual Background

Nature of Business and Registrations

  • The assessee, M/s One Vibgyor Limited (earlier known as M/s Rosoft Limited), is engaged in providing “Information technology design and development services”.
  • It held Service Tax Registration No. AAACA3634PSD001 under the service tax regime.
  • For income tax purposes, it held PAN No. AAACA3634P.
  • With the shift to GST, the assessee obtained GSTIN 27AAACA3634P2ZG.
  • The earlier GSTIN 27AAACA3634P1ZH, in the name of M/s Rosoft Limited, became inactive upon change of name, though the registered office address remained unchanged.

Departmental Verification and Alleged Service Tax Short Payment

During departmental verification of:

  • ST-3 returns for the period October 2013 to March 2014, and
  • Income Tax Return (ITR) / TDS data as per Form 26AS for the same period,

the department observed:

  • The ST-3 return disclosed ‘Nil’ taxable value of services.
  • The ITR reflected service income of Rs. 25,11,236/-.

On that basis, the department concluded:

  • The assessee failed to declare taxable turnover of Rs. 25,11,236/- in its ST-3 return.
  • Service tax of Rs. 3,10,389/- at 12.36% was allegedly unpaid for this period.

Issuance of Show Cause Notice and Ex-Parte Adjudication

  • An SCN dated 18.04.2019 was issued proposing to demand service tax of Rs. 3,10,389/- along with interest and penalties.

  • According to the department, no reply was received and the assessee did not appear for personal hearing.

  • Treating the non-response as deemed acceptance of allegations, the Assistant Commissioner, Division-III, Mumbai East CGST & Central Excise passed Order-in-Original dated 28.05.2021, confirming:

    • Service tax demand of Rs. 3,10,389/- under Section 73(1) of the Finance Act, 1994.
    • Interest under Section 75.
    • Penalty of Rs. 10,000/- under Section 77(1)(d) for non-payment of tax electronically.
    • Penalty equal to the tax amount (Rs. 3,10,389/-) under Section 78, with the statutory benefit of reduced penalty @ 25% if dues were paid within 30 days of receipt of the order.

Recovery Proceedings and First Time Knowledge of OIO

  • On 04.01.2023, the Superintendent, Range-IV, Division-III, Mumbai East Commissionerate issued a recovery letter treating the adjudicated amount as arrears.

  • In response, vide letter dated 23.01.2023, the assessee categorically stated:

    • It had never received the SCN dated 18.04.2019.
    • It had never received the OIO dated 28.05.2021 by post or by e-mail.
    • Copies of the SCN and OIO were requested.

The assessee asserted that it became aware of the OIO for the first time on 23.01.2023.

Appeal Before Commissioner (Appeals) and Rejection on Limitation

Filing of Appeal and Condonation Request

  • The assessee filed an appeal before the Commissioner (Appeals) on 28.03.2023 against the OIO dated 28.05.2021.

  • Along with the appeal, an Application for Condonation of Delay was filed, explaining:

    • The OIO was not received earlier and came to its notice only after recovery reminders in January 2023.
    • Copy of the order was obtained on 23.01.2023.
    • Time was required to:
      • Reactivate or recreate service tax login credentials.
      • Arrange funds for mandatory pre-deposit, as business operations had been discontinued.

  • The assessee made pre-deposit by paying Rs. 3,10,389/- as per Section 35F (made applicable via Section 83).

Findings of the Commissioner (Appeals)

  • The Commissioner (Appeals) recorded that:

    • The appeal was filed on 28.03.2023.
    • The OIO was “issued” on 01.06.2021 (for limitation computation).
    • Under Section 85(3A) of the Finance Act, 1994, the appeal had to be filed within 2 months from the date of receipt, with a further condonable period of 1 month.

  • Treating the appeal as filed 605 days late (excluding the statutory 60 days), the Commissioner (Appeals):