Facts of the Case

  • Petitioner Status: The petitioner, M/s Ramky Speciality Chemicals and Equipment, is a proprietary concern (represented by its proprietor, Shri. Vajrala Ram Krishna) originally registered under the Karnataka Value Added Tax Act, 2004, and subsequently migrated into the Goods and Services Tax (GST) regime.
  • Origin of Dispute: The dispute arose from an Order-in-Original (No. 140/2022-23-SERVICE TAX) dated 28.12.2022/29.12.2022 passed by the Assistant Commissioner of Central Tax, West Division 5, Bengaluru.
  • Basis of the Impugned Order: The respondent authority passed the assessment order based on data/information shared by the Income Tax Department under an information-sharing agreement signed between the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC).
  • Procedural Deficiency: The impugned assessment order was passed ex-parte, without ensuring due and actual service of show-cause notices or providing a reasonable opportunity of hearing to the petitioner.
  • Delayed Judicial Recourse: The petitioner approached the High Court via a Writ Petition nearly three years after the passing of the impugned order, citing lack of knowledge due to non-service of notices.

Issues Involved

  • Maintainability of Writ Petition vs. Alternate Remedy: Whether a Writ Petition under Article 226/227 of the Constitution can be entertained despite the availability of an alternative statutory remedy of appeal under Section 107 of the Act, when an order is passed in gross violation of the principles of natural justice.
  • Validity of Ex-Parte Assessment Based on Inter-Departmental Data: Whether an assessment liability can be sustained when it is formulated solely on data shared between the CBDT and CBIC without providing the taxpayer an opportunity to cross-verify or explain the transactions.
  • Impact of Delay: Whether a substantial delay of nearly three years in filing the writ petition non-suits the petitioner when the root cause is the non-service of the initial notice and the subsequent denial of a fair hearing.

Petitioner’s Arguments

  • Violation of Principles of Natural Justice: The learned counsel for the petitioner argued that the impugned Order-in-Original was strictly an ex-parte order passed without the actual or due service of notice upon the taxpayer, effectively denying them their statutory right to a fair hearing.
  • Mechanical Reliance on Third-Party Data: It was contended that the department acted mechanically on data mismatch information received from the Income Tax Department under the CBDT-CBIC agreement, without conducting an independent verification or extending an active opportunity to the petitioner to demonstrate compliance.
  • Non-Taxability of Subject Transactions: The petitioner maintained that they proposed to rely on specific statutory provisions to establish that the subject transactions do not attract any tax liability under the Act, an explanation they were prevented from tendering due to the ex-parte nature of the proceedings.
  • Precedent Applicability: The petitioner placed strong reliance on a Co-ordinate Bench judgment of the Karnataka High Court in M/s. Karnataka Chinmaya Seva Trust Vs. Joint Commissioner of Central Tax (W.P. No.11154/2023) and W.P.No.20351/2024, where under similar circumstances of data-driven assessments, matters were restored for fresh consideration with due opportunities provided to the taxpayers.

Respondent’s Arguments

  • Availability of Alternate Remedy: The revenue pointed out that the order is a standard appealable order under Section 107 of the Act, and the petitioner should have ideally exhausted the statutory appellate channel rather than approaching the High Court directly.
  • Evolution of Departmental Mechanism: The learned Standing Counsel for the respondent submitted that while the undertaking in M/s. Karnataka Chinmaya Seva Trust was originally recorded to ensure designated officers looked into similar systemic grievances, the jurisdictional officer is fully empowered by the march of time to extend an appropriate opportunity and evaluate the merits of any cause shown by the taxpayer.

Court Order / Findings

  • Condonation of Delay and Curing of Procedural Defect: The High Court observed that despite the petition being filed almost three years after the date of the impugned order, the assertion of the petitioner regarding non-service of notice and the complete lack of opportunity could not be brushed aside.
  • Need for Multi-Dimensional Evaluation: The Court held that before a substantial financial liability is fastened on a taxpayer, all relevant statutory provisions and the true nature of transactions must be thoroughly considered by the adjudicating authority.
  • Partial Allowance & Remand: The High Court allowed the petition in part, quashing the impugned Order-in-Original dated 28.12.2022/29.12.2022. The entire proceedings were restored to the file of the respondent for fresh reconsideration.
  • Time-Bound Compliance Directions: The Court directed the petitioner to file their comprehensive response/objections with the respondent authority on or before June 22, 2026, without waiting for a certified copy of the order.
  • Protection Against Technical Dismissals: The Court explicitly ordered the respondent authority to evaluate all the facts and circumstances on merits without non-suiting the petitioner on the mere ground of limitation or delay.

Important Clarification

  • Natural Justice Trumps Alternative Remedy & Limitation: This judgment clarifies that the availability of an alternative remedy under Section 107 or the existence of a severe delay (three years in this case) does not bar the High Court from exercising its extraordinary writ jurisdiction if it is demonstrably clear that the taxpayer was condemned unheard (ex-parte).
  • CBDT-CBIC Data Requires Independent Adjudication: The ruling underscores that data fetched through CBDT-CBIC information sharing agreements merely serves as a starting point for investigation; it cannot be automatically translated into a tax demand without establishing proper service of notice and holding an active personal hearing.

Section Involved

  • Primary Legislative Enactment: Finance Act, 1994 (Service Tax provisions).
  • Appellate Provisions: Section 107 of the Act (Alternative remedy for appeal against Order-in-Original).
  • Constitutional Jurisdictions Invoked: Articles 226 and 227 of the Constitution of India (Writ Jurisdiction for violation of natural justice).

Link to download the order - https://mytaxexpert.co.in/uploads/1783063412_348compressed.pdf

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