Facts of the Case

This case concerns the pre-GST Service Tax regime, not GST — the tax period in dispute is 2014-15, and the demand was raised under the Finance Act, 1994. M/s. Sri Lakshmi Gayathri Fabs challenged an ex-parte Order-in-Original dated 31.01.2023, passed by the Deputy Commissioner of Central Tax, Gachibowli, which assessed short payment of taxable services amounting to Rs. 23,54,001, along with a penalty of Rs. 10,000 under Section 77 of the Finance Act, a late fee of Rs. 40,000 for delayed returns under Section 70, and a further penalty of an equal amount (Rs. 23,54,001) under Section 78. The petitioner's establishment had closed and its registration had been surrendered in 2014 itself; the petitioner contended that the show cause notice was never served on it, so it never had a chance to respond before the order was passed.

Issues Involved

  1. Whether the impugned Service Tax order, passed without proof that the underlying show cause notice was served on the petitioner, violated principles of natural justice.

Petitioner's Arguments

  • The impugned order was passed without affording a fair and reasonable opportunity of hearing, since the show cause notice was never served on the petitioner.
  • The petitioner's establishment had closed and its registration was surrendered in 2014, well before the notice was issued in 2022.

Respondent's Arguments

  • The department's counsel, on instruction, confirmed that a show cause notice had been sent on 22.09.2022, but could not point to any endorsement or proof that it was effectively served on the petitioner.

Court Order / Findings

  • The Court examined the impugned order and found no evidence that the show cause notice dated 22.09.2022 (or any subsequent notice) had been duly served on the petitioner.
  • Since the petitioner had surrendered its registration in 2014 due to closure of business, the Court accepted that the show cause notice was not effectively served, denying the petitioner a fair opportunity to defend itself.
  • The writ petition was allowed and the impugned Order-in-Original dated 31.01.2023 was set aside solely on the ground of violation of natural justice.
  • The Court directed that the set-aside order itself be treated as a fresh show cause notice, giving the petitioner four weeks (until 06.11.2023) to respond, after which the Deputy Commissioner was to decide the matter afresh considering the petitioner's contentions.

Important Clarification

This order is about Service Tax under the pre-GST Finance Act, 1994 regime, for a period (2014-15) that predates GST entirely — it has no bearing on any GST law question. The takeaway that does carry over is procedural: an ex-parte tax order passed without proof of service of the show cause notice can be set aside on natural justice grounds and remanded for a fresh opportunity to respond.

Sections Involved

  • Finance Act, 1994 — Sections 70, 77 and 78 (Service Tax provisions)
  • Constitution of India — Article 226; principles of natural justice

Decision – In Favour of

Allowed in favour of the petitioner to the extent of setting aside the ex-parte order on natural justice grounds; the matter was remanded for a fresh decision on merits, not finally decided.

Case Details

Court: High Court for the State of Telangana at Hyderabad  |  Case No.: Writ Petition No. 27269 of 2023 with IA No. 1 of 2023  |  Coram: Hon'ble Sri Justice P. Sam Koshy and Hon'ble Sri Justice Laxmi Narayana Alishetty  |  Date: 5 October 2023

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