Karnataka HC Sets Aside Ex Parte Service Tax Order as No Opportunity of Hearing Was Granted

Srinivas Engineering Works Vs Additional Commissioner of Central Tax (Karnataka High Court)

The Karnataka High Court partly allowed a writ petition challenging an Order-in-Original dated 13.12.2022 passed under the Finance Act, 1994, along with the consequential demand for service tax, interest, and penalty. Although the order was appealable under Section 107 of the Act, the petitioner invoked the writ jurisdiction of the High Court, contending that the impugned order had been passed ex parte without due service of notice or an opportunity of hearing.

The petitioner further submitted that the proceedings were based on information furnished by the Income Tax Department pursuant to an arrangement between the Central Board for Direct Taxes and the Central Board for Indirect Taxes. Reliance was placed on earlier decisions of the High Court where similar matters had been restored for reconsideration after granting due opportunity.

The Court observed that, despite the petition being filed nearly four years after the impugned order, the petitioner’s assertion regarding lack of notice and denial of opportunity required consideration. The Court also noted that the petitioner intended to rely upon statutory provisions to contest the underlying tax liability. Holding that these circumstances ought to be examined before fastening liability, the Court quashed the Order-in-Original and demand notice, restored the proceedings for fresh consideration, and directed that the petitioner should not be non-suited on the ground of delay.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

The petitioner is aggrieved by the Order-in-Original dated 13.12.2022 under the Finance Act, 1994 [for short, ‘the Act’]. The petitioner cannot dispute that this is an order that could be appealed under Section 107 of the Act, but the petitioner has invoked this Court’s jurisdiction relying upon the judgment of a Co-ordinate Bench of this Court in 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.

2. Mr. G. Venkatesh, the learned counsel for the petitioner, submits that the impugned Order-in-Original is an ex parte order without due service of notice and is based on an information furnished by the Income Tax Department acting under an agreement signed between the Central Board for Direct Taxes and the Central Board for Indirect Taxes but without due opportunity. The learned counsel argues that in very similar circumstances based on an undertaking given by the concerned from the department, a Co-ordinate Bench of this Court has disposed of the writ petition in W.P.No.11154/2023 and other matters [such as in W.P.No.20351/2024] restoring the proceedings for reconsideration with due opportunity.

3. Mr. Aravind V. Chavan, a learned Standing counsel who is called upon to accept notice for the respondent, is heard and when queried, the learned counsel submits that the undertaking as recorded in W.P.No.11154/2023 was to ensure that the designated officers looked into complaints of similar nature but with march of time, the jurisdictional Officers, such as the respondent in the present case, are empowered to extend an opportunity and decide on the merits of the cause that could be shown.

4. This Court finds that the outcome in the writ petition must turn in the light of the afore circumstances notwithstanding the fact that the petition is filed almost four years from the date of the impugned order because the petitioner asserts that it has not been served with notice or been extended an opportunity othwerwise, and more importantly, the petitioner proposes to rely upon the statutory provisions to contend that the subject transaction does not result in any consequence to pay certain taxes. This Court finds that all these circumstances must be considered before a liability is fastened on the petitioner. Hence the following:

ORDER

[A] The petition is allowed-in-part and the impugned Order-in-Original and the demand notice for service tax, interest and penalty dated 13.12.2022 [Annexure – A] are quashed restoring the proceedings to the respondent for reconsideration.

(B) The petitioner shall, without further notice, file response, if any, with the respondent by 06.2026 even without waiting for a certified copy of this order.

(C) The respondent shall consider all the circumstances without non-suiting the petitioner on the ground of delay.