Commissioner of Service Tax Vs 3I Infotech Ltd. (Supreme Court of India)
Supreme Court held that levy of penalty on the basis of a show cause notice containing a completely erroneous category of service is illegal.
Facts- These appeals arise out of service tax demands on the basis of four Show Cause Notices. The notices were issued under Section 73 of the Finance Act, 1994 for the demand of service tax.
By the impugned judgment dated 18th September 2018, CESTAT held that the services subject matter of dispute were classifiable under the category of “Information Technology Software” with effect from 16th May 2008 and for the earlier period up to 15th May 2008, the same services were classifiable under the category of “Intellectual Property Service”. The Tribunal held that the show cause notice dated 19th October 2019 covering the period up to 16th May 2008 was not justified. However, the Tribunal, for the period on and after 16th May 2008 passed a limited order of remand.
Civil Appeal No. 4007 of 2019 has been preferred by the Revenue against the same order and Civil Appeal No. 7155 of 2019 has been filed by the assessee.
Conclusion- The classification mentioned in the first show-cause notice was completely erroneous. Therefore, CESTAT was right in holding that the first show cause was illegal. Elementary principles of natural justice require that the adjudication on the basis of show cause notice should be made only on the basis of classification stated in the show cause notice. Assessee cannot be subjected to a penalty on the basis of a show cause notice containing a completely erroneous category of service. Therefore, the demand made on the basis of the first show cause notice was illegal.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. These two appeals arise out of service tax demands on the basis of four Show Cause Notices. The notices were issued under Section 73 of the Finance Act, 1994 (for short “the Finance Act”) for the demand of service tax. The brief particulars of Show Cause Notices are as under:
