Service Tax Demand on Farm Trading Turnover Remanded: Karnataka HC

Sudarshan Reddy Dhanireddy Vs Additional Commissioner of Central Tax (Karnataka High Court)

Summary: Karnataka High Court partly allowed the writ petition challenging the Order-in-Original dated 06.02.2023 passed under Section 73 of the Finance Act, 1994. The adjudication order was based on information received from the Central Board of Direct Taxes. The petitioner contended that no Show Cause Notice had been served and submitted that, had such notice been served, he could have demonstrated that the returns reflected in his Income Tax Returns arose from trading in farm products which, according to him, were exempt from Goods and Services Tax. Reliance was placed on M/s. Karnataka Chinmaya Seva Trust Vs. Joint Commissioner of Central Tax, W.P. No.11154/2023 and connected matters dated 03.07.2024, where proceedings in similar circumstances had been restored for reconsideration with an opportunity to file a detailed response and produce documents, as well as an Order dated 28.08.2025 in W.P. No.24577/2025. The respondents pointed to the finding in paragraph 7 of the impugned order that the petitioner had neither filed a response nor attended personal hearings.

The High Court, however, considered it crucial that the question whether the turnover of the petitioner’s services, described as trading in farm products, would be exigible to service tax had not been examined. It held that this aspect required due consideration before a sustainable liability could arise. Accordingly, the Court quashed the Order-in-Original dated 06.02.2023 and restored the proceedings to the first respondent for reconsideration. The petitioner was directed to file his response, if any, by 08.10.2026 without further notice and without waiting for a certified copy of the order. The first respondent was directed to consider all the circumstances without non-suiting the petitioner on the ground of delay.