Service tax demand and penalties set aside as adjudication was vitiated by non-supply of show cause notice, offending principles of natural justice

Case Reference

M/s Essence Communication Pvt. Ltd. v. Commissioner of Central Goods and Services Tax, Audit-II, Delhi
Court: High Court of Delhi
Petition: W.P.(C)
Dispute Category: Service Tax Demand / CENVAT Credit / Violation of Natural Justice
Date of Judgment: 11 July 2024
Relevant Provisions: Section 78 of the Finance Act, 1994; principles of natural justice.

Facts

The petitioner challenged an Order-in-Original dated 12.03.2024 whereby the adjudicating authority confirmed service tax demand aggregating to ₹20.74 crore, disallowed CENVAT credit of ₹10.49 crore, and imposed equivalent penalties under Section 78 of the Finance Act, 1994. The gravamen of the petitioner’s case was that the foundational Show Cause Notice dated 26.11.2019 was never served upon it, thereby disabling any meaningful defence and rendering the adjudication procedurally void (paras 1–2).

The record disclosed that the petitioner, through its authorised representatives, repeatedly sought copies of the Show Cause Notice and connected correspondence on multiple occasions, including communications dated 15.12.2020, 29.12.2020, 28.06.2023, and an email dated 23.01.2024, consistently asserting non-receipt of the Show Cause Notice (paras 4–6).

Questions

The principal issue before the Court was whether an adjudication culminating in massive tax demands and penalties could be sustained when the assessee persistently asserted non-receipt of the Show Cause Notice and the department failed to re-supply the same, despite repeated requests, thereby violating audi alteram partem (paras 2–3).

Observations

The Court noted that although the department claimed service of the Show Cause Notice by speed post at the correct address, it was undisputed that the petitioner had, on at least three occasions, expressly communicated that the Show Cause Notice was never received and was not traceable. The Court declined to conduct a factual inquiry into actual service, holding that such an exercise was unnecessary in writ jurisdiction given the admitted position that the petitioner had repeatedly sought a copy of the Show Cause Notice (paras 6–7).

The Bench found no justification for the department’s failure to re-supply the Show Cause Notice, especially when the petitioner’s grievance was consistently placed on record. The Court emphasised that supply of the Show Cause Notice is not a mere procedural formality but the very foundation of adjudication, and denial thereof strikes at the root of fairness and due process (para 7).

Judgment

The High Court set aside the impugned Order-in-Original in its entirety and remanded the matter to the adjudicating authority for de novo consideration. The department was directed to furnish copies of the Show Cause Notice and other relied-upon communications within two weeks, grant reasonable time to the petitioner to respond, and thereafter pass a fresh order after affording a proper opportunity of hearing, preferably within eight weeks (paras 8–10).

Between Fine Lines (Trade & Industry Takeaway)

This ruling reinforces that adjudication under indirect tax laws cannot be sustained on presumptions of service when the assessee consistently disputes receipt of the Show Cause Notice. For industry, the judgment underscores that procedural safeguards—particularly effective service and access to relied-upon documents—are non-negotiable, and any breach thereof can nullify even substantively large tax demands.

Cases Referred – Summary Table

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