The Karnataka High Court has set aside an ex-parte service tax adjudication order passed against a taxpayer and remanded the matter back to the stage of reply to the show cause notice, while reiterating that authorities must examine several substantive legal issues before proceeding with adjudication. 

The bench of Justice S Sunil Dutt Yadav emphasized that where proceedings are initiated on the basis of information received from the Income Tax Department, authorities must independently examine the taxability aspects under the service tax regime instead of mechanically proceeding on the basis of such inputs. 

The order was passed by Justice S. Sunil Dutt Yadav in a writ petition challenging an Order-in-Original dated December 23, 2022, along with a consequential notice issued in December 2025. The petitioner had approached the Court seeking quashing of the adjudication order passed under the provisions of the Finance Act, 1994. 

According to the petitioner, the service tax proceedings had originated solely on the basis of inputs received from the Central Board of Direct Taxes (CBDT) from income tax return data. It was argued that similar proceedings had previously come before the Court where adjudication initiated merely on CBDT inputs had been reconsidered and remanded. 

The High Court referred to its earlier order dated July 3, 2024, passed in W.P. No.11154/2023 and connected petitions, where several service tax matters had been remanded for fresh consideration with specific observations to guide adjudicating authorities. 

The Court noted that in the present case the impugned order had admittedly been passed ex-parte. It observed that no reply had been filed to the show cause notice and the petitioner had also not availed the opportunity of personal hearing. 

While considering the matter, the Court reproduced and relied upon its earlier directions requiring officers to examine several critical legal questions before finalizing service tax demands. These included determining whether the activities involved qualified as “service” under Section 65B(44) of the Finance Act, 1994; whether such services fell under the negative list; whether exemptions under Notification No. 25/2012-ST dated June 28, 2012 or any other applicable notifications were available; whether liability existed under Rule 2(1)(d) and relevant notifications; and whether demands were barred by limitation based on Supreme Court jurisprudence. 

Importantly, the Court clarified that disposal of such matters should not be interpreted as adjudication of issues on merits or jurisdiction and that all contentions of both parties would remain open for consideration. 

Applying the principles laid down in the earlier batch of cases, the Court held that the impugned Order-in-Original deserved to be set aside. It remitted the matter back to the stage of replying to the show cause notice and directed authorities to consider the observations made in the previous judgment while undertaking fresh adjudication. 

The Court further granted liberty to the petitioner to submit a fresh reply to the show cause notice and directed appearance before the concerned authority on May 4, 2026 without waiting for any separate notice. 

Case Details

Case Title: M/S. BLUE DIAMOND PROPERTIES LIMITED Versus THE COMMISSIONER OF CENTRAL TAX

Citation: JURISHOUR-1397-HC-2026(KAR) 

Case No.: WRIT PETITION NO. 6222 OF 2026 (T-RES)

Date:  01/05/2026

Counsel For Appellant: DR. SHEETAL BARKAR., ADVOCATE

Counsel For Respondent:  JEEVAN J. NEERALGI., ADVOCATE

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