The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that non-service of a show cause notice strikes at the very root of adjudication proceedings under Section 73 of the Finance Act, 1994, rendering the entire proceedings unsustainable.

The bench of Ajay Sharma (Judicial Member) ruled that participation in appellate proceedings cannot retrospectively cure the fundamental defect arising from failure to serve the show cause notice, emphasizing that the statutory right to defend begins at the stage of issuance and service of the notice itself. 

The appeal arose from an Order-in-Appeal dated January 31, 2025, by the Commissioner (Appeals), Pune, which had partly modified the original adjudication order by reducing the service tax demand to ₹1,52,243, while sustaining the liability along with equal penalty and applicable interest.

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The dispute related to the financial year 2015-16, for which the department had issued a show cause notice dated December 28, 2020, invoking the extended limitation period under Section 73(1) of the Finance Act, 1994. However, the appellant contended that the notice was never served, and consequently the adjudication order dated June 29, 2024, was passed ex parte without any opportunity to file a reply or contest the allegations. 

The appellant argued that he first became aware of the existence of the show cause notice only upon receiving the adjudication order on July 5, 2024. Before the Commissioner (Appeals), he specifically raised the plea that the notice had never been served and that the proceedings violated the principles of natural justice.

The Commissioner (Appeals), however, rejected the contention on the ground that adequate opportunities had subsequently been provided during the appellate proceedings. The appellant challenged this finding before the Tribunal, asserting that subsequent participation in appellate proceedings cannot rectify the foundational defect caused by non-service of the show cause notice.

During the hearing, the Tribunal directed the department to produce evidence establishing that the show cause notice had in fact been served.

In response, the department produced a communication from the Assistant Commissioner stating that while the show cause notice had been issued under a Document Identification Number (DIN), the office copy did not contain any dispatch number and its dispatch could not be verified. The department failed to produce Dispatch register entries, Postal receipts, Speed Post acknowledgements, Acknowledgement due cards, Delivery reports, or Any other documentary evidence proving service of the notice.

The Tribunal observed that the department itself admitted its inability to verify dispatch of the notice, thereby failing to discharge its statutory burden of proving service. 

The Tribunal emphasized that service of a show cause notice is not an empty procedural formality but the very foundation of adjudication under Section 73.

It observed that unless a notice is duly served, the assessee is deprived of valuable statutory rights, including Filing a detailed reply, Producing documentary evidence, Contesting the allegations, and Availing an effective personal hearing.

Proceedings conducted without valid service, therefore, amount to a clear violation of the principles of natural justice. 

A significant aspect of the ruling is the Tribunal’s interpretation of Section 73 of the Finance Act.

The Bench noted that the statute consciously uses the expression “serve notice” rather than merely “issue notice.”According to the Tribunal, this distinction is deliberate and legally significant.

Merely preparing or issuing a notice does not satisfy the statutory requirement. The department must establish that the notice was actually served in accordance with law, and the burden of proving such service squarely rests upon the revenue authorities.

In the absence of proof of dispatch or delivery, production of a copy of the notice alone cannot substitute the mandatory requirement of service. 

Rejecting the reasoning adopted by the Commissioner (Appeals), the Tribunal held that opportunities granted during appellate proceedings cannot validate adjudication initiated in violation of mandatory statutory requirements.

The Bench observed that the right to defend begins at the stage of the show cause notice itself, and appellate proceedings cannot substitute the adjudication process contemplated under Section 73 or retrospectively cure defects arising from non-service of the notice. 

The Tribunal further held that once it is established that the show cause notice was never served, the proceedings become unsustainable not only because of violation of natural justice but also because the statutory requirement of service within the limitation period remains unfulfilled.

Since the department failed to establish that the notice had been served even within the extended limitation period under Section 73, the Tribunal concluded that the demand itself was barred by limitation. 

The CESTAT set aside the Order-in-Appeal dated January 31, 2025, and held that the proceedings initiated pursuant to the unserved show cause notice were unsustainable in law. The Tribunal granted consequential relief to the appellant in accordance with law. 

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