The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand after holding that the Department failed to establish that the show cause notice (SCN) had ever been served on the assessee. 

The bench of Ajay Sharma (Judicial Member) ruled that mere issuance of a notice is not sufficient under Section 73 of the Finance Act, 1994, as the statute specifically requires that the notice must be served upon the taxpayer before adjudication proceedings can lawfully continue. 

The appeal arose from an order passed by the Commissioner (Appeals), Pune, who had partly modified the original adjudication order by reducing the service tax demand to ₹1,52,243, along with an equivalent penalty and applicable interest. The appellant challenged the order primarily on the ground that the show cause notice dated 28 December 2020had never been served upon him, resulting in an ex parte adjudication without any opportunity to defend himself. 

the appellant contended that he had no knowledge of either the show cause notice or the adjudication proceedings until he received the Order-in-Original on 5 July 2024. He argued that the entire proceedings were initiated behind his back because the Department never served the foundational notice required under law.

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The appellant further submitted that although this issue was specifically raised before the Commissioner (Appeals), the appellate authority rejected the contention by observing that the appellant had subsequently been given adequate opportunities during the appellate proceedings. According to the appellant, such subsequent participation could never cure the fundamental defect arising from the non-service of the show cause notice. 

Tribunal: Service of Notice Is the Foundation of Adjudication

Agreeing with the appellant, Judicial Member Ajay Sharma observed that service of a show cause notice is not an empty procedural formality but the very foundation of adjudication proceedings under Section 73 of the Finance Act, 1994.

The Tribunal held that unless a notice is actually served upon the person concerned, the taxpayer is deprived of the valuable statutory right to file a reply, produce evidence, contest the allegations and seek a personal hearing. Any adjudication conducted without such service strikes at the root of the proceedings and constitutes a clear violation of the principles of natural justice. 

Department Could Not Produce Any Proof of Service

The Tribunal noted that the appellant had filed a sworn affidavit stating that the show cause notice had never been received. During the proceedings, CESTAT specifically directed the Department to produce documentary evidence proving service of the notice.

However, the Assistant Commissioner, CGST Pune-I informed the Tribunal that while the notice had been issued with a Document Identification Number (DIN), the office copy did not contain any dispatch number and therefore its dispatch could not be verified. The Department was unable to produce any dispatch register, postal receipt, acknowledgement due card, speed post receipt, delivery report or any other documentary evidence demonstrating that the notice had actually been served upon the appellant. 

‘Serve Notice’ and Not Merely ‘Issue Notice’

The Tribunal attached considerable significance to the wording of Section 73 of the Finance Act, 1994. It observed that the legislature deliberately used the expression “serve notice” rather than merely “issue notice.”

According to the Tribunal, the statutory requirement is fulfilled only when the notice is duly served in accordance with law. The burden of proving such service lies squarely upon the Department. Mere production of a copy of the notice or reliance on the date mentioned in the notice cannot substitute the mandatory legal requirement of proving its service.

The Tribunal emphasized that wherever communication or service is a statutory requirement, the relevant date is the date of service and not merely the date appearing on the notice. 

Appellate Proceedings Cannot Cure Violation of Natural Justice

Rejecting the reasoning adopted by the Commissioner (Appeals), the Tribunal held that opportunities granted during appellate proceedings cannot retrospectively validate proceedings that were fundamentally defective from their inception.

The right to defend oneself begins at the stage of the show cause notice itself. An appellate proceeding cannot replace the statutory adjudication contemplated under Section 73 or cure the violation caused by the failure to serve the notice in the first place. 

Demand Held Barred by Limitation

The dispute related to the financial year 2015–16, for which the Department had invoked the extended limitation period while issuing the show cause notice in December 2020.

Since the Department failed to establish that the notice had ever been served within the prescribed limitation period, the Tribunal held that the proceedings could not be sustained. In the absence of valid service of the show cause notice, the entire adjudication stood vitiated both for violation of natural justice and for failure to comply with the mandatory requirement of Section 73 of the Finance Act, 1994.

Accordingly, the Tribunal set aside the Order-in-Appeal dated 31 January 2025, allowed the appeal and granted consequential relief to the appellant in accordance with law.

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