Service Tax Adjudication Kept Pending for 6 to 11 Years: Delhi HC Quashes Two Orders and 5 SCNs [Read Order]

The Delhi High Court has quashed two orders and five show cause notices (SCNs) citing gross and unexplained delays in the adjudication process, which spanned between six to eleven years.

The Court concurred with the precedents cited by the petitioner, referring to the judgments in M/s Shree Baba Exports and National Building Construction Co. Ltd., which categorically held that the statutory time frame for adjudication must be adhered to and that delayed adjudication will be barred.

The petitioner, Roots Education Pvt. Ltd., engaged in the business of providing coaching services and registered for service tax under “Commercial Coaching or Training Service” and “Franchisee Service” under the Finance Act, challenged the Order-in-Appeal dated 31 January 2025 and the Order-in-Original dated 27 June 2024.

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These orders, which confirmed substantial demands of service tax, interest, and penalties based on SCNs issued between 2013 and 2018 for various financial years from 2007-08 to 2017, were alleged to have been adjudicated with unjustifiable delay, depriving the petitioner of fair opportunity and violating principles of natural justice.

The petitioner argued that under Section 73(4B) of the Finance Act, 1994, the adjudicating authority is expected to determine tax dues within six months or one year from the date of SCN “where it is possible to do so,” and that the department had failed to provide any genuine or insurmountable reason for the prolonged delays.

Despite a personal hearing held in December 2016 for four of the SCNs, no final orders were issued until mid-2024, resulting in adjudication gaps of up to 11 years.

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The Division Bench, led by Justice Subramonium Prasad and Justice Harish Vaidyanathan Shankar relied on judgment of Vos Technologies India (P) Ltd. v. Director General, where it was observed that for matters pertaining to financial liabilities or penal consequences, not to be kept pending for a prolonged period of time.

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The bench also noted that “the phrase “where it is possible to do so” cannot be used as an excuse to not adjudicate matters in a time-bound manner. The discretionary latitude conferred by the legislation is not intended to be exploited or interpreted as an endorsement of inaction. The statutory provisions affording such flexibility must not be invoked arbitrarily over an extended period, absent sufficient cause or reasonable justification.”

The Court found that the respondents had failed to demonstrate any insurmountable constraints or justifiable impediments that would explain the extended pendency.

In addition, it was noted that for the first four impugned SCNs, a personal hearing was conducted as early as 27 December 2016, and the petitioner submitted a clarificatory written response on 30 December 2016. Despite these steps, no final order was passed, and the adjudication process remained stalled for another 7.5 years without any justified reason, a delay the Court found wholly unjustifiable.

Consequently, the High Court allowed the writ petition and quashed the impugned Order-in-Appeal, Order-in-Original, and the five SCNs. Also read: Supreme Court Rejects Resolution Plan of JSW, Orders Liquidation

To Read the full text of the Order CLICK HERE

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