Challenge on Service Tax Demand on ‘Mandap Keeper Services’: Supreme Court Stays Chhattisgarh HC Remand Order [Read Order]

Saubhagya Tilak Hotels Pvt.Ltd, appellant-assessee, operated a non-air-conditioned restaurant (without alcohol) and carried out B2B supply of bakery and confectionery items during 2008-09 to 2010-11. At that time, service tax was not applicable on such restaurants, and bakery and confectionery sales were treated as sale of goods.

During a search at the assessee’s premises on 24-12-2011, authorities alleged that the assessee received cash and cheque payments for providing ‘Mandap Keeper Services’ under Section 65(105)(m) of the Finance Act, 1994. Documents including bills, bank statements, and receipts were seized. Statements of the manager, Mr. Satish Kumar Pachouri, and director, Mr. Ashwin Sethi, were recorded under Section 14 of the Central Excise Act.

A show cause notice was issued on 16-4-2013 demanding service tax of ₹91,04,431 with interest and penalty for 2008-09 to 2011-12. The assessee requested an opportunity to cross-examine their manager, but the Commissioner’s order on 20-1-2015 confirmed the demand, treating the manager as an employee.

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The assessee appealed to CESTAT, which dismissed the appeal on 26-4-2023, and a rectification application filed later was also dismissed on 6-2-2024.

The substantial questions of law were formulated when the tax appeal under Section 35G(1) of the Central Excise Act, 1944 was admitted for hearing on 24-7-2024:

“i. Whether Statement recorded contrary to provisions of Section 9D qualify to be Statement in Chief and can demand be confirmed relying upon such statements?

ii. Whether CESTAT was correct in law to confirm demand relying upon statements recorded contrary to Section 9D and without cross examination of such witnesses?

iii. Whether Hon’ble CESTAT was correct in law in holding that appellant has provided Mandap Keeper Services without evidence of provision of service and is liable to pay service tax on total receipts?

As the substantial Questions No. (i) and (ii) were interlinked,they were addressed together.

During the search on 24-12-2011 at the assessee’s premises, statements of Mr. Satish Kumar Pachouri, Manager (Operations), and later Mr. Ashwin Sethi, Director, were recorded under Section 14 of the Central Excise Act, 1944. These statements were used by the authorities to demand service tax.

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The assessee requested the opportunity to cross-examine Mr. Pachouri, as his statement was heavily relied upon, but the adjudicating authority rejected the request, holding that he was the appellant’s employee. The appellate authority, CESTAT, did not address this issue.

Section 9D of the Central Excise Act, 1944, requires that statements recorded during investigation can only be admitted as evidence if the person who made the statement is examined as a witness before the adjudicating authority, which must then form an opinion that admitting the statement is in the interests of justice. This provision is mandatory to prevent reliance on statements obtained under coercion or undue influence.

In this case, the assessee was not given the chance to cross-examine Mr. Pachouri, violating the principles of natural justice. Supreme Court decisions, including Andaman Timber Industries and Lakshman Exports Ltd., have held that failure to allow cross-examination of witnesses whose statements are relied upon renders the order invalid.

Therefore, the impugned order relying on Mr. Pachouri’s statement without allowing cross-examination was improper and in violation of natural justice.

The answer to Substantial Question of Law No. (iii) was that the assessee had not provided Mandap Keeper Services, and there was no evidence to prove such services, yet service tax was imposed on total receipts.

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The assessee argued that Mr. Satish Kumar Pachouri’s statement was inadmissible under Section 9D of the Central Excise Act, 1944, and that the bills and other documents relied upon by the adjudicating authority had already been returned to the appellant on 26-6-2014 as non-relied-upon documents.

Despite this, the adjudicating authority treated those returned documents as evidence that the appellant had rendered Mandap Keeper Services.

Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal of the Chhattisgarh High Court set aside the orders of the adjudicating authority dated 20-1-2015 and of CESTAT dated 26-4-2023. The case was remitted to the adjudicating authority to allow the assessee to cross-examine the witnesses relied upon by the Revenue and to pass a fresh order after hearing the parties and considering the material on record within three months from the receipt of this order.

The matter was taken up for hearing on 08-09-2025 before Justices J.B. Pardiwala and K.V. Viswanathan. The Supreme Court issued notice returnable in four weeks and allowed Dasti service. Meanwhile, the part of the Chhattisgarh High Court order remanding the proceedings was stayed from operation.

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