Ex Parte Order Passed Under Finance Act, 1994 Can Be Set Aside Despite Alternate Remedy And Delay If No Opportunity of Hearing Granted: Karnataka HC [Read Order]

The High Court of Karnataka set aside an ex parte Order-in-Original passed under the Finance Act, 1994, holding that writ jurisdiction can be invoked to quash such orders despite the existence of an alternate statutory remedy and significant delay, if the order was passed without granting the assessee an opportunity of hearing.

Justice B.M. Shyam Prasad allowed the writ petition filed by M/s Srinivas Engineering Works, observing that the fundamental principles of natural justice necessitate that a liability cannot be fastened upon an assessee without considering their defence on merits.

The petitioner had approached the Court challenging the Order-in-Original dated 13.12.2022. The petitioner contended that the order was passed ex parte based on information shared by the Income Tax Department under a data-sharing agreement between the Central Board for Direct Taxes and the Central Board for Indirect Taxes. It was submitted that despite the serious financial implications, no show cause notice was served upon the petitioner, and no opportunity of hearing was granted before passing the adverse order.

The Department raised a preliminary objection regarding the maintainability of the writ petition. It was pointed out that the petitioner had an alternative remedy of filing an appeal under Section 107 of the Finance Act, 1994. Furthermore, the Department highlighted that the petition was filed almost four years after the passing of the impugned order, suggesting that the petitioner was barred by laches.

However, the Court noted that the petitioner had consistently asserted that it had not been served with any notice prior to the passing of the order. The Court also observed that the petitioner proposed to argue that the subject transaction did not attract tax liability under the relevant statutory provisions. Relying on the judgment of a Co-ordinate Bench in M/s. Karnataka Chinmaya Seva Trust Vs. Joint Commissioner of Central Tax, the Court held that the matter required reconsideration.

"This Court finds that the outcome in the writ petition must turn in the light of the afore circumstances... This Court finds that all these circumstances must be considered before a liability is fastened on the petitioner," the Court observed.

The Court rejected the argument that the petition should be dismissed solely on the ground of delay, noting that the petitioner was willing to argue the case on merits regarding the tax liability itself.

The High Court quashed the impugned Order-in-Original and the demand notice for service tax, interest, and penalty. The matter was restored to the file of the respondent for reconsideration. The Court directed the petitioner to file a response before the adjudicating authority by 22.06.2026. Crucially, the Court instructed the respondent to consider the case on merits without non-suiting the petitioner on the ground of delay, ensuring that the assessee gets a fair chance to present their case.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates