Fresh Reply to SCN Must Be Considered: Karnataka HC Quashes Entire Service Tax Proceedings [Read Order]
The Court held that the assessee is entitled to a full reconsideration from the stage of reply to the show cause notice.
The High Court of Karnataka quashed the show cause notice, Order-in-Original and Order-in-Appeal in a service tax dispute and remitted the matter to the adjudicating authority to reconsider the case from the stage of reply, applying the parameters laid down by a coordinate bench.
Shafiqahmed Dongarkhe approached the High Court challenging the show cause notice issued under the Finance Act, 1994, proposing service tax liability. The Assistant Commissioner passed an Order-in-Original confirming demands. The assessee thereafter filed an appeal before the Commissioner of Central Tax (Appeals), who dismissed the appeal by an Order-in-Appeal.
The assessee through Raghavendra B. Hanjer contended that the issues had already been addressed in Karnataka Chinmaya Seva Trust v. Joint Commissioner of Central Tax (2024), where similar show cause notices and adjudication orders under the Finance Act, 1994 were remitted to the original authority for fresh consideration from the stage of reply to the show cause notice. The assessee therefore sought quashing of all proceedings and a remand on identical terms.
A Single Judge Bench of Justice M. Nagaprasanna held that the appellant was identically placed to the petitioners in Karnataka Chinmaya Seva Trust, and therefore the same directions applied. The Court reproduced the parameters earlier laid down by the coordinate bench, which required the adjudicating authority to reconsider:
- Whether the assessee qualifies as a service provider under Section 65B(44) of the Finance Act, 1994?
- Whether the services fall under the negative list?
- Whether the services are exempt under Notification No. 25/2012-ST or any other applicable notification?
- Whether liability arises under Rule 2(1)(d) of the Service Tax Rules read with applicable notifications?
- Whether the claims are barred by limitation under Supreme Court jurisprudence?
Therefore, the Court quashed the show cause notice and set aside the Order-in-Original and Order-in-Appeal. Further, remitted the matter to the Assistant Commissioner to reconsider the dispute from the stage of filing reply.
The Court directed the appellant to file a fresh reply within four weeks and instructed the authority to pass fresh orders in accordance with law while bearing in mind the coordinate bench judgment.
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