SCN & Adjudication Order Not Properly Served, Returned “Unclaimed”: CESTAT Sets Aside Service Tax Demand [Read Order]

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that a service tax demand cannot be sustained when the department fails to prove proper delivery of the show cause notice and adjudication order, especially when both were returned as “unclaimed”.

One Vibgyor Limited, formerly known as Rosoft Limited, provides information technology software services. For the period from October 2013 to March 2014, the department compared the company’s ST-3 returns with its Income Tax Return and Form 26AS data.

While the ST-3 returns showed nil taxable value, the Income Tax Return reflected service income. On this basis, the department alleged non-payment of service tax and issued a show cause notice.

According to the appellant, the show cause notice was sent by post but was returned as “unclaimed”. The adjudication was completed ex parte, and an Order-in-Original confirming service tax demand along with interest and penalties was passed.

The Commissioner (Appeals) dismissed the appeal as time-barred, holding that the order was deemed to have been served once dispatched.

Before the Tribunal, the appellant’s counsel argued that mere dispatch of the show cause notice and adjudication order is not sufficient under Section 37C of the Central Excise Act, which applies to service tax. It was argued that since both documents were returned as “unclaimed”, there was no proof of delivery and no valid service in the eyes of law.

The department’s counsel argued that the notice and order were sent by post and email, and that service should be presumed since the adjudication order was not received back immediately. The department supported the rejection of the appeal on limitation.

The two-member bench comprising Shri C.J. Mathew (Judicial Member) and Shri AjaySharma (Technical Member) observed that proof of delivery is mandatory, and mere dispatch cannot be treated as valid service. The Tribunal observed that when notices are returned as “unclaimed”, the department must take further steps to ensure service as prescribed under law.

The tribunal pointed out that presumption of service without evidence of delivery is not legally acceptable, particularly when serious civil consequences follow. It explained that completing adjudication without proper service of notice violates principles of natural justice.

The tribunal set aside the service tax demand and held that limitation must be computed from the date on which the appellant actually gained knowledge of the order. The appeal filed by One Vibgyor Limited was allowed.

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