Service Tax Demand Based on CBDT Inputs & ITR Data Without Proper Hearing: Karnataka HC Remands Matter [Read Order]

The High Court of Karnataka at Bengaluru held that since the service tax was charged based on Central Board of Direct Taxes (CBDT) inputs and income tax return data, there had been a lack of fair opportunity given to the petitioner to be heard and thus ordered for reconsideration.

Dirt Mania Outdoor Adventures Pvt. Ltd., the petitioner, filed a writ petition challenging an order passed by the Assistant Commissioner of Central Tax which raised a service tax demand of Rs. 33,66,922 along with interest and penalty.

The counsel for the petitioner submitted that authorities have adjudicated on the basis of inputs received from CBDT and taking note of the declaration in the income tax returns. Further, it was submitted that the proceedings culminated in an ex-parte order.

The Petitioner’s counsel submitted that if sufficient opportunity was given, they would have demonstrated that the service rendered by them were exempt in terms of Notification No. 25/2012-ST.

The court observed that in similar matters where service tax demands were raised based on income tax data, it had earlier set aside such orders and remanded the cases for reconsideration. It referred to its earlier order and pointed out that authorities must examine specific issues such as whether the activity qualifies as a service, whether it falls under the negative list, whether any exemption notification applies, whether the assessee is liable to pay service tax, and whether the demand is barred by limitation.

The Karnataka High Court disposed of the petition by remanding it to the stage of reply to the show cause notice but had outlined the issues that the concerned authorities should look into, including qualification under Section 65B(44) of the Finance Act and whether claims are barred by limitation. Justice S. Sunil Dutt Yadav also made note of the fact that the copy of the show cause notice was not communicated to the petitioner, and the same is to be furnished to the petitioner.

Accordingly, the petition is disposed of while keeping contentions open from the order delivered on 24.03.2026.

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