WhatsApp Service of SCN Not Recognised Under Central Excise Law: CESTAT Delhi

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi, on Monday held that service of a show cause notice through WhatsApp is not a legally recognised mode of service under the Central Excise Act.

It set aside a service tax demand of ₹2.28 lakh raised against a person engaged in services relating to sale of advertisement space in print media, also finding that the bulk of the demand was time-barred and the balance unsustainable for want of evidence of fraud or wilful suppression.

"WhatsApp, a private messaging application on a mobile phone, finds no mention whatsoever in the statutory framework. It is neither contemplated by the legislature nor has it been brought within the fold of permissible modes of service by any delegated legislation or executive instruction having the force of law. Service through WhatsApp, therefore, cannot be held to constitute valid service of a show cause notice within the meaning of Section 37C of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994." the tribunal said.

A coram of Judicial Member Ajay Sharma and Technical Member P. V. Subba Rao passed the order in an appeal filed by Sridhar V Naidu against the Commissioner of Customs, Central Excise, and Service Tax.

The dispute arose after the department received third-party information from the Income Tax Department showing receipts of Rs.18.50 lakh in Naidu's hands for financial years 2013-14 and 2014-15.

Believing these receipts represented taxable services rendered without service tax registration or payment, the department issued a show cause notice dated October 15, 2018, demanding Rs.2.28 lakh in service tax along with interest, penalty and late fee.

Naidu contended that he was engaged in providing services relating to the sale of advertisement space in print media, which fell within the negative list under the Finance Act, 1994, and therefore no service tax was payable. Acting on this bona fide belief, he said, he neither obtained registration nor filed service tax returns.

A preliminary objection raised before the Tribunal concerned the validity of service of the show cause notice. Naidu argued that the notice was never served at his current residential address, where he had been residing since 2015, through any of the modes prescribed under law. Instead, according to him, it was forwarded through WhatsApp on October 19, 2019, more than a year after its issuance.

Accepting this contention, the Tribunal said the statutory modes of service are exhaustive and include direct tender, registered post, speed post, approved courier, and affixation in specified circumstances, but not private messaging applications.

"The show cause notice dated 15.10.2018 was simply forwarded via WhatsApp on 19.10.2019, without any prior or contemporaneous effort at service through the channels mandated by law. This constitutes a fundamental infirmity that strikes at the root of the entire adjudication proceedings," the tribunal observed.

The tribunal further held that even if service through WhatsApp on October 19, 2019 were assumed to be valid, the demand of Rs.2,26,934 relating to financial year 2013-14 would still be barred by limitation.

That left only the residual demand of Rs.1,829 for 2014-15. On this, the bench found that the department had produced no independent evidence of evasion, concealment, fraud or wilful suppression, and had relied entirely on third-party data from the Income Tax Department.

"The mere insertion of the formulaic phrase 'fraud' or 'suppression' in the show cause notice is not a substitute for evidence. The department must place on record some positive act on the part of the appellant that would indicate concealment or misrepresentation," the Tribunal observed

It accepted Naidu's case that he had consistently maintained a bona fide belief that his services were exempt from service tax.

"A bona fide legal belief in one's exemption from tax, however erroneous it may ultimately prove to be, does not, without more, constitute fraud or wilful suppression. Ignorance of law, or even a mistaken understanding of a fiscal provision, cannot be elevated to the level of deliberate evasion," the bench held.

While noting that it would ordinarily have remanded the matter because of the procedural defect in service of notice, the tribunal declined to do so, saying remand would serve no useful purpose since the demand failed independently on limitation and evidentiary grounds.

It accordingly set aside the impugned appellate order and allowed the appeal with consequential relief.

For Appellant: Advocate Abhas Mishra, 

For Respondent: Mahboob Ur Rehman, Authorised Representative