Department Cannot Prejudge Service Tax Demand Or Ignore Taxpayer's Reply: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax order against film production company Nadiadwala Grandson Entertainment Pvt. Ltd., observing that a quasi-judicial authority cannot prejudge an issue or ignore a taxpayer's reply to show cause notices.

The Bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban found that the adjudicating authority had passed the order on October 1, 2025, just a day after receiving the company's detailed reply.

The tribunal observed, "It is a settled position of law that the officials exercising the quasijudicial functions, carry the responsibility of justifying their role and building credibility by instilling confidence in the adjudicatory process. In other words, a quasi-judicial authority cannot pre-judge an issue or ignore a reply submitted by the aggrieved party, while adjudicating the charges levelled in the SCNs, which precisely has been done in the present case"

The dispute concerned a service tax demand against the company for allegedly providing copyright services between 2012 and 2015.

The company challenged the order, arguing that the authority had not properly considered its reply to the show cause notices. It pointed out that its detailed reply was filed on September 30, 2025, but the authority passed the order the very next day.

The tribunal found that the authority had reproduced the company's reply across pages 126 to 158 of its order. However, its findings were confined to just two paragraphs containing barely 12 to 14 lines.

It noted that the issues raised in the company's reply, as well as the allegations in the show cause notices, had not been examined in their proper perspective.

The tribunal observed that officials exercising quasi-judicial functions are responsible for justifying their role and instilling confidence in the adjudicatory process.

It further found that the authority had not properly examined the factual and legal aspects before concluding that the company was liable to pay service tax on the alleged copyright services.

The tribunal set aside the order and sent the matter back to the original authority for fresh adjudication. It clarified that this was an open remand, requiring the authority to address all issues involved in the show cause notices and give the company a reasonable opportunity for a personal hearing before passing a fresh order.

Given that the dispute concerns the period 2012 to 2015, the tribunal expected the authority to complete the fresh proceedings, preferably within six months from the date of its order.

For Appellant: Advocate Bharat Raichandani

For Revenue: Joint Commissioner J.K. Jain