Delhi High Court: Other Issues in Show Cause Notice Can Be Adjudicated if One Issue is Quashed

Last Updated on February 18, 2025 by Athi Venkatesh

The Delhi High Court ruled that quashing one issue in a show cause notice (SCN) does not invalidate other demands raised. The bench of Justices Prathiba M. Singh and Dharmesh Sharma held that all other issues in the SCN must be adjudicated on facts and in accordance with the law.

The case involved M/S Alkarma, which was engaged in finishing buildings and civil structures. The company availed CENVAT credit on inputs and input services, leading to a show cause notice and subsequent tax demand.

A previous division bench quashed the SCN concerning the duty on free supply of materials. However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) discharged the entire SCN, which the Revenue challenged before the High Court.

The Revenue argued that the SCN contained multiple issues, but only the free supply of materials was adjudicated. The other demands, including short payment of service tax and education cess, remained unaddressed. The Department asserted that the adjudicating authority erred by treating the entire SCN as quashed.

The assessee claimed that once the SCN is quashed, no further proceedings could continue.

The High Court disagreed, stating that the division bench allowed the Department to proceed under the Era Infra Engineering Ltd. vs. Union of India (2016) judgment. This ruling excluded the value of free materials but did not prevent adjudication of other issues.

The Court held that both the adjudicating authority and the CESTAT were wrong in discharging the entire SCN. It directed that all remaining demands should be adjudicated.

Case Title: Principal Commissioner, Central Tax Commissionerate, GST Delhi West v. M/S Alkarma
Case No.: SERTA 3/2025