Demand confirmed under section 73(1)of finance act 1994, Service Tax

[Sudhir Kumar]

The department has confirmed the demand under section 73(1) in place of 73(2) of the Finance act 1994 while the SCN has been issued under same section. No corrigendum has been issued by the department.

Can it be valid ground to challenge the order in court to set aside the order in original as it has been confirmed under wrong section

Please suggest.

Posts / Replies

[KASTURI SETHI]

Cannot be a valid ground to challenge. Section 73 (2) refers to Section 73 (1) also. Both sub-sections are integrally related. Section 73 (1) covers normal period and extended period both.

[KASTURI SETHI]

Also peruse the following :-

SECTION 74. Rectification of mistake. — (1) With a view to rectifying any mistake apparent from the record, the [Central Excise Officer] who passed any order under the provisions of this Chapter may, within two years of the date on which such order was passed, amend the order.

(2) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the [Central Excise Officer] passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.

(3) Subject to the other provisions of this section, the [Central Excise Officer] concerned -

(a)      may make an amendment under sub-section (1) of his own motion; or

(b)      shall make such amendment if any mistake is brought to his notice by the assessee or the [Principal Commissioner of Central Excise or Commissioner of Central Excise] or the [Commissioner] of Central Excise (Appeals).

(4) An amendment, which has the effect of enhancing [the liability of the assessee or reducing a refund], shall not be made under this section unless the [Central Excise Officer] concerned has given notice to the assessee of his intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(5) Where an amendment is made under this section, an order shall be passed in writing by the [Central Excise Officer] concerned.

(6) Subject to the other provisions of this Chapter where any such amendment has the effect of reducing the [liability of an assessee or increasing the refund], the [Central Excise Officer] shall make any refund which may be due to such assessee.

(7) Where any such amendment has the effect of enhancing the [liability of the assessee] or reducing the refund already made, the [Central Excise Officer] shall make an order specifying the sum payable by the assessee and the provisions of this Chapter shall apply accordingly.

[YAGAY andSUN]

Let me summarize the situation and provide final clarity on whether confirmation of demand under Section 73(1) instead of 73(2) is a valid standalone ground to challenge and set aside the order:

Legal Context:

• Section 73(1) of the Finance Act, 1994: Authorizes initiation of recovery proceedings where service tax has not been paid/short paid, either due to or not due to fraud.
• Section 73(2): Empowers the officer to issue a show cause notice under 73(1) asking why the short payment should not be recovered.

So practically:

• Section 73(2) flows from 73(1).
• The SCN is issued under 73(1) as per standard departmental practice, and the confirmation of demand also references it.

Can Wrong Section Reference Invalidate the Order?

Based on judicial principles and administrative practice:

• NO, this alone is not a valid ground to set aside the Order-in-Original, unless it causes prejudice to the assessee’s rights or affects the substance of the case.
• Courts and tribunals consistently take the view that procedural irregularities that do not cause prejudice or violate natural justice are not fatal to the validity of the order.

As Kasturi Sethi Sir correctly pointed out:

“Section 73(2) refers to 73(1); both are integrally related.”

“Cannot be a valid ground to challenge.”

📚 Supporting Case Law Principles:

1. Supreme Court – Kailash Nath Associates vs DDA (2015 (1) TMI 1377 - SUPREME COURT):

Procedural errors not going to the root of the matter or not causing prejudice do not vitiate administrative action.

2. CBEC Circulars and Tribunal Rulings:

Minor referencing issues (wrong rule/section) are curable defects under Section 74 (Rectification).

⚖️ What Can Be Done?

If the only issue is the wrong section cited in the confirmation (73(1) instead of 73(2)), your better strategy would be:

Option 1: Seek Rectification under Section 74

You can file a rectification application citing Section 74 of the Finance Act, 1994, as also referred to in the post.

Option 2: Appeal on Merits (if any)

If there are substantive grounds (e.g., tax already paid, time-barred demand, incorrect valuation), you may still file appeal before Commissioner (Appeals) under Section 85 (within limitation).

Conclusion:

Confirmation of demand under Section 73(1) instead of 73(2), without corrigendum, is not a sufficient ground alone to get the order set aside in appeal or court unless it materially prejudiced your case.

If everything else in the SCN and Order-in-Original is procedurally sound and a hearing was granted, courts/tribunals will treat this as a minor error.

***

[Sudhir Kumar]

thanks to all Sirs for valuable information