Delhi Duty Free Services PVT LTD vs. Union Of INDIA & Ors.
Original PDF →Facts
The petitioner challenged a service tax demand on ocean freight charges and the initiation of a special audit. The petitioner argued that as per CIF imports, no service was received, and cited a Gujarat High Court judgment. Errors were also noted in the demand letter and show cause notice.
Held
The Court set aside the demand letter and show cause notice. The Department was directed to give the petitioner an opportunity to respond to the audit report and issue a fresh notice after considering the explanation and correcting errors.
Key Issues
Whether the special audit was validly initiated without "reasons to believe" and whether the demand and show cause notice were erroneous and procedurally flawed.
Sections Cited
Section 72A
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
O R D E R %
2023
The petitioner has filed the present petition, inter alia, impugning the service tax liability imposed on the petitioner on account of ocean freight charges.
The petitioner states that the goods imported were CIF imports and, therefore, there is no question of any service tax being paid on any service relating to ocean freight since the petitioner has not received any such service and the service, if any received, has been received by the exporter from the overseas.
It is also stated that the challenge to levy of service tax has been settled by a decision of the Gujarat High Court in Sal Steel Ltd. v. Union of India; 2020 (37) GSTL 3 (Guj);2019 SCC OnLine Guj 3706. 4. Clearly, if the said contention is correct, it would not be This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/06/2026 at 14:40:23 open for the department to levy any service tax on ocean freight charges contrary to the said judgment unless the same is modified or set aside by a superior Court. The petitioner also challenges the action of the respondents in directing a special audit under Section 72A of the Finance Act, 1994 (hereinafter “the Act”), on the ground that the concerned authority had no “reasons to believe” which was a sine qua non for directing any such audit in terms of Section 72A(1) of the Act.
It is next submitted on behalf of the petitioner that a draft audit report was furnished on 05.04.2022. Although the audit memo manual required the auditor to consult with the petitioner and finalise the audit report, no such exercise was conducted. The concerned authority was also required to consult the petitioner in that respect and consider its explanation to the observations before taking any other step. However, the concerned authority had, without even awaiting for a final audit report or inviting any explanation from the petitioner, had immediately issued a demand letter dated 06.04.2022. This was followed by a Show Cause Notice dated 21.04.2022. It is also pointed out that there are certain glaring errors in the Show Cause Notice in as much as a demand for reverse input tax credit has been raised for an amount of ₹38,85,46,938/-, whereas the petitioner claims that it had only availed input tax credit of ₹1,40,80,318/-.
The learned Commissioner is also present in Court and has been of some assistance to this Court. She has stated that although there appears to be an error but there are other contentious issues that the petitioner requires to address.
After some arguments, Mr. Harpreet Singh, learned Counsel for the respondent, states on instructions, that the parties This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/06/2026 at 14:40:23 be relegated to the same position as obtaining on 05.04.2022. The Department shall give full opportunity to the petitioner to respond to the observations in the special audit report and if the explanation is found, not satisfactory, then issue a fresh Show Cause Notice, also correcting the errors that have crept in the Show Cause Notice dated 21.04.2022. Mr. Tarun Gulati, learned Senior Counsel appearing for the petitioner submits that although the audit report itself is liable to be set aside but the suggestion from the respondent would meet the ends of justice.
Mr. Gulati also submits that the proceedings were beyond the period of limitation as there is no material to suggest any fraud, wilful misstatement or suppression of facts.
In view of the above, the demand letter dated 06.04.2022 and the Show Cause Notice dated 21.04.2022, are set aside.
The Department is at liberty to issue a fresh notice for pre- consultation. It is also directed that the Show Cause Notice, if any, would be issued only after the explanation of the petitioners in respect of observations made in the special audit report have been duly considered and after reflecting on the figures.
The petition is disposed of in the aforesaid terms.
It is also clarified that all contentions of the parties are left open (except the challenge to initiation of a special audit). VIBHU BAKHRU, J AMIT MAHAJAN, J MARCH 3, 2023 “SS” This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/06/2026 at 14:40:23
Reproduced from the public record of the Delhi High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.