Demand for Service Tax Solely based on ST-3 Returns vs. Trial Balance differences unjustified without Proof of Taxable Services; Burden of proof of Tax Evasion lies with Revenue: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has overturned a demand for Service Tax levied solely based on disparities between ST-3 Returns and Trial Balance figures.

The judgment highlighted the fundamental principle that the burden of proving tax evasion rests squarely on the revenue authorities.

The case involved M/s. South Eastern Coalfields Limited and the Commissioner of Central Excise & Service Tax, Raipur. The dispute arose when the Revenue authorities, during an audit, noted differences between the figures reported in the appellant’s ST-3 returns for the period April 2015 to June 2017 and specific ledger account balances in the trial balance.

Upon this observation, a demand of Rs. 11,36,80,999/- was proposed against the appellant company in a Show Cause Notice dated 29.12.2020.

The appellant, represented by Shri Rajeev Agarwal argued that the demand was unjustified, as it was based solely on the variance between figures without evidence of taxable services provided.

The adjudicating authority upheld the demand, citing the differences between the trial balance and ST-3 returns as prima facie evidence of short payment of service tax.

However, the CESTAT, rejected this reasoning, emphasising that service tax can only be levied when there is clear evidence of services rendered, recipients and consideration received.

The bench pointed out that the respondent revenue, Commissioner of Central Excise & Service Tax, Raipur represented by Mr. Arun Sheoran failed to provide any explanation for the disparities and did not establish that the amounts reflected in the trial balance represented taxable services.

They emphasised that the burden of proof lay with the revenue authorities to substantiate allegations of tax evasion.

Further, the CESTAT highlighted previous rulings, including the case of Synergy Audio Visual Workshop (P) Ltd. vs. Commissioner, which established that amounts shown in income tax returns or balance sheets are not automatically liable for service tax unless it is proven that they represent consideration for services provided.

The judgment highlighted the principle that demands for service tax cannot be upheld based solely on differences between statutory returns and financial statements without evidence of taxable services. It stressed the importance of due diligence and substantiated claims by tax authorities before imposing tax liabilities on businesses.

In result, the single bench of Ms. Hemambika R. Priya (Technical Member) set aside the impugned order and allowed the appeal filed by M/s. South Eastern Coalfields Limited.

To Read the full text of the Order CLICK HERE

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