Demand of Service Tax cannot be Solely based on Income Tax Data in Form 26AS: CESTAT Quashes Demand [Read Order]

M/s Shree Ganesh Telecom Pvt. Ltd., the petitioner, challenged the Order-in-Appeal. The appellant is engaged in providing Erection, Commissioning and Installation Service and Maintenance or Repair Service to various telephone service providers. During the course of audit of the appellant record for the period from April 2016 to March 2017 the difference in the taxable value shown in ST-3 returns from the income booked in the statutory record like balance sheet vis-à-vis job work receipt for the said period was observed by the department and the appellant was found to have not paid service tax on the amount of the said difference.

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A Show Cause Notice was issued demanding service tax amounting to Rs. 25,66,614/- along with the proportionate interest and the appropriate penalties under Section 77 & 78 of the Finance Act were proposed to be recovered/imposed from the appellant.

The said proposal was initially confirmed vide Order-in-Original No. 02/2022-23 dated 30.08.2022. Appeal against the said order has been rejected vide the impugned order in appeal.

Counsel for the appellant has submitted that the demand of service tax based on the income tax returns/any third party data is not sustainable. Further submitted that while replying the audit memo pointing out the said short coming itself, the appellant had explained reason of non-payment of the equivalent amount of service tax. It was clearly informed to the department that the amount which has not been received by the appellant has not been included in the taxable value and the tax has otherwise been fully paid on the amount of consideration received by the appellant.

Thus, the entire information was with the department as the return for the said financial year was filed by the appellant in July 2019 itself. Seen from that angle the appellant is wrongly alleged to have mis-represented/suppressed facts from the department. Hence invocation of extended period while issuing the show cause notice in July 2021 proposing the demand for the period 2016-2017 is not permissible to the department. Show cause notice is alleged to be barred by time.

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While rebutting these submissions, Authorized Representative for the department submitted that the appellant has not submitted any supporting document/evidence in support of their contention that they had not received any payment vis-à-vis invoices raised to their client due to some dispute in relation to the service provided/billing.

The issue to be adjudicated is as to whether the appropriate amount of service tax has been paid by the appellant at the relevant time in terms of the statutory provisions of Point of Taxation Rules, 2011.

It is clear that the first criteria about time of payment of service tax is the date of invoice provided it has been issued within 14 days. There is no denial with respect to the issuance of invoices, however there is no evidence on record as to whether it got issued within 14 days. The burden was upon the department.

The same remains undischarged.

The tribunal observed that, vide reply to the Show Cause Notice it was conveyed that the appellants did not receive the payment of the amount of invoices due to some dispute in relation to billing. The department has failed to produce any evidence to falsify the said contention. Resultantly, the situation remains is that there is no amount of consideration received. Hence the activity of appellant fails to fall under the scope of definition of service given under Section 66B of the Finance Act, 1994, rendering of activity has to be quid pro quo of considering for it to be called as taxable service defined under Section 66B(44) of the Finance Act.

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The two member bench of Dr. Rachna Gupta (Judicial Member) found that the only document based whereupon the demand has been confirmed is from 26AS from Income Tax Department. But the law is settled that Revenue cannot raise the demand on the basis of difference in the figures reflected in the ST3 returns and those reflected in Form 26AS without examining the reasons for said difference and without establishing that the entire amount received by the appellant as reflected in the Form 26AS is the consideration for services provided and without examining whether the difference was because of any exemption or abatement.

The Tribunal held that the appellant is wrongly alleged to have suppressed the material facts from the department regarding the failure to discharge service tax liability on the taxable receipts. The reliance of 26AS as the basis of demand is not permissible. There is no corroborative evidence on record to prove the allegations.

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