Mismatch Between Income Tax and ST-3 Returns: CESTAT Upholds Service Tax Demand for Unexplained Discrepancy [Read Order]

The Bangalore Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT ) upheld service tax demand after finding a clear mismatch between Income Tax and ST-3 returns for FY 2014-15, rejecting the assessee’s plea for unexplained discrepancy.

Hastha Alternate Building Technology and Research Pvt. Ltd.,appellant-assessee, provided taxable ‘Architect Services’ during the relevant period. Examination of its income tax returns revealed that for the financial year 2014-15, it declared total income of Rs.54,95,650/- from services rendered but reported only Rs.1,75,720/- in ST-3 returns, resulting in a short payment of service tax of Rs.6,57,543/-.

For the subsequent years 2015-16, 2016-17, and 2017-18 (up to June 2017), the gross value of services was assessed by adding 20% to the previous year’s income under Section 72 of the Finance Act, 1994, and differential tax was calculated. A show-cause notice was issued demanding Rs.31,56,964/- with interest and penalty. On adjudication, the authority confirmed the demand with interest and penalty.

The assessee appealed to the Commissioner (Appeals), who confirmed a demand of Rs.5,08,440/- for the period 01.10.2014 to 31.03.2015 with interest and equivalent penalty, but set aside demands for later periods. The assessee then filed the present appeal.

The assessee counsel stated that the assessee had filed ST-3 returns and collected service tax from clients, relying on a Chartered Accountant for compliance. He argued that the Department could not use other documents to invoke the extended period of limitation and that there was no intention to evade tax. A copy of the 26AS for FY 2014-15 was submitted, and relevant judgments were cited.

The Department submitted that a difference of Rs. 53,19,930/- was found between ST-3 returns and Income Tax Returns for FY 2014-15. Since the appellant did not respond to communications, a show-cause notice was issued under Section 72 of the Finance Act, 1994, adding 20% for FY 2015-16 and 2016-17, resulting in a demand of Rs. 31,56,964/-. The OIO was passed ex-parte. On appeal, the Commissioner (Appeals) confirmed Rs. 5,08,440/- for October 2014 to March 2015 and dropped demands for later periods.

The assessee claimed they did not receive the SCN, but failed to submit ITRs despite directions. Communications and hearing notices were sent to the registered address and emails, but letters were returned.

The Department argued that non-submission of ITRs indicated suppression of facts, and the demand based on differences between ST-3 returns and ITRs was justified, citing Talera Logistics Pvt. Ltd., which supported the extended period.

A single member bench of D.M.Misra (Judicial Member) heard both parties and examined the records. It noted that the original demand notice sought recovery of Rs. 31,56,964/- for 2014-15 to 2017-18, but the Commissioner (Appeals) later limited the demand to October 2014 to March 2015. The assessee contended that the Department had not proved suppression or mis-declaration of facts to invoke the extended period.

The appellate tribunal observed that the assessee had declared lower gross receipts in the ST-3 returns for FY 2014-15 compared to the Income Tax Returns and had failed to provide any reasonable explanation or supporting Chartered Accountant certificate. The IT returns were never submitted, and the 26AS statement could not justify the discrepancy.

Given the clear mismatch between the ST-3 and IT returns and the assessee’s failure to clarify despite multiple opportunities, the bench found no merit in the appeal. It upheld the impugned order and rejected the appeal.

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