Service Tax Demand Based Only on Income Tax Data without Verification and Corroborative Evidence Unsustainable: CESTAT [Read Order]

In a recent ruling, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Kolkata held that a service tax demand raised solely on the basis of third-party information received from the Income Tax Department, without proper investigation or corroborative evidence cannot be sustained.

‘Merely raising a demand on the basis of 3rd Party information without appropriate investigation and verification of the factual position, cannot justify the levy and cannot be a sustainable ground alleging suppression of facts without any other corroborative evidence to support the said premise’ said the tribunal.

The appeal was filed by M/s. Roshan Kumar Bajaj. It challenged the service tax demand for FY 2016-17, which was initiated based on Income Tax data showing that amounts were credited to the appellant’s account under Section 194C (TDS) and that the value of sale of services reflected in returns was higher than what was registered under service tax records.

Based on this information, the Department issued a Show Cause Notice dated 29.09.2021, demanding recovery of Service Tax of ₹13,42,221, with interest and penalties, alleging that the appellant had not obtained service tax registration.

According to the department, the appellant was engaged in providing trucks for transportation of coal and had neither taken service tax registration nor issued consignment notes. Therefore, there is a suppression identified. Thus, an extended period of limitation can be invoked.

Before the Tribunal, the appellant’s counsel, Adv. Ashwini Kumar argued that it was not liable to pay service tax as it was not a Goods Transport Agency (GTA) under Section 65B(26) of the Finance Act, 1994, and that its activity was covered under the negative list of services under Section 66D(p).

The appellant submitted that it was only a Goods Transport Operator (GTO) and not a GTA. Therefore was not required to issue consignment notes, said the appellant.

It was also pointed out that the work orders showed that the appellant was only engaged in transportation of coal from pit area to railway siding as per tonnage, and there was no leasing or hiring of vehicles to any party.

Along with the observation that raising demand based on third party data without verification is unsustainable, the bench noted that there was nothing on record to establish any element of hiring/leasing.

It said that the Commissioner (Appeals) had failed to record findings on the applicability of the negative list under Section 66D(p).

‘....if levy of a particular activity service is kept out of the tax net, it cannot be subjected to levy by proxy by way of classifying the activity/service rendered under a different head, without rendering meaningful reasons thereto’ said the bench of Rajeev Tandon (Technical member).

With regards to non-issuance of consignment notes, the tribunal said that there is no infirmity found in not issuing the same. It said that “appellate authority’s claim to find fault with the appellant not issuing consignment notes is a classic example of overkill and not arising from a factual backdrop of the matter.”

The Tribunal further held that when the Department itself was uncertain about the correct classification of the service, invocation of the extended period was not required. .

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