Service Tax Demand Based Solely on Discrepancy Between ITR/TDS and ST-3 Returns Invalid Without Investigating Cause of Difference: CESTAT [Read Order]
The Bench noted that it was settled law that a demand cannot be raised solely on such discrepancies
Service tax demand - taxscan
Service tax demand - taxscan
The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that a service tax demand raised solely on the basis of a discrepancy between the figures reflected in Income Tax Returns (ITR)/TDS data and Service Tax (ST-3) returns is invalid without an investigation into the specific cause of such difference.
H.R Real Value (appellant), is a registered service provider. Upon scrutiny of the appellant's ITR and TDS returns for the Financial Years 2014-15 and 2015-16, the Revenue Department observed a discrepancy when comparing the gross receipts with the ST-3 returns filed.
The figures in the ITR/TDS returns were higher than those declared in the ST-3 returns, leading to an alleged differential amount of approximately Rs. 22.48 Lakhs for 2014-15 and Rs. 22.85 Lakhs for 2015-16. Consequently, a Show Cause Notice was issued, proposing a service tax demand, interest, and penalties. The Adjudicating Authority confirmed the demand.
On appeal, the Commissioner (Appeals) dropped the demand for FY 2014-15 and the first half of 2015-16 as time-barred but confirmed the demand for the second half of 2015-16, amounting to Rs. 65,548/-, along with interest and penalties.
The Commissioner (Appeals) held that the appellant had mis-declared the value of services in the ST-3 return compared to the ITR, justifying the invocation of the extended period. Aggrieved by this order, the appellant approached the Tribunal.
The appellant argued that the demand was unsustainable as it was based solely on the difference between ITR/TDS and ST-3 returns. The appellant contended that the Extended Period of Limitation could not be invoked as the demand relied on the appellant’s own records.
The CESTAT Bench, comprising Sanjiv Srivastava (Technical Member), observed that the core dispute was whether a demand could be upheld based merely on differences in receipts shown in ITR/TDS and ST-3 returns.
The Bench noted that it was settled law that a demand cannot be raised solely on such discrepancies. The Adjudicating Authority was required to investigate the causes of the differences and arrive at a specific finding regarding the taxable nature of the receipts.
The Tribunal relied on several precedents, including Sri Consultants Vs CCE where it was held that the Revenue must establish that the transactions in question were in respect of the provision of services.
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The tribunal also relied on the Sarvatra Integrated Management Services Pvt. Ltd. Vs CCE which ruled that the onus to prove the nexus between consideration and the service lies with the Department.
The Tribunal observed that the show cause notice failed to examine the facts to arrive at a prima facie view that the appellant received consideration for providing a taxable service.
In view of the judicial precedents and the lack of investigation by the Revenue into the nature of the receipts, the tribunal set aside the order. The appeal of the appellant was allowed.
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