Service Tax Demand Cannot Be Based Solely on Form 26AS w/o Reconciliation: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a service tax demand cannot be sustained merely based on figures shown in Form 26AS without properly reconciling them with ST-3 returns and business records.

Shri Sai Financial Services, a proprietorship concern owned by Tilak Singh, was engaged in providing services under the category of “Business AuxiliaryServices.” Based on third-party information received from the Income Tax Department through Form 26AS, a show cause notice was issued for the financial years 2014-15 to 2017-18 (up to June 2017), alleging that the appellant had not paid the applicable service tax.

The department demanded service tax of Rs. 8,77,645, along with interest and various penalties, including a late fee of Rs. 1,03,100 for delayed filing of ST-3 returns. The appellant argued that the figures used in the show cause notice did not match the actual income reported in Form 26AS, except for the financial year 2016-17.

Despite having filed returns and paid Rs. 2,87,645 in tax, the remaining demand was confirmed in the order-in-original dated 3.11.2020. On appeal, the Commissioner (Appeals) partly accepted the appellant’s claim and revised the demand based on corrected figures from Form 26AS.

The confirmed demand was reduced to Rs. 5,05,143, and the penalty under Section 78 was recalculated. The late fee was also brought down to Rs. 3,100.

The appellant’s counsel argued before the Tribunal that the show cause notice was flawed from the beginning because the demand was computed using incorrect figures. They referred to Tribunal decisions including Kalyani Sharp India v. CCE, Pune and Safari Carrier v. CCE & CGST, Allahabad, asserting that demands raised without proper verification of records are not legally tenable.

The revenue counsel representative responded that the Commissioner (Appeals) had already corrected the figures using Form 26AS and that the appellant had not disputed the taxability of services. It was argued that the remaining amount of service tax should therefore be paid.

The single-member bench of P.K. Choudhary (Judicial Member) tribunal observed that the authorities had not verified whether the amounts reflected in Form 26AS represented only taxable services.

The tribunal held that reliance on Form 26AS alone, without examining ST-3 returns, contracts, and supporting documents, was insufficient to sustain the demand. It referred to previous decisions, including Sharma Fabricators & Erectors Pvt. Ltd. v. CCE, Allahabad, and Kush Construction v. CGST NACIN, Kanpur, which stressed the need for detailed scrutiny before raising a tax demand.

The tribunal ruled that the adjudicating authority had not carried out the necessary analysis and that the demand was raised mechanically. The impugned order was set aside, and the appeal was allowed.

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