2024 (9) TMI 408 - AT - Service Tax

Levy of service tax - payment of Rs.59,12,145/- reported as income from sale of service in the ITR of the appellant - burden of proof on Department - presumption as to document as available under Section 36A of Central Excise Act, 1944 - HELD THAT - It is abundantly clear that the demand in question has been confirmed purely based on third party document/information gathered from the Income Tax Department for Financial Year 2016-17. Hon ble Supreme Court in the case of JAIPRAKASH INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., CHANDIGARH 2002 (11) TMI 92 - SUPREME COURT has held that the demand based on Income Tax Returns and Form 26AS and/or Balance Sheet is not sustainable without proper enquiry and analysis. Further it is observed that it is the settled principle of Revenue jurisprudence that the burden to prove the allegations against the assessee rests on the department - support drawn from the decision in the case titled as COMMISSIONER OF C. EX., BANGALORE VERSUS BRINDAVAN BEVERAGES (P) LTD. 2007 (6) TMI 4 - SUPREME COURT , wherein it was additionally held that if the allegations in show cause notice are not specific, the same is sufficient to hold that the notice was not given proper opportunity to meet the allegation the said show cause notice. The said burden stands absolutely un-discharged by the department. It is coming from the show cause notice itself that the appellant is registered with the service tax department having registration no. AEBPJ1665HSD001. Despite this there is no mention of the nature of services for which the appellant has got itself registered even in the show cause notice. Also it is apparent from the show cause notice that no provision under which the payment would have been made before Income Tax Authorities has been observed or cited by the department - the department has failed to act diligently ant to discharge its burden of proving the appellant s alleged failure. No proper investigation has at all been conducted by the department. The document which has been relied upon by the department and has been used against the assessee was neither produced by the assessee nor has been seized from his premises or control. This observation is sufficient to hold that presumption as to document as available under Section 36A of Central Excise Act, 1944 is not applicable to the DGS and DM s letter dated 22.05.2019 based whereupon the impugned show cause notice was issued and the demand proposed therein has been confirmed on the same basis. The document is not at all admissible into evidence. Hence the very basis of department s case vanishes. The order under challenge is set aside - appeal allowed.

Summary

Issues:
- Discrepancy in turnover reported in ITR and ST-3 returns for the Financial Year 2016-17
- Show Cause Notice issued for recovery of service tax, interest, penalty, and late fee
- Appeal against the Order-in-Original rejected by Commissioner (Appeals)
- Invocation of extended period of limitation
- Alleged suppression of vital facts
- Nature of service and its taxability
- Burden of proof on the department
- Lack of specific allegations in the show cause notice
- Failure to mention the nature of services for which the appellant is registered
- Reliance on third-party document from Income Tax Department
- Admissibility of document relied upon by the department

Analysis:

The case involves a discrepancy in turnover reported by the appellant in their Income Tax Returns (ITR) and ST-3 returns for the Financial Year 2016-17. The Department issued a Show Cause Notice proposing the recovery of service tax, interest, penalty, and late fee based on the difference in turnover. The appellant was enquired about the taxable value of services provided and the reason for the discrepancy. The Order-in-Original confirming the proposed recovery was challenged in an appeal before the Commissioner (Appeals), which was subsequently rejected, leading to the appellant approaching the Tribunal.

The appellant argued that the case against them was solely based on a letter from the Additional Director General without any other supporting evidence. They contended that the extended period of limitation was wrongly invoked as there was no evidence of suppression of vital facts. Citing a previous Tribunal decision, the appellant sought to set aside the demand on both merit and time limitation grounds.

The Department, represented by the Authorized Representative, supported the findings of the Commissioner (Appeals) and urged the dismissal of the appeal. However, upon hearing both parties and examining the documents, the Tribunal observed that the Show Cause Notice lacked discussion on the nature of the service and its taxability. The demand was primarily based on third-party information from the Income Tax Department, without proper enquiry or analysis into the appellant's activities.

The Tribunal referenced legal precedents to emphasize that demands based solely on income tax data without proper investigation are not sustainable. It highlighted that the burden of proof lies with the department, and in this case, the department failed to discharge its burden by not providing specific allegations or conducting a diligent investigation. The Tribunal also noted the lack of mention of the nature of services for which the appellant was registered, further indicating the department's failure to act diligently.

Moreover, the Tribunal pointed out that the document relied upon by the department was not produced by the appellant or seized from their premises, rendering it inadmissible as evidence. This lack of admissibility undermined the basis of the department's case, leading the Tribunal to set aside the Order-in-Original and allow the appeal in favor of the appellant.