2024 (12) TMI 284 - AT - Service Tax

Non-payment of service tax based on information from third-party data source - appellant did not file ST-3 returns (STR) for the year 2015 16 - Violation of principles of natural justice - HELD THAT - This is a case where the department has initiated action after obtaining the ITR of the appellant and comparing it with the STR. The entire amount shown as Sale of Service as per the ITR was taken as the presumptive value of the service rendered during the FY 2015-16 and Service Tax of 3,29,123/- was demanded under the extended period of time along with interest and penalties under various provisions of law. No investigation into the information received from the ITR appears to have been attempted. While the ITR could have triggered an enquiry into the non-payment of Service Tax, if any, by the appellant, it cannot be the basis of determining the value of service rendered during any period of time. Much less under the extended period of time, invoking fraud, suppression etc. without an iota of investigation or proof of evasion of duty. Mere entertaining of suspicion cannot be the basis to put a citizens right to do business in difficulty and oblige him to pay tax which is improperly demanded. The burden of proof is on revenue to establish the blame worthy conduct of the appellant - no purpose would be served in remanding the matter to the Original Authority to cure the breach of natural justice at this stage, since the grounds in the current notice are inadequate and inclusion of additional ground/ new ground would involve fresh investigation into facts, which cannot be permitted. Thus, it is also a well-accepted norm of judicial discipline that a Bench of lesser quorum / strength should follow the view taken by Bench of larger quorum / strength, in a case whose ratio covers the legal issue involved in the impugned matter. The impugned order merits to be set aside and is so ordered - The appeal is allowed.

Summary

Issues involved:
1. Allegation of non-payment of service tax based on information from third-party data source.
2. Violation of principles of natural justice in issuing the Show Cause Notice.
3. Determination of service tax liability solely based on Income Tax Returns without investigation.
4. Legal mode of service of Show Cause Notice.
5. Burden of proof on the revenue to establish tax evasion.
6. Comparison with a similar case judgment by the Division Bench.

Detailed Analysis:
1. The appellant filed an appeal against the Order in Appeal confirming a service tax liability of Rs.3,29,123/- for the year 2015-16 based on information from Income Tax Returns (ITR) without filing ST-3 returns. The Original Authority confirmed the demand, and the Commissioner (Appeals) upheld it, leading to the current appeal.

2. The appellant argued that the Show Cause Notice was not served on them, violating principles of natural justice. They contended that the notice was sent via post but returned as 'no such addressee,' and email was not a legal mode of service as per the relevant Acts. The appellant also highlighted the lack of investigation by the department before alleging tax evasion, emphasizing the need for a fair process.

3. The Tribunal noted that the department solely relied on ITR to determine the service tax liability without conducting any investigation. It emphasized that suspicion alone cannot justify demanding tax without proper evidence of evasion. The burden of proof lies with the revenue to establish wrongdoing, which was not done in this case. The Tribunal found the issuance of the Show Cause Notice faulty and in violation of natural justice principles.

4. Referring to a similar case judgment by the Division Bench, the Tribunal reiterated the importance of proper investigation and evidence before alleging tax evasion. The Tribunal emphasized the necessity of framing charges based on admissible evidence and examining reasons for differences in turnovers before demanding service tax. It highlighted the revenue's duty to establish underpaid tax before issuing a Show Cause Notice.

5. The Tribunal concluded that the impugned order should be set aside due to the procedural irregularities and lack of evidence supporting the tax demand. It dismissed the appeal filed by the revenue and allowed the cross-appeal by the respondent based on the legal principles discussed in the Division Bench judgment. The Tribunal emphasized the need for judicial discipline to follow precedents set by larger quorum benches in similar legal issues.