2024 (3) TMI 983 - AT - Service Tax

Demand as proposed in the SCN on the basis of mismatch of ST-3 Returns and Balance Sheets/26AS - Invocation of Extended period of limitation - penalties - HELD THAT - It has been held in a catena of decisions that only the amount received by the Appellant was liable to Service Tax, amounts reflected in Balance Sheets cannot be used to determine the Service Tax liability. The Hon ble Madras High Court in FIRM FOUNDATIONS HOUSING PVT. LTD. VERSUS PRINCIPAL COMMISSIONER, OFFICE OF THE PRINCIPAL COMMISSIONER OF SERVICE TAX 2018 (4) TMI 613 - MADRAS HIGH COURT held that the reporting of income in the P L is irrelevant for the purposes of determination of service tax payable and thus the basis of the impugned assessment is erroneous. Moreover, income reflected in the Balance Sheet is for Income Tax purposes, which cannot be used for the purpose of service tax without any corroboratory evidence as also supported by M/S LUIT DEVELOPERS PRIVATE LIMITED VERSUS COMMISSIONER OF CGST CENTRAL EXCISE, DIBRUGARH 2022 (3) TMI 50 - CESTAT KOLKATA . It is found that since the Appellant was filing ST-3 Returns regularly, the Department s stand that it could examine the correct facts only on going through the Balance Sheets cannot be sustained as CBEC Circular No.113/7/2009-S.T., dated 23-4-2009 vide F.No.137/158/2008-CX. 4 and CBEC Circular No.185/4/2015-ST dated 30.6.2015 vide F.No137/314/2012 categorically puts duty on the assessing officer to effectively scrutinize the returns at the preliminary stage, as held in M/S. GANNON DUNKERLEY CO. LTD. VERSUS COMMISSIONER (ADJUDICATION) OF SERVICE TAX, NEW DELHI 2020 (12) TMI 1096 - CESTAT NEW DELHI . Extended period of limitation - HELD THAT - Extended period of limitation cannot be invoked solely on audit queries and objections. It is observed that the Department has not adduced any positive evidence to show mala fide intention for evasion of service tax and therefore extended period is erroneously invoked. There are no ingredient of fraud or suppression with an intent to evade payment of tax - the demand raised is completely barred by limitation and accordingly the demand is set aside. Penalty - HELD THAT - Since there is no element of fraud or suppression, penalty under Section 78 is liable to be set aside. Appeal allowed.

Summary

Issues involved:
The appeal assails the Order-in-Original confirming Service Tax demand, interest, and penalties under Sections 78 and 77 of the Finance Act, 1994.

Issue 1: Determination of Service Tax Liability
The Appellant, a Security Agency Service provider, contested the demand based on mismatch of ST-3 Returns and Balance Sheets/26AS. The Advocate argued that income shown to Income Tax Authorities cannot solely determine service tax liability without proof of it being towards taxable services. Citing case laws, it was emphasized that Balance Sheets figures cannot be used for this purpose. The Advocate also highlighted that extended period of limitation cannot be invoked as the Appellant regularly filed ST-3 Returns.

Issue 2: Use of Balance Sheets for Tax Liability Determination
The Tribunal referred to various legal precedents to establish that only amounts received by the Appellant are liable to Service Tax, not figures reflected in Balance Sheets. The Tribunal pointed out that income in Balance Sheets is for Income Tax purposes and cannot be used for service tax determination without corroboratory evidence. The Department's reliance on audit objections and Balance Sheets alone was deemed insufficient to invoke extended period of limitation.

Issue 3: Extended Period of Limitation and Fraud
The Tribunal held that extended period of limitation cannot be invoked solely based on audit queries and objections. Lack of positive evidence showing mala fide intention for tax evasion led to the conclusion that extended period was erroneously invoked. In the absence of fraud or suppression, the demand was deemed barred by limitation. Citing a relevant case law, it was noted that mere data from the Income Tax Portal does not constitute fraud or suppression justifying extended limitation. Consequently, the demand and penalty under Section 78 were set aside, and the appeal by the Appellant was allowed with consequential relief.