2025 (1) TMI 311 - AT - Service Tax

Levy of service tax service tax based on discrepancies between ST-3 Returns and Income Tax Returns - entire demand is based on difference in ST-3 Returns and Income Tax Returns and that the demand is raised without examination of the books of accounts - time limitation - HELD THAT - The Revenue should have established that the said transactions were in respect of provision of services. Further, the Authorities knowing well about the activities of the Appellant since 2008, Appellant filed returns for the year 2013-14 onwards and nil returns were filed from 2015-16 and 2016-17. In the circumstances, there is no reason to invoke extended period of limitation in the absence of any ingredient with an intention to evade payment of service tax. Thus, show cause notice issued under the provisions of Section 73(1) of Finance Act, 1994 is unsustainable in law. Accordingly, the notice is hit by bar of limitation. This Tribunal and other Co-ordinate Benches, in catena of decisions continuously hold that solely on the basis of Income Tax Returns, demand cannot be sustainable. Therefore, it is essential to establish that the value on which such service tax is calculated is the value under Section 67 and the same is derived from the consideration received by the appellant out of the activity which has to satisfy definition of Service under Sub-section (44) of Section 65B of Finance Act, 1994. Such type of examination of the facts and arriving at the prima facie view that the appellant had received the consideration by providing service is missing in the show cause notice. Thus,t the said show cause notice dated 31.12.2020 is not sustainable in law. Conclusion - Service tax demands cannot be based solely on discrepancies between tax returns without corroborating evidence. The burden of proof lies with the Revenue to establish receipt of consideration for services. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment involves the following core issues:

Whether the demand for service tax based on discrepancies between ST-3 Returns and Income Tax Returns is legally sustainable.
Whether the show cause notice issued under Section 73(1) of the Finance Act, 1994, is barred by the limitation period.
Whether the documentary evidence provided by the appellant, including Chartered Accountant Certificates and Bank Statements, is sufficient to refute the service tax demand.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Service Tax Demand Based on Return Discrepancies

Relevant Legal Framework and Precedents: The demand was based on differences between ST-3 Returns and Income Tax Returns. The appellant relied on precedents such as Umesh Tilak Yadav Vs Commissioner of Central Excise and others, which established that demands cannot be based solely on Income Tax Returns.
Court's Interpretation and Reasoning: The court emphasized that the Revenue failed to examine the appellant's books of accounts to establish that the transactions pertained to service provision. It noted that merely relying on Income Tax Returns without corroborating evidence is insufficient.
Key Evidence and Findings: The appellant provided Chartered Accountant Certificates, Bank Statements, and Income Tax Returns to demonstrate no receipt of consideration for alleged services.
Application of Law to Facts: The court applied Section 67 of the Finance Act, 1994, which requires that the value for service tax must be derived from consideration received for services. The absence of evidence showing receipt of such consideration rendered the demand unsustainable.
Treatment of Competing Arguments: The Revenue's reliance on case laws was deemed inapplicable as the appellant's documentary evidence clearly indicated no receipt of consideration.
Conclusions: The court concluded that the demand based solely on Income Tax Returns is not sustainable.

Issue 2: Limitation Period for Issuing Show Cause Notice

Relevant Legal Framework and Precedents: The show cause notice was issued under Section 73(1) of the Finance Act, 1994. The appellant argued that the notice was barred by the limitation period.
Court's Interpretation and Reasoning: The court found no evidence of intent to evade tax, which is necessary to invoke an extended limitation period. The appellant had filed nil returns for the relevant years, and the Revenue was aware of the appellant's activities since 2008.
Key Evidence and Findings: The absence of any ingredient indicating intent to evade tax led the court to find the notice unsustainable.
Application of Law to Facts: The court applied the standard limitation period, finding the notice issued beyond this period without justification for extension.
Treatment of Competing Arguments: The Revenue's arguments for extending the limitation period were dismissed due to lack of evidence.
Conclusions: The show cause notice was barred by limitation, rendering it unsustainable.

Issue 3: Sufficiency of Documentary Evidence

Relevant Legal Framework and Precedents: The appellant provided evidence such as Chartered Accountant Certificates and Bank Statements. The Revenue argued these were insufficient without corroborating evidence.
Court's Interpretation and Reasoning: The court found the appellant's evidence credible and sufficient to refute the demand, especially in the absence of contrary evidence from the Revenue.
Key Evidence and Findings: The appellant's documentary evidence was deemed sufficient to establish that no consideration was received for alleged services.
Application of Law to Facts: The court applied the principle that the burden of proof lies with the Revenue, which failed to provide contrary evidence.
Treatment of Competing Arguments: The court dismissed the Revenue's argument for further corroboration as unsubstantiated.
Conclusions: The appellant's documentary evidence was sufficient to refute the service tax demand.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Revenue should have established that the said transactions were in respect of provision of services." "The show cause notice issued under the provisions of Section 73(1) of Finance Act, 1994 is unsustainable in law."
Core Principles Established: Service tax demands cannot be based solely on discrepancies between tax returns without corroborating evidence. The burden of proof lies with the Revenue to establish receipt of consideration for services.
Final Determinations on Each Issue: The court set aside the impugned orders, allowing the appeals with consequential reliefs, as the demands were unsustainable both on merits and due to limitation.

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