2025 (3) TMI 1347 - AT - Service Tax

Failure to discharge service tax - whole case of demand was built up merely on the basis of figures shown in Form 26AS statement - discharge of burden to prove - invocation of extended period of limitation - demand of interest and Penalty - HELD THAT - The demand of service tax was determined merely on the basis of figures of Form 26AS without examining any other document with a view to ascertain as to whether the receipts shown in Form 26AS was in respect of service only. It is a known fact that Form 26AS statement is prepared by the Income Tax Department not by the taxpayers. There may be chances of error in such statement. It is further seen that the figure shown in Form 26AS statement differ with turnover declared in respective Balance Sheet. The Department have not made any enquiry to ascertain the reason of the difference between figures shown in balance sheet and Form 26AS statement. Neither the adjudicating officer nor the appellate authority has tried to find out nature of services rendered by the Appellant. Service tax demands require establishing the four elements mentioned above. Shifting burden of proof The Department cannot solely rely on ITR/26AS discrepancies to shift the burden of proof to the taxpayer. In this context reference is made to the decision of the Tribunal in the case of United Telecom Ltd. 2010 (10) TMI 730 - CESTAT BANGALORE wherein it has been held that no demand can be confirmed unless exact liability is not decided. Demand of interest and penalty - HELD THAT - When the demand of tax itself is not sustainable the demand of interest and imposition of penalty does not survive. Penalty on Shri Arvind Singh Director of the company is also liable to dropped as the demand case against the company of the Appellant does not survive. Conclusion - i) The service tax demands cannot be based solely on Form 26AS figures without corroborating evidence. ii) The invocation of the extended period of limitation is not justified as the Department had prior knowledge of the liability. iii) Penalties under Sections 70 and 78A and well as interest are set aside due to the lack of a valid demand. Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the demand for service tax based on figures from Form 26AS without corroborating evidence is valid.
Whether the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994, was justified.
Whether penalties under Sections 70 and 78A of the Finance Act, 1994, were appropriately applied.
Whether the Department was required to allow Cenvat credit when determining the service tax liability.
Whether the issuance of the Show Cause Notice (SCN) was valid given that part of the service tax liability had already been paid by the Appellant.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Service Tax Demand Based on Form 26AS

Relevant Legal Framework and Precedents: The demand was primarily based on figures from Form 26AS, which is a statement prepared by the Income Tax Department. The Tribunal referenced decisions such as United Telecom Ltd. and Kush Constructions, which emphasize that demand cannot be confirmed solely on discrepancies in Form 26AS without further substantiation.
Court's Interpretation and Reasoning: The Tribunal found that the Department failed to provide evidence that the Appellant rendered taxable services or identify specific service recipients. The reliance on Form 26AS figures alone was deemed insufficient.
Key Evidence and Findings: The Tribunal noted that the Department did not corroborate the figures from Form 26AS with other documents or evidence to establish the Appellant's service tax liability.
Application of Law to Facts: The Tribunal concluded that the Department's approach lacked legal basis as it did not prove the essential elements of service tax liability.
Treatment of Competing Arguments: The Appellant argued that the SCN was based on assumptions without tangible evidence, which the Tribunal found persuasive.
Conclusions: The Tribunal set aside the demand as it was not supported by sufficient evidence.

2. Invocation of Extended Period of Limitation

Relevant Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994, allows for an extended limitation period in cases of fraud, collusion, willful misstatement, or suppression of facts.
Court's Interpretation and Reasoning: The Tribunal found that the Department did not establish any of these grounds to justify the extended period.
Key Evidence and Findings: The Appellant's records were audited in May 2014, and the Department was aware of the liability for the period October 2012 to September 2013, negating the need for an extended period.
Application of Law to Facts: The Tribunal concluded that the extended period was inapplicable as the Department had knowledge of the liability within the normal period.
Treatment of Competing Arguments: The Appellant's reliance on precedents like Bajaj Auto Ltd. supported their argument against the extended period.
Conclusions: The Tribunal found the invocation of the extended period unjustified.

3. Penalties under Sections 70 and 78A

Relevant Legal Framework and Precedents: Penalties under these sections are contingent upon findings of non-compliance or willful misconduct.
Court's Interpretation and Reasoning: Since the demand itself was unsustainable, the penalties were also deemed invalid.
Key Evidence and Findings: The Tribunal found no evidence of fraud or willful misstatement by the Appellant.
Application of Law to Facts: Without a valid tax demand, penalties could not be imposed.
Treatment of Competing Arguments: The Appellant successfully argued against the imposition of penalties due to the lack of a valid demand.
Conclusions: Penalties were set aside.

4. Allowance of Cenvat Credit

Relevant Legal Framework and Precedents: The Appellant argued that Cenvat credit should have been considered when determining the tax liability.
Court's Interpretation and Reasoning: The Tribunal noted that the Department did not allow the Appellant to present evidence for Cenvat credit.
Key Evidence and Findings: The Tribunal found that denying the opportunity to claim Cenvat credit was unjust.
Application of Law to Facts: The Tribunal emphasized the need for the Department to consider all relevant credits when assessing liability.
Conclusions: The Tribunal implied that the Department should have considered Cenvat credit.

5. Validity of SCN Issuance

Relevant Legal Framework and Precedents: Section 73(3) of the Finance Act, 1994, stipulates that no SCN is needed if the tax is already paid.
Court's Interpretation and Reasoning: The Tribunal found that the SCN was issued for amounts already paid, violating Section 73(3).
Key Evidence and Findings: The Appellant had paid a substantial portion of the demand before the SCN was issued.
Application of Law to Facts: The Tribunal concluded that the SCN was improperly issued for amounts already settled.
Conclusions: The issuance of the SCN was found to be invalid.

SIGNIFICANT HOLDINGS

The Tribunal held that service tax demands cannot be based solely on Form 26AS figures without corroborating evidence.
The invocation of the extended period of limitation was not justified as the Department had prior knowledge of the liability.
Penalties under Sections 70 and 78A were set aside due to the lack of a valid demand.
The Department should consider Cenvat credit when assessing tax liability.
The issuance of the SCN was invalid as it included amounts already paid by the Appellant.

The appeal was allowed, and the impugned order was set aside in its entirety.

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