2025 (4) TMI 444 - AT - Service Tax

Short payment of service tax - underreporting of value of taxable services in sales ledger compared to the amounts reflected in the 26AS statements - case of appellant is that whole demand is based on 26-AS statement (TDS statement) of their clients which is generated as per income tax provisions and cannot be taken as evidence in service tax law in his favour - HELD THAT - The first adjudicating authority and the lower appellate authority Commissioner (Appeals) have erred in holding that the argument of the appellant is not acceptable that the 26-AS statement cannot be used for detection of any other tax. It was the duty of the department that after proper inquiry it should have clearly narrated in the show cause notice that on which taxable service the service tax was not paid or short paid. It was not proper for the department to solely rely upon the 26AS statement of some of the clients of the appellant and raise demand of service tax solely on its basis. The department should have collected independent evidence and material to clearly show that the appellant failed to pay proper service tax but the department failed to collect independent evidence and reliable material for raising the demand of service tax on differential basis. The Commissioner (Appeals) had no idea whether the total service tax liability was discharged by the appellant or not. In these circumstances it was not proper on the part of Commissioner (Appeals) to have concluded that the lower adjudicating authority has rightly confirmed the demand of service tax along with interest and rightly imposed penalties upon them. The order of the Commissioner (Appeals) is not sustainable and is liable to be set aside. Concluson - In the circumstances of the case it will be proper if the matter is remanded to the first Adjudicating Authority with the direction that it should inquire into the matter and scrutinize the documents pertaining to the services rendered and liability of Service Tax and should give a clear conclusion whether the total service tax liability was discharged by the appellant or not independent of the 26-AS statement. Appeal allowed by way of remand.

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this judgment is whether the appellant underreported the value of taxable services in their sales ledger compared to the amounts reflected in the 26AS statements, resulting in a shortfall in the payment of service tax. The core legal questions revolve around the admissibility and reliability of 26AS statements as evidence for determining service tax liability under the Finance Act, 1994, and whether penalties under Section 78 of the Finance Act were correctly imposed.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involves the Finance Act, 1994, specifically the provisions related to service tax liability and penalties. The appellant argued that 26AS statements, which are generated under the Income Tax Act, 1961, should not be used as sole evidence for determining service tax liability. The appellant cited several precedents, such as Shri Kankeshwari Enterprice and Shresth Leasing and Finance Ltd, where it was held that service tax demands cannot be based solely on 26AS data without independent inquiry or corroborative evidence.

Court's Interpretation and Reasoning

The Tribunal acknowledged the appellant's argument that 26AS statements are generated for income tax purposes and cannot be relied upon solely for service tax assessments. The Tribunal emphasized that income tax and service tax are governed by different statutes and operate in separate domains. It was noted that the department failed to conduct an independent investigation or gather corroborative evidence to substantiate the service tax demand.

Key Evidence and Findings

The appellant provided reconciliation statements and argued that discrepancies in 26AS statements arose from unilateral provisions made by clients for work in progress, which were not billed in the same financial year. The department, however, relied solely on the 26AS data without verifying the appellant's claims through independent evidence or documentation.

Application of Law to Facts

The Tribunal applied the legal principle that 26AS statements cannot be used as the sole basis for raising service tax demands. It found that the department's reliance on 26AS data without conducting a thorough inquiry or obtaining corroborative evidence was insufficient to sustain the demand. The Tribunal noted that the department did not specify the taxable services or provide evidence of underreported income beyond the 26AS statements.

Treatment of Competing Arguments

The appellant's argument that the 26AS statements were not reliable for service tax assessments was supported by precedents and the Tribunal's reasoning. The department's argument that the appellant should have reconciled their accounts was dismissed due to the lack of independent verification and reliance solely on 26AS data.

Conclusions

The Tribunal concluded that the department erred in relying solely on 26AS statements without independent inquiry or corroborative evidence. It determined that the order of the Commissioner (Appeals) was unsustainable and required a remand for a detailed investigation into the appellant's service tax liability, independent of the 26AS statements.

SIGNIFICANT HOLDINGS

The Tribunal held that "it was not proper for the department to solely rely upon the 26AS statement of some of the clients of the appellant and raise demand of service tax solely on its basis." This establishes the principle that 26AS statements cannot be the sole evidence for service tax demands without corroborative evidence.

The Tribunal further stated, "The department should have collected independent evidence and material to clearly show that the appellant failed to pay proper service tax but the department failed to collect independent evidence and reliable material for raising the demand of service tax on differential basis."

Final Determinations on Each Issue

The Tribunal set aside the order of the Commissioner (Appeals) and remanded the case to the first Adjudicating Authority. It directed the authority to conduct a thorough inquiry into the appellant's service tax liability, independent of the 26AS statements, and to ascertain whether the appellant discharged their full service tax liability.

The Tribunal emphasized that the 26AS statement may be used for corroboration but should not be the sole document for raising service tax demands. The decision underscores the need for independent verification and evidence in service tax assessments.

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