Service tax demand fails without corroborated evidence and cannot travel beyond the show cause notice.

Service tax demand based only on income-tax search material, Excel sheets and employee statements was held unsustainable because the Revenue had not independently corroborated the alleged cash receipts, and the electronic and oral evidence was not proved with required safeguards. Demand under construction service and works contract service also failed because the activity was not shown to fall within the alleged taxable category on the department's pleaded basis, unreceived consideration could not be taxed as proposed, and amounts said to be received before 31.03.2014 could not support the extended period on the facts recorded. The assessee's appeals were allowed and the demand and penalties were set aside.

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Issues: (i) whether a service tax demand founded only on income-tax search material, Excel sheets and employee statements could be sustained without independent corroboration and compliance with evidentiary safeguards; (ii) whether the demand under the heads of construction service and works contract service was sustainable, including the treatment of outstanding amounts and the period prior to 01.04.2014.

Issue (i): whether a service tax demand founded only on income-tax search material, Excel sheets and employee statements could be sustained without independent corroboration and compliance with evidentiary safeguards.

Analysis: The demand was based principally on documents and statements obtained by the Income Tax authorities. The Revenue did not conduct an independent investigation to establish the service recipient, the nature of the cash receipts, or any corroborative facts linking the loose sheets and electronic records to taxable consideration. The statements of employees were not treated as admissible evidence in the absence of the procedure required for relying upon such statements, and the electronic records were also not proved in accordance with the safeguards governing computer-generated evidence. The evidentiary value of the material obtained in the income-tax proceedings was further limited by the restricted use of statements recorded under the income-tax search provisions.

Conclusion: The demand could not be sustained on the basis of the income-tax material and uncorroborated statements, and this issue was decided in favour of the assessee.

Issue (ii): whether the demand under the heads of construction service and works contract service was sustainable, including the treatment of outstanding amounts and the period prior to 01.04.2014.

Analysis: The adjudicating authority's reasoning on classification and quantification was accepted only to the extent consistent with the show cause notice and the evidence on record, but the Tribunal found that the activity did not fall within the alleged taxable category on the basis alleged by the department. It further held that consideration not actually received could not be taxed in the manner proposed, and that amounts shown as received prior to 31.03.2014 were outside the permissible extended period on the facts recorded. The Tribunal also held that the department could not sustain a demand by recasting the case beyond the foundation laid in the show cause notice.

Conclusion: The demand under the alleged taxable categories was not sustainable on the facts and law applied, and this issue was decided in favour of the assessee.

Final Conclusion: The assessee's appeals were allowed and the Revenue's appeal was dismissed, with the demand and consequential penalties set aside on the merits recorded.

Ratio Decidendi: A service tax demand cannot be sustained when it rests only on uncorroborated third-party material and electronically generated records that are not duly proved, and tax cannot be confirmed on a basis that travels beyond the evidentiary foundation and scope of the show cause notice.

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