Service tax demand cannot rest on third-party records or uncorroborated statements without independent proof of taxable service.

Additional legal grounds and supporting material were entertainable before the Tribunal where they affected tax liability and the parties had an opportunity to respond. Service tax demand could not be sustained on third-party records, uncorroborated statements, or TDS/26AS entries alone, because those materials did not by themselves prove the existence or value of taxable services and the department had not independently discharged its evidentiary burden. The Tribunal also noted that documents not recovered from the assessee's custody did not attract the presumption applicable to seized materials. On the CENVAT issue, invoices and credit records supported the assessee, so denial of credit was unsustainable, leaving only the admitted and already paid service tax amount unaffected.

---

---

Issues: (i) Whether additional grounds and evidence could be entertained before the Tribunal despite not having been produced before the adjudicating authority; (ii) Whether the service tax demand and denial of CENVAT credit were sustainable on the basis of third-party documents, statements, and TDS/26AS material.

Issue (i): Whether additional grounds and evidence could be entertained before the Tribunal despite not having been produced before the adjudicating authority.

Analysis: The Tribunal held that it was not barred from considering new legal grounds and supporting material when the issue had a bearing on tax liability and the parties had an opportunity to meet the case. Reliance was placed on the settled principle that appellate fora may examine additional legal questions arising from the record and may permit new grounds where justice so requires.

Conclusion: The additional grounds and evidence were entertainable before the Tribunal.

Issue (ii): Whether the service tax demand and denial of CENVAT credit were sustainable on the basis of third-party documents, statements, and TDS/26AS material.

Analysis: The Tribunal found that the documents relied upon by the department were not recovered from the appellant's custody or control, so the statutory presumption applicable to seized documents was unavailable. It further held that the department had not discharged the burden of proving taxable service by independent corroborative evidence, and that statements recorded during investigation could not by themselves sustain the demand without compliance with the mandatory evidentiary procedure. The Tribunal also held that TDS/26AS entries under the income-tax regime could not, by themselves, establish the value or existence of taxable services under service tax law. On the CENVAT issue, the appellant produced invoices and credit records, and the denial was found unsustainable.

Conclusion: The service tax demand, interest, and penalty were not sustainable to the extent disputed, and the CENVAT credit denial was set aside.

Final Conclusion: The appeal succeeded substantially, with the impugned demand and credit disallowance set aside except for the amount of service tax already admitted and paid by the appellant, and consequential relief was granted according to law.

Ratio Decidendi: A service tax demand cannot be sustained on the basis of third-party records, uncorroborated statements, or income-tax TDS/26AS data unless the department independently proves the taxable service and discharges the evidentiary burden required by law.

---