Service tax demand set aside as revised balance sheet reduced receipts eliminating tax difference

CESTAT Allahabad ruled in favor of appellant regarding service tax demand based on balance sheet discrepancies. The tribunal found that revised audited balance sheet reduced receipts by Rs.81,15,826, eliminating alleged service tax difference of Rs.7,72,960 for FY 2009-10. Following HC precedents, the tribunal held that balance sheet figures alone cannot determine service tax liability without corroborative evidence of actual receipts. Extended limitation period was rejected as department failed to prove malafide intention for tax evasion. Service tax demand of Rs.56,39,991 and penalties were set aside. Interest of Rs.30,585 was upheld only for normal limitation period (October 2012-March 2013). Appeal partly allowed.

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Issues Involved:
- Challenge to the order confirming Service Tax demand, interest, and penalty
- Discrepancy between ST-3 Returns and Balance Sheets for multiple financial years

The Appellant, a Security Agency Services provider, challenged the order confirming a Service Tax demand of Rs.56,39,991/-, interest, and penalty imposed by the Adjudicating Authority. The Department noticed a discrepancy in the value of taxable services between ST-3 Returns and Revenue from Operations in Balance Sheets for F.Y 2009-10, 2011-12, and 2012-13. The Appellant submitted a duly audited Revised Balance Sheet for F.Y 2009-10, explaining the reduced Service Charge due to an oversight caused by loss of records. The Department issued a Show Cause Notice proposing the Service Tax demand, interest, and penalty, invoking the extended period of limitation for the abovementioned financial years.

The Appellant argued that the Revised Balance Sheet should have been considered, as it rectified the alleged service tax evasion. They contended that the income shown to the Income Tax authorities cannot be the sole basis for determining Service Tax liability. The Appellant relied on various judicial precedents to support their arguments.

The Appellant further contended that the extended period of limitation cannot be invoked as they were regularly filing ST-3 Returns, and the Department should have effectively scrutinized the returns as per CBEC Circulars. They also argued that audit objections alone cannot justify invoking the extended period.

The Tribunal observed that the Revised Balance Sheet for F.Y 2009-10, duly audited, should have been considered, as it led to a reduction in the alleged service tax difference. The Tribunal held that without evidence, Balance Sheet figures cannot be used to determine Service Tax liability. It also noted that the Department failed to show evasion of Service Tax or provide evidence of malafide intent by the Appellant.

Ultimately, the Tribunal set aside the Service Tax demand, interest, and penalty imposed, upholding only a portion of the interest for late payment and setting aside the penalty for late filing of ST-3 Returns. The appeal was partly allowed based on the above considerations.

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