2024 (2) TMI 1455 - AT - Service Tax

Service tax demand based on Trial Balance and ST-3 return differences rejected without proof of actual services

M/s. South Eastern Coalfields Limited Versus Commissioner of Central Excise & Service Tax, Raipur

CESTAT NEW DELHI ruled in favor of the appellant regarding service tax demand based on differential figures between Trial Balance and ST-3 returns. The ... High Pitched service tax demand - differential figures appearing in the Trial Balance and ST-3 returns - short payment of service tax - difference in the two set of figures represent the value of taxable services on which due service tax had not been paid - invocation of extended period of limitation and penalty under Section 78 of the Finance Act 1994 HELD THAT:- It is a settled principle of law that service tax can be levied only when there is clear identification of a service provider, service recipient and consideration paid for the same. In the absence of any such evidence of the service recipient and the service provided, service tax cannot be demanded and confirmed. For this reason, it is not open for the Department to raise demands on the basis of other statutory returns or balance sheets without proving that such service has been rendered by the appellant and consideration thereof has been received. ribunal in a catena of decisions has held that it is well settled law that no demand can be confirmed by comparing the ST -3 returns with balance sheet figures, in the absence of any evidence to the contrary that income in the balance sheet, if excess, reflects the provision of taxable service. As it is the Revenue authorities who have made the allegations of on payment of tax, and as such, the onus to prove the said allegation lies with them to substantiate the allegations. In the case of SBI Life Insurance Company Limited [2024 (1) TMI 1161 - CESTAT MUMBAI] Tribunal held that demand/penalty on the basis of difference between ST-3 Returns and Income tax returns of any period, without further examination to establish that the difference is on account consideration received towards discharge of services, cannot be sustained. Thus, hold that mere difference in figures appearing in the trial balance as compared to the ST –3 returns without any corroborative evidence that taxable services had indeed been provided by the appellant cannot be upheld. It is a fact on record that the appellant was filing his ST-3 returns regularly. The Department did not raise any query or seek any clarification from the appellant. Thereafter, merely on the basis of audit observation as per the figures of Trial Balance, the Revenue, cannot, at this stage allege suppression. Assessee appeal allowed. Issues Involved:1. Whether the demand for service tax based on differences between the figures in ST-3 returns and the Trial Balance is sustainable.2. Whether the invocation of the extended period of limitation and imposition of penalties is justified.Issue-wise Detailed Analysis:1. Demand Based on Differences in Figures:The primary issue addressed in the judgment is whether the demand for service tax, based solely on the differences between the figures in the ST-3 returns and the Trial Balance, is sustainable. The appellant argued that the demand was based purely on assumptions without examining the nature of the entries in the ledger accounts to determine if they represented taxable services. The appellant contended that the burden of proof was on the Revenue to substantiate the allegations of short payment of service tax. The Tribunal noted that service tax can only be levied when there is clear identification of a service provider, service recipient, and consideration paid. Without evidence of the service provided and consideration received, service tax cannot be demanded. The Tribunal cited precedents, such as the case of Synergy Audio Visual Workshop (P) Ltd., which held that amounts shown in income tax returns or balance sheets are not liable for service tax without further evidence. The Tribunal concluded that mere differences in figures without corroborative evidence of taxable services cannot justify a demand for service tax.2. Invocation of Extended Period of Limitation and Penalties:The second issue was whether the invocation of the extended period of limitation and the imposition of penalties under Section 78 of the Finance Act 1994 were justified. The appellant argued that the extended period was not applicable due to the principle of revenue neutrality, as the demand was under the Reverse Charge Mechanism, allowing the appellant to avail Cenvat Credit. The Tribunal referenced the case of Jet Airways (India) Ltd., which established that the extended period of limitation cannot be invoked in revenue-neutral cases. Additionally, the appellant contended that there was no positive evidence of suppression of facts or intent to evade tax, which is necessary to justify the invocation of the extended period and penalties. The Tribunal agreed, citing the lack of evidence for suppression or intent to evade tax, and noted that the appellant had been regularly filing ST-3 returns without any queries from the Department. Consequently, the Tribunal held that the invocation of the extended period and penalties was not justified.Conclusion:The Tribunal set aside the impugned order, concluding that the demand based on differences between the ST-3 returns and the Trial Balance figures was not sustainable without corroborative evidence. The invocation of the extended period of limitation and imposition of penalties was also deemed unjustified due to the lack of evidence for suppression or intent to evade tax. The appeal was allowed, and the order was pronounced in the open court.