Service tax demand based on third party ITR/Form26AS challenged over reverse charge and vehicle hire exemption; demand set aside

Applicability of the reverse charge mechanism and an exemption for vehicle hire to other goods transport agencies determines sustainability of a service tax demand premised solely on third party ITR/Form 26AS data. Where recipients produced certificates showing tax discharged under reverse charge and the receipts fell under the exemption entry for vehicle hire to GTAs, the demand based on unreconciled third party data was held unsustainable. Because the substantive demand failed on applicability and exemption grounds, associated statutory interest and penalties were also not maintainable and the appeal succeeded for the assessee.

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Issues: Whether the demand of service tax of Rs.1,15,85,153/-, along with interest and penalties, raised for the period 2015-16 on the basis of third-party data (ITR/Form 26AS) is sustainable where the services were subject to reverse charge or exempted under Notification No.30/2012-Service Tax dated 20.06.2012 and Notification No.25/2012-ST dated 20.06.2012.

Analysis: The appeal examines (i) the applicability of reverse charge provisions in Notification No.30/2012-Service Tax dated 20.06.2012 to amounts received from specified corporate recipients, (ii) the exemption in Notification No.25/2012-ST dated 20.06.2012 (entry 22(b)) for vehicle hire to other GTAs, and (iii) whether reliance on ITR/Form 26AS third-party data alone sustains a demand under Section 73(1) of the Finance Act, 1994 invoking extended limitation. The appellant produced recipient certificates showing discharge of tax by recipients under the reverse charge mechanism and documentation explaining the breakup of amounts declared in ITR versus ST-3 returns. The Tribunal notes the statutory scheme permits partial reverse charge where the recipient independently discharges tax liability and that certain receipts (vehicle hire to GTAs) are expressly exempted by Notification No.25/2012-ST. The impugned appellate order did not address these documentary explanations and the statutory notifications; consequently the demand based on the third-party data without reconciling the reverse charge applicability and exemptions is unsustainable. As the substantive demand fails, statutory interest and penalties under Sections 75, 77 and 78 of the Finance Act, 1994 also cannot be sustained.

Conclusion: The demand of service tax of Rs.1,15,85,153/-, and the consequential interest and penalties, are set aside; the appeal is allowed in favour of the assessee.

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