Service tax demand based on ITR/Form26AS overturned where nature of receipts was not adjudicated and reconciliation omitted

Whether a service tax demand and penalties based on ITR/Form 26AS are sustainable where the appellant claimed threshold exemption. The Tribunal found the department failed to determine the taxable nature of receipts or identify the specific service before confirming demand; it relied on third party tax data without required reconciliation or inquiry and issued no sufficiently specific show cause notice. For these reasons the demand and penalties were held unsustainable and the impugned order was set aside, allowing the appeal in favour of the assessee.

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Issues: Whether the service tax demand and penalties confirmed by the adjudicating authority (based on ITR/Form 26AS data) for FY 2016-17 are sustainable where the appellant claimed threshold exemption under Notification No. 33/2012-ST and the nature/receipt particulars were not determined by the authorities.

Analysis: The Tribunal examined whether the Department established the taxable nature and specific service under the Finance Act, 1994 before confirming demand and penalties. Relevant statutory framework includes the proviso to Section 73(1), Section 75 (interest), Section 78 (penalty), Sections 66B and 66D (taxable/exempt services), related provisions for penalties (Sections 70, 77, 69) and Notification No. 33/2012-ST (threshold exemption). The appellate order considered the appellant's submission and documentary material (ITR and Form 26AS for previous year) showing turnover below Rs.10 lakh in the preceding year, making the appellant prima facie eligible for threshold exemption for the year under challenge. The Tribunal noted statutory and board instructions requiring reconciliation and inquiry before issuing demands based solely on ITR/TDS data and emphasized that a show cause notice must communicate specific allegations and the basis for tax demand so the assessee can meet the case. The Tribunal found no determination of the nature of services nor adequate inquiry by the authorities into the receipts; the demand was founded on third-party data without specifying which service attracted tax or resolving discrepancies, contrary to principles of natural justice and CBIC instructions.

Conclusion: The impugned confirmation of service tax demand and penalties is unsustainable. The Tribunal set aside the impugned order and allowed the appeal, holding the demand and penalties not maintainable in absence of specific adjudication on the nature of receipts and proper compliance with reconciliation/investigation requirements; accordingly the appeal is allowed in favour of the assessee.

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