Service tax demand cannot rest on income-tax comparison alone without proof of short payment or suppression of facts.

A service tax demand based solely on a comparison between income shown in the income-tax return and the ST-3 return was held unsustainable because no independent enquiry or corroborative evidence established short payment, wrongful denial of exemption, or suppression of facts. The assessee had filed regular ST-3 returns and disclosed the nature of services and tax position, so the department could not rely only on third-party data or a different accounting treatment to raise demand. On the same facts, the extended period of limitation was not invocable, as mere disagreement with the declared tax position did not prove fraud, wilful misstatement, or intent to evade tax. Penalties were therefore also unsustainable.

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Issues: (i) Whether the demand of service tax could be sustained merely on comparison of income reflected in the Income Tax return and the ST-3 return without further enquiry and proof of short payment. (ii) Whether the extended period of limitation could be invoked in the absence of established suppression of facts or intent to evade tax.

Issue (i): Whether the demand of service tax could be sustained merely on comparison of income reflected in the Income Tax return and the ST-3 return without further enquiry and proof of short payment.

Analysis: The return records showed disclosure of the nature of services, taxable value, exemption claim, and the tax payable. The difference between the Income Tax figures and the service tax figures was explained by the assessee as arising from accounting treatment, classification of receipts, and exempt services. The demand rested only on a comparison with third-party data and no independent evidence was produced to establish that the assessee was not entitled to the claimed exemption or had actually short-paid tax.

Conclusion: The demand on this basis was not sustainable.

Issue (ii): Whether the extended period of limitation could be invoked in the absence of established suppression of facts or intent to evade tax.

Analysis: The assessee had filed ST-3 returns regularly and made the relevant disclosures. In such a self-assessment regime, the responsibility to scrutinise the returns and seek supporting material lay on the department. Mere non-acceptance of the declared tax position or failure to assess tax correctly did not, by itself, establish fraud, wilful misstatement, suppression, or intent to evade. On these facts, invocation of the extended period was unjustified.

Conclusion: The extended period of limitation was not invocable.

Final Conclusion: The demand and penalties were unsustainable, and the assessee succeeded in the appeal.

Ratio Decidendi: A service tax demand based only on comparison of income-tax data and ST-3 returns, without independent enquiry or proof of suppression, cannot justify the extended limitation period or sustain penalty.

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