Service tax demand dismissed due to lack of evidence proving taxable services despite Trial Balance discrepancies

CESTAT NEW DELHI dismissed service tax demand, interest and penalty against a public sector undertaking based on differences between Trial Balance and ST-3 Returns for Works Contract, Legal Consultancy, Security Services and property rental. The Tribunal held that mere differences in figures without corroborative evidence cannot establish taxable service provision, following precedents in Go Bindas Entertainment and SBI Life Insurance cases. Extended limitation period was improperly invoked as alleged errors would have been discoverable through proper return scrutiny. Additionally, penalty under Section 78 was set aside applying the principle that public sector undertakings have no presumed intention to evade tax.

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Issues:
1. Demand of service tax based on difference in figures between Trial Balance and ST-3 Returns.
2. Applicability of revenue neutrality principle in the case.
3. Invocation of extended period of limitation for demand of service tax.
4. Imposition of penalty under Section 78 of the Finance Act, 1994 on Public Sector Undertakings.

Detailed Analysis:

1. The primary issue in this case was the demand of service tax amounting to Rs.10,76,44,875/- confirmed against the appellant based on the difference in figures between Trial Balance and ST-3 Returns for the period April 2015 to June 2017. The appellant contended that the demand was solely based on this difference without considering the nature of entries or whether they were for taxable services. The Tribunal referred to previous decisions, including Go Bindas Entertainment Pvt Ltd. and M/s Kush Constructions, emphasizing that the onus to prove such allegations lies on the Revenue. The Tribunal concluded that no service tax demand could be raised solely on this basis.

2. The second issue involved the application of the revenue neutrality principle. The appellant argued that the demand was under the reverse charge mechanism, and if they had paid the service tax, they would have been entitled to Cenvat credit, ensuring revenue neutrality. Citing the decision in Asmitha Microfin Ltd., the Tribunal held that the demand was hit by limitation and set it aside, as the extended period of limitation could not be invoked in revenue neutral cases.

3. The third issue was the invocation of the extended period of limitation for the demand of service tax. The appellant challenged this invocation, arguing that the alleged errors would have come to light even without the audit. Referring to the decision in M/s Vandana Global Ltd., the Tribunal held that the extended period of limitation could not be invoked in this case, rendering the demand unsustainable due to being barred by limitation.

4. The final issue pertained to the imposition of penalty under Section 78 of the Finance Act, 1994 on Public Sector Undertakings. The appellant relied on the presumption that PSUs do not intend to evade tax, as established in previous cases. The Tribunal agreed with this argument, holding that no penalty could be imposed under Section 78 on the appellant, a Public Sector Undertaking.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal on the grounds of lack of evidence for the service tax demand, application of revenue neutrality principle, unsustainable invocation of extended period of limitation, and ineligibility for penalty on a Public Sector Undertaking.

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