Service tax demand of Rs. 3,29,123 set aside as department relied solely on ITR data without proper investigation

CESTAT Chennai allowed the appeal, setting aside the service tax demand of Rs. 3,29,123/- for FY 2015-16. The department initiated action based solely on ITR data without proper investigation, violating natural justice principles. The tribunal held that ITR could trigger enquiry but cannot determine service value or invoke extended period provisions without proof of evasion. Revenue failed to establish burden of proof regarding appellant's blameworthy conduct. The demand was deemed improper as it lacked adequate investigation and relied merely on suspicion rather than concrete evidence of tax evasion.

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Issues involved:
1. Allegation of non-payment of service tax based on information from third-party data source.
2. Violation of principles of natural justice in issuing the Show Cause Notice.
3. Determination of service tax liability solely based on Income Tax Returns without investigation.
4. Legal mode of service of Show Cause Notice.
5. Burden of proof on the revenue to establish tax evasion.
6. Comparison with a similar case judgment by the Division Bench.

Detailed Analysis:
1. The appellant filed an appeal against the Order in Appeal confirming a service tax liability of Rs.3,29,123/- for the year 2015-16 based on information from Income Tax Returns (ITR) without filing ST-3 returns. The Original Authority confirmed the demand, and the Commissioner (Appeals) upheld it, leading to the current appeal.

2. The appellant argued that the Show Cause Notice was not served on them, violating principles of natural justice. They contended that the notice was sent via post but returned as 'no such addressee,' and email was not a legal mode of service as per the relevant Acts. The appellant also highlighted the lack of investigation by the department before alleging tax evasion, emphasizing the need for a fair process.

3. The Tribunal noted that the department solely relied on ITR to determine the service tax liability without conducting any investigation. It emphasized that suspicion alone cannot justify demanding tax without proper evidence of evasion. The burden of proof lies with the revenue to establish wrongdoing, which was not done in this case. The Tribunal found the issuance of the Show Cause Notice faulty and in violation of natural justice principles.

4. Referring to a similar case judgment by the Division Bench, the Tribunal reiterated the importance of proper investigation and evidence before alleging tax evasion. The Tribunal emphasized the necessity of framing charges based on admissible evidence and examining reasons for differences in turnovers before demanding service tax. It highlighted the revenue's duty to establish underpaid tax before issuing a Show Cause Notice.

5. The Tribunal concluded that the impugned order should be set aside due to the procedural irregularities and lack of evidence supporting the tax demand. It dismissed the appeal filed by the revenue and allowed the cross-appeal by the respondent based on the legal principles discussed in the Division Bench judgment. The Tribunal emphasized the need for judicial discipline to follow precedents set by larger quorum benches in similar legal issues.

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