Service tax demand set aside when based solely on Form-26AS without verification of actual liability

CESTAT Kolkata set aside service tax demand and penalties against registered service provider. Department raised demand based solely on Form-26AS from Income Tax Department without conducting verification of actual service liability. Show cause notice issued after 30-month limitation period expired, making extended period invocation unsustainable. Appellant regularly filed ST-3 returns as registered provider, negating suppression allegations. Court held demands cannot be raised purely on Form-26AS when taxpayer maintains regular compliance. All penalties under sections 77 and 78 of Finance Act 1994 were set aside due to lack of established suppression. Appeal allowed, impugned order set aside.

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The legal judgment issued by the Appellate Tribunal CESTAT Kolkata involved the following core legal questions:1. Whether the demand for service tax based on Form-26AS supplied by the Income Tax Department is sustainable without conducting a verification of the nature of services rendered by the appellantRs. 2. Whether the demand for service tax for the financial years 2014-15 and 2015-16, issued after the normal period of limitation, is validRs. 3. Whether the penalties imposed on the appellant under Sections 77 and 78 of the Finance Act, 1994 are justifiedRs.The Tribunal analyzed these issues as follows:1. The Tribunal noted that the demand for service tax was solely based on Form-26AS provided by the Income Tax Department and information from the Balance Sheet, Profit and Loss Account, and ST-3 Returns. It was observed that no verification was conducted by the department to determine the liability of the appellant for service tax. The Tribunal cited a precedent in the case of M/s. Piyush Sharma v Commissioner of CGST & CX, Patna-I, highlighting that demands cannot be solely based on Form-26AS when the appellant is a registered service provider regularly filing Service Tax Returns. Consequently, the Tribunal held that the demand based on Form-26AS was unsustainable.2. Regarding the demand for service tax for the financial years 2014-15 and 2015-16, the Tribunal found that the Show Cause Notice was issued after the normal period of limitation had expired. The Tribunal emphasized that the first query regarding the alleged discrepancies was made after the normal limitation period had lapsed. Therefore, the Tribunal concluded that the demand confirmed beyond the normal limitation period was not sustainable, and subsequently set aside the demands along with interest.3. The Tribunal determined that there was no established suppression of facts by the appellant to evade tax, thus holding that no penalty under Section 78 of the Finance Act, 1994 was warranted. The penalties imposed under Sections 77(1)(c)(ii) and 77(2) were also set aside as the appellant had been compliant with filing returns regularly.In conclusion, the Tribunal set aside the impugned order and allowed the appeal filed by the appellant, providing consequential relief as per the law.This judgment establishes the principles that demands cannot be solely based on Form-26AS without verification, demands issued beyond the normal limitation period are not sustainable, and penalties require evidence of intentional evasion.

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