Service tax demands require proper comparability and evidence; arbitrary best judgment estimates fail when reconciliations are on record.

Service tax demands cannot be computed by mechanically comparing VAT/WCT returns with ST-3 returns where the two levies operate on different bases; for the pre-30.06.2011 period, receipt-based taxation and supporting auditor reconciliations showed the differential levy was unsustainable. Best judgment assessment under Section 72 must be grounded in the material on record and a reasonable estimate; where the assessee produced relevant documents, figures and reconciliation, an arbitrary uplift of turnover to 150% of the prior year lacked evidentiary basis. The demand for 2012-13 was therefore unsustainable, and no further service tax liability could be fastened.

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Issues: (i) Whether the demand of service tax based on the difference between VAT/WCT returns and ST-3 returns for the period up to 30.06.2011 was sustainable. (ii) Whether the demand for 2012-13 based on best judgment assessment under Section 72 of the Finance Act, 1994 could be sustained when the assessee had furnished the relevant documents and reconciliation material.

Issue (i): Whether the demand of service tax based on the difference between VAT/WCT returns and ST-3 returns for the period up to 30.06.2011 was sustainable.

Analysis: Service tax for the relevant period was payable on receipt basis up to 30.06.2011, while VAT/WCT returns operated on a different footing and could not be mechanically compared with ST-3 returns for computing service tax liability. The returns under the two taxing statutes were not comparable for determining a differential levy, and the assessee's auditor certificates supported the reconciliation of service tax liability with its books of account.

Conclusion: The demand for the period up to 30.06.2011 was not sustainable and was rightly rejected.

Issue (ii): Whether the demand for 2012-13 based on best judgment assessment under Section 72 of the Finance Act, 1994 could be sustained when the assessee had furnished the relevant documents and reconciliation material.

Analysis: Best judgment assessment must rest on available material and a reasonable estimate, not on surmise or arbitrary enhancement. The record showed that the assessee had supplied the relevant figures and supporting documents, and the Chartered Accountant's certificate and reconciliation explained the difference in turnover. In these circumstances, the department's estimate by inflating the turnover to 150% of the previous year lacked a proper evidentiary foundation.

Conclusion: The best judgment demand for 2012-13 was unsustainable and was correctly set aside.

Final Conclusion: No additional service tax liability was liable to be fastened on the assessee, and the departmental appeal failed.

Ratio Decidendi: A service tax demand cannot be sustained by mechanically comparing VAT/WCT returns with ST-3 returns where the two levies operate on different bases, and a best judgment assessment must have a reasonable evidentiary nexus to the material on record; it cannot rest on arbitrary estimation when relevant documents and reconciliation are available.

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