2025 (9) TMI 676 - AT - Service Tax

Appeal allowed; demand for service tax, interest and penalty quashed as input tax credit validated by CA certificates

M/s Eastern Distributors Versus Commissioner of CGST & Central Excise, Varanasi

CESTAT All. allowed the appeal, set aside the impugned order and quashed the demand for service tax, interest and penalty. The tribunal held the appellant ... Recovery of service tax with interest and penalty - allegation of short payment of service tax based on third party data and Form 26AS statement - denial of ITC - HELD THAT:- It is found from the certificates issued by the Chartered Accountant that Input Tax Credit of service tax paid on input services amounting to Rs.1,35,370/- has rightly being claimed by the Appellant. Further the demand raised on the basis of difference in figures of Form 26AS statements and ST-3 returns is not tenable, since in Form 26AS statements, the gross receipts are reflected showing both taxable and exempted services and in the ST-3 returns the Appellant has paid tax on the taxable services after taking credit of the Input Tax Credit available to him. It is further found that without further examining the reasons for difference in Form 26AS statement and ST-3 returns, Revenue has raised the demand on the basis of difference between the two. It is noted that Revenue cannot raise the demand on the basis of such difference without examining the reasons for said difference and without establishing that the entire amount received by the Appellant as reflected in Form 26AS statement being consideration for services provided and without examining whether the difference was because of any exemption or abatement, it is not legal to presume that the entire differential amount was on account of consideration for providing services. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand for service tax can be sustained solely on the basis of a discrepancy between third-party reported payments in Form 26AS and amounts declared in the assessee's ST-3 returns without examining reasons for the discrepancy (e.g., exempt receipts, refunds, or reimbursements). 2. Whether Input Tax Credit (ITC) of service tax claimed by the assessee on invoices for services obtained for business can be denied where supporting bills/ledgers and Chartered Accountant certificates are produced. 3. Whether penalty under the statutory provision for suppression of facts with intent to evade tax is leviable where there is no evidence of fraud, collusion, willful misstatement or intent to evade, and the alleged short payment arises from asserted inadvertence or classification issues. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of demand based solely on Form 26AS vs ST-3 discrepancy Legal framework: Revenue may assess/service tax demand under the relevant provisions when tax is found to be short paid; third-party data (e.g., Form 26AS) can be a basis for initiating inquiry, but assessment must establish that amounts reflected constitute taxable consideration and exclude exemptions, abatements or reimbursements. Precedent Treatment: The Court refers to general principles that mere third-party reporting cannot automatically convert into a tax demand without establishing the taxable nature of receipts; reliance on unaudited third-party figures without factual verification has been treated skeptically in prior authorities (principle applied in the judgment). Interpretation and reasoning: The Tribunal examined the record and found Form 26AS entries included both taxable and exempt receipts (notably amounts from principal company for security refunds, incentives, replacement payments and reimbursement of service tax). The adjudication was ex parte and the demand proceeded on numerical difference between Form 26AS gross receipts and ST-3 declared taxable receipts without any inquiry into the nature of the differential items. The Tribunal reasoned that Revenue cannot presume the entire difference to be taxable consideration; it must first examine whether differences arose from exempt supplies, reimbursements, or other non-taxable entries. Ratio vs. Obiter: Ratio - A demand based solely on mismatch between Form 26AS and ST-3, without investigation into the composition of receipts (taxable vs exempt), is unsustainable. Obiter - Use of third-party data is permissible to trigger investigation, but not to conclusively fix liability without further fact-finding. Conclusion: The demand founded only on Form 26AS vs ST-3 discrepancy is not tenable; the impugned demand is set aside for lack of proper examination of reasons for the difference and absence of establishment that the entire differential comprised taxable receipts. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Denial of Input Tax Credit claimed on supporting documents Legal framework: Eligible Input Tax Credit is allowable where tax has been legitimately paid on input services used for business and proper documentary proof is produced; denial requires cogent reasons and examination of supporting invoices/ledgers. Precedent Treatment: It is established that where the assessee produces invoices and account records substantiating payment of service tax on input services, denial of credit must be supported by specific findings; blanket denial without considering produced evidence is impermissible. Interpretation and reasoning: The assessee produced bills, ledger accounts and Chartered Accountant certificates attesting to payment of service tax on input services amounting to a specified sum. The Tribunal found these documents on record and observed that the Commissioner (Appeals) ignored these documentary proofs and denied ITC without adequate reasoning. The Tribunal accepted the CA certificates and the documentary evidence as establishing entitlement to the claimed credit. Ratio vs. Obiter: Ratio - Where an assessee produces consistent billing and ledger evidence and professional certification of service tax paid on inputs, denial of ITC requires positive findings; absent such findings, the ITC claim should be allowed. Obiter - The extent and admissibility of particular invoices may be subject to further verification, but denial cannot rest on unexplained omission. Conclusion: The denial of Input Tax Credit of the claimed amount was improper; the Tribunal allowed the ITC as supported by the invoices, ledgers and CA certificates, granting consequential relief. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Levy of penalty for suppression with intent to evade tax (willful misstatement) Legal framework: Penalty for suppression or misstatement under the relevant provision is leviable when revenue proves fraud, collusion, willful misstatement, or deliberate suppression of facts with intent to evade tax. Mere non-payment or understatement arising from inadvertence, lack of knowledge or classification dispute is normally dealt with by regular assessment/limitation provisions rather than penal provisions. Precedent Treatment: The Tribunal relied on established jurisprudence that places burden on Revenue to prove mens rea (willful intent) for imposing penal consequences; mere mismatch or non-payment, in absence of evidence of deliberate evasion, does not attract the stringent penalty provision. Interpretation and reasoning: The adjudicating authority imposed penalty under the suppression provision without adducing material evidence of fraud, collusion or willful intent. The assessee contended non-willfulness, citing lack of knowledge about taxability of certain commissions and that sufficient credit existed. The Tribunal observed no material was placed on record to demonstrate that the assessee acted with intent to evade tax; reliance on third-party mismatch alone does not establish suppression with intent. The Tribunal noted relevant precedent language (as cited by the assessee) that inadvertent non-payment is distinct from suppression with intent. Ratio vs. Obiter: Ratio - Penalty under suppression provisions cannot be levied absent proof of willful misstatement/suppression or fraud; mere discrepancies discovered from third-party data are insufficient to infer intent. Obiter - Issues of negligent or bona fide misstatement may attract lesser consequences but require separate factual analysis. Conclusion: The penalty imposed under the suppression provision was unwarranted and was set aside for lack of evidence of willful misstatement, collusion or intent to evade tax. OVERALL DISPOSITION The Tribunal found the demand and penalty unsustainable: the demand premised solely on Form 26AS vs ST-3 differences without investigating the nature of receipts was set aside; the Input Tax Credit claim supported by bills, ledgers and CA certificates was allowed; and the penalty for suppression was quashed for failure of Revenue to prove willful intent. Consequential reliefs were granted in accordance with law.