2025 (9) TMI 812 - AT - Service Tax

Tax demand based solely on income-tax data set aside; recipient liable under notifications for security and manpower services

CESTAT held the service tax demand confirmed solely on CBDT income-tax data unsustainable because there was no corroborative service-tax evidence ... Levy of service tax with interest and equal amount of tax as penalty - Security Service - Manpower Supply Service - demand raised and confirmed on the basis of data provided by the Central Board of Direct Taxes (CBDT), without adducing any corroborative evidence - HELD THAT:- A perusal of Paragraphs 1.3 and 1.6 of the Order-in-Original reveal that the entire basis for raising the impugned demand rests solely on CBDT (Income Tax) data for the Financial Year 2016–17. It is observed that the said demand has been confirmed without the support of any independent or corroborative evidence from the Service Tax records. Such mechanical reliance on Income Tax data, without verification of the nature of receipts or proof of taxable services rendered, is impermissible in law. It is a settled legal position that mere entries in income tax returns or Form 26AS cannot, by themselves, establish liability under the Finance Act, 1994, unless corroborated by evidence demonstrating rendition of taxable service - the demand of service tax confirmed in the impugned order, solely relying the data received from CBDT, without adducing corroborative evidence in support, cannot be sustained. Liability to pay service tax - 100% service tax is to be paid by the recipients of the services in respect of Security Service and Manpower Supply Service - applicability of N/N. 30/2012-Service Tax, dated 20th June, 2012, (item 8 of the TABLE) as amended by N/N. 45/2012-Service Tax dated 07.08.2012 (inserting Security Service) and N/N. 07/2015-Service Tax dated 1st March, 2015 - HELD THAT:- From the relevant portions of the said Notifications i.e., N/N. 30/2012-S.T., dated 20-6-2012, N/N. 45/2012-S.T., dated 7-8-2012 and N/N. 7/2015-S.T., dated 1-3-2015, it is evident that after issue of the N/N. 7/2015-S.T., dated 1-3-2015, which came into effect from 01.04.2015, in respect of Security Service or Manpower Supply service, 100% service tax is payable by the recipients of service. In view thereof, it is agreed with the submission of the appellant that the demand of service tax confirmed against them under the categories of “Security Service” and “Manpower Supply Service” is not sustainable. It is further observed that the appellant have rendered service to NEIGRIHMS, under the category of ’Rent-a-Cab service’, for which also service tax is payable by the recipients under the reverse charge, which has been accepted by the ld. adjudicating authority. However, it is seen that the ld. adjudicating authority has not extended the same benefit to the appellant in respect of “Manpower Supply Service” and “Security Service”. In any case, as there is no dispute in this case that the liability to pay service tax under the categories of “Security Service” and “Manpower Supply Service” is not on the appellant as the liability has been fastened upon on the service recipients, it is held that the demand of service tax of Rs.1,97,64,927/- confirmed in the impugned order under the above said categories is not sustainable. Hence, the same is set aside. As the demand of service tax against the appellant is not sustainable, the question of demanding interest or imposing penalty does not arise. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand of service tax can be sustained when raised and confirmed solely on the basis of Central Board of Direct Taxes (CBDT)/Income Tax data (e.g., Form 26AS) without independent or corroborative evidence of rendition of taxable services. 2. Whether, for the periods after 01.04.2015, liability to pay service tax in respect of 'Manpower Supply Service' and 'Security Service' rests on the service provider or on the service recipient in view of Notifications (as amended), and whether a demand against the service provider is therefore sustainable. 3. Consequentially, whether interest and penalty can be imposed where the substantive demand of service tax is held unsustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Reliance on CBDT/Income Tax Data Alone to Sustain Service Tax Demand Legal framework: Service tax exigibility under the Finance Act, 1994 (and allied rules) requires proof of a taxable service having been rendered, identification of service provider, recipient and consideration; Income Tax records (Form 26AS/TDS statements/balance sheets) are maintained for income tax/TDS purposes and operate on cash/receipt principles. Precedent Treatment: The Tribunal followed decisions of several benches which disapproved mechanical reliance on Income Tax data for imposing service tax, including prior decisions of this Tribunal and other CESTAT benches (references reproduced in the judgment). Those decisions hold that Form 26AS is not a statutory document to determine taxable turnover for service tax and cannot substitute evidence of rendition of taxable services. Interpretation and reasoning: The Court observed that the impugned demand rested solely on CBDT data for FY 2016-17 without any corroborative material from service tax records to connect receipts to taxable services. The judgment reasons that mere entries in income tax returns or Form 26AS do not establish liability under service tax provisions unless corroborated by evidence demonstrating rendition of taxable service, identification of service recipient and consideration. The Tribunal emphasized the distinction between the purposes and bases of Income Tax filings (cash/receipt/TDS focus) and service tax liability (accrual/mercantile basis, four essential elements of exigibility). Ratio vs. Obiter: Ratio - A service tax demand cannot be sustained solely on the basis of CBDT/Form 26AS/Income Tax data without independent corroborative evidence linking the amounts to taxable services and establishing the essential elements (service provider, recipient, consideration). The reliance on third-party statutory returns absent such corroboration is impermissible. This principle is applied as determinative of the appeal. Conclusions: The Tribunal set aside the demand insofar as it was founded only on CBDT/Income Tax data, holding such mechanical reliance impermissible and the demand unsustainable on that ground. Issue 2: Liability for 'Manpower Supply Service' and 'Security Service' after Notifications (Reverse Charge Allocation) Legal framework: Notifications amending the incidence/extent of service tax payable under the statutory scheme provide the apportionment of liability between service provider and service recipient; the consolidated effect of Notification No. 30/2012 (table), Notification No. 45/2012 (inserting security services) and Notification No. 07/2015 (effective 01.04.2015) is that for services described as supply of manpower or security services, 100% of service tax is to be paid by the person liable for paying service tax other than the service provider (i.e., the recipient) from the effective date. Precedent Treatment: The Tribunal accepted the legal effect of these notifications and applied them to eliminate liability of the service provider for periods post-notification; the adjudicating authority had accepted reverse charge for other services (e.g., Rent-a-Cab) but did not extend the benefit to manpower/security charges-this Tribunal reconciled that position with the notifications' effect. Interpretation and reasoning: The Tribunal extracted and analysed the relevant parts of the notifications and concluded that after 01.04.2015 the liability to pay service tax for Manpower Supply Service and Security Service is vested in the service recipient (100% in column for recipient; Nil for provider). Given that the entire impugned demand related to periods after the effective date, the Court reasoned the service provider cannot be held liable. The Tribunal also observed that there was no dispute that liability as per the notifications rested with recipients. Ratio vs. Obiter: Ratio - Where notifications lawfully allocate 100% of service tax liability to the service recipient, demands for service tax against the service provider for the notified period are unsustainable. This holding is applied to set aside the demand against the provider. Conclusions: The Tribunal held that, on merit, the demand of service tax for Manpower Supply and Security Service confirmed against the appellant is not sustainable because the liability to pay was on the recipient after 01.04.2015; accordingly, the demand was set aside on this substantive ground as well (in addition to the CBDT-data ground). Cross-reference: This conclusion operates together with Issue 1 - even if CBDT data were admissible evidence, the notifications would preclude recovery from the provider for the relevant period. Issue 3: Interest and Penalty Where Substantive Demand is Unsustainable Legal framework: Interest and penalty arise only where a substantive tax liability is sustained; if the principal demand is not maintainable, ancillary liabilities generally do not survive. Interpretation and reasoning: The Tribunal observed that since the substantive demand of service tax was not sustainable (both because it rested solely on CBDT data without corroboration and because statutory notifications placed liability on recipients), the question of interest and penalty does not arise. Ratio vs. Obiter: Ratio - Where the principal tax demand is set aside, interest and penalty imposed in respect of that demand cannot be maintained. This follows directly from the unsustainability of the substantive demand and is applied to dismiss ancillary charges. Conclusions: Interest and penalty cancelled consequentially; the appeal allowed with consequential relief as per law.