2025 (10) TMI 1161 - AT - Service Tax

Tax demand based only on Form 26AS under s.194H and wrongful invocation of proviso to s.73(1) set aside

Manoj Kumar Anand Versus Commissioner of Central GST and Central Excise - Jodhpur

CESTAT (New Delhi - AT) set aside the impugned order and allowed the appeal, holding the tax demand unsustainable. The tribunal found the demand relied ... Levy of service tax - appellant is receiving commission against rendering the taxable service - suppression of facts or not - invocation of extended period of limitation - HELD THAT:- It is observed to be an apparent fact that the impugned demand was based on the data received from the income tax department in the form of income tax returns and Form 26 AS. Law has now been settled that the demand cannot be confirmed based on Form 26 AS only. Support is drawn from the decisions of Hon’ble Supreme Court in the case of Jai Prakash Industries Ltd. Vs. Commissioner of Central Excise [2002 (11) TMI 92 - SUPREME COURT]. Hon’ble Supreme Court also in Dilip Kumar & Company [2018 (7) TMI 1826 - SUPREME COURT (LB)] case has held that the interpretation of taxing statute imposing tax liability on the assessee, the burden to prove the same lies on the Revenue. It has also been elaborated that in case of any ambiguity in a taxing statute imposing tax liability on the assessee benefit of doubt has to be given to the assessee. The sole basis for confirmation of the impugned demand is the tax deduction (TDS) under Section 194H of the Income Tax Act. Based whereupon the amount received by the appellant is alleged to be an amount of commission. When there is no evidence of TDS being deducted, the entire basis for confirmation of demand is absolutely redundant. There is nothing on record to falsify that the appellant is the service provider for pandal/shamina and catering services. There is also no denial of the fact that while providing these services there is a transfer of goods involved. In these circumstances, the appellant was otherwise entitled for the abatement. The impugned demand has included the entire amount received by the appellant. These observations are sufficient to hold that the confirmation of demand is not sustainable. Time limitation - HELD THAT:- Apparently the show cause notice has proposed the demand for the period beyond the normal period. There is nothing on record to prove the alleged suppression or misstatement. It is the submission on behalf of the appellant that the appellant was entitled to abatement due to which his income was under exempted limit and accordingly he had not taken the service tax registration. Department has not produced any evidence to show that the income received by the appellant was more than the exempted limit of Rs.10 lakhs. In these circumstances, it is held that proviso to Section 73(1) of the Finance Act, 1994 has wrongly been invoked for issuing the show cause notice for the extended period of limitation - The SCN is therefore held to be barred by time. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received by the appellant constituted commission income attracting service tax (and whether the department discharged burden of proving such characterisation). 2. Whether information extracted from Income Tax Returns/Form 26AS alone is a sufficient basis to confirm a service tax demand. 3. Whether TDS under Section 194H (or absence thereof) is determinative of the character of receipts as commission for service tax purposes. 4. Whether the appellant's activities (pandal/shamina and catering) fell within taxable services after applying statutory abatement and the exemption threshold, and whether non-registration/ non-filing precluded reliance on limitation bar protections. 5. Whether invocation of the extended period of limitation was permissible in the absence of proof of suppression or deliberate withholding of information. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of receipts as commission and burden of proof Legal framework: Tax liability under the service tax regime depends upon characterisation of receipts as consideration for taxable services; the revenue bears the onus of proving the existence of taxable service and that the receipts represented commission liable to service tax. Precedent Treatment: The Court followed established authorities holding that interpretation of a taxing statute imposing liability must be construed against the revenue where ambiguity exists and that the burden of proof lies on the revenue to establish taxability. Interpretation and reasoning: The Tribunal observed that the department did not produce independent evidence to establish that the amounts were commission and constituted consideration for specified taxable services. The record lacked any material falsifying the appellant's claim that receipts were consideration for provision of pandal/shamina and catering (activities involving transfer of goods), which are subject to abatement. The authorities had relied on an inference from income-tax data rather than direct proof of service provision amounting to commission. Ratio vs. Obiter: Ratio - revenue must prove the nature of receipts to sustain a service tax demand; absence of such proof defeats the demand. Obiter - observations on the nature of transfer of goods in relation to abatement were contextual observations supporting the conclusion. Conclusion: Demand could not be sustained as the revenue failed to discharge the burden of proving that receipts were commission attracting service tax. Issue 2 - Sufficiency of Income Tax Returns/Form 26AS as sole basis for demand Legal framework: Revenue cannot base a service tax demand solely on information from third-party or income-tax documents without corroborative material establishing taxable transactions under the relevant enactment. Precedent Treatment: The Court followed precedent that Form 26AS/income-tax returns alone are insufficient to confirm a demand under the service tax law and that demands founded solely on such material are unsustainable. Interpretation and reasoning: The impugned demand was founded on data received from income tax sources. The Tribunal emphasized that such material, without additional evidence showing taxability (e.g., nature of contracts, invoices, receipts specifically indicating commission, records of services rendered), cannot substitute for the revenue's onus to prove liability under the taxing statute. Ratio vs. Obiter: Ratio - confirmation of service tax demand cannot rest exclusively on Form 26AS/income-tax returns; additional evidence is required. Obiter - criticisms of the manner in which the department pursued the enquiry. Conclusion: The demand based solely on income-tax material was unsustainable. Issue 3 - Role of TDS under Section 194H (presence or absence) in characterisation Legal framework: Presence of TDS under the Income Tax Act may be relevant evidence indicating payments characterised as commission; conversely, absence of TDS under a specific head weakens the inference that receipts were commission. Precedent Treatment: The Court treated the absence of TDS as material undermining the revenue's contention and applied the principle that ambiguities benefit the assessee. Interpretation and reasoning: The department's case rested on an assumption that receipts were commission and that TDS under Section 194H would have been deducted by payors. Record (Form 26AS/ITRs) did not show any deduction under Section 194H. In that factual backdrop the Tribunals' reasoning was that the primary basis for claiming commission (and hence service tax) was absent, rendering the demand redundant. Ratio vs. Obiter: Ratio - absence of expected statutory TDS weakens and may defeat an inference that receipts are commission in the absence of other corroborative evidence. Obiter - discussion on how TDS evidence interacts with other transactional records. Conclusion: Lack of TDS under Section 194H on the record materially undermined the department's assertion that receipts were commission liable to service tax. Issue 4 - Applicability of abatement/exemption threshold and registration status Legal framework: Where abatement reduces the taxable value so that aggregate receipts fall below the exemption threshold, registration and service tax liability may not arise; assessee's bona fide belief regarding non-liability can be relevant. Precedent Treatment: The Tribunal relied on established principles that ambiguities in tax characterisation and reasonable belief of non-liability favour the assessee; it noted authorities supporting protection where the assessee had grounds to believe registration was not required. Interpretation and reasoning: The appellant claimed that receipts related to pandal/shamina and catering services, which attract abatement, and that after abatement his receipts were below the notified exempt threshold (Rs.10 lakhs), hence no registration or returns were filed. The department produced no evidence to show receipts exceeded the exempt limit or to rebut the appellant's contention that the activities involved transfer of goods and qualified for abatement. In absence of such proof, treating the appellant as unregistered to justify extended limitation or to sustain tax demand was inappropriate. Ratio vs. Obiter: Ratio - where department fails to prove that post-abatement receipts exceeded the exempt threshold, demand and registration-based consequences cannot be sustained. Obiter - comments on the interplay between transfer of goods and service characterization. Conclusion: Abatement/exemption contention favored the appellant in absence of contrary evidence; lack of registration did not justify demand or extended limitation absent proof of taxable turnover above threshold. Issue 5 - Invocation of extended period of limitation Legal framework: Extended limitation is invokable only upon proof of positive acts of suppression or deliberate withholding of information by the assessee; mere inaction or non-registration does not suffice. Precedent Treatment: The Tribunal followed authoritative rulings that require conscious and deliberate withholding of material facts by the assessee before extended limitation can be invoked. Interpretation and reasoning: The impugned show-cause notice covered periods beyond the normal limitation and invoked the proviso for extended period. The department failed to demonstrate any conscious suppression or deliberate concealment by the appellant; no evidence of misstatement was produced. Given the appellant's asserted bona fide belief in non-liability and absence of contrary proof, invocation of the extended period was held to be improper. Ratio vs. Obiter: Ratio - extended limitation cannot be invoked without proof of deliberate suppression or concealment. Obiter - remarks on the evidentiary standard required to displace normal limitation rules. Conclusion: Invocation of the extended period was unjustified; the show-cause notice was time-barred insofar as the extended period was concerned. Final Outcome On the combined findings - failure of revenue to discharge the burden of proving receipts were commission, insufficiency of Form 26AS/ITRs as sole basis for demand, absence of TDS under the relevant head, lack of evidence to rebut abatement/exemption contentions, and improper invocation of extended limitation - the Court set aside the impugned order and allowed the appeal.