Service tax demand cannot rest on income-tax data alone where exemption for subcontracted Railway works applies.

A short delay in filing the appeal was condoned because the condonation application had in fact been filed with the appeal and the explanation was found satisfactory. On the service tax issue, a demand based only on Income Tax Department data could not establish a taxable service without independent evidence from the Revenue. The assessee's receipts were also treated as covered by the exemption applicable to subcontracted works contract services linked to exempt Railway works. The service tax demand, interest and penalty were therefore set aside, and consequential relief followed.

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Issues: (i) Whether the short delay in filing the appeal before the Commissioner (Appeals) was liable to be condoned; (ii) Whether the service tax demand, interest and penalty were sustainable where the demand was founded only on Income Tax Department data and the assessee claimed exemption as a sub-contractor for works relating to Railways.

Issue (i): Whether the short delay in filing the appeal before the Commissioner (Appeals) was liable to be condoned

Analysis: The record showed that a delay condonation application had in fact been filed along with the appeal and bore the same stamp date as the appeal memo. The finding that no such application was filed was therefore incorrect. The explanation for the short delay was found to be satisfactory.

Conclusion: The delay in filing the appeal was condoned in favour of the assessee.

Issue (ii): Whether the service tax demand, interest and penalty were sustainable where the demand was founded only on Income Tax Department data and the assessee claimed exemption as a sub-contractor for works relating to Railways

Analysis: A mere mismatch between Income Tax returns and service tax returns could not by itself establish provision of taxable services. The burden to prove the taxable event lay on the Revenue, and no evidence was shown to connect the receipts with taxable services. The assessee's activity as a sub-contractor in relation to works contract services for Railways also attracted the exemption under the relevant notification, since the principal service to Railways was exempt and the sub-contractor's service was covered by the exemption provision for subcontracted works contract services.

Conclusion: The demand of service tax, along with interest and penalty, was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The impugned order was set aside and the assessee's appeal was allowed with consequential reliefs.

Ratio Decidendi: A service tax demand cannot rest merely on income-tax return figures unless the Revenue proves, with material evidence, that the receipts represent taxable services, and an exempt principal works contract service may carry exemption to the subcontracted service where the notification so provides.

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