2026 (1) TMI 391 - AT - Service Tax

Service tax demand from ITR vs ST return receipt mismatch and Railways works sub-contract exemption; demand quashed, appeal allowed

Service tax demand based solely on a mismatch between receipts disclosed in the assessee's income tax return and service tax return was held unsustainable ... Short payment of service tax - recovery with interest and penalty - Appellant filed any delay condonation application before the Commissioner (Appeals) or not - entire case of the revenue was based on information received from the Income Tax Department - revenue failed to adduce any evidence to show that the consideration received was consideration towards provision of taxable services. Whether the Appellant filed any delay condonation application before the Commissioner (Appeals)? - HELD THAT:- The appeal paper book is a delay condonation application bearing stamp dated 03.03.2023, which is identical to the stamp affixed on the appeal memo in Form ST-4 filed before the Commissioner (Appeals). Thus, the application appearing at page 23 of the appeal paper book is an application seeking condonation of delay of two days in filing of appeal on 03.03.2023 with specific averment of order dated 09.12.2022 served on the assessee on 02.01.2023. The reason assigned for delay is that the counsel for the Appellant was busy in some other official work. Demand of service tax based on information received from the Income Tax Department - HELD THAT:- The demand of Service Tax in the present case is based on the income tax return of the Appellant wherein the Appellant has disclosed the receipts of Rs.30,12,405/-. Merely there was a mismatch in figures disclosed in Income Tax return and Service Tax return, the same by itself cannot form the basis for initiating proceedings unless the revenue is in possession of some evidence showing that the amount disclosed in income tax return represents consideration against taxable services. This is more so when the burden to prove taxable event i.e. provision of taxable services is on the revenue and the Appellant is duly registered under the Act. However, it is found from the adjudication and the impugned order that there is neither any evidence nor any material on record to suggest that the amount disclosed in income tax return represents consideration against taxable services. In the adjudication order as well as the impugned order, the burden of proving taxable event has been reversed on the Appellant and the revenue has proceeded on an assumption that the Appellant has provided taxable services against consideration and has failed to substantiate the claim of exemption. There are also force in the submission of the Counsel for the Appellant that the Appellant acted as a sub-contractor in providing works contract services of construction, renovation to the main contractor i.e. M/s EMC Limited, who in-turn provided such works contract services to Railways. I find that clause 14(a) of Notification No.25/2012-ST dated 20.06.2012 exempts services by way of construction, erection, commissioning or installation of original works pertaining to Railways. Thus, once the main service provided by M/s EMC Limited to Railways is exempted under the said notification, then the services provided by the Appellant as a sub-contractor is also exempted under clause 29(h) of N/N.25/2012-ST dated 20.06.2012 which exempts services provided by a sub-contractor by way of works contract to another contractor providing works contract services which are exempt. The demand of Service Tax is therefore not sustainable in law. The impugned order is set-aside and the appeal filed by the Appellant is allowed. Issues: (i) Whether the delay condonation application for two days in filing appeal before the Commissioner (Appeals) was filed and whether delay should be condoned; (ii) Whether the demand of service tax, interest and penalty confirmed against the Appellant based on income tax return information is sustainable on merits including whether services by the Appellant as sub-contractor are exempt under Notification No.25/2012-ST and whether extended period of limitation was correctly invoked.Issue (i): Whether the delay condonation application for two days in filing the appeal was filed and whether the delay should be condoned.Analysis: The appeal record contains an application bearing a stamp identical to that on the appeal memo dated 03.03.2023 specifically seeking condonation of two days' delay with the stated date of service of the order. The application sets out a reason for the short delay. The identical stamping and contents establish filing of the condonation application which was overlooked by the Commissioner (Appeals).Conclusion: The delay condonation application was filed and the short delay is condoned in favour of the Appellant.Issue (ii): Whether the demand of service tax, interest and penalty confirmed against the Appellant is sustainable where the demand is based on third party income-tax information and whether services by the Appellant as a sub-contractor are exempt under Notification No.25/2012-ST; and whether extended period of limitation was correctly invoked.Analysis: The Revenue relied on income-tax return figures without adducing evidence that such receipts constituted consideration for taxable services. The tribunal applied the principle that the burden to prove a taxable event lies on the Revenue and mere mismatch between income-tax and service-tax returns is insufficient. The adjudication reversed the burden onto the Appellant and lacked material identifying the nature of taxable services. On exemption, clause 14(a) of Notification No.25/2012-ST exempts original works for Railways and clause 29(h) exempts services by a sub-contractor where the main contractor's works contract services are exempt; the Appellant acted as a sub-contractor to a contractor providing exempt services to Railways. In these circumstances the demand, and consequential interest and penalty, cannot be sustained. The invocation of extended limitation was not supported by adequate material.Conclusion: The demand of service tax, interest and penalty is set aside and the appeal is allowed in favour of the Appellant.Final Conclusion: The appeal is allowed: the short delay in filing the appeal is condoned and the impugned orders confirming demand, interest and penalty are set aside as the Revenue failed to prove that the receipts represented consideration for taxable services and the Appellant's sub-contractor services are exempt under Notification No.25/2012-ST.Ratio Decidendi: Where the Revenue bases a demand on third-party income information, it must adduce evidence establishing that the receipts constitute consideration for taxable services; absent such proof and where the supplier acts as a sub-contractor to a contractor providing exempt works to Railways, the sub-contractor's services are exempt under Notification No.25/2012-ST and demands based on mere return mismatches are unsustainable.