2026 (1) TMI 956 - AT - Service Tax

Service tax recovery based on ITR-26AS discrepancy denied due to lack of investigation and limitation

Recovery of service tax was contested where demand arose from a discrepancy between ITR and Form 26AS figures; tax authorities treated most receipts as ... Recovery of service tax with interest and penalty - demand has been confirmed on the basis of difference in the figures as per the ITR and 26AS - appellant has not able to provide a plausible explanation for the difference in the figures of ITR and 26AS - no specific reason has been stated for invoking the extended period of limitation - HELD THAT:- Appellant was not registered with the department and was not were not paying any service tax. In terms of the information received from income tax authorities, as per ITR appellant had shown amount received towards the sale of services as Rs.12,70,75,254/- and as per their Form 26AS they had received Rs.12,23,82,691/-. While receipt in form 26AS has been considered to be in respect of the services on which the service tax was to paid by the service recipient on reverse charge basis. Demand has been made only in respect of the remaining amount. Interestingly, the difference being talked of is not the difference between any service taxpaying documents but the same is vis-à-vis the difference in the receipt as per ITR and 26AS. There are no reason recorded to show that the difference between the two was in respect of any taxable services provided or otherwise. No enquiry was conducted to determine the nature of the services provided. Only it has been determined that this amount is for providing taxable service. In absence of any investigations or determination of services provided against this amount, there are no position to determine where this amount should be subjected to tax or not. Further, there are no reason to hold that extended period could have been invoked in the present case for making this demand. From Order-in-Original and the impugned order, it is evident that for the major portion of the receipt, which is more than 96% revenue itself is of the view that these are in respect of services on which service tax was to be discharged by the service recepient under reverse charge mechanism. That being so, it became much more necessary to investigate and find out the true nature of the remaining receipts, it might be this amount also would have been the amount received for which service tax was payable under reverse charge mechanism. In any case for the purpose of levy of service tax it is not only necessary to establish the service but also the contractual/transactional relationship between the service provider and the service recipient, which is missing in the present case. Extended period of limitation - HELD THAT:- It is clearly a case where appellant has entertained a belief that in respect of all the receipts being received by them, the service tax was payable by the service recipient, when a person entertained such a bonafide belief extended period of limitation would not have been invoked. Hon’ble Supreme Court in the case of Uniworth Textiles Ltd. [2013 (1) TMI 616 - SUPREME COURT] has held that 'on account of the fact that the burden of proof of proving mala fide conduct under the proviso to Section 28 of the Act lies with the Revenue; that in furtherance of the same, no specific averments find a mention in the show cause notice which is a mandatory requirement for commencement of action under the said proviso; and that nothing on record displays a willful default on the part of the appellant, we hold that the extended period of limitation under the said provision could not be invoked against the appellant.' The demand is hit by limitation and the findings recorded in the impugned order in this regard cannot stand in the eyes of law. Accordingly, the impugned order is set aside - appeal allowed. Issues: (i) Whether the demand of service tax of Rs.7,03,884/- confirmed on the differential between ITR and Form 26AS (financial year 2016-17) is sustainable; and (ii) Whether the extended period of limitation (proviso to the relevant provision) was rightly invoked by the revenue.Analysis: The appeal challenges a demand raised on the differential amount between ITR and Form 26AS where the larger portion of receipts was treated by revenue as subject to reverse charge. The adjudicatory record lacked documentary verification as to the nature of the discrepant receipts and no enquiry was made to determine whether those receipts represented taxable services or were covered by reverse charge. The show cause notice did not contain specific averments identifying fraud, collusion, wilful misstatement or suppression of facts required to invoke the proviso extending limitation, and there was evidence that the appellant entertained a bona fide belief that service tax was payable by the recipient. Established precedent requires that the revenue plead and prove mala fide conduct to justify extended limitation and that the burden of proving such mala fide lies on the revenue. In the absence of specific allegations in the show cause notice and supporting material establishing deliberate suppression, the extended period could not be invoked and the demand could not be sustained on the record before the Tribunal.Conclusion: The appeal is allowed; the demand is held to be time-barred and the impugned order is set aside, resulting in a decision in favour of the assessee.