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 subject to reverse charge but made no inquiry into the nature of the remaining receipts, nor established contractual or transactional relationships. The absence of investigation to identify whether the disputed amounts related to taxable services and the lack of specific reasons for invoking extended limitation led to the conclusion that extended period could not be invoked. Reliance on revenue information alone was insufficient, the demand was time-barred and set aside, and 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.

---