2026 (1) TMI 1504 - AT - Service Tax

Service tax reconciliation with income tax records results in confirmed differential tax demand, interest, and limited penalties

Reconciliation of ITR/26AS with ST-3 returns formed the basis for assessing service tax liability; the adjudicator accepted the ITR-declared receipts as ... Demand determination based on third-party data and reconciliation of ITR/26AS with ST-3 returns - Suppression of facts with intent to evade and invocation of extended period of limitation - Claim of exemption/abatement and burden of proof to establish entitlement - Validation of adjudication under saving clause and jurisdiction of Central Excise officer - Penalty for failure to pay service tax for reasons of fraud, etc. - Interest on confirmed demand - Late fee and penalty for non-filing of returns - HELD THAT:- It is not in dispute that appellant was registered with the Service Tax Department and was paying service tax on the basis of self-assessment made during the course of scrutiny of the information received from the Income Tax Department discrepancies were observed in the amount shown in ITR and the 26AS of the appellant. In ITR, amount of Rs.26,11,508/- was shown as receipt towards the services provided, in 26AS the same were shown as Rs.41,35,964/-. On comparison of figures with ST-3 returns filed by the appellant it was observed that appellant has during the said period paid service tax on the gross value of Rs.16,86,173/- in ST-3 return and they were required to pay service tax on the remaining amount. No hesitation in holding that the total value of the receipts towards provisions of services during the period of 2016-17 was Rs.26,11,508/- and service tax was required to be paid on the said amount. I also find that undisputedly appellant has declared this amount as receipts towards the sale of services in their ITR for the said period. Therefore, do not find any merits in the demand made by taking the gross receipts for 2016-17 as Rs 41,35,964/-. Appellant is required to pay the differential amount of the admitted liability and the amount deposited towards service tax along with the interest due on the same amount. Thus, uphold the demand of differential amount of Rs.18,063/- (Rs.3,89,443/- - Rs.3,71,380/-) confirmed along with interest. Appellant has short paid the service tax by suppressing the correct value of the services provided. In their ST-3 return they had declared the gross receipts towards the services as Rs 16,86,173/-, whereas the total value of services provided was 26,11,508/-. It is also evident from the facts as they unfold that they had collected service tax amounting to Rs 3,89,443/- from the service recipients. The intention to evade payment of tax by suppressing the value of services is thus evident. However I observe that the appellant has paid against the amount of service tax due from them an amount of Rs 3,71,380/- much prior to issuance of the show cause notice dated 05.10.2021. Accordingly, penalty imposed under Section 78 of the Act is upheld but limited to the amount of demand of service tax confirmed. Thus, in case appellant deposits the entire amount along with penalties as per Section 78 of the Act then the benefit of the payment of penalty be calculated to 25% of the demand confirmed would be leviable to the appellant. Also uphold the late fee imposed upon the appellant for late/non filing of service tax return under Section 70 of the Finance Act read with Rule 7 of Service Tax Rules, 1994 and the penalty imposed under Rule 7 of Service Tax Rules 1994 read with Section 77(1)(c) of Finance Act, 1994. Issues: (i) Whether the demand of service tax could be sustained after reconciliation of ST-3 returns with ITR/26AS and on the basis of revised 26AS; (ii) Whether extended period of limitation and invocation of penalty for suppression with intent to evade are sustainable; (iii) Whether penalties and late fee imposed under Sections 70, 77 and 78 of the Finance Act, 1994 are liable to be upheld or require modification.Issue (i): Whether the service tax demand based on third-party data (26AS) and discrepancies with ST-3 is sustainable after the assessee produced revised 26AS and documentary evidence.Analysis: The Tribunal examined the reconciled figures in ITR, revised 26AS and certificate from the service recipient showing receipts of Rs.26,11,508/-. The ST-3 returns showed lower declared receipts of Rs.16,86,173/-. The Tribunal accepted the revised 26AS and certificate as establishing the correct receipts for 2016-17 and computed service tax liability on Rs.26,11,508/-, noting appellant's admission of liability and payments made before the show cause notice.Conclusion: Demand computed on the basis of gross receipts of Rs.41,35,964/- is not sustained; service tax liability is fixed on receipts of Rs.26,11,508/- and the differential tax of Rs.18,063/- (after adjusting amounts already deposited) is confirmed along with interest.Issue (ii): Whether the extended period of limitation and findings of suppression with intent to evade are justified.Analysis: The Tribunal reviewed the facts that the assessee was registered, received consideration for taxable services, failed to disclose correct receipts initially, and did not participate in the investigation. Relying on statutory provisions and precedent (including principles on burden of proof for exemption claims), the Tribunal found suppression established and concluded that invocation of extended limitation was proper on the facts.Conclusion: The extended period of limitation is properly invoked and the finding of suppression with intent to evade is sustained in favour of the revenue.Issue (iii): Whether penalties and late fee under Sections 70, 77 and 78 of the Finance Act, 1994 should be sustained or modified.Analysis: The Tribunal upheld imposition of penalties and late fee but applied statutory principles governing reduction of penalty where payment is made within prescribed periods and in appeals. It noted that the assessee had deposited substantial tax and interest prior to issuance of the SCN and that statutory provisions allow modification of penalty by appellate authorities.Conclusion: Penalties and late fee are upheld; penalty under Section 78 is sustained but limited to the amount of demand confirmed and the benefit of reduced penalty (25%) would apply if the conditions for payment under the proviso are met.Final Conclusion: The appeal is dismissed; the demand for the differential service tax (Rs.18,063/-) with interest is confirmed, penalties and late fees are upheld subject to the statutory reliefs available on payment as provided under the relevant provisions.Ratio Decidendi: Where reconciled documentary evidence (revised 26AS and recipient certificate) establishes the correct taxable receipts, demand must be based on those receipts; suppression of true receipts supports invocation of extended limitation and penalties, and appellate authorities may modify penalty/interest consistent with statutory provisos including reduction to 25% where conditions for prompt payment are satisfied.