2026 (2) TMI 333 - AT - Service Tax

Service tax assessment based on Income Tax data quashed for lack of corroboration; refund ordered; filing penalty upheld

Demand based solely on Income Tax records/Form 26AS is unsustainable for lack of independent corroboration; accordingly the assessment confirmed on that ... Short paid Service Tax - incorrect inclusion of exempted/ non-taxable turnover - Determination the taxable value in accordance with Section 67 of the Finance Act 1994 - demand raised on the basis of the data received from the Income Tax Department - reliance on Income Tax records/Form 26AS without corroborative evidence - invocation of extended period of limitation where facts are within departmental knowledge or derived from statutory records - Principles of natural justice​​​​​​​ - refund of amounts collected without authority of law - no interest or penalty u/s 78 when foundational demand is unsustainable - penalty u/s 77 for non-filing of returns - Excess amount of Service Tax paid. Demand based merely on Form 26AS - without corroborative evidence - HELD THAT:- It is settled law that Income Tax records by themselves cannot be the sole basis for confirmation of Service Tax demand, unless supported by corroborative evidence. We note that this view has been taken by the CESTAT at Kolkata in the case of M/s. Rishu Enterprise v. Commissioner of C.G.S.T. & C.Ex., Dibrugarh [2024 (2) TMI 566 - CESTAT KOLKATA] wherein it has been categorically held that a demand based merely on Form 26AS is unsustainable. Thus, we hold that the demand confirmed in the impugned order solely on the basis of the data received from the Income Tax Department, without having any independent corroborative evidence, is legally not sustainable. Determination of taxable value under Section 67 - HELD THAT:- demand in the impugned order has been confirmed without examining the applicability of the said exemption and abatement as claimed by the appellant. - the impugned order has not determined the taxable value in accordance with Section 67 of the Finance Act, 1994. It is a well settled principle of law that determination of taxable value is a sine qua non for confirming any demand, and in the absence thereof, the demand confirmed is rendered unsustainable in law. It is settled law that any demand of Service Tax must be clearly quantified on a transaction-wise and invoice-wise basis, disclosing the precise methodology adopted for arriving at the alleged short payment. A careful examination of the Show Cause Notice and the impugned order reveals that the demand has been raised without disclosing any clear methodology, computation sheet, or correlation with invoices or transactions. It is a settled position of law that a vague and unsubstantiated demand violates principles of natural justice. The Hon’ble Supreme Court in Commissioner of C.Ex., Nagpur v. Ballarpur Industries Ltd [2007 (8) TMI 10 - SUPREME COURT] held that demands raised without proper calculation and supporting evidence are not sustainable. Therefore, we are of the considered view that the demand raised and confirmed without determining the taxable value is not sustainable. Accordingly, demand of Rs.20,39,712/- confirmed over and above the self-assessed service tax amounting to Rs.58,56,266/- paid by the appellant during the relevant period, is not sustainable and hence we set aside the same. Invocation of extended period of limitation - HELD THAT:- When the entire basis of the demand is drawn from declared and audited Income Tax data, there can be no allegation of suppression, wilful mis-statement or intent to evade tax. It is also pertinent to note that it is a settled position of law that extended period of limitation cannot be invoked where the facts are within the knowledge of the Department or derived from statutory records. Accordingly, the invocation of the extended period under Section 73(4) of the Finance Act, 1994 in this case is wholly unjustified and unsustainable. From the records, we find that the impugned Show Cause Notice for the period October 2016 to March 2017 has been issued on 20.01.2021, by invoking extended period of limitation. We observe that the normal period of limitation during the relevant period was 18 months. Thus, we find that the entire demand confirmed in this case has been barred by limitation as the Notice has been issued beyond the normal period of limitation. Consequently, we hold that the demand confirmed in the impugned order is liable to be set aside on the ground of limitation also. As the demand confirmed against the appellant itself is not sustainable, the question of demanding interest or imposing penalty under Section 78 of the Finance Act, 1994, does not arise. Hence, we set aside the demand of interest and penalty imposed under Section 78 of the Finance Act, 1994. Imposition of penalty under section 77 of the Finance Act, 1994 - HELD THAT:- We find that even though the appellant had discharged their self-assessed Service Tax liability, they have not filed the returns for the period April 2016 to June 2017. Accordingly, we uphold the penalty imposed under Section 77 of the Finance act, 1994, for non-filing of returns for the relevant period. Excess amount of Service Tax paid - HELD THAT:- The demand of Service Tax of Rs.20,39,712/-confirmed in the impugned order is unsustainable on merits as well as on limitation. In this context, we note that it is a settled principle of law that amounts collected without authority of law must be refunded. Thus, the appellant is eligible for the refund of the amount of Rs.20,39,712/- deposited by them 'under protest' during the course of investigation. However, in this regard, we observe that for claiming the refund, the appellant must follow the procedure prescribed in accordance with law. The appeal filed by the appellant is disposed of on the terms. Issues: (i) Whether the demand of Service Tax of Rs.20,39,712/- confirmed solely on the basis of Income Tax records and without determining taxable value is sustainable; (ii) Whether invocation of the extended period of limitation under Section 73(4) of the Finance Act, 1994 is justified; (iii) Whether interest and penalty under Section 78 of the Finance Act, 1994 can be sustained where the demand is not sustainable; (iv) Whether penalty under Section 77 of the Finance Act, 1994 for non-filing of returns is maintainable and whether the appellant is entitled to refund of the excess tax deposited.Issue (i): Whether the demand of Rs.20,39,712/- confirmed solely on the basis of Income Tax data and without determination of taxable value is sustainable.Analysis: The demand was based on Form 26AS/Income Tax records without independent corroborative evidence or transaction/invoice-wise computation; the impugned order did not determine taxable value as required by Section 67 of the Finance Act, 1994 and did not consider claimed exemption/abatement (CBEC Circular No. 151/2/2012-ST and Notification No. 9/2013-ST). Authorities establish that demands based only on Income Tax records or without proper quantification are unsustainable.Conclusion: The demand of Rs.20,39,712/- confirmed solely on that basis is unsustainable and is set aside (in favour of the assessee).Issue (ii): Whether invocation of extended limitation under Section 73(4) is justified.Analysis: The demand was founded on declared and audited Income Tax records available to the Department; extended limitation cannot be invoked where facts are within the Department's knowledge or derived from statutory records; the Show Cause Notice was issued beyond the normal limitation period applicable.Conclusion: Invocation of the extended period under Section 73(4) is unjustified and the demand is also barred by limitation (in favour of the assessee).Issue (iii): Whether interest and penalty under Section 78 can be sustained where the demand is not sustainable.Analysis: Interest and penalty under Section 78 were imposed in respect of the demand that has been set aside both on merits and limitation; where the foundational demand is not sustainable, consequential interest and penalty cannot stand.Conclusion: Interest and penalty under Section 78 are set aside (in favour of the assessee).Issue (iv): Whether penalty under Section 77 for non-filing of returns is maintainable and entitlement to refund of excess deposit.Analysis: Records show non-filing of returns for the relevant period despite self-assessed tax payment; amounts collected without authority of law are refundable subject to statutory procedure.Conclusion: Penalty under Section 77 for non-filing of returns is upheld (against the assessee). The appellant is entitled to refund of Rs.20,39,712/- deposited under protest along with applicable interest, subject to following statutory refund procedure (in part in favour of the assessee and in part against the assessee as to penalty).Final Conclusion: The appeal is partly allowed: the confirmed tax demand of Rs.20,39,712/- and related interest and Section 78 penalty are set aside and ordered refunded with interest; the Section 77 penalty for non-filing of returns is upheld.Ratio Decidendi: A Service Tax demand cannot be sustained if quantified solely on Income Tax records without independent corroborative evidence and without determining taxable value under Section 67 of the Finance Act, 1994; where the foundational demand is unsustainable or time-barred, consequential interest and Section 78 penalty also fall, while penalties for non-filing of returns under Section 77 remain separately exigible.