Service tax demand based on Form 26AS discrepancies overturned for failure to establish differential receipts as taxable consideration; demand and penalties set aside

A Revenue demand premised solely on discrepancies between Form 26AS and filed ST-3 returns without examining causes was invalid; the Department must establish that differential receipts constitute consideration for taxable services, and must consider applicable exemptions such as the declared tariff exemption for low daily rates. Because the demand did not test whether differences arose from exemption or non service receipts, the CESTAT set aside the service tax demand and quashed penalties under the Finance Act, allowing the appellant's challenge with consequential relief.

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Issues: Whether the Service Tax demand (and consequential penalties) raised on the basis of a difference between receipts shown in third party/Form 26AS data and ST 3 returns for the period 01.10.2014 to 31.03.2015 is sustainable, having regard to claimed exemption under Entry No.18 of Notification No.25/2012 (S.T.) as amended and evidence produced by the assessee.

Analysis: The Tribunal examined whether Revenue could sustain a demand solely by relying on differential figures in third party/Form 26AS data without establishing that the entire differential constituted consideration for taxable services and without enquiring into applicable exemptions or abatements. The Tribunal considered the exemption scheme under Entry No.18 of Notification No.25/2012 (S.T.) dated 20.06.2012 as substituted/amended by Notification No.6/2014 ST dated 11.07.2014, and the effect of the limitation/extension provisions under Section 73 of the Finance Act, 1994 as extended by government notification. The Tribunal reviewed the material produced on remand: detailed chart of receipts, customer entry register, and invoices showing that substantial receipts related to room tariff below Rs.1,000 per day and that Service Tax was paid where room charges exceeded Rs.1,000 per day due to extra/amenity charges. The Tribunal found Revenue had not examined reasons for the difference in statements nor established that the differential amount was wholly consideration for taxable services, and therefore reliance on Form 26AS alone was insufficient to sustain the demand.

Conclusion: The Service Tax demand of Rs.1,29,174/ and the penalties imposed under Section 78 and Section 77(1)(c) of the Finance Act, 1994 are set aside; the appeal is allowed in favour of the assessee and relief granted consequentially as per law.

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