Service tax demand from Form 26AS discrepancies fails without proof that receipts were taxable service consideration

Service tax demand cannot be sustained merely because Form 26AS and ST-3 returns show differences; the department must independently establish that the receipts are consideration for taxable services. Where the assessee offers a reconciliation explaining that part of the Form 26AS entries consists of bank interest under Section 194A of the Income-tax Act, 1961, and the remaining receipts are otherwise explained and accepted on record, the discrepancy alone does not justify tax liability. In the absence of contrary evidence or independent verification linking the amounts to taxable services, the differential demand is not maintainable.

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Issues: Whether a Service Tax demand could be sustained merely on the basis of discrepancies between Form 26AS and ST-3 returns, and whether the amounts reflected under Section 194A of the Income-tax Act, 1961 could be treated as taxable service receipts.

Analysis: The demand was founded on the difference between Form 26AS entries and the values declared in the ST-3 returns. The respondent furnished a reconciliation statement explaining that a substantial part of the Form 26AS figures represented bank interest covered by Section 194A of the Income-tax Act, 1961, which is not consideration for any taxable service. For the remaining entries, the respondent explained the nature of receipts and the adjudicating authority accepted the reconciliation after examining the records. The Tribunal also noted that service tax liability cannot be presumed merely because figures differ in statutory records, and that the department must establish that the impugned receipts actually represent consideration for taxable services. In the absence of such independent verification or contrary evidence, the differential demand could not be sustained.

Conclusion: The demand based on Form 26AS discrepancies was not sustainable, and the findings dropping the demand were upheld.

Ratio Decidendi: A service tax demand cannot be confirmed solely from a comparison of Form 26AS and ST-3 returns unless the department establishes, by independent evidence, that the receipts represent consideration for taxable services.

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