Reliance on third party 26AS data alone cannot sustain service tax demands; applicable exemptions were recognised and demands set aside.

Demands of service tax based solely on third party income tax data (26AS) without independent corroborative inquiry are legally unsustainable and were set aside. Separately, receipts for (a) original works for railways, (b) work as subcontractor to a main contractor engaged in exempted works, and (c) construction of single residential units were found to fall within the applicable exemption entries of Notification No. 25/2012 ST on the record; those demands were also set aside. The appeal was allowed on both procedural insufficiency of 26AS reliance and on entitlement to the specified exemptions.

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Issues: (i) Whether demands of service tax raised and confirmed solely on the basis of third party 26AS data without independent corroborative enquiry are sustainable; (ii) Whether amounts received for (a) original works for railways, (b) work as subcontractor to a main contractor providing exempted works, and (c) construction of single residential units qualify for exemption under Notification No. 25/2012 ST dated 20.06.2012.

Issue (i): Whether demands based solely on 26AS data without corroborative evidence and independent enquiry are sustainable.

Analysis: The notice and demand were founded on third party information from income tax records (26AS) without departmental verification from paying parties or other corroborative documents. The adjudicating authorities did not undertake available avenues of verification before confirming demands. Relevant precedents cited establish that reliance solely on 26AS, without corroborative inquiry, is legally insufficient to sustain a demand.

Conclusion: Demands confirmed solely on the basis of 26AS data without corroborative evidence are not sustainable; the confirmed demand is set aside on this ground.

Issue (ii): Whether the three categories of receipts are exempt under Notification No. 25/2012 ST dated 20.06.2012.

Analysis: For the amount from the railway accounts, the nature of work corresponds to original works covered by Sl. No. 14(a) of the notification. For the amount received from the main contractor, the work qualifies as subcontracting to a main contractor engaged in exempted works and falls under Sl. No. 29(h) read with Sl. No. 14(a). For amounts from individual persons, declarations and identity proofs establish construction of single residential units covered by Sl. No. 14(b). In each case the department had the means to verify facts but failed to do so; the evidence on record suffices to establish entitlement to the specified exemptions.

Conclusion: (a) The receipt from the railway accounts is exempt under Sl. No. 14(a) of Notification No. 25/2012 ST dated 20.06.2012; (b) the receipt from the main contractor is exempt as a subcontractor under Sl. No. 29(h) read with Sl. No. 14(a) of Notification No. 25/2012 ST dated 20.06.2012; (c) receipts for construction of single residential units are exempt under Sl. No. 14(b) of Notification No. 25/2012 ST dated 20.06.2012. The demands on these counts are set aside.

Final Conclusion: The appeal is allowed; the confirmed demands of service tax, interest and penalties are set aside because the demands were based solely on third party 26AS data without corroborative inquiry and because the amounts in question are covered by exemptions in Notification No. 25/2012 ST dated 20.06.2012.

Ratio Decidendi: A demand for service tax cannot be sustained if it is premised solely on third party income tax information (26AS) without independent corroborative inquiry, and entitlement to exemptions under Notification No. 25/2012 ST (Sl. No. 14(a), 14(b), 29(h)) must be recognized where the material on record shows the nature of services corresponding to those exemption entries.

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