2026 (2) TMI 1276 - AT - Service Tax

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 ... Demand based solely on third-party data (26AS) without corroborative inquiry - Requirement of specific documentary proof to displace exemption claim - Exemption for original works pertaining to Railways - Exemption for subcontractor to exempted works contract - Exemption for construction of single residential unit otherwise than as part of a residential complex - Invalidity of calculation lacking item-wise breakup - Setting aside interest and penalty where principal tax demand is unsustainable - HELD THAT:- On perusal of the declarations, we find that the appellant has established with documentary evidence that they have done the services of construction of single residential units. We observe that construction of single residential unit other than part of residential complex is exempted from payment of service tax as per Sl. No. 14(b) of N.F. No. 25/2012-ST dated 20.06.2012. However, we find that the Department has not undertaken any verification of such factual background from each such individuals. We find that the declarations obtained from each of the individual 10 persons were available with the Department before adjudication of the case. However, the Ld. adjudicating authority has not considered the submissions made by them and confirmed the demands of service tax. Thus, we hold that the appellant is eligible for the exemption as provided under Sl. No. 14(b) of N.F. No. 25/2012ST dated 20.06.2012. Accordingly, we hold that the demand of service tax confirmed on this count in the impugned order is not sustainable and hence we set aside the same. The service tax liability (including cess) @14.5% has been mechanically calculated on the said amounts. We have seen the work sheet from the show cause notice. - There is no break of demand under separate categories of service mentioned in the Notice. Thus, we find merit in the submission of the appellant that the demand is liable to be set aside on this ground itself. SCN was issued solely on the basis of data available as per CBDT [26 AS] without adducing any corroborative evidence and without causing any independent enquiry. We find merit in the submission of the appellant that demands raised and confirmed solely relying on the basis of CBDT data is legally not sustainable. Thus, we hold that the demand confirmed in the impugned order is liable to be set aside on this ground also. As the demand of service tax itself is not sustainable, the question of demanding interest or imposing penalties does not arise and hence we set aside the same. In the result, we set aside the impugned order and allow the appeal filed by the appellant with consequential relief, if any, as per law. 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.