2026 (3) TMI 1203 - AT - Service Tax

Extended limitation and service tax demand based on income-tax data failed for lack of suppression and independent verification.

A demand for service tax based only on Income Tax Returns/Form 26AS data and without independent verification was held not to justify invocation of the ... Demand of service tax - Invocation of Extended period of limitation - demand based solely on third party tax data - suppression with intent to evade - Consulting engineer services for road construction fall - Eligibility for exemption under Notification No. 25/2012 S.T. Whether the extended period of limitation under Section 73(1) could be invoked where the demand was derived from comparison of Income Tax/Form 26AS data with ST 3 returns and the assessee had been registered and filing returns regularly. - HELD THAT: - The Tribunal held that invocation of the extended period of limitation was not permissible because the demand arose from comparison of figures available in the assessee's ITR/Form 26AS with the ST 3 returns without any independent investigation, and there was no establishment of suppression with intent to evade tax. The assessee had been registered and filing ST 3 returns regularly, the Department had not made enquiries for several years, and the requests for information shortly before issuance of the show cause notice (during the COVID 19 period) did not demonstrate concealment. Reliance was placed on the Tribunal's prior decisions holding that where all material was disclosed in returns and the demand is based on such data, the extended limitation cannot be invoked. [Paras 11, 12, 13] Demand confirmed by invoking the extended period of limitation is unsustainable and is set aside. Entitlement to exemption under Notification No. 25/2012 S.T. for providing consulting engineer services in relation to road construction. - HELD THAT: - The Tribunal accepted that where road construction is exempt, ancillary activities including consulting engineer services related to road construction are also exempt under the notification. On that basis, the appellant was held to be entitled to the claimed exemption in respect of the services rendered in connection with road construction. [Paras 13] Appellant entitled to exemption under Notification No. 25/2012 S.T. for consulting engineer services relating to road construction. Final Conclusion: The appeal is allowed: the demand confirmed by invoking the extended period of limitation is set aside as time barred and unsupported by suppression, and consequentially interest and penalties are dropped; the appellant is entitled to exemption for consulting engineer services relating to road construction and to consequential relief in accordance with law. Issues: (i) Whether the demand of service tax for the period April 2014 to March 2015, as confirmed by the lower authorities by invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994, is sustainable; (ii) Whether the appellant is entitled to exemption under Notification No. 25/2012-S.T. and whether interest and penalties imposed under Sections 78(1) and 77(1)(c) of the Finance Act, 1994 survive if the demand is unsustainable.Issue (i): Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 is invokable to confirm the disputed demand.Analysis: The Tribunal examined the facts that the appellant was registered, filed ST-3 returns regularly, and the demand was computed by comparing Income Tax Returns/Form 26AS data with ST-3 returns without independent verification. The Department issued letters seeking information in January-February 2020 and issued the Show Cause Notice on 31.12.2020; no material established suppression with intent to evade tax. The Tribunal relied on precedent where demands based solely on income-tax portal data and information disclosed in returns were held not to attract the extended limitation period.Conclusion: The extended period of limitation under Section 73(1) of the Finance Act, 1994 is not invokable; the demand is barred by limitation and is unsustainable.Issue (ii): Whether the appellant is entitled to exemption under Notification No. 25/2012-S.T. and whether interest and penalties under Sections 78(1) and 77(1)(c) of the Finance Act, 1994 can be sustained.Analysis: The Tribunal considered the appellant's entitlement to exemption under Notification No. 25/2012-S.T. for consulting engineer services related to road construction and noted that when the principal activity (road construction) is exempt, ancillary activities including consulting services are also exempt. Because the primary demand was held time-barred, the legal basis for levying interest and penalties was examined and found to fall with the demand; penalties and interest cannot survive independently where the tax demand is set aside for being barred by limitation.Conclusion: The appellant is entitled to exemption under Notification No. 25/2012-S.T. as applied, and the interest and penalties under Sections 78(1) and 77(1)(c) of the Finance Act, 1994 are dropped since the tax demand is set aside.Final Conclusion: The appeal is allowed; the impugned order confirming the service tax demand, interest and penalties is set aside as the demand is barred by limitation and the appellant is entitled to consequential reliefs as per law.Ratio Decidendi: Where a demand is founded solely on data from Income Tax Returns/Form 26AS and the assessee has been regularly registered and filing statutory returns without evidence of suppression with intent to evade, the extended period of limitation under Section 73(1) of the Finance Act, 1994 is not available to the Revenue and such demand is time-barred.