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 extended limitation period under Section 73(1) of the Finance Act, 1994, where the assessee was registered and had filed ST-3 returns regularly and no suppression with intent to evade was shown. The Tribunal also noted that consulting engineer services linked to exempt road construction activity fell within Notification No. 25/2012-S.T. As the tax demand failed on limitation, the associated interest and penalties under Sections 78(1) and 77(1)(c) could not survive and were set aside.

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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.

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