2026 (3) TMI 1248 - AT - Service Tax

Service tax demand cannot rest on Form 26AS alone; lack of independent verification defeats extended limitation.

Service tax demand based solely on ITR/Form 26AS data, without independent verification of the nature of services or corroborative evidence, is not ... Validity of demand of service tax, interest and penalty confirmed against the appellant on the basis of CBDT data (Form 26AS/ITR) without any independent verification or corroborative evidence - Suppression with intent to evade - burden of proof - Extended period of limitation. Reliance on CBDT/Form 26AS data without independent verification - HELD THAT:- The Tribunal held that the Revenue raised and confirmed the demand exclusively by comparing Income Tax return/Form 26AS figures with ST-3 returns, without conducting any independent enquiry to verify the nature of receipts or to demonstrate rendition of taxable services. Mere entries in income tax records cannot, by themselves, establish liability under the Finance Act, 1994; mechanical reliance on such data, absent corroboration, is impermissible and renders the demand unsustainable. [Paras 10, 11, 12] Demand confirmed solely on the basis of CBDT/Form 26AS data is set aside as unsustainable. Invocation of extended period of limitation where suppression not established - HELD THAT: - The Tribunal found no independent investigation or evidence of willful suppression; correspondences from the Department during the COVID-19 period did not justify treating the appellant as having suppressed facts. Consequently, the extended limitation proviso was held inapplicable in the facts of the case and could not sustain the confirmed demand. [Paras 13, 14] Extended period of limitation not invokable; demand is time-barred in the absence of established suppression and independent enquiry. Consequential extinguishment of interest and penalty where demand is unsustainable - HELD THAT: - Because the primary demand for service tax was set aside for lack of sustainable evidence and for being barred by limitation, the Tribunal held that there was no basis to levy interest or impose penalty consequential to that demand. [Paras 14] Interest and penalty confirmed in the impugned order are set aside as consequential to the quashed demand. Final Conclusion: The appeal is allowed; the impugned order confirming the service tax demand, and consequential interest and penalty, is set aside as the demand was confirmed solely on CBDT/Form 26AS data without independent verification and the extended period of limitation was not invocable. Issues: Whether the demand of service tax, interest and penalty confirmed against the appellant on the basis of CBDT data (Form 26AS/ITR) without any independent verification or corroborative evidence is sustainable and whether the extended period of limitation can be invoked in these facts.Analysis: The Tribunal examined whether the Revenue conducted any independent enquiry to ascertain the nature of services rendered before issuing the Show Cause Notice and invoking the extended period under Section 73(1) of the Finance Act, 1994. The record shows the demand was quantified solely by comparing ITR/Form 26AS figures with ST-3 returns (Annexure-A) without corroborative service tax evidence. The Tribunal considered its earlier decisions and those of other benches holding that entries in income tax returns or Form 26AS, without independent verification of the nature and rendition of taxable services, cannot by themselves establish service tax liability. The Tribunal also considered the factual context that correspondence from the department was issued during the peak of the COVID-19 pandemic and found no established suppression with intent to evade tax that would justify invoking the extended limitation period.Conclusion: The demand of service tax, interest and penalty confirmed solely on the basis of CBDT data without independent verification is not sustainable; the extended period of limitation is not invokable in the present facts. The impugned order is set aside and the appeal is allowed in favour of the assessee.