2026 (3) TMI 1531 - AT - Service Tax

Service tax demand cannot rest on income-tax data alone; post-2012 liability must follow the negative list charging regime.

A service tax demand cannot be sustained where it rests only on Income Tax Returns, Form 26AS, balance sheet and profit and loss account without ... Service tax demand based solely on Form 26AS and income-tax data - without any independent verification or corroborative evidence of taxable services - Negative List regime - Extended Period of Limitation. Service tax demand based solely on Form 26AS and income-tax data - Independent verification of taxable services - HELD THAT: - The Tribunal found that the show cause notice was founded only on scrutiny of third-party income-tax data and the appellant's financial statements. No independent enquiry was conducted by the Department to ascertain what service had actually been rendered, whether such activity was taxable, or whether any corroborative evidence existed to support the proposed levy. The quantification itself was based on figures taken from those records on a gross basis. On that basis of decision of this Bench in the case of M/s. Nanu Shome & Co. [2026 (1) TMI 1015 - CESTAT KOLKATA], the Tribunal held that mere reliance on CBDT data or Form 26AS, without establishing the rendition and taxability of the service through independent verification, cannot sustain a demand under the Finance Act, 1994. [Paras 7] The demand was set aside on the ground that it had been raised solely on the basis of income-tax data and financial statements without independent verification. Negative List regime - Invocation of correct charging provisions - HELD THAT: - The Tribunal held that after 30.06.2012, service tax liability had to be examined under the statutory scheme applicable to the Negative List regime, and the demand for the relevant period had to be founded on the provisions governing levy in that regime. Since the show cause notice and the impugned order proceeded by classifying the activity under the erstwhile definition of business auxiliary service and did not invoke the provisions applicable after 30.06.2012, the notice suffered from a foundational legal defect. The demand for the disputed period was therefore unsustainable on this independent ground as well. [Paras 8] The demand was also set aside because the notice invoked inapplicable erstwhile provisions instead of the statutory provisions governing the post-30.06.2012 period. Final Conclusion: The Tribunal held that the impugned service tax demand for the period in dispute was legally unsustainable both because it was founded solely on income-tax/Form 26AS data without independent verification and because it invoked inapplicable pre-30.06.2012 provisions. Consequently, the demand, interest and penalties were set aside and the appeal was allowed. Issues: (i) Whether a demand of service tax could be sustained when it was raised solely on the basis of Income Tax Returns, Form 26AS, Balance Sheet and Profit & Loss Account, without any independent verification or corroborative evidence of taxable services. (ii) Whether a demand for the period after 30.06.2012 could be maintained by invoking erstwhile provisions relating to business auxiliary service instead of the levy provisions applicable under the negative list regime.Issue (i): Whether a demand of service tax could be sustained when it was raised solely on the basis of Income Tax Returns, Form 26AS, Balance Sheet and Profit & Loss Account, without any independent verification or corroborative evidence of taxable services.Analysis: The demand was founded only on a comparison of third-party income-tax data with the appellant's financial statements. No independent enquiry was conducted to ascertain the nature of the receipts or whether they represented taxable services. The demand was also unsupported by corroborative material from the service recipient's end. In such circumstances, mere reliance on Form 26AS and related income-tax records does not establish liability to service tax.Conclusion: The demand was not sustainable and was set aside in favour of the assessee.Issue (ii): Whether a demand for the period after 30.06.2012 could be maintained by invoking erstwhile provisions relating to business auxiliary service instead of the levy provisions applicable under the negative list regime.Analysis: For the period after 30.06.2012, service tax had to be examined under the negative list framework and the charging provision applicable to all taxable services. The notice and the impugned order, however, proceeded on the basis of the erstwhile category of business auxiliary service under pre-negative list provisions and did not invoke the relevant post-30.06.2012 charging provisions. A demand for 2014-15 to 2016-17 could not be sustained on repealed or inapplicable pre-2012 provisions.Conclusion: The demand was legally unsustainable on this ground as well and was set aside in favour of the assessee.Final Conclusion: The impugned order was set aside, the tax demand was annulled, and the connected interest and penalties also fell with the principal demand.Ratio Decidendi: A service tax demand cannot be sustained merely on the basis of income-tax data without independent verification of taxable service, and for the post-30.06.2012 period the levy must be founded on the applicable charging provisions of the negative list regime, not on erstwhile service-classification provisions.