Service tax mismatch demands need independent verification; limitation cannot be extended without proof of suppression or wilful misstatement.

Service tax demands cannot be confirmed solely from a mismatch between Income Tax Returns or Form 26AS and ST-3 returns without independent verification of the nature of receipts and corroborative evidence that the amount is taxable in the relevant period. Where reconciliation shows the discrepancy arose from advances already taxed on receipt under the Point of Taxation Rules, 2011, the levy is not sustainable on merits. The extended limitation period also cannot be invoked unless the record establishes suppression of facts or wilful misstatement with intent to evade tax; absent such material, the demand is time-barred.

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Issues: (i) Whether a demand of Service Tax can be sustained merely on the basis of a mismatch between Income Tax Returns or Form 26AS and ST-3 Returns without independent verification of the nature of receipts. (ii) Whether the extended period of limitation under the service tax law could be invoked in the absence of evidence of suppression or wilful misstatement.

Issue (i): Whether a demand of Service Tax can be sustained merely on the basis of a mismatch between Income Tax Returns or Form 26AS and ST-3 Returns without independent verification of the nature of receipts.

Analysis: The demand was founded on third-party income tax data and a perceived difference between the figures in the Income Tax Returns or Form 26AS and the ST-3 Returns. The reconciliation placed on record showed that the apparent mismatch arose from advances carried forward in the books, and the tax liability on advances had already been discharged when received in terms of the Point of Taxation Rules, 2011. No independent verification was undertaken to establish that the disputed amount represented taxable receipt for the relevant financial year. Mere reliance on income tax data, without corroboration of the nature of the service and receipt, was insufficient to confirm the levy.

Conclusion: The demand could not be sustained merely on the basis of the income tax and ST-3 mismatch and was not sustainable on merits.

Issue (ii): Whether the extended period of limitation under the service tax law could be invoked in the absence of evidence of suppression or wilful misstatement.

Analysis: The notice invoking the extended limitation period proceeded on the same data mismatch, but the record did not contain material showing suppression of facts or wilful misstatement with intent to evade tax. In the absence of substantive evidence supporting the statutory preconditions for the extended period, invocation of the proviso to section 73(1) was not justified.

Conclusion: The extended period of limitation was not invokable and the demand was barred by limitation.

Final Conclusion: The confirmed service tax demand, along with interest and penalty, was set aside both on merits and on limitation, resulting in complete relief to the assessee.

Ratio Decidendi: A service tax demand cannot be sustained solely on the basis of a mismatch between Income Tax data and ST-3 returns without independent verification and corroborative evidence of taxable receipts, and the extended limitation period cannot be invoked without proof of suppression or wilful misstatement.

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