Service tax demands based only on ITR and Form 26AS mismatch fail without proof of taxable service or suppression.

A service tax demand based only on ITR and Form 26AS discrepancies, without independent verification or corroborative evidence of taxable service, was treated as unsustainable. Mere comparison of income-tax data with ST-3 returns was held insufficient to establish liability under service tax law unless the department proves that a taxable service was actually rendered. In the absence of evidence of suppression of facts or wilful misstatement, the extended period of limitation under Section 73 of the Finance Act, 1994 could not be invoked. The demand, together with consequential interest and penalty, was therefore barred by limitation.

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Issues: Whether a service tax demand raised solely on the basis of ITR/Form 26AS data, without independent verification or corroborative evidence of taxable service and suppression, could validly justify invocation of the extended period of limitation under Section 73 of the Finance Act, 1994.

Analysis: The demand was founded entirely on a comparison between Income Tax Return/Form 26AS figures and ST-3 returns. No independent enquiry was conducted to ascertain the nature of any taxable service actually rendered, and no corroborative material was produced to establish suppression of facts or wilful misstatement. Mere income-tax data entries, by themselves, were held insufficient to prove liability under service tax law unless supported by evidence showing rendition of taxable service. In the absence of proof of suppression or other ingredients necessary for the extended limitation period, the invocation of limitation beyond the normal period was found unsustainable.

Conclusion: The demand, including the consequential interest and penalty, was held to be barred by limitation and unsustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: A service tax demand cannot be sustained merely on the basis of ITR/Form 26AS discrepancies unless the department independently verifies the transaction and proves the rendition of taxable service as well as the facts necessary to invoke the extended period of limitation.

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