Service Tax demand based only on return mismatch fails without independent verification or proof of suppression.

Service Tax demand cannot be sustained merely because Income Tax Returns and ST-3 Returns show a mismatch; the department must independently verify the nature of services and the taxpayer's eligibility to the basic exemption. Where the record shows Nil ST-3 Returns and no substantive evidence of taxable service, suppression, or wilful misstatement, the demand lacks legal basis and the extended period of limitation cannot be invoked. On that footing, the analysis concludes that the Service Tax demand, interest, and penalties were not sustainable and were set aside.

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Issues: Whether Service Tax demand could be sustained solely on the basis of a mismatch between Income Tax Returns and ST-3 Returns without independent verification, and whether the extended period of limitation could be invoked in the absence of evidence of suppression or wilful misstatement.

Analysis: The declared turnover in the Income Tax Returns was within the exemption threshold, and the appellant had filed Nil ST-3 Returns accordingly. The demand was raised only on the basis of a difference between the two sets of returns, without verification of the appellant's eligibility to the basic exemption or any substantive evidence of taxable service, suppression, or wilful misstatement. The adopted reasoning is that a demand cannot rest solely on such mismatch and must be supported by independent verification of the nature of services rendered.

Conclusion: The demand was not legally sustainable, the extended period of limitation could not be invoked, and the Service Tax demand, interest, and penalties were set aside.

Final Conclusion: The appeal succeeded and the impugned order was set aside with consequential relief.

Ratio Decidendi: A Service Tax demand cannot be upheld merely on the basis of a discrepancy between Income Tax Returns and ST-3 Returns; independent verification and evidence of suppression or wilful misstatement are necessary to justify invocation of the extended limitation period.

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