Service tax demands cannot rest on ITR and Form 26AS mismatches without proof of taxable value or evasion intent.

Service tax liability cannot be established solely from discrepancies between income tax returns, Form 26AS and ST-3 returns; the taxable value must be verified by reference to the actual service, recipient, consideration and any relevant exclusions, exemptions or reverse charge treatment. On that basis, a demand based only on return mismatch was not sustainable. The extended period of limitation also requires positive material showing suppression, wilful misstatement, fraud or deliberate intent to evade tax; mere non-reconciliation of figures or reliance on third-party data is insufficient. In the absence of such ingredients, the extended period was not invocable, and the demand, interest and penalties were set aside.

---

---

Issues: (i) whether the demand of service tax could be sustained when it was raised solely on the basis of discrepancy between the Income Tax Return figures, Form 26AS data and the ST-3 returns without independent verification of taxable value or category of service; and (ii) whether the extended period of limitation could be invoked in the absence of established ingredients of suppression, wilful misstatement or intent to evade tax.

Issue (i): whether the demand of service tax could be sustained when it was raised solely on the basis of discrepancy between the Income Tax Return figures, Form 26AS data and the ST-3 returns without independent verification of taxable value or category of service.

Analysis: Service tax is chargeable only on the value of taxable service and that value must be determined by identifying the actual service, the service recipient, the consideration received, and any applicable exclusions, exemptions or reverse charge implications. Data reflected in income tax records or Form 26AS cannot, by itself, establish taxable receipts, because such figures may include accrual-based amounts or amounts on which TDS was deducted rather than sums actually received. Without scrutiny of the statutory elements relevant to levy and valuation, a demand cannot rest merely on a comparison of statutory returns and income tax data.

Conclusion: The demand based only on discrepancy between ITR/26AS figures and ST-3 returns was not sustainable.

Issue (ii): whether the extended period of limitation could be invoked in the absence of established ingredients of suppression, wilful misstatement or intent to evade tax.

Analysis: Invocation of the extended period requires positive material showing suppression of facts, wilful misstatement, fraud or deliberate contravention with intent to evade tax. Mere non-reconciliation of figures or reliance on third-party data does not, by itself, satisfy that threshold when the assessee has been filing returns and paying tax on the disclosed basis. In the absence of proof of the necessary mens rea and supporting evidence, the extraordinary limitation period cannot be applied.

Conclusion: The extended period of limitation was not invocable on the facts of the case.

Final Conclusion: The demand, interest and penalties were set aside and the appeal succeeded.

Ratio Decidendi: A service tax demand cannot be confirmed merely on the basis of ITR or Form 26AS discrepancies, and the extended period of limitation is unavailable unless the Department establishes suppression or other statutory ingredients with intent to evade tax.

---