Service tax demand based solely on Form 26AS and accounts failed without independent verification of taxable receipts.

Service tax demand based only on Income-tax returns, Form 26AS and the profit and loss account was found unsustainable because the department made no independent enquiry to verify the nature of the receipts or to establish that they represented taxable services. The record showed discrepancies between Form 26AS and the books, and Form 26AS was treated as insufficient by itself to prove tax liability. The extended period of limitation was also rejected because it rested on the same unverified statements and did not justify confirmation of demand. The demand and appellate confirmation were set aside, and the appeal was allowed in favour of the assessee.

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Issues: Whether the demand of service tax, confirmed mainly on the basis of Income-tax returns and Form 26AS without independent enquiry into the nature of receipts, was sustainable, including invocation of the extended period of limitation.

Analysis: The demand was founded on figures reflected in Form 26AS and the profit and loss account. It was noted that Form 26AS is prepared by the Income-tax Department and may contain discrepancies, and that the figures in Form 26AS differed from the turnover declared in the books. No independent enquiry was made to verify the reason for the difference or to establish that the receipts were towards taxable services. The invocation of the longer period of limitation was therefore held to rest only on these statements, which was found insufficient for confirmation of tax.

Conclusion: The demand and the appellate confirmation were held to be unsustainable on limitation and merits of the departmental case based solely on Form 26AS and the profit and loss account. The appeal was allowed in favour of the assessee.

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