Extended limitation fails where service tax demand rests only on third-party financial data without independent verification.

Service tax demand based solely on income-tax return data, profit and loss account and balance sheet was held unsustainable where the department made no independent enquiry to verify the discrepancy or establish suppression. As the show cause notice for the relevant year was issued beyond the normal limitation period, invocation of the extended period of limitation failed. The demand and the penalty under Section 78 of the Finance Act, 1994 were set aside.

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Issues: Whether the demand of service tax and penalty could be sustained when the show cause notice was issued beyond the normal period of limitation and the demand was based only on third-party income-tax data and financial statements without independent verification.

Analysis: The show cause notice for the financial year 2016-17 was issued after the normal period had expired. The demand was founded on figures reflected in the income-tax return, profit and loss account and balance sheet, without any independent enquiry to explain the discrepancy or to establish suppression. On that basis, invocation of the extended period of limitation was found unsustainable.

Conclusion: The demand and the penalty under Section 78 of the Finance Act, 1994 were set aside.

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