Form 26AS mismatch alone cannot sustain service tax without proof of taxable service and factual enquiry

A service tax demand cannot rest only on a Form 26AS and ST-3 mismatch unless the department first identifies the taxable service and conducts a factual enquiry into the nature of the receipts, the service recipient, and whether consideration for a taxable service existed. The text also notes that construction, repair and maintenance of roads and bridges for governmental authorities fell within the Mega Exemption Notification, while receipts attributable to supply of goods were outside service tax. On those facts, the demand and related penalties were unsustainable because no penalty can survive once the underlying levy fails.

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Issues: (i) Whether a service tax demand could be sustained merely on the basis of a mismatch between Form 26AS income figures and ST-3 returns without identifying the actual taxable service or conducting an enquiry; (ii) Whether construction, repair and maintenance of roads and bridges for governmental authorities, and receipt attributable to supply of goods, were liable to service tax and consequential penalty.

Issue (i): Whether a service tax demand could be sustained merely on the basis of a mismatch between Form 26AS income figures and ST-3 returns without identifying the actual taxable service or conducting an enquiry.

Analysis: The demand was founded only on differential figures appearing in Form 26AS vis-a -vis the returns filed under the service tax regime. No investigation was undertaken to determine the nature of the activity, the identity of the service recipient, or whether the receipts represented consideration for a taxable service. In the absence of such foundational enquiry, the demand rested on presumption rather than proof.

Conclusion: The demand could not be sustained on the basis of the Form 26AS mismatch alone and was rightly held unsustainable.

Issue (ii): Whether construction, repair and maintenance of roads and bridges for governmental authorities, and receipt attributable to supply of goods, were liable to service tax and consequential penalty.

Analysis: The work described by the appellant related to construction, repair and maintenance of roads and bridges for public use on behalf of governmental authorities, which fell within the exempted category under the Mega Exemption Notification. The amount received towards supply of goods was outside the scope of service tax. Once the demand itself was unsustainable, no penalty could survive.

Conclusion: The activities were not liable to service tax on the facts found, and the penalties also could not be sustained.

Final Conclusion: The impugned order was set aside, the service tax demand was deleted, and the appeal was allowed with consequential relief.

Ratio Decidendi: A service tax demand cannot be upheld on a mere income-mismatch unless the department first establishes the taxable nature of the receipt; exempt works involving public roads and bridges, and non-service receipts such as supply of goods, do not attract service tax or consequential penalty.

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