CESTAT: Service Tax Demand Based Solely on ITR Data Unsustainable; 40% Valuation Applicable to Original Works Contract

The CESTAT has ruled that a service tax demand cannot be sustained if it's based solely on discrepancies found in Income Tax Returns and Form 26AS. The Tribunal clarified that for original works contracts, service tax is only applicable to 40% of the total value charged. They emphasised that demands must be supported by a thorough examination of the appellant's accounts, not just differences in public documents, and that the extended limitation period cannot be invoked without proof of wilful suppression.

The appellant was engaged in execution of original works contracts and had discharged service tax under the applicable composition/valuation provisions. During FY 2016-17, the appellant executed works amounting to ₹80,23,534 and paid total service tax of ₹3,62,521.

The dispute arose primarily from a difference between the figures appearing in the Income Tax Return, Form 26AS and the Service Tax records. The Department issued a Show Cause Notice based on this difference and subsequently confirmed an additional demand, applying 70% of the value of the works contract.

The Tribunal observed that the appellant's work order related to execution of original works. Under Rule 2A(ii)(A) of the Service Tax (Determination of Value) Rules, 2006, service tax was payable on 40% of the total amount charged for an original works contract. The Tribunal held that the appellant was covered under this provision and that the applicable service tax had already been discharged.

The Tribunal further held that the Show Cause Notice was not sustainable as it was based essentially on differences in public documents such as the ITR and Form 26AS, without examination of the appellant's books of account and other relevant records. The Tribunal observed that the demand could not be established merely from such differences.

The Tribunal also held that the extended period of limitation under Section 73(1) was not invocable. Mere non-payment or a difference in the tax position does not by itself establish wilful suppression or an intention to evade tax.

Held: The impugned order was set aside as unsustainable. The appeal was allowed with consequential relief, if any, as per law.

This AI-generated summary is for informational purposes only. Please view attached original judgment for the complete text and authoritative interpretation.