Pranav B Prem

The Allahabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand that was raised solely on the basis of a mismatch between the figures reported in ST-3 returns and Form 26AS data obtained from the Income Tax Department. The Tribunal held that mere discrepancy in figures does not justify invoking the extended period of limitation unless there is concrete evidence of fraud, willful suppression or intent to evade tax.

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The proceedings originated from a comparison made by the Service Tax Department for the financial year 2016-17, which showed that the assessee, M/s Uttarakhand Tent and Light House, reported gross receipts of ₹9,79,616 in its ST-3 returns, while Form 26AS reflected ₹13,35,550. A Show Cause Notice issued in October 2021 proposed service tax on the differential amount of ₹3,55,934 along with interest and penalties. The adjudicating authority confirmed the demand in February 2024, and the Commissioner (Appeals) later upheld the decision.

Before the Tribunal, the assessee argued that the difference represented labour reimbursements routed through the books and not taxable service receipts. It was submitted that the department could not levy tax merely because of a 26AS mismatch, and that the accounts transparently showed the amount both as labour charges received and labour charges paid. The assessee further argued that extended limitation was wrongly invoked, since there was no allegation or proof of deliberate suppression.

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Member (Judicial) P.K. Choudhary noted that the Profit & Loss Account for FY 2016-17 clearly showed the disputed amount on both debit and credit sides under labour charges, establishing that the amount was only a reimbursement. The Tribunal observed that no adverse inference could be drawn when the books of accounts themselves clarified the nature of the entry. The Bench held that tax liability cannot arise merely because a mismatch is spotted through 26AS data without examining the underlying nature of the transaction.

A central aspect of the Tribunal’s decision was the finding that extended limitation under Section 73 of the Finance Act, 1994 cannot be invoked unless the department proves fraud, collusion, willful misstatement or intentional suppression. Relying on the Tribunal’s earlier ruling in G.D. Goenka Pvt. Ltd., it reiterated that incorrect self-assessment does not automatically amount to suppression. The responsibility to scrutinize returns and conduct best-judgment assessment lies with the department, not with the assessee. Discovery of discrepancies during audit does not justify invoking extended limitation when the assessee was regularly filing ST-3 returns.

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Since the service tax demand itself was quashed on merits and limitation, the Tribunal also struck down the associated penalties imposed under Sections 77 and 78. Accordingly, the appeal filed by the assessee was allowed in full, with complete consequential relief.

Appearance

Counsel For  Appellant: Kapil Vaish, Chartered Accountant 

Counsel For Respondent: A. K. Choudhary, Authorized Representative 

Cause Title: M/s Uttarakhand Tent and Light House Versus Commissioner of Central Excise & CGST, Noida

Case No: Service Tax Appeal No.70687 of 2025

Coram: Shri. P.K. Choudhary (Judicial Member)