Mere Non-Disclosure Of Income In ST-3 Returns Not Suppression; Extended Limitation Cannot Be Invoked: CESTAT
Sangeetha Prathap
The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal has held that mere non-reflection of income in ST-3 service tax returns, without establishing the taxability of such income, cannot be equated with deliberate suppression so as to justify invocation of the extended period of limitation under the Finance Act, 1994. The Tribunal observed that extension of limitation cannot be invoked mechanically merely on the basis of discrepancies noticed in third-party records. The Bench comprising Ajay Sharma, Judicial Member, was dealing with an appeal filed by an assessee challenging an Order-in-Appeal dated July 10, 2023, which had upheld the confirmation of service tax demand, interest and penalties by the adjudicating authority.
The dispute pertained to the financial year 2015–16. The demand arose after the department compared the assessee’s Income Tax Return (ITR) with the ST-3 service tax returns. While the ITR reflected a turnover of ₹21.20 lakh, the ST-3 returns showed nil taxable turnover. Based solely on this discrepancy, the department alleged suppression of facts and issued a show cause notice in December 2020 proposing recovery of service tax amounting to ₹3.07 lakh, along with interest and penalties, by invoking the extended period of limitation. The demand was confirmed by the original authority and was subsequently upheld by the Commissioner (Appeals), prompting the assessee to approach the Tribunal.
After examining the record, the Tribunal noted that the entire demand was founded exclusively on third-party information received from the Income Tax Department, without any independent investigation by the service tax authorities. Crucially, the show cause notice failed to specify the nature of the taxable service allegedly rendered by the assessee, nor did it identify the service recipients. The Tribunal emphasised that income disclosed in an ITR cannot automatically be treated as consideration for taxable services, as income tax and service tax are governed by distinct statutory frameworks, with different taxable events and incidences.
The Bench observed that before fastening service tax liability, the department is required to establish the existence of a taxable service, its proper classification, and the identity of the service recipient. In the absence of these foundational elements, the demand could not be sustained in law. It further held that a bald comparison between ITR figures and ST-3 returns, without any supporting evidence or enquiry, is insufficient to raise or confirm a service tax demand.
On the issue of limitation, the Tribunal found that the extended period had been invoked in a mechanical manner. It reiterated that invocation of the extended limitation period requires a clear and cogent finding of willful suppression, fraud, collusion or intent to evade tax. Mere discrepancy between figures disclosed in income tax returns and service tax returns does not, by itself, establish deliberate suppression. The Revenue had failed to place any material on record to demonstrate intent to evade tax or conscious withholding of information. The Tribunal also relied on its earlier decisions, including Sarosh Homi Forbes v. Commissioner of CGST, Mumbai, where similar demands based purely on ITR data were set aside for lack of independent verification and specific allegations regarding taxable services.
Holding that the demand was unsustainable both on merits and on limitation, the CESTAT set aside the impugned order and allowed the appeal with consequential relief. The decision reinforces that service tax demands cannot be confirmed on presumptions drawn from third-party data and underscores the evidentiary burden on the tax department to establish taxability and intent before invoking extended limitation under indirect tax law.
Cause Title: Qaidjohar Husaini Jawadwala Versus Commissioner of CGST & Central Excise
Case No: Service Tax Appeal No. 87641 Of 2023
Coram: Ajay Sharma, Judicial Member
