Services Tax Demand Not Sustainable On The Basis Of TDS/26AS Statements: CESTAT

The two-member bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that the value of taxable services cannot be determined only based on TDS statements produced by clients. The expenditures are booked based on when the form 26AS is filed, which cannot be considered as the value of taxable services for the purpose of demand of service tax.

Form 26AS is a statement that outlines any amount deducted as TDS or TCS from a taxpayer's various sources of income. It reflects details of advance tax/self-assessment tax paid, and high-value transactions entered into by the taxpayer.

The appellant/assessee is in the business of providing management or business consultancy services, business auxiliary services, and GTA services. Acting on the intelligence that the appellant was indulging in evasion of service tax, a search was conducted at the office of the appellant. During the search, documents related to income tax TDS statements, copies of balance sheet and audit reports, bank statements were seized and the statement of Jagdishchandra Somani was recorded. No documents like invoices or bills were issued by the appellant to various parties against the provisions of services that could be found and recovered during the search. The department collected the copies of invoices/debit notes from the customers of the appellant. On examination of the debit notes/invoices, it was alleged that the appellant had provided the Business Auxiliary Service, Management or Business Consultancy Services, and Advertising Agency Services to customers. It was alleged that the appellant had collected the service tax from the customers. Investigation also revealed that the appellant had availed the cenvat credit without having any corroborative evidence.

The show cause notice also proposed a penalty on Jagdishchandra Somani under Section 78A of the Finance Act, 1944 and a penalty under Rule 15 of the Cenvat Credit Rules, 2004.

The show cause notice was adjudicated by the Principal Commissioner, Excise & GST, Surat, confirming the demand for Service Tax along with interest and penalties as proposed in the show cause notice.

The appellant submitted that the proceedings were without jurisdiction, unconstitutional and erroneous, as the department had completely failed to comply with the scheme so applicable after the enactment of the Central Goods and Service Tax Act, 2017. No proceedings can be initiated, and no liability can be fastened by the government in respect of any alleged violation or non-compliance of the provisions contained in Chapter-V of the Finance Act, 1944, as omitted vide Section 173 of the CGST Act. The initiation of the proceedings and the confirmation of demands by the order were without jurisdiction, unconstitutional, and erroneous. Hence, it deserves to be quashed and set aside.

The appellant contended that the order failed to consider that the show cause notice invoked the wrong provision of the Finance Act, 1994 to demand service tax. The demand for service tax should have been proposed under Section 73A of the Finance Act, 1994 and not under Section 73. Therefore, there can be no demand for service tax as the order was passed without jurisdiction and hence liable to be quashed and set aside.

The department contended that Section 73 covers the tax not paid or short paid, which covers the demand made for service tax in the present case. Section 73A covers only two situations. Firstly, 73A (1) covers tax collected in excess of the prescribed rate. Secondly, 73A(2) covers the situation where any amount representing service tax has been collected which was not liable to be paid. Here, neither of the two situations are present.

The CESTAT noted that the presumption of documents in certain cases under Section 36A of the Central Excise Act is available only when the documents are produced by or seized from the custody or control of the person concerned.

"For confirmation of service tax demand, the Commissioner also relies upon the TDS/26AS Statement. The said statement, under the provisions of the Income Tax Act, 1961, is an Annual Consolidated tax statement. Income tax and service tax are two different/separate, and independent Acts, and their provisions operate in two different fields. Therefore, by relying on the 26AS/TDS Statement under the Service Tax Act, a demand for service tax cannot be made," the CESTAT observed.

Case Title: Forward Resource Pvt. Ltd. Versus C.C.E. & S.T.

Citation: Service Tax Appeal No.10024 of 2020

Dated: 15.07.2022

Counsel For Appellant: Advocates Jigar Shah, Ambarish Pandey

Counsel For Respondent: Assistant Commissioner (Authorized Representative) Dinesh Prithiani

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