CESTAT Mumbai Sets Aside Service Tax Demand Based Only On Service Tax–Income Tax Return Mismatch

The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal has set aside a service tax demand that was raised on the basis of a mismatch between income tax returns and ST-3 returns (half-yearly service tax returns filed under the pre-GST regime).

The tribunal noted that the demand was confirmed without proper service of notice and without giving the taxpayer an opportunity of hearing

The appeal was decided by Technical Member M.M. Parthiban. The tribunal found that the department failed to establish service of the adjudication order.

“There is no such document produced by the department to establish the proof of delivery of the Order-in-Original dated 28.05.2021,” the bench said. It added that a presumption of delivery without evidence “cannot be acceptable for legal purposes.”

The case involved Vibgyor Limited, earlier known as Rosoft Limited, which provides information technology services. For 2013–14, its ST-3 returns showed nil taxable value, while its income tax return reflected service income of about Rs 25.11 lakh.

Based on this difference, the department issued a show cause notice in April 2019 and later passed an ex-parte order in May 2021 confirming a service tax demand of about Rs 3.10 lakh along with interest and penalties.

Vibgyor's case was that it never received the show cause notice or the adjudication order. It said it became aware of the demand only in January 2023, when recovery proceedings were initiated. Its appeal before the Commissioner (Appeals) was dismissed as time-barred.

Allowing the appeal, the tribunal noted that the show cause notice had been returned unclaimed and that the department could not produce any postal acknowledgement or other proof showing delivery of the adjudication order. In these circumstances, the bench held that the limitation could run only from the date on which the taxpayer actually became aware of the order.

The tribunal also noted that the demand had been raised solely on the basis of income tax data without reconciliation and without giving the assessee an opportunity to explain the figures. It observed that such an approach falls foul of principles of natural justice and noted CBIC instructions cautioning field formations against raising indiscriminate demands

Taking note of the fact that Vibgyor had already paid the service tax amount during the proceedings, the tribunal set aside the appellate order and allowed the appeal.

For Appellants: Mahesh Bhattur, Chartered Accountant

For Respondents: S.B.P. Sinha, Authorized Representative