Service Tax Demand Based Solely On IT Returns Is Presumptive: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a service tax demand based solely on differences between income tax and service tax returns is presumptive.

A Bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban, on 7 January 2026, set aside a Rs. 7.05 crore service tax demand raised on MM Construction, a civil contractor engaged in road construction and drainage improvement works for municipal and government authorities.

Taking note of the principle that exemption eligibility must be determined contract by contract, with proper scrutiny of documents, the CESTAT Mumbai observed:

“....we are of the considered view that the adjudged demands confirmed in the impugned order, without examining the documents with respect to the nature of services rendered by the appellants, cannot stand the scrutiny of law and therefore it is liable to be set aside.”

The appellant, MM Construction, holding a valid Goods and Services Tax (GST) registration, undertook works contracts for the Greater Mumbai Municipal Corporation, Madhya Pradesh Rural Road Development Authority, and various other government bodies. The service tax demand was raised based on alleged non-payment in 2015-16 and 2016-17, along with interest and penalty, by comparing the appellant's service tax returns with income tax returns.

MM Construction contended that roadworks and drainage system upgradation undertaken for municipal and government authorities qualified for exemption under the Mega Service Tax Exemption Notification No. 25/2012 dated 20 June 2012.

The CESTAT Mumbai followed its earlier decisions in Modern Road Makers and Mira Construction, which had quashed demands based solely on comparisons between Tax Deducted at Source (TDS) data and service tax returns. It noted that the authorities had not conducted a work-order-wise analysis, despite the appellant submitting four contracts.

Accordingly, the CESTAT remitted the matter to the adjudicating authority for new hearings, directing that the appellant be given an opportunity of hearing.

For Appellant: Advocate Bharat Raichandani

For Respondent: Ms. Varalakshmi (Authorized Representative)