Service Tax Cannot Be Demanded Solely Based On Form 26AS Data Without Inquiry: Gauhati High Court

The Gauhati High Court on 20 February, held that the Revenue Department cannot demand Service Tax from a taxpayer, solely on the basis of information provided in Form 26AS.

The Division Bench of Justice Michael Zothankhuma and Justice Shamima Jahan heard an appeal filed by the Principal Commissioner of CGST, Dibrugarh, against a CESTAT Kolkata order that had set aside a service tax demand of Rs. 6,39,09,190 imposed on a contractor.

The Bench held:

“The show cause notice dated 21.10.2019 and the subsequent order dated 22.10.2021 passed by the Principal Commissioner, CGST, Dibrugarh were not proper and sustainable in law, due to the non-issuance of the mandatory pre-show cause notice consultation.”

The respondent, a contractor for various government authorities, including the PWD and Indian Railways, received a show-cause notice in 2019.

The Department's claim was based on the returns provided in Form 26AS for the period 2013-2018. The contractor contended that their work fell under the "Mega Exemption" provided under Notification No. 25/12 of Service Tax dated 20.06.2012.

However, the Department went ahead with a recovery order. On appeal, the CESTAT set aside the demand, ruling that Form 26AS cannot serve as the sole basis for a levy and that the Department failed to conduct the mandatory pre-show cause notice consultation for a demand exceeding Rs. 50 lakhs.

The High Court observed that the Revenue Department cannot raise issues not made out in the show-cause notice, nor can the adjudicating authority travel beyond its scope.

Relying on judicial precedents, the Court noted that Form 26AS only reflects income received and tax deducted at source, but does not capture details of exemptions or the nature of services rendered.

Furthermore, the Court found the demand notice legally unsustainable because the Department omitted the mandatory pre-show cause notice consultation required by the 2017 Master Circular.

The Court clarified that while Circular No.1079/03/2021-CX dated 11.11.2021 made such consultations optional in cases of fraud or willful misstatement, those conditions were not present in the current case.

The Bench opined that “there is nothing in the show-cause notice dated 21.10.2019 to indicate that the Service Tax sought to be levied upon the respondent arose from fraud, collusion, willful misstatement, suppression of facts, or contravention of any provision of the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994 or the Rules made thereunder.”

The Bench added that “the entire issue, as of now, not having been decided on merits, but solely on the issue of technicality, the matter should be remanded to the learned CESTAT, Kolkata, for a determination on the merits, without considering whether pre-show cause notice consultation or the '26AS data' alone could be a ground for levying service tax.”

Accordingly, the Court remanded the matter to the Kolkata CESTAT for a fresh decision based on the invoices already on record, rather than relying on technicalities or Form 26AS data alone.

For Petitioner: S C Keyal

For Respondent: S Mitra, A. Kalita and A K Boro