Service tax demand based on Form 26AS discrepancies was remanded for reconciliation and verification of payments.

For the financial year 2016–17, the appellant declared taxable services of ₹2,10,15,666 in its ST-3 returns, whereas its Income Tax Form-26AS reflected gross receipts of ₹2,68,49,396.

Relying primarily on this discrepancy, the Department issued a show-cause notice demanding service tax of ₹8,75,060, along with interest, an equal penalty, and late fee of ₹33,000.

The adjudicating authority confirmed the demand.

The Commissioner (Appeals) dismissed the appellant’s appeal, principally on the ground that the challan number cited in support of payment of ₹17,23,348 did not correspond with the amount claimed.

Before the Tribunal, the appellant contended that the difference substantially represented advances received during 2016–17, on which tax was discharged in the succeeding period when invoices were raised.

It relied on its reconciliation, audited financial statements, and a rectification application correcting the mistakenly cited challan number.

Whether the difference between the Form-26AS receipts and the taxable value declared in the ST-3 returns established an additional taxable service receipt liable to service tax, or whether the difference represented advances on which tax had already been discharged in the succeeding period.

Whether the appellant’s corrected challan and supporting documents were required to be verified before confirming the demand.

Whether the matter required remand to the adjudicating authority to examine the payment challan, reconciliation, and supporting records after granting an effective opportunity of hearing.

The Tribunal considered the service-tax liability under Sections 65 and 67 of the Finance Act, 1994, including the principles governing taxable services and valuation based on the gross amount charged or received.

It also considered Rule 7 of the Service Tax Rules, 1994, concerning the point of taxation for advances.

The appellant relied on M/s Kush Constructions v. CGST NACIN, ZTI, Kanpur, 2019 (5) TMI 1248 (CESTAT Allahabad), and Sharma Fabricators & Erectors Pvt. Ltd. v. CCE, Allahabad, 2017 (5) GSTL 96 (Tri.-All.), for the proposition that Form-26AS figures, by themselves, do not conclusively establish consideration for taxable services and that the Department must establish the taxable nature of the receipts.

The appellant also relied on Mangalore Chemical & Fertilizers Ltd. v. Deputy Commissioner, 1991 (55) ELT 437 (SC), regarding the principle that substantive rights should not ordinarily be denied for a procedural or clerical error.

The Tribunal found that the Commissioner (Appeals) had rejected the appeal primarily because of an incorrect challan number, without adequately considering the appellant’s rectification application stating that the correct challan was No. 50226 dated 24 January 2018 for ₹17,23,348 and was available on record.

The Tribunal also noted the appellant’s explanation that the differential amount of ₹58,33,730 substantially comprised advances received from customers during 2016–17, on which tax was allegedly paid in the succeeding period after invoices were raised.

Since the correctness of the challan, the alleged tax payment, and the reconciliation between Form-26AS and ST-3 returns required factual verification, the Tribunal considered it inappropriate to finally determine the demand on the existing record.

It therefore directed the original adjudicating authority to examine the relevant documents and afford the appellant a proper opportunity of hearing.

It held that the challan and the appellant’s explanation regarding advances and subsequent payment of service tax required verification.

Accordingly, the impugned appellate order was set aside, and the appeal was allowed by way of remand to the original adjudicating authority.

The authority was directed to verify the challan and payments relating to the differential receipts, permit the appellant to submit all relevant documents, and pass a fresh order after granting an opportunity of hearing.