Service tax demand based on Form 26AS is unsustainable without considering substantive taxability defenses.

The petitioner challenged Order-in-Original No. 70/ST/ADJ/ACD/2024-25 dated 28 June 2024, by which the adjudicating authority confirmed a service-tax demand of ₹17,64,358, along with interest and penalties, for the period October 2014 to June 2017.

The demand was substantially based on receipts reflected in Form 26AS.

The petitioner contended that the gross receipts included material-supply amounts of approximately ₹51,18,505, leaving a lower service component, and that tax on services rendered to Indian Oil Corporation Limited had been discharged under the reverse-charge mechanism by IOCL.

He also asserted that he was a registered assessee, had filed ST-3 returns, and had paid the applicable tax.

Although filed belatedly, the petitioner’s reply to the show-cause notice contained a reconciliation of the Form 26AS receipts and supporting documents.

The Revenue opposed the writ petition on the ground that an appeal under Section 85 of the Finance Act, 1994, was available and contended that the adjudication had proceeded on the materials available on record.

The High Court found that the adjudicating authority had not considered the petitioner’s substantive defence before confirming the demand.

The Court applied the statutory appellate framework under Section 85 of the Finance Act, 1994, while reiterating that the availability of an alternative remedy is a rule of judicial restraint and not an absolute bar to the exercise of jurisdiction under Article 226 of the Constitution, particularly where there is failure to exercise jurisdiction in accordance with law or breach of fundamental principles of natural justice.

It further held that service-tax liability must arise from the Finance Act, 1994, and cannot be determined mechanically from Form 26AS, which is an income-tax statement primarily reflecting tax-deduction information.

An adjudicating authority is not required to accept every defence raised by an assessee, but must apply its mind to material contentions affecting taxability and quantum and record reasons for accepting or rejecting them.

A demand order that does not address a substantive defence going to the root of tax liability cannot be sustained merely because an opportunity of hearing was formally granted.

The Court held that the petitioner’s objections were not peripheral: the reconciliation allegedly separated material-supply receipts from service receipts, while the reverse-charge claim raised a direct question concerning whether tax had already been discharged, wholly or partly.

Since Form 26AS merely reflected gross receipts and did not establish that every receipt represented consideration for a taxable service, the adjudicating authority was required to independently examine the underlying transactions, contracts, supporting documents, and applicable statutory provisions.

The failure to deal with these matters meant that the adjudication was not a legally satisfactory determination based on the complete record.

Consequently, the Court considered it appropriate to interfere under Article 226 rather than compel the petitioner to pursue an appeal against an order that had not properly adjudicated his foundational objections.

The Court expressly left the factual merits of the reverse-charge claim, taxable value, and tax payments open for fresh determination.

The matter was remitted to the competent adjudicating authority for fresh and independent adjudication from the stage of the petitioner’s reply, after considering the reply and supporting documents in accordance with the Finance Act, 1994.

The authority was directed to complete the exercise within two months from receipt of the certified copy of the judgment, which the petitioner was required to furnish within fifteen days.

No final finding was rendered on the petitioner’s precise tax liability, taxable value, exemption claims, or reverse-charge entitlement.