Gauhati High Court Holds Service Tax Demand Based Solely on Form 26AS Data Without Examining Exemption or Willful Suppression Is Invalid

Background and Context
The petitioner, a private limited company engaged exclusively in healthcare services through its diagnostic centre and hospital, challenged a service tax demand of over Rs. 10 crore for the years 2014-15 to 2017-18. The demand was raised by the Principal Commissioner of Central Goods & Service Tax (CGST) based primarily on data from Form 26AS and financial statements obtained from the Income Tax Department, alleging suppression of taxable value and non-filing of ST-3 returns. The petitioner contended that all its services were exempt under Notification No. 25/2012-Service Tax dated 20.06.2012, and that the demand was unsustainable both on merits and on limitation.

Key Issues and Submissions
The petitioner argued that the entire demand was based on assumptions from Form 26AS and financial statements, without any analysis of the nature of services or applicability of the exemption notification. It was further submitted that receipts such as director’s remuneration, interest income, and legal expenses were wrongly included in the taxable value, despite being non-taxable or specifically exempt. The petitioner also challenged the invocation of the extended limitation period under Section 73(1) of the Finance Act, 1994, asserting that there was no willful suppression, fraud, or intent to evade tax, as required by law.

The respondent authorities maintained that the petitioner had failed to file returns and disclose taxable value, justifying the invocation of the extended period and the demand. They also objected to the maintainability of the writ petition, citing the availability of statutory appellate remedies under the GST regime.

Court’s Analysis and Reasoning
The Gauhati High Court undertook a detailed examination of the statutory framework, relevant notifications, and judicial precedents. The Court emphasized that liability to tax must be established strictly in accordance with the statute, and cannot be inferred or presumed based solely on entries in Form 26AS or financial statements. Citing Supreme Court judgments, the Court reiterated that tax cannot be imposed by analogy or inference, and that the actual nature of services and applicability of exemptions must be examined before raising a demand.

The Court found that the adjudicating authority had failed to analyze whether the services provided by the petitioner were indeed taxable or exempt under Notification No. 25/2012. The authority had also included non-taxable receipts such as bank interest and director’s remuneration in the taxable value without justification. The Court held that such an approach, based purely on Form 26AS data, was contrary to law and amounted to an assumption of jurisdiction not vested by statute.

On the issue of limitation, the Court held that the extended period under Section 73(1) can only be invoked upon a conclusive finding of willful suppression, fraud, or intent to evade tax. Mere non-filing of returns or non-furnishing of documents, absent evidence of deliberate intent to evade, does not justify invocation of the extended period. The Court found no such finding or evidence in the impugned order, rendering the invocation of extended limitation invalid.

Maintainability of Writ Petition
Addressing the objection regarding alternative remedy, the Court held that the existence of statutory remedies does not bar the exercise of writ jurisdiction where the order is wholly without jurisdiction, suffers from violation of natural justice, or is palpably illegal. Given the fundamental jurisdictional errors in the impugned order, the Court found it appropriate to exercise its powers under Article 226 of the Constitution.

Conclusion and Relief
The Gauhati High Court set aside the demand-cum-show cause notice and the order-in-original, quashing the service tax demand, penalty, and interest imposed on the petitioner. The Court held that the revenue authorities had acted without jurisdiction by raising the demand solely on the basis of Form 26AS data without examining the nature of services or the applicability of exemptions, and by invoking the extended limitation period without the requisite findings of willful suppression or intent to evade tax. The writ petition was accordingly allowed, with no order as to costs.