Service Tax Cannot Be Levied Solely on Form 26AS Data

Principal Commissioner of Central Goods and Service Tax and Customs, Dibrugarh v. M/s Numal Saikia

C.Ex.App./7/2025 | Judgment dated 20 February 2026

The Honourable Gauhati High Court has delivered an important judgment concerning the levy and recovery of Service Tax, particularly on the requirement of pre-show cause notice consultation and the evidentiary value of Form 26AS for raising a Service Tax demand.

The judgment is significant for assessees facing Service Tax demands based substantially on income-tax data and also reiterates the importance of compliance with procedural safeguards prescribed by the Central Board of Indirect Taxes and Customs (CBIC).

Background

The dispute arose from Service Tax proceedings against M/s Numal Saikia in respect of works executed for various Government authorities, including the Public Works Department (PWD), Airports Authority of India and Indian Railways, during the period from 2014-15 to 2017-18.

The Revenue issued a show-cause-cum-demand notice relying upon the returns and information reflected in Form 26AS under the Income Tax Act.

The assessee contended that the works undertaken by him were covered by the exemptions available under Entries 12A, 13 and 14 of the Mega Exemption Notification No. 25/12-Service Tax dated 20.06.2012. However, the initial response to the notice did not contain the invoices relating to the works and principally relied upon work orders and other documents.

The Principal Commissioner, CGST, Dibrugarh subsequently confirmed a Service Tax demand of ₹6,39,09,190/- against the respondent by order dated 22.10.2021.

Proceedings Before CESTAT

The assessee challenged the adjudication order before the Customs, Excise & Service Tax Appellate Tribunal, Kolkata.

CESTAT set aside the demand, holding, inter alia, that Service Tax could not be demanded merely on the basis of information contained in Form 26AS.

The Tribunal also relied upon the failure of the Revenue to undertake the required pre-show cause notice consultation under the CBIC Master Circular dated 10.03.2017.

The Revenue thereafter approached the Honourable Gauhati High Court under Section 35G of the Central Excise Act, 1944.

Issues Before the High Court

The Revenue proposed three substantial questions of law:

1. Whether pre-show cause notice consultation was mandatory in the circumstances of the case;
2. Whether Service Tax could be demanded on the basis of statements reflected in Form 26AS; and
3. Whether the show-cause notice violated the instructions issued by the CBIC.
4. Form 26AS Cannot, by Itself, Establish Service Tax Liability

The Honourable High Court considered the decision of CESTAT, Ahmedabad in Shree Kankeshwari Enterprise v. Commissioner of Central Excise & Service Tax.

In that case, it had been held that a Service Tax demand could not be sustained merely on the basis of Form 26AS data supplied by the Income Tax authorities without an independent inquiry or investigation.

The reason is significant: Income Tax and Service Tax are separate statutory regimes operating in different fields.

Form 26AS may indicate income received from provision of services, but the data does not necessarily disclose exemptions claimed or other circumstances relevant for determining Service Tax liability. Therefore, differences between income reflected in Form 26AS and Service Tax returns cannot, by themselves, establish a Service Tax liability.

The Honourable High Court also noted the principle that the Revenue cannot travel beyond the case made out in the show-cause notice and that the adjudicating authority cannot base its decision upon a ground which was not properly put to the assessee.

The Division Bench also noticed a similar approach adopted by the Gujarat High Court in Nimeshbhai Gunvantbhai Patel v. Union of India.

Mandatory Pre-Show Cause Consultation

The more decisive issue was the absence of pre-show cause consultation.

Paragraph 5.0 of the CBIC Master Circular No. 1053/2/2017-CX dated 10.03.2017 provided that consultation with the assessee before issuance of a show-cause notice was mandatory in cases involving demands exceeding ₹50 lakh, subject to the exceptions specified therein.

The Circular described pre-show cause consultation as an important step towards trade facilitation, voluntary compliance and reducing unnecessary litigation.

A subsequent Circular dated 11.11.2021 clarified that such consultation would not be mandatory in cases involving fraud, collusion, wilful misstatement, suppression of facts or deliberate contravention of the relevant statutory provisions with intent to evade payment of duty or tax.

Why the 2021 Circular Did Not Save the Revenue

The Court found that the show-cause notice in the present case was issued on 21.10.2019, whereas the subsequent clarification was issued only on 11.11.2021.

More importantly, the show-cause notice did not allege that the Service Tax liability arose from fraud, collusion, wilful misstatement, suppression of facts or intentional contravention of the law with intent to evade payment of Service Tax.

Accordingly, the Court held that the requirement of pre-show cause consultation applied to the case.

The absence of such consultation rendered the show-cause notice and the subsequent adjudication order unsustainable in law.

Remand to CESTAT for Decision on Merits

An important feature of the judgment is that the High Court did not finally determine the respondent's Service Tax liability.

The Court noted that the dispute had not been adjudicated on merits and had been disposed of on the procedural issue.

Therefore, rather than finally deciding the Service Tax liability, the Court directed CESTAT, Kolkata to reconsider the matter on merits.

The Tribunal was directed to examine the work orders, invoices and other documents already produced by the respondent and to give both sides an opportunity of hearing.

The Court also recorded that, although it was of the view that the original show-cause notice and adjudication order should be set aside, the parties had consented to having the matter decided directly by CESTAT because considerable time had already elapsed.