CBDT Data Alone Cannot Sustain Service Tax Assessment Under Section 72 Without Fresh Adjudication: Karnataka High Court
Overview of the Case
The Karnataka High Court, in Belandur Krishnappa Srinivas Vs Commissioner of Central Tax & Anr., decided a significant question concerning the validity of a service tax assessment order passed solely on the basis of income tax return data obtained from the Central Board of Direct Taxes, without affording the assessee a meaningful opportunity to contest the demand. The petition was heard as Writ Petition No. 26437 of 2026 (T-RES), and the order was pronounced on 01 September 2026.
The Court partly allowed the petition, set aside the impugned order dated 30 November 2021 passed under Section 72 of the Finance Act, 1994, and restored the proceedings with specific conditions imposed on the assessee.
Background and Facts of the Case
The assessee, Belandur Krishnappa Srinivas, was subjected to an assessment order covering the tax periods 2014-15 to 2017-18. The adjudicating authority had relied upon information furnished by the Central Board of Direct Taxes pertaining to the gross receipts disclosed by the assessee in his income tax returns. On the basis of this data alone, the assessment was completed under Section 72 of the Finance Act, 1994.
The assessee challenged this order by filing a writ petition before the Karnataka High Court, albeit with a significant delay of approximately five years from the date of the impugned order.
Contentions Raised by the Assessee
The counsel appearing for the assessee advanced the following submissions before the Court:
Non-service of notice: The assessee contended that the show cause notice preceding the assessment order had not been properly served upon him, thereby vitiating the entire proceedings.
Mechanical reliance on IT return data: The adjudication was completed purely on the strength of income tax return information without any independent examination of the nature of the transactions.
Works contract exclusion not examined: The assessee argued that the services provided by him were in the nature of works contracts extended to third parties. In such transactions, the value of the goods component embedded in the works contract is liable to be excluded from the taxable value for service tax purposes, subject to fulfillment of prescribed conditions. The adjudicating authority had failed to examine this critical aspect before arriving at the demand.
The exclusion of the goods component from taxable service value in a works contract is a well-recognized position under the service tax regime and carries significant bearing on the final tax liability.
Revenue's Opposition
The Standing Counsel appearing for the respondents resisted interference on two principal grounds:
- The writ petition had been filed nearly five years after the impugned order dated 30 November 2021, making the invocation of writ jurisdiction highly belated.