Limitation and CENVAT credit utilisation issues led to stay of major service tax demands, with limited pre-deposit ordered.

Limitation and extended-period suppression were central to the demand of unpaid service tax and CENVAT credit utilisation. Disclosure by the assessee to the department of the transitional merging of accumulated credit under Rule 11 meant suppression was not prima facie established, so the major demand was stayed with waiver of pre-deposit. Rule 2(r) was applied to treat a person liable to pay service tax as a provider of taxable service, and utilisation of input credit for output service tax was found prima facie sustainable, leading to stay of that demand as well. For the remaining balance demand, the tribunal required a limited pre-deposit, with stay to follow compliance.

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Issues: (i) whether the demand of Rs. 2.99 crores was barred by limitation and whether suppression of facts was made out to justify invocation of the extended period; (ii) whether the demand of Rs. 59,97,695/- for utilisation of credit towards service tax on output services was prima facie sustainable in view of Rule 2(r) of the Cenvat Credit Rules, 2004; and (iii) whether any pre-deposit was required in respect of the balance demand of Rs. 12,44,967/-.

Issue (i): whether the demand of Rs. 2.99 crores was barred by limitation and whether suppression of facts was made out to justify invocation of the extended period.

Analysis: The show cause notice was issued beyond the normal limitation period and could survive only on proof of suppression. The assessee had earlier informed the department by letter that the accumulated and unutilised credit was being merged in the CENVAT Credit Register under the transitional arrangement in Rule 11 of the Cenvat Credit Rules, 2004. That disclosure showed that the material fact was placed before the department, and the subsequent delay in enquiry remained unexplained.

Conclusion: The allegation of suppression was not prima facie established, and the demand of Rs. 2.99 crores was held entitled to waiver of pre-deposit and stay on the ground of limitation.

Issue (ii): whether the demand of Rs. 59,97,695/- for utilisation of credit towards service tax on output services was prima facie sustainable in view of Rule 2(r) of the Cenvat Credit Rules, 2004.

Analysis: Rule 2(r) treated a person liable to pay service tax as a provider of taxable service. Since the assessee was liable to pay service tax on the relevant recipient-based services and had discharged that liability through input service credit, the objection to utilisation of credit did not receive effective rebuttal.

Conclusion: The demand of Rs. 59,97,695/- was directed to remain stayed, with waiver of pre-deposit.

Issue (iii): whether any pre-deposit was required in respect of the balance demand of Rs. 12,44,967/-.

Analysis: No prima facie case was made out against the balance demand to justify complete waiver. The amount already paid was taken into account, and only the remaining balance was considered for deposit.

Conclusion: Pre-deposit of Rs. 5 lakhs was required for the balance demand, with waiver and stay to follow on compliance.

Final Conclusion: The stay application succeeded substantially, with the major demands protected by waiver of pre-deposit and stay, while only a limited deposit was directed for the remaining demand.

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