Wilful suppression in excess Cenvat credit use justified extended limitation and sustained penalties under the service tax law.

Where a service provider engaged in both taxable and exempt services failed to maintain separate accounts and utilised credit beyond the prescribed limit, the Court treated the unexplained excess credit as wilful suppression rather than an inadvertent lapse. That concealment in returns attracted the proviso to Section 73(1) of the Finance Act, 1994, so the notice issued within five years was held to be within the extended limitation period. On the same factual basis, the penalties under Sections 76 and 78 were sustained because the conduct was found to involve intent to evade tax.

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Issues: Whether the extended period of limitation and consequential penalties were rightly invoked on the ground of wilful suppression of facts in relation to wrongful availment and utilisation of Cenvat credit beyond the prescribed limit.

Analysis: The service provider was engaged in taxable as well as non-taxable or exempted services and, where separate accounts were not maintained, Rule 3(5) of the Service Tax Credit Rules, 2002 restricted utilisation of credit to 35% of the service tax payable on output service. The facts showed that credit had been utilised beyond the permissible limit and the excess availment was not properly disclosed in the returns. On these facts, the Court accepted the concurrent findings that the omission was not a mere inadvertent lapse but amounted to wilful suppression with intent to evade tax. The Court held that the proviso to Section 73(1) of the Finance Act, 1994 was attracted, making the notice within five years sustainable, and found no reason to interfere with the penalties imposed under Sections 76 and 78 of the Finance Act, 1994.

Conclusion: The invocation of the extended period of limitation was upheld and the penalties were sustained; the challenge by the appellant failed.

Ratio Decidendi: Where excess credit utilisation is concealed in returns and the statutory restriction on credit is clear, the conduct constitutes wilful suppression with intent to evade tax, justifying the extended limitation period and penal consequences.

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