Suppression and penalty under CENVAT credit rules failed where return disclosures showed no deliberate intent to evade duty.

CESTAT Mumbai held that mere availment of CENVAT credit on exempted services without separate records did not, by itself, establish suppression of facts where the omission was disclosed in returns and the demand arose from an audit objection. The entries marked "NO" and "zero" were treated as reflecting a mistaken understanding of the CENVAT Credit Rules, not deliberate intent to evade duty. In the absence of evidence of wilful suppression, invocation of the extended limitation period failed and penalty was not sustainable.

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Issues: Whether penalty and invocation of the extended period were justified where the assessee had availed CENVAT credit in respect of exempted services without maintaining separate records, but the omission was reflected in returns and the demand arose from audit objection.

Analysis: The return entries showing 'NO' against exemption availed and 'zero' against the amount under Rule 6(3) did not, by themselves, establish deliberate suppression of material facts. The lapse was found to stem from a mistaken understanding of the legal position, especially since the dispute related to the treatment of exempted services and reversal under the CENVAT Credit Rules. Mere detection of the irregularity during audit, without further evidence of intent to evade, was insufficient to sustain the allegation of suppression or the extended limitation. In such circumstances, penalty could not be justified.

Conclusion: The invocation of suppression and the consequential penalty were not sustainable, and the assessee succeeded on the issue.

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