CENVAT credit recovery after service tax refund was unsustainable absent suppression, with the extended limitation period also rejected.

Demand of duty, interest and penalty on alleged excess utilisation of CENVAT credit after refund of service tax was found unsustainable where the services were later treated as non-taxable for the relevant period. The record showed disclosure of the relevant returns and credit position, so there was no suppression or wilful misstatement to justify the extended period of limitation. The dispute was treated as different from cases involving a general restriction on CENVAT credit utilisation, and the applicable circular was read as clarifying that accumulated credit did not lapse. On those facts, the department's recovery approach failed and the assessee succeeded.

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Issues: Whether demand of duty, interest and penalty could be sustained on alleged excess utilisation of CENVAT credit after refund of service tax, and whether the extended period of limitation was invocable.

Analysis: The refund had been granted on the footing that the services were not taxable for the relevant period, and the record showed that the appellant had disclosed the relevant returns and credit position. The Tribunal held that the case was materially different from cases concerning a general restriction on utilisation of CENVAT credit, because the dispute here arose from tax paid on services later found not taxable. It further held that, in the absence of suppression or wilful misstatement, invocation of the extended period was not justified. The Tribunal also accepted that the governing circular clarified that there was no lapsing of accumulated credit and that the recovery mechanism adopted by the department was not sustainable on the facts.

Conclusion: The demand of duty, interest and penalty was not sustainable, and the assessee succeeded.

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