CENVAT credit adjustment allowed where excess reversal covered shortfalls; extended limitation and penalty failed absent intent to evade.

Excess reversal of CENVAT credit and excess monthly payment could be adjusted against short reversal in other months under Rule 6(3B), read with Rules 6(3A) and 6(4A), where the overall liability had been discharged. The Tribunal held that a rigid technical reading could not deny such adjustment when the assessee had made good the shortfalls in the six-monthly returns. On the facts, the admitted excess reversal also negatived wilful suppression or intent to evade tax, so the extended period of limitation and penalty could not be sustained. The demand was therefore not maintainable and relief followed.

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Issues: Whether excess reversal of CENVAT credit and excess payment made in some months could be adjusted against short reversal in other months while complying with Rule 6(3B) of the CENVAT Credit Rules, 2004; and whether, in the absence of wilful suppression or intent to evade, the demand, extended limitation and penalty could be sustained.

Analysis: Rule 6(3B) required monthly payment of an amount equal to fifty per cent of the CENVAT credit availed on inputs and input services for banking and financial services. The record showed that the assessee had made excess reversals and that the short reversals for some months were made good when the six-monthly service tax returns were filed. The statutory scheme in Rule 6(3A) and Rule 6(4A) permitted adjustment of excess amount, and the Tribunal held that such adjustment could not be denied on a rigid technical reading where the overall liability had been discharged. On the facts, the acknowledged excess reversal negatived any allegation of wilful suppression or intent to evade tax. In the absence of such mens rea, the extended period could not be invoked and penalty was unsustainable.

Conclusion: The adjustment of excess reversal was permissible, and the demand, extended limitation and penalty were not sustainable.

Final Conclusion: The assessee was entitled to relief, and the impugned order was set aside in full.

Ratio Decidendi: Where the statutory scheme permits adjustment of excess payment, a shortfall in one period can be set off by excess payment in another period, and in the absence of wilful suppression or intent to evade, extended limitation and penalty cannot be sustained.

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