CESTAT allows CENVAT credit on input services despite late return filing, remands for verification

CESTAT Chennai held that assessee was eligible for CENVAT credit on input services despite belated filing of returns, as law does not prohibit credit adjustment for late returns. Matter remanded to original authority for verification of credit amount and requantification of duty liability. Extended limitation period properly invoked due to suppression of facts regarding collected service tax, constituting intent to evade payment. Penalties under Section 76 waived considering substantial pre-notice payment, but Section 77 penalties upheld. Appeal partly allowed and partly remanded.

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Issues Involved:

1. Eligibility of CENVAT credit on input services availed.
2. Invocation of extended period under Section 73(1) of the Finance Act, 1994.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Summary:

Issue 1: Eligibility of CENVAT Credit on Input Services Availed

The Assessee commenced business on 13.07.2006 and obtained registration for Cable Operator Service on 31.07.2006 but failed to get an endorsement for Business Auxiliary Service (BAS). The Show Cause Notices (SCNs) demanded Service Tax for the periods from July 2006 to March 2010 and April 2010 to June 2010. The Assessee paid a substantial amount towards Service Tax dues before the issuance of the first SCN. The Tribunal held that the lower authority's dismissal of the claim for adjustment of CENVAT credit was incorrect. CENVAT Credit being a substantive right should be allowed for adjustment to compute the Assessee's tax liability. The matter was remanded to verify the amount of credit and allow the adjustment.

Issue 2: Invocation of Extended Period under Section 73(1) of the Finance Act, 1994

The Tribunal found that the Assessee had not filed returns and not paid Service Tax despite conducting business throughout the notice period. The non-payment of Service Tax collected along with link charges from cable operators resulted in undue financial accommodation, constituting suppression with intent to evade payment of Service Tax. Therefore, the extended period under the proviso to Section 73(1) was rightly invoked. The Tribunal relied on cases such as Lok Priya Travels and M/s. Safe & Sure Marine Service Pvt. Ltd., which supported the invocation of the extended period in similar circumstances.

Issue 3: Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994

The Tribunal held that the Assessee is liable for penalty under Section 78, equivalent to the tax payable after adjusting the eligible CENVAT Credit. For the period from July 2006 to June 2010, the penalty under Section 76 was waived due to the substantial payment of Service Tax before the issuance of the SCN. The penalties under Section 77 were not disturbed. The Tribunal directed the original adjudicating authority to recompute the Service Tax payable after allowing the adjustment of CENVAT Credit.

Conclusion:

The Tribunal partly allowed and partly remanded the appeal filed by the Assessee and dismissed the appeal filed by the Revenue. The order was pronounced in open court on 10.01.2024.

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