2024 (1) TMI 1120 - AT - Service Tax

Tribunal Overturns Denial of CENVAT Credit; Rules Demand for Service Tax Time-Barred and Unsupported by Evidence.

M/s Antares Services Pvt. Ltd. Versus The Commissioner of Central Excise, Chandigarh

The Tribunal allowed the appeal, overturning the denial of CENVAT credit and the demand for service tax. It held that the denial of credit due to delayed ... Eligibility of CENVAT Credit - credit was not mentioned in the ST-3 Returns filed - credit has been taken after the prescribed period of six months or one year (from 01.03.2015) - Extended period of limitation - HELD THAT:- The learned Commissioner finds that CENVAT credit on input and input services can only be availed within a period of six month or one year (w.e.f. 01.03.2015) from the date of invoice and in the instant case, time period of one year has already elapsed and moreover, the appellants have not claimed the CENVAT credit in the ST-3 Returns. It is found that the Tribunal in the case of Origin Learning Solutions Pvt. Ltd. [2021 (7) TMI 898 - CESTAT CHENNAI] held that CENVAT credit cannot be denied for the reason that such availment was not reflected in ST-3 Returns. It is also found that Tribunal and High Courts have been consistently holding that a substantial rate of eligibility to CENVAT credit cannot be denied on the basis of procedural violations. The credit cannot be denied only because it has been utilized late. Moreover, it is found that the show-cause notice has been issued on the basis of third-party information. Extended period of limitation - HELD THAT:- Though extended period has been invoked, no evidence of suppression, mis-statement, fraud, collusion etc., has been put forth. In the absence of the same, extended period cannot be invoked. It is found that the Tribunal in the case of Balaji Machinery [2022 (8) TMI 704 - CESTAT KOLKATA] held that where the demand is merely on the basis of data obtained from Income Tax Department, it cannot be alleged that there was suppression etc. to justify the invocation of extended period. Therefore, it is found that the impugned order is not legally sustainable. The appeal is allowed both on merits and limitation. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit for input services can be allowed where (a) the credit was availed after the prescribed temporal limit (six months / one year w.e.f. 01.03.2015 from invoice date) and (b) such credit was not reflected in ST-3 returns filed for the relevant period. 2. Whether the demand invoking extended period of limitation can be sustained when raised on the basis of third-party information (data from Income Tax Department) in the absence of any evidence of suppression, fraud, mis-statement or collusion by the assessee. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of CENVAT credit despite late availment and non-reflection in ST-3 returns Legal framework: CENVAT credit regime permits credit of duty/tax on input goods and input services if eligibility conditions are satisfied; Rules prescribe temporal limits for availing credit from invoice date (six months / one year effective 01.03.2015). ST-3 returns record credit and payment particulars; Section 67(2) deals with valuation and cum-tax value relevant to service tax computations. Precedent treatment: Tribunal and High Courts have, in previous decisions, held that substantive eligibility for CENVAT credit should not be denied on mere procedural non-compliance; that availment of credit may be allowed even where registration formalities were later completed; and that non-reflection in ST-3, standing alone, is a procedural lapse. The impugned order applied the temporal limit to deny credit; other decisions relied upon by the appellant applied a substance-over-form approach to allow credit despite procedural deficiencies. Interpretation and reasoning: The Court examined whether the department disputed substantive eligibility (i.e., that input services were actually availed and used for taxable output services) and found no challenge to eligibility. The record established that input services were received, invoices existed, and service tax was paid on the cum-tax value. The only grounds for denial were (i) the period for availing credit had elapsed, and (ii) non-disclosure in ST-3 returns. The Court reasoned that where the entitlement to credit is established on the merits (possession of invoices, payment of tax, use in taxable activity), procedural infractions such as late utilization or omission in ST-3 should not automatically defeat substantive credit, particularly where the delay is not tainted by fraud or suppression. Consequently, the Court held that credit cannot be denied solely for late utilization or non-reflection in ST-3 when substantive eligibility is not disputed. Ratio vs. Obiter: Ratio - A claim to CENVAT credit, established on the basis of entitlement (documentary evidence of services availed and tax paid), cannot be denied only because the credit was utilised after the prescribed time limit or was not shown in ST-3 returns, absent any showing of ineligibility or fraudulent concealment. Obiter - Observations on broader policy preferences favouring substance over procedural technicalities where no mala fide conduct exists. Conclusion: The impugned denial of credit on the grounds of late availment and omission from ST-3 is unsustainable where entitlement is otherwise established and no illegality in the transaction is shown; therefore the appellant is entitled to CENVAT credit on the input services in question. Issue 2 - Invocation of extended period based on third-party information without evidence of suppression Legal framework: Limitations provisions allow invocation of extended limitation period only where there is suppression of facts, mis-statement, fraud, collusion, or deliberate evasion; demands based on information must be supported by evidence of such culpable conduct to justify extended period. Precedent treatment: Prior authorities have held that demands raised solely on the basis of information supplied by third parties (e.g., Income Tax Department data) do not automatically establish suppression or fraud on the part of the assessee sufficient to invoke extended limitation; extended period requires positive material indicating deliberate concealment. Interpretation and reasoning: The show-cause notice and resulting demand were founded on third-party data. The Tribunal found no evidence tendered by the department to establish suppression, mis-statement, fraud or collusion by the assessee during the relevant period. In the absence of any such material, the extension of limitation could not be justified. The Court applied the principle that invocation of extended period is an exception that must be strictly proved and cannot rest on inference from third-party data alone when the assessee has documentary proof of transactions and has not been shown to have concealed material facts. Ratio vs. Obiter: Ratio - Extended limitation cannot be invoked merely because the department received third-party information; there must be prima facie evidence of suppression or fraud attributable to the assessee. Obiter - Emphasis that procedural reliance on inter-departmental data requires corroboration before extending limitation. Conclusion: The demand raised under extended period on the basis of third-party data is not sustainable in the absence of evidence of suppression, mis-statement, fraud or collusion; limitation defence therefore succeeds. Combined Result and Cross-References Both issues are interlinked: permitting the credit on substantive merits undermines the threshold for invoking extended period where no suppression is shown. The Court concluded that (a) substantive entitlement to CENVAT credit exists despite procedural lapses when eligibility is not contested and supporting documents exist, and (b) extended limitation could not be invoked based solely on third-party information without proof of suppression. Accordingly, the impugned demand was set aside both on merits (credit admissible) and on limitation grounds (extended period unjustified).