Cenvat Credit and Limitation Principles protect genuine input service credit despite procedural document defects

Cenvat credit was treated as admissible where running account bills and payment orders contained the essential particulars of the service provider, recipient, service description, registration details, and tax amount, and the receipt of input services and tax payment were not in dispute. Credit on GAR-7 challans for reverse charge payments was also accepted. The extended period of limitation was held unavailable because the assessee had disclosed the credit in returns, cooperated in audit, and no positive material showed suppression, fraud, collusion, or wilful misstatement with intent to evade tax. The demand, interest, and penalties were therefore set aside.

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Issues: (i) Whether Cenvat credit could be availed on the basis of running account bills and payment orders; (ii) Whether the extended period of limitation could be invoked.

Issue (i): Whether Cenvat credit could be availed on the basis of running account bills and payment orders?

Analysis: The credit scheme is intended to avoid cascading of taxes, and denial cannot rest on mere nomenclature where the underlying transaction is genuine and the recipient has actually received the input services and discharged tax liability. The running account bills, read with the payment orders, contained the essential particulars of the service provider, recipient, description of service, registration details, and tax amount. The prescribed framework under Rule 9 of the Cenvat Credit Rules, 2004 and Rule 4A of the Service Tax Rules, 1994 allows credit where substantial particulars are available and the service receipt and tax payment are not in dispute. Credit taken on GAR-7 challans for reverse charge payments was also treated as admissible.

Conclusion: Cenvat credit on the running account bills and on GAR-7 challans was held admissible in favour of the assessee.

Issue (ii): Whether the extended period of limitation could be invoked?

Analysis: The appellant was a registered state instrumentality, had disclosed the credit in ST-3 returns, and had cooperated during audit. The demand arose from figures already available in departmental records, and no positive material showed suppression, fraud, collusion, or wilful misstatement with intent to evade tax. Mere detection by audit and self-assessment were held insufficient to justify invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994.

Conclusion: Invocation of the extended period of limitation was rejected in favour of the assessee.

Final Conclusion: The demand, interest, and penalties were set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Where the substantive receipt of taxable services and payment of tax are undisputed, credit cannot be denied merely for procedural defects in the supporting document, and the extended period cannot be invoked absent positive suppression or intent to evade tax.

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