Service tax demand and extended limitation failed where tax was already paid through challans and CENVAT credit.

Service tax demand was found unsustainable where the assessee had already discharged tax through challans and CENVAT credit, and the adjudicating order had ignored the debit entry made in the CENVAT account. On the limitation issue, the extended period could not be invoked because the assessee was a registered service provider, had filed returns for part of the relevant period, and had placed material showing tax payment for the remaining period, leaving the revenue aware of the transactions. Once the demand failed on merits and limitation, the consequential penalties also could not survive. The impugned demand and penalties were set aside.

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Issues: (i) Whether the service tax demand survived when the appellant had already discharged tax through challans and CENVAT credit, and (ii) whether the extended period and consequential penalties could be sustained.

Issue (i): Whether the service tax demand survived when the appellant had already discharged tax through challans and CENVAT credit.

Analysis: The demand was based on third-party data and the difference between income-tax figures and the STR returns. The appellant placed challans on record and asserted that tax had also been paid through the CENVAT account. The order under challenge had taken note only of cash payment and had not given credit for the debit entry made in the CENVAT account. In the absence of any reason for ignoring such payment, the quantified balance demand could not be sustained as framed.

Conclusion: The balance demand was not sustainable in the manner confirmed below.

Issue (ii): Whether the extended period and consequential penalties could be sustained.

Analysis: The appellant was a registered service provider, had filed returns for part of the relevant year, and had placed material showing tax payment for the remaining period as well. On those facts, the revenue was not left without knowledge of the relevant transactions. The invocation of the extended period was therefore not justified, and once the demand itself failed on merits and limitation, the penalties could not survive.

Conclusion: The extended period and the penalties were not sustainable.

Final Conclusion: The appeal was allowed and the impugned demand and penalties were set aside on the grounds of non-sustainability of the demand and limitation.

Ratio Decidendi: Where the assessee has already discharged the tax liability through available modes of payment and the material facts were within the knowledge of the revenue, the extended limitation period and consequential penalties cannot be invoked.

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