CESTAT sets aside service tax demand finding no suppression as credit disclosed in ST3 returns by newly registered assessee

CESTAT New Delhi allowed the appeal, setting aside the entire demand and penalty. The tribunal held that extended period of limitation under section 73(1) of Finance Act could not be invoked as the appellant had disclosed Cenvat credit availment in ST3 returns, negating allegations of suppression or concealment. Revenue failed to prove wilful suppression with intent to evade service tax payment. Since appellant was newly registered and disclosed facts in statutory returns, any error was inadvertent rather than deliberate. Consequently, mandatory penalty was also set aside as extended limitation period was not applicable.

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The present appeal challenges the Order-in-Appeal confirming a demand for wrongful availment of Cenvat Credit by the Rajasthan Housing Board, an instrumentality of the State Government. The issue revolves around the appellant utilizing Cenvat Credit to discharge service tax liability in a manner deemed inadmissible under the Cenvat Credit Rules, 2004. The key legal questions considered are the invocation of the extended period of limitation under the Finance Act and the wrongful availment of Cenvat Credit before discharging service tax liability.The appellant argued that once duty is paid, Cenvat Credit cannot be denied, creating a revenue-neutral situation. They contended that the Service Tax Payment Challan is eligible for claiming Cenvat Credit under the reverse charge mechanism. The appellant also challenged the extended period of limitation and imposition of penalties, asserting that as a government authority, they did not engage in suppression or misrepresentation of facts. The respondent countered that the appellant failed to disclose the wrongful availment of Cenvat Credit, which was only discovered during an audit.The Tribunal analyzed the invocation of the extended period of limitation, emphasizing that for its application, the revenue must establish fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade tax. The Tribunal found that the appellant had disclosed the Cenvat Credit availment in their returns, negating any wilful suppression of material facts. Citing relevant case law, the Tribunal held that the extended period can only be invoked if both suppression and intent to evade payment of duty are proven. As the appellant's error was deemed inadvertent, the extended period was deemed unjustified.The Tribunal referenced a decision where the deliberate default was distinguished from inadvertent non-payment, emphasizing that the extended period applies only to deliberate defaults aimed at evading duty. Due to the absence of deliberate intent to evade payment, the extended period and consequent penalties were deemed inapplicable. The Tribunal also distinguished a previous case involving a public sector undertaking where misdeclaration was deemed a strategy for tax evasion, which was not the case here.Ultimately, the Tribunal held that since the demand fell beyond the normal limitation period and the extended period was not applicable, the demand was set aside, and the appeal was allowed without delving into the merits of the case. The impugned order was overturned, and the appeal was allowed based on the findings related to the limitation period.In conclusion, the Tribunal's decision centered on the interpretation of the extended period of limitation under the Finance Act and the wrongful availment of Cenvat Credit. By emphasizing the lack of deliberate intent to evade payment and the appellant's disclosure of Cenvat Credit availment, the Tribunal set aside the demand and allowed the appeal.

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