2025 (4) TMI 1335 - AT - Service Tax

CESTAT allows CENVAT credit despite non-filing ST-3 returns when department failed to provide login credentials

M/s Attitude Maximus (India) Pvt Ltd Versus Commissioner of Central Tax Hyderabad – GST

CESTAT Hyderabad allowed the appeal challenging denial of CENVAT credit on grounds of non-filing Service Tax-3 returns. The appellant could not file ... Validity of SCN - SCN issued relying on the third party data - SCN failed to quantify the service tax amount paid by the appellant - denial of CENVAT Credit on the ground of not filing Service Tax-3 returns - HELD THAT:- Adjudicating Authority as well as Commissioner of Central Tax (Appeals-I) dis-allowed the Cenvat Credit to the appellant on the ground of not filing Service Tax-3 returns which happens due to change of auditor of the appellant company and inspite of several requests Department not provided login user name and password in time. Due to this reason, the appellant was unable to file returns for reasons beyond their control. In these circumstances, dis-allowance of credit to the appellant is not just proper and legal. The non-filing of returns is not intentional but due to password problem which is beyond the control of the appellant. Therefore, denial of credit to the appellant is not just and proper. Co-ordinate Bench, Ahmadabad in the case of Sun Outdoos Vs CCE and ST, Vadodara-I [2024 (11) TMI 263 - CESTAT AHMEDABAD] wherein on the issue of benefit of Cenvat Credit on the ground of non-filing of ST-3 returns held that, as regards denial of credit on the ground of non-filing of ST-3 returns, we are of the view that merely on non-filing of ST-3 return, the assessee cannot be deprived of their statutory benefit of Cenvat Credit as provided under the Statute. Conclusion - Due to technical fault and inspite of repeated letters to Department, not provided in time, user name and password, appellant could not file the ST-3 returns in time. Appellant cannot deny to take credit of Cenvat. Show cause notice was failed to quantify the service tax amount. Adjudicating Authority as well as Commissioner of Central Tax (Appeals-I) not considered appellant’s reply properly. Appeal allowed. Issues Presented and ConsideredThe core legal questions considered by the Tribunal were:Whether the show cause notice issued by the Department was valid and legally sustainable, given that it failed to quantify the alleged short payment of service tax and contained vague or incomplete allegations;Whether the appellant's inability to file Service Tax Returns (ST-3) on time due to loss of username and password, and consequent technical difficulties, justified non-filing and whether this non-filing could lead to denial of Cenvat Credit;Whether the adjudicating authority's order confirming service tax demand and imposing penalty under Section 78 of the Finance Act was justified, especially considering that the order traversed beyond the allegations contained in the show cause notice;Whether the denial of Cenvat Credit on grounds of non-filing of ST-3 returns was legally valid, particularly when the appellant had paid the service tax liability through cash and Cenvat Credit;Whether the extended period for adjudication was invokable in the facts of the case, given the absence of suppression or willful default by the appellant;Whether the principles of natural justice were violated by the authorities in passing the impugned orders without properly considering the appellant's submissions and evidence regarding tax payment and technical difficulties.Issue-wise Detailed AnalysisValidity and Sufficiency of the Show Cause NoticeThe legal framework mandates that a show cause notice must specify the allegations clearly and quantify the demand to enable the recipient to effectively respond. The Supreme Court in Khem Chand Vs Union of India established that a show cause notice failing to fulfill these basic ingredients is bad in law and vitiates the proceedings. Similarly, in Commissioner of Central Excise, Bangalore Vs Brindavan Beverages (P) Ltd., it was held that vague or unintelligible allegations deprive the noticee of a proper opportunity to defend.The Tribunal noted that the show cause notice relied on third-party data but failed to quantify the service tax amount allegedly short paid by the appellant. The adjudicating authority confirmed a higher service tax demand than that mentioned in the show cause notice, and also imposed penalty and denied Cenvat Credit on grounds not mentioned in the notice. This constituted a violation of the foundational principle that the adjudication must be confined to the allegations and quantification made in the show cause notice. The Tribunal held that the show cause notice was invalid and the subsequent proceedings based on it were vitiated.Non-filing of Service Tax Returns Due to Technical DifficultiesThe appellant was unable to file ST-3 returns for certain periods due to loss of username and password following a change of auditor. Despite repeated requests to the Department over several years, the login credentials were not provided in time. The appellant paid the service tax liability through cash and Cenvat Credit and filed the returns as soon as access was restored.The Tribunal observed that the non-filing was not due to willful default or suppression but was caused by technical and administrative issues beyond the appellant's control. The denial of Cenvat Credit solely on the ground of non-filing of returns was held to be unjust and contrary to statutory provisions. The Tribunal relied on a coordinate bench decision in Sun Outdoors Vs CCE and ST, which held that mere non-filing of ST-3 returns cannot deprive an assessee of the statutory benefit of Cenvat Credit.Denial of Cenvat Credit and Penalty ImpositionThe adjudicating authority disallowed Cenvat Credit on the ground of non-filing of returns and late availment of credit, which was not part of the show cause notice. The penalty under Section 78 of the Finance Act was imposed without proper basis. The Tribunal found that both the adjudicating authority and the Commissioner of Central Tax (Appeals) failed to consider the payment of service tax made by the appellant through cash and Cenvat Credit as evidenced in the reconciliation statements. The denial of credit and penalty imposition were therefore unsustainable.Extended Period of LimitationThe extended period provisions are invokable only in cases of suppression or willful misstatement. Here, the appellant's inability to file returns was due to technical problems and administrative delays in providing login credentials. There was no evidence of suppression or fraud. Therefore, the extended period was not applicable.Principles of Natural Justice and Fair AdjudicationThe Tribunal noted that the adjudicating authority and appellate commissioner failed to appreciate the appellant's replies and evidence adequately. The orders traversed beyond the allegations in the show cause notice and did not consider the appellant's payment of service tax and technical difficulties. This amounted to a breach of natural justice and fair play in adjudication.Significant HoldingsThe Tribunal held:'If the show cause notice fails to fulfil the basic ingredient, the show cause notice itself is bad in law and it vitiates the proceedings.'The show cause notice must specify the demand and allegations clearly; otherwise, the noticee is deprived of a proper opportunity to defend, rendering the notice invalid.Non-filing of ST-3 returns due to technical issues beyond the appellant's control cannot be a ground for denial of Cenvat Credit.Denial of Cenvat Credit and imposition of penalty on grounds not mentioned in the show cause notice is impermissible and violates principles of natural justice.The extended period for adjudication is not invokable in absence of suppression or willful default.Payment of service tax through cash and Cenvat Credit, supported by documentary evidence, must be considered and cannot be ignored.Accordingly, the Tribunal allowed the appeal with consequential relief, setting aside the impugned orders that confirmed the service tax demand and penalty and denied Cenvat Credit.