2025 (8) TMI 251 - AT - Central Excise

Denial of CENVAT Credit Barred by Limitation Under Section 11A; Appeal Allowed Due to Delay and Lack of Evidence

The CESTAT Kolkata allowed the appeal, holding that the denial of CENVAT credit was barred by limitation as the SCN was issued more than four years after ... CENVAT Credit - denial on the ground of time limitation - dispute in the instant case relates to 30-03-2011 whereas the instant SCN is issued on dated 12-07-2015 i.e. much after the expiry of the normal period of limitation (after 4 years) - suppression of facts or not - HELD THAT:- From a harmonious reading of the documentary evidence, it gets clarified that there is an Agreement in existence, Invoices have been raised, Payments have been made and accounted for and also Service Tax has been remitted by the Appellant and the service provider. Thus the factual details go against the allegations made by the Revenue. Thus, it is observed that even as the objection was raised by the Audit team in 2011, no investigation was immediately commenced. The Statements have been recorded in 2014 and 2015. Most importantly, the Revenue should have approached jurisdictional office of the Service provider to know as to whether SPPL was remitting the Service Tax and filing the ST 3 Return. This important investigation has not been carried out. In the SCN, there is no allegation to the effect that the service provider was not registered or was not remitting the Service Tax. The appellant has taken the cenvat credit in March 2011 and accounted for the same in the ER 1 Return for the month of March 2011. The Audit pointed out the issue in October 2011. After the preliminary reply of the appellant, no further action was taken. The statements were recorded after more than 3 years. Even the investigation done after 3 years is not properly corroborated by way of documentary evidence. The appellant having received the service and the Service Invoice and having paid the invoice amount by way of Cheques, could have entertained bonafide belief about their eligibility for Cenvat Credit. Therefore, noting that no case of suppression with an intent to evade has been made out against the appellant, the entire proceedings are hit by time-bar - Since the main case itself fails on merits and on account of limitation the penalties imposed on other co-noticees also do not survive. The appeals allowed both on account of merits as well as on account of time bar. ISSUES: Whether CENVAT credit can be denied on the ground that the service provider did not remit the Service Tax collected from the service recipient.Whether the absence of the service provider's ST-3 Return is a valid basis for denial of CENVAT credit to the recipient.Whether the services were actually rendered by the service provider, or if the transactions were only 'paper transactions.'Whether the demand for reversal of CENVAT credit is barred by limitation.Whether penalties imposed on employees and directors are justified when no case of wrongful availment of credit is made out against them. RULINGS / HOLDINGS: The denial of CENVAT credit on the ground that the service provider has not paid duty is not sustainable; 'Credit cannot be denied at the service recipient's end, alleging that no service has been provided,' especially when the service tax has been collected and remitted by the provider.Non-providing of the ST-3 Return by the service provider cannot be the deciding factor for denial of credit where the invoices are proper and the service recipient has accounted for payments through banking channels.The evidence, including agreement, invoices, ledger entries, and proof of payment through banking channels, confirms that services were rendered and accounted for, negating the allegation of paper transactions.The demand for reversal of CENVAT credit is barred by the normal period of limitation since the credit was taken in March 2011 and the Show Cause Notice was issued more than four years later, in July 2015.Penalties imposed on employees and directors are not sustainable when no case is made out against them for wrongful availment of credit. RATIONALE: The court applied the provisions of the CENVAT Credit Rules, 2004, particularly Rule 9 regarding proper documents for credit and Rule 9(3) concerning reasonable steps by the recipient.Precedents relied upon include decisions holding that denial of credit cannot be based solely on the service provider's non-payment of duty, including CCE Vs. Wilson Engineering Industries Pvt. Ltd., On Quest Merchandising India P. Ltd. Vs. Govt. of NCT of Delhi, and Commissioner of Trade & Taxes Vs. Arise India Ltd.The court emphasized that the department must challenge the service provider's non-payment or non-rendering of service at the provider's end, not at the recipient's end.The investigation lacked thoroughness, notably the failure to verify the service provider's ST-3 Returns and service tax remittance at the jurisdictional office, weakening the Revenue's case.The court noted that statements recorded without adherence to Section 9D of the Central Excise Act, 1944, do not constitute admissible evidence.The limitation period was applied strictly, with the court holding that the delay in issuing the Show Cause Notice and recording statements undermines the demand's validity.A referenced difference of opinion in Royal Sundaram General Insurance Co. Ltd. Vs. CGST was resolved by the Madras High Court quashing the Tribunal's order, thus supporting the present ruling.