Cenvat credit on input services disclosure in ER-1 prevents invocation of extended limitation and sustains relief against penalties

Cenvat credit availed on input services was disclosed in ER-1 return and supporting correspondence, which the adjudicator found sufficient to show no suppression or mis-declaration; therefore invocation of the extended period of limitation was unjustified and demand and penalties could not be sustained. The disclosure included amortisation of free issue design costs against dutiable final products, establishing the nature and use of the input service and negating personal liability for undisclosed credit. The result is setting aside of the confirmed demand and penalties, and allowance of the appeals.

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Issues: Whether cenvat credit of service tax paid by a group unit on design and drawing services can be availed by the manufacturing unit and whether the demand, interest and penalties based on alleged suppression and invocation of extended period of limitation are sustainable.

Analysis: The facts show service tax was discharged by the Pune unit on invoices expressly stating the services were to be used as input service by the Bangalore manufacturing unit; the Pune unit did not avail cenvat credit; the Bangalore unit availed cenvat credit, recorded the same in ER-1 returns and sent a letter dated 23.03.2009 informing the department of such availment; the adjudicating authority rejected the letter and ER-1 entries as insufficient and invoked extended limitation and penalties for alleged suppression. The available records invoices, ER-1 return entries and the intimation letter demonstrate disclosure of the transactions and that the cost of design was amortized into the value of dutiable products.

Conclusion: The cenvat credit availed by the appellant on the service tax paid by the Pune unit is valid and the findings imposing demand, interest and penalties and invoking the extended period of limitation are not sustainable; the impugned order is set aside and the appeals are allowed.

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