2026 (2) TMI 1279 - AT - Service Tax

Extended period of limitation for suppression upheld, interest and penalty sustained; claimed Cenvat credit disallowed.

Invoking the proviso to the limitation provision, the analysis finds suppression of material facts, non-filing of statutory returns and withholding of ... Export of services exemption - SEZ ab-initio exemption - Suppression of facts - extended period of limitation - Deposit of tax collected with the Government - Denial of CENVAT credit for lack of documents and limitation - Penalty u/s 78 - imposition for non-payment by suppression - HELD THAT:- It is not a case where appellant entertained a belief/bonafide belief that no service tax was payable. The decision relied upon by the Counsel of the appellant do not support the case of the appellant, none of the judgments considers the situation where the tax was being collected by the appellant and not paid to the exchequer and NIL service tax returns was filed. The act of the appellant in collection of service tax and not depositing the same with exchequer clearly establishes the intention to evade payment of service tax by suppressing the facts/ documents. I do not find any merits in the reliance placed by the appellant in any of the judgment. Appellant had not been filing the ST-3 return and was evading the payment of service tax. The conduct of appellant itself establishes that appellant has no claim in equity also for the reason that they are not making this claim with clean hands. It is also settled principle in law that fraud vitiates all. Thus the claim of the appellant to CENVAT Credit cannot be considered and allowed at this stage. In view of the findings as above, no merits in the submissions made by the appellant, as the appellant was collected the service tax and not deposited with the Government the interest @24% on the amount so collected and not deposited as required to be made in terms of Notification No.13/2016 dated 01.03.2016. As the demand made by invocation of extended period of limitation as per proviso to Section 73(1) of the Finance Act, 1994, uphold the penalties imposed on the appellant under Section 78 and other provision of the Act. Appeal is dismissed. Issues: (i) Whether demand and recovery of service tax of Rs.32,84,675/- with interest and penalty could be sustained by invoking the proviso to Section 73(1) and imposing interest under Section 75 and penalty under Sections 78 and 77(1)(d) of the Finance Act, 1994; (ii) Whether the appellant's claim for adjustment/allowance of Cenvat credit of Rs.6,25,819/- could be allowed against the confirmed demand.Issue (i): Whether demand and recovery of service tax of Rs.32,84,675/- with applicable interest and penalty can be sustained by invoking extended period under proviso to Section 73(1) and imposing interest under Section 75 and penalty under Sections 78 and 77(1)(d) of the Finance Act, 1994.Analysis: The Tribunal examined documentary evidence (ITR, 26AS, invoices, bank records), statutory tests for export under Rule 6A of the Service Tax Rules, 1994 and exemption procedure for SEZ supplies under Notification No.12/2013-ST. It found export receipts of Rs.54,05,226/- and SEZ supplies of Rs.1,48,39,770/- to be exempt on fulfillment of conditions; the remaining receipts were taxable. The adjudicating authority concluded that the appellant had not filed ST-3 returns, had collected service tax from customers for domestic supplies but had not deposited it, and had withheld records and information despite notices. The Tribunal found these acts amounted to suppression of material facts and contravention with intent to evade payment, satisfying the proviso to Section 73(1) to invoke extended period. On penalty, the Tribunal applied settled principles permitting penalty under Section 78 for suppression/contravention, and upheld interest under Section 75 and penalty under Section 78; it set aside the penalty under Section 77(1)(d) in part at lower stage but affirmed penalty under Section 78 in the present appeal. The Tribunal also rejected reliance on precedents cited by the appellant as distinguishable where tax had been collected and not deposited and returns were nil.Conclusion: Demand of service tax Rs.32,84,675/- with applicable interest under Section 75 and penalty under Section 78 is upheld by invoking proviso to Section 73(1) (suppression of facts). The penalty under Section 77(1)(d) was set aside by the appellate authority and not sustained in respect upheld amount.Issue (ii): Whether the claimed Cenvat credit of Rs.6,25,819/- is admissible and can be adjusted against the confirmed demand.Analysis: The Tribunal reviewed the record and found no duty-paying documents, no evidence of maintenance of Cenvat records as required under the Cenvat Credit Rules, 2004, and no claim of such credit in ST-3 returns for the period. It applied precedent on limitation and credit admissibility and observed that failure to file statutory returns and not claiming credit within prescribed procedure/time precludes allowance. The Tribunal further held that the appellant's conduct (non-filing, collection of tax without payment) disentitles it to equitable relief.Conclusion: The claim for Cenvat credit of Rs.6,25,819/- is rejected and not allowed to be adjusted against the confirmed demand.Final Conclusion: The adjudicated demand (reduced to account for allowed export and SEZ exemptions) together with interest under Section 75 and penalty under Section 78 stands sustained and the appellant's appeal is dismissed; the appellant's claim for Cenvat credit is refused.Ratio Decidendi: Where a service provider, while collecting service tax or having statutory liability, suppresses material facts, fails to file required statutory returns and withholds information, the proviso to Section 73(1) of the Finance Act, 1994 permits invocation of the extended period of limitation and supports imposition of interest under Section 75 and penalty under Section 78; absence of requisite documents and failure to follow statutory procedure preclude allowance of cenvat credit under the Cenvat Credit Rules, 2004.