Extended limitation and excess CENVAT credit fail where books and returns disclose the relevant facts

Advance receipts adjusted against work executed, goods supplied and refunds were not taxable to the extent later adjusted, and the small written-off balance did not sustain the demand; the service tax demand was therefore set aside. The allegation of excess CENVAT credit also failed because the opening and closing balances, intervening invoices and return entries supported the assessee's record; that demand was likewise set aside. Since the relevant facts were disclosed in balance sheets, ST-3 returns and bills, suppression with intent to evade tax was not established, so the extended period of limitation could not be invoked. The order was set aside and consequential relief followed.

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Issues: (i) whether service tax was payable on the advance received, including the amount written off; (ii) whether excess CENVAT credit had been availed; (iii) whether the demand could be sustained by invoking the extended period of limitation.

Issue (i): whether service tax was payable on the advance received, including the amount written off.

Analysis: The advance received was substantially adjusted against work executed, goods supplied, and amounts refunded, and only a small balance was written off. The material on record showed that tax had been paid later on the adjusted amounts. On the written-off portion, the liability could arise only to the limited extent applicable to that component, but the demand itself was examined in the context of limitation.

Conclusion: The demand on this count was held unsustainable and was set aside.

Issue (ii): whether excess CENVAT credit had been availed.

Analysis: The records and chart produced by the appellant showed the opening and closing balances, invoices received in the intervening period, and the credit entries reflected in the return. On that basis, the allegation of excess availment was not supported by the record.

Conclusion: The allegation of wrongful excess CENVAT credit was rejected and the demand was set aside.

Issue (iii): whether the demand could be sustained by invoking the extended period of limitation.

Analysis: The demand arose from scrutiny of balance sheet entries, ST-3 returns, and bills, which indicated that the relevant facts were available to the department. Suppression of facts with intent to evade tax was not established, and the show cause notice was issued by invoking the extended period for periods extending beyond five years.

Conclusion: The extended period was held inapplicable and the demand was set aside on limitation as well.

Final Conclusion: The impugned order could not be sustained on either the tax demand or the credit demand, and the assessee was granted consequential relief.

Ratio Decidendi: A demand based on disclosed books and returns cannot be upheld by invoking the extended period unless suppression of facts with intent to evade tax is established; where the substantive demand also fails on merits, interest and penalty cannot survive.

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