Suppression-based ineligible CENVAT credit justifies extended limitation and penalty when material facts are withheld.

Extended limitation under the Central Excise Act applies where ineligible CENVAT credit is taken through suppression of material facts, wilful misstatement, or intent to evade duty. The Madras HC noted that the assessee did not disclose the contractual arrangement with the foreign service provider and instead took credit suo motu on maintenance charges rather than pursuing the refund route, which showed suppression. On that basis, the extended period of limitation was validly invoked and the recovery of credit was sustained. The Court also held that penalty under Rule 15(2) read with Section 11AC was attracted on the same facts, so the penal consequence was also upheld.

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Issues: (i) Whether the extended period of limitation could be invoked for recovery of ineligible CENVAT credit on the ground of suppression and intent to evade duty; (ii) Whether penalty was leviable under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

Issue (i): Whether the extended period of limitation could be invoked for recovery of ineligible CENVAT credit on the ground of suppression and intent to evade duty.

Analysis: The Court held that the relevant test was whether the assessee's conduct attracted fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty so as to justify the extended period under Section 11A of the Central Excise Act, 1944. It noted that the contractual arrangement with the foreign service provider was not disclosed, the service tax on maintenance charges was taken as credit suo motu instead of being pursued by refund, and the transaction as a whole disclosed suppression.

Conclusion: The extended period of limitation was validly invoked, against the assessee.

Issue (ii): Whether penalty was leviable under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

Analysis: The Court held that penalty follows where CENVAT credit is taken or utilised wrongly by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. On the facts found, the assessee had availed ineligible credit by suppressing the contractual obligation and without following the refund route.

Conclusion: Penalty was leviable, against the assessee.

Final Conclusion: The challenge to the demand and penalty failed, and the recovery action and penal consequences were sustained.

Ratio Decidendi: Where ineligible credit is taken by suppressing material facts and with intent to evade duty, the extended limitation period and penalty provisions are attracted, and the remedy for erroneous tax payment lies in refund rather than suo motu credit.

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