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Issues involved: Confirmation of service tax demand, disallowance of service tax credit, contestation on merits and limitation.
In the impugned order, the learned Commissioner confirmed a demand of service tax against the appellants amounting to over Rs. 1.38 crores under rule 14 of the CENVAT Credit Rules, 2004. Additionally, the disallowed service tax credit of about Rs. 60 lakhs was contested by the appellants, citing both merit and limitation issues. The relevant show cause notice was issued beyond one year from the date of availment of the credit, leading to a dispute on the grounds of limitation. The appellants argued their case based on various provisions of the CENVAT Credit Rules, 2004, including rule 2(r) defining "provider of taxable service" and rule 11 (transitional provision) allowing credit on input services. The contention was made that services received from a foreign party should be treated as "output service" to utilize input service credit for tax payment. However, the claim of the appellants was countered by the definition of "output service" under rule 2(a) of the Service Tax Credit Rules, 2002, leading to a disagreement on the classification of services received. On the issue of limitation, the appellants argued that they regularly filed their ST 3 returns during the entire period, indicating that the department was aware of the material facts. Despite this, the show cause notice was issued beyond the normal limitation period, invoking the extended period of limitation introduced in the Finance Act, 2004. The delay in issuing the notice was attributed to the ground of suppression, which was contested by the appellants as they had complied with periodic return filings. As a result, the appellants were granted waiver of pre-deposit and stay of recovery concerning the tax amount due to the strong case presented on the limitation aspect. Given the significant amount at stake in the case, the appeal was directed to be expedited for resolution.
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