2012 (11) TMI 955 - HC - Service Tax

Extended Period of limitation utilization of Cenvat Credit for exempted and non exempted services - The appellant was of the view that Rule 3(5) of the Rules of 2002 was not applicable to it because the appellant was not providing exempted service or non-taxable service. Thus, the appellant was utilizing the Service Tax Credit availed on various input services for payment of service tax on output telephone service without any restriction of 35% specified in Rule 3(5) of the Rules of 2002 Held that - Failure to make such disclosure in return or submitting entire fact by any letter accompanying its return appears to be a case of willful suppression - When the return contains a declaration as to the self assessment particulars stating that the assessee had paid service tax correctly in terms of provisions of the Act and Rules made thereunder such declaration becomes faulty in absence of bona fide statement either on the return or made through a letter accompanying the return. It was not a case of mere omission to give correct information; it was devised deliberately so to evade tax liability - limit of exemption was known and provisions of Rule 3(5) of the Rules of 2002 are clear. Thus, it was deliberate suppression of facts - five years period of limitation has been rightly invoked

Summary

Issues:
1. Interpretation of Rule 3(5) of the Service Tax Credit Rules, 2002.
2. Applicability of the limitation period under Section 73 of the Finance Act, 1994.
3. Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994.

Interpretation of Rule 3(5) of the Service Tax Credit Rules, 2002:
The appellant, a cellular telephone service provider, received roaming charges from other operators but did not pay service tax on them during the disputed period. The dispute arose regarding the utilization of Service Tax Credit for payment of service tax on output telephone services without restriction. The Tribunal held that the appellant's liability should be recalculated, limiting the Cenvat credit to 35% for each return period. The judgment referenced the case of Idea Cellular Ltd. to support this decision. The appellant's argument that Rule 3(5) did not apply as it was not providing exempted or non-taxable services was rejected.

Applicability of the limitation period under Section 73 of the Finance Act, 1994:
The appellant contested the imposition of penalty under Section 73, claiming that there was no deliberate suppression of facts. However, the court found that the appellant willfully suppressed information regarding the excess utilization of Cenvat credit for exempted services. The court upheld the invocation of the extended limitation period of five years due to the deliberate suppression of facts, leading to the imposition of penalties under Sections 76 and 78 of the Act.

Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994:
The court confirmed the penalties imposed under Sections 76 and 78 of the Finance Act, 1994, due to the appellant's fraudulent/wrongful availment and utilization of CENVAT credit. The appellant's failure to disclose the excess credit utilization and the deliberate suppression of facts led to the imposition of penalties. The court cited the case of Continental Foundation JT. Venture to emphasize that suppression implies a deliberate failure to disclose information to evade tax liability. The judgment concluded that there was no ground to interfere with the penalties imposed, and the appeal was dismissed.