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2025 (4) TMI 1334 - AT - Service TaxExtended period of limitation - whether SCN was hit by limitation? - Wrongful availment of Cenvat credit as per Rule 6 read with Rule 14 of Cenvat Credit Rules 2004 - HELD THAT - Extended period of limitation of upto 5 years could be invoked if the non-payment of service tax was on account of fraud or collusion or willful mis-statement or suppression of facts or violation of the provisions of the Act or Rules with an intent to evade payment of service tax. This limit applies to recovery of Cenvat credit as well. As per Section 70 of the Finance Act the assessee is required to self-assess service tax due on the services provided by him and to furnish to the Superintendent of Central Excise a Return in ST-3 format. As per Section 72 of the Finance Act if the assessee fails to furnish the Return under Section 70 or having made the Return or fails to assess the tax in accordance with the provisions of the Finance Act and Rules made thereunder the Central Excise Officer may require the assessee to produce such accounts documents or the evidence as he may deem necessary and after taking into all relevant material he shall by an order in writing carry out the best judgment assessment under Section 72 of the Finance Act - If the officer fails to complete the scrutiny and raise a demand within the period and the demand gets barred by limitation the responsibility for that rests squarely on the officer who failed in his duty. Neither the fact that the assessee is operating the self-assessment procedure nor that it had failed to assess the tax liability etc. correctly means that the assessee had committed a fraud or colluded or willfully mis-stated or suppressed any fact or violated any provisions of the Act or Rules with an intent to evade. If any of these factors are alleged they should be established in the SCN and in the order. All that is evident from the SCN and from the order is that the assessee furnished it s returns on time as required and it is the officer who failed to scrutinize the returns in time and took too long to scrutinize the returns pertaining to 2004-2005 to 2007-2008 much beyond the period of limitation. Therefore if there is any loss of revenue on this count the responsibility for that rests clearly on the officer who failed to scrutinize the returns in time and raise a demand. It does not rest on the appellant/assessee. Conclusion - The entire demand is hit by limitation and on this ground alone it needs to be set aside. It is not necessary for us to examine the merits of the case. The impugned order is set aside - the appeal is allowed.
The core legal questions considered by the Tribunal in this appeal are:
Issue-wise Detailed Analysis 1. Limitation for issuance of Show Cause Notice Relevant legal framework and precedents: Section 73(1) of the Finance Act, 1994 prescribes a limitation period of one year for issuing a SCN for recovery of service tax, except where the extended period of five years under the proviso to Section 73(1) applies. The extended period applies only if the non-payment of service tax is due to fraud, collusion, willful mis-statement, suppression of facts, or violation of provisions with intent to evade tax. Court's interpretation and reasoning: The Tribunal first examined whether the SCN dated 09.10.2009 was issued within the prescribed limitation period. As the relevant period for the demand was 2004-2005 to 2007-2008, the last date for filing the return was 25.04.2008. The SCN was issued more than one year after this date, thus prima facie barred by limitation unless the extended period applies. The SCN and the impugned order invoked the extended period on the ground that the appellant had willfully suppressed facts by not declaring exempted services and by availing inadmissible Cenvat credit without maintaining separate records as required under Rule 6(2) of the Cenvat Credit Rules, 2004. The Commissioner found that the appellant failed to maintain separate accounts/registers for taxable and exempted services, did not disclose the facts to the department, and thus evaded payment of service tax. Key evidence and findings: The SCN relied on audit findings based on risk assessment, which revealed the appellant's failure to disclose exempted services and improper availment of Cenvat credit. The appellant had filed ST-3 returns but did not separately disclose values of exempted or abatement services as mandated. No declaration was filed regarding maintenance of separate accounts as per Rule 5(2). Application of law to facts: The Tribunal noted that under Section 70 of the Finance Act, the appellant was under a self-assessment scheme to assess and pay service tax and file returns. It was the appellant's responsibility to file correct returns. However, the Tribunal emphasized that mere incorrect assessment or delayed scrutiny by the department does not amount to fraud or suppression unless specifically established. Treatment of competing arguments: The department argued that the appellant's failure to disclose exempted services and maintain separate accounts amounted to willful suppression justifying extended limitation. The appellant contended that returns were filed timely and the delay was due to the department's failure to scrutinize returns within the limitation period. Conclusions: The Tribunal held that the SCN was issued beyond the normal one-year period and the department failed to establish any fraud, collusion, or willful suppression by the appellant. The delay was attributable to the department's failure to act within the limitation period, thus the extended period could not be invoked. 2. Merits of the demand for recovery of Cenvat credit, interest, and penalties Relevant legal framework and precedents: Rule 6 and Rule 14 of the Cenvat Credit Rules, 2004 regulate the availment and utilization of Cenvat credit. Section 75 of the Finance Act provides for recovery of interest on delayed payment. Sections 76 and 78 provide for imposition of penalties for contraventions. Court's interpretation and reasoning: The Tribunal observed that since the demand was barred by limitation, it was unnecessary to examine the merits of the alleged wrong availment of Cenvat credit. The appellant's contention that it had complied with filing requirements and the department's failure to scrutinize returns timely was accepted. Key evidence and findings: The appellant had filed returns and claimed credit, but the department's audit found irregularities. However, the Tribunal found no conclusive evidence of intentional wrongdoing or suppression by the appellant beyond the alleged procedural lapses. Application of law to facts: Given the limitation bar, the Tribunal refrained from adjudicating on the correctness of the credit availment or the imposition of interest and penalties. Treatment of competing arguments: The department sought to uphold the demand based on audit findings and procedural violations. The appellant denied any intent to evade tax and highlighted timely filing and absence of fraud. Conclusions: The Tribunal set aside the entire demand, interest, and penalties on the sole ground of limitation. 3. Responsibilities under the self-assessment scheme Relevant legal framework: Sections 70 to 72 of the Finance Act, 1994 govern self-assessment, return filing, scrutiny, and best judgment assessment by the department. Court's interpretation and reasoning: The Tribunal emphasized that under self-assessment, the onus lies on the assessee to file correct returns. However, the department is responsible for timely scrutiny and raising demands within the limitation period. Failure of the department to act timely cannot be shifted to the assessee. Key findings: The appellant filed returns but the department failed to scrutinize and raise demand within one year, resulting in the limitation bar. Application of law to facts: The Tribunal found that the delay in issuing the SCN was due to the department's failure and not attributable to the appellant's conduct. Conclusions: The Tribunal concluded that the limitation bar applies and the appellant cannot be penalized for the department's inaction. Significant Holdings "Neither the fact that the assessee is operating the self-assessment procedure nor that it had failed to assess the tax liability etc. correctly means that the assessee had committed a fraud or colluded or willfully mis-stated or suppressed any fact or violated any provisions of the Act or Rules with an intent to evade." "If the officer fails to complete the scrutiny and raise a demand within the period and the demand gets barred by limitation, the responsibility for that rests squarely on the officer who failed in his duty." "In view of the above, we find that entire demand is hit by limitation and on this ground alone, it needs to be set aside. It is not necessary for us to examine the merits of the case." The Tribunal established the principle that invocation of extended limitation under Section 73(1) proviso requires clear and specific evidence of fraud, collusion, or willful suppression, and mere procedural lapses or delayed scrutiny by the department do not suffice. The responsibility to issue SCN within limitation lies with the department, and failure to do so results in the demand being time-barred. Accordingly, the Tribunal set aside the impugned order confirming demand, interest, and penalties for the period 2004-2005 to 2007-2008 on the ground of limitation, allowing the appeal with consequential relief to the appellant.
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