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ST – Mere wrong taking of credit is not sufficient to attract extended period of limitation: CESTAT

2019-TIOL-2164-CESTAT-AHM

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, AHMEDABAD
COURT NO. I

Service Tax Appeal No. 148 of 2011

Arising out of Order-in-Original No. OIO-STC/04/COMMR/AHD/2010, Dated: 16.02.2010
Passed by Commissioner of Central Excise and ST, Ahmedabad

Date of Hearing: 04.04.2019
Date of Decision: 04.04.2019

M/s ADANI ENTERPRISES LTD
ADANI HOUSE, NEAR MITHAKHALI CIRCLE
NAVRANGPURA, AHMEDABAD, GUJARAT-380009

Vs

COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX
AHMEDABAD, 7 TH FLOOR, CENTRAL EXCISE BHAWAN
NR. POLYTECHNIC CENTRAL EXCISE BHAVAN, AMBAWADI
AHMEDABAD, GUJARAT-380015

Appellant Rep by: Shri Hardik Modh, Adv.
Respondent Rep by: Shri T G Rathod, Joint Commissioner, AR

CORAM: Dilip Gupta, President
C J Mathew, Member (T)

ST – The issue falls for consideration is whether the extended period of limitation for issuance of a SCN under the proviso to Section 73(1) of FA, 1994 could have been invoked – The assessee is engaged in providing services of Clearing and Forwarding Agent, Business Auxiliary Service, Storage & Warehouse Service, Cargo Handling Service, Consulting Engineering Services, Port Services and Transport of Goods by Road Services – An internal audit was conducted and it was observed that the assessee had wrongly taken Cenvat credit on GTA Services in the month of September 2005 and though it had reversed the credit, it did not pay interest – The SCN was issued to assessee on 18 June, 2009 – The SCN was required to be issued within one year from the relevant date but is was not – It is, for this reason that the Department, relying upon the proviso to Section 73(1) of the Act, invoked the extended period of limitation of five years – The SCN does not allege that the suppression was with an intention to evade payment of Service Tax – It was, therefore, pleaded by assessee in reply to SCN that the extended period of limitation could not be invoked – This plea is also mentioned in impugned order – This has, however, not been considered by Adjudicating Authority in impugned Order – The Commissioner completely failed to appreciate that the extended period of five years could have been invoked only when the assessee suppressed facts with an intent to evade payment of Service Tax – All that has been observed by Commissioner is that Cenvat Credit in respect of Goods and Transport Services was wrongly taken by assessee – This would not be sufficient to attract the extended period of limitation – This apart, the benefit of proviso to Section 73(1) could be taken only when there was an explicit averment in SCN that there was suppression of facts with an intent to evade payment of duty – In absence of such an averment, the extended period of limitation could not have been invoked – The impugned order cannot be sustained: CESTAT

Appeal allowed

Case laws cited:

Pushpam Pharmaceuticals Company vs. Collector of Central Excise, Bombay – 2002-TIOL-235-SC-CX… Para 7

Associated Cement Companies Limited vs. Commissioner of Customs – 2002-TIOL-08-SC-CUS-LB… Para 7

Uniworth Textiles Limited vs. Commissioner of Central Excise, Raipur – 2013-TIOL-13-SC-CUS… Para 7

Commissioner of Customs & Central Excise, Ghaziabad vs. Rathi Steel & Power Limited – 2015-TIOL-1416-HC-ALL-CX… Para 8

Commissioner of Central Excise, Surat-I vs. Neminath Fabrics Pvt. Limited – 2011-TIOL-10-HC-AHM-CX… Para 8

Days Inn Deccan Plaza vs. Commissioner of Service Tax (Appeals) Chennai-I – 2016-TIOL-2543-HC-MAD-CX… Para 8

Anand Nishikawa Co. Ltd. v/s Commissioner of Central Excise, Meerut – 2005-TIOL-118-SC-CX… Para 16

Easland Combines, Coimbatore V/s Collector of Central Excise, Coimbatore – 2003-TIOL-26-SC-CX… Para 17

Continental Foundation Joint Venture v/s Commissioner of Central Excise, Chandigarh – 2007-TIOL-152-SC-CX… Para 19

Commissioner of Central Excise vs HMM Limited – 2002-TIOL-120-SC-CX… Para 21

FINAL ORDER NO. A/10828/2019

Per: Dilip Gupta:

This appeal has been filed to assail the order dated 16 February 2010 passed by Commissioner of Service Tax, Ahmedabad by which the demand made in the show cause notice has been confirmed with interest and penalty.

2. The issue that calls for consideration in this Appeal is whether the extended period of limitation for issuance of a show cause notice under the proviso to Section 73(1) of the Finance Act, 1994 (hereinafter referred to as the Act) could have been invoked in the facts and circumstances of the case.

3. A show cause notice dated 18 June 2009 was issued to the Appellant by the Commissioner of Service Tax, Ahmedabad mentioning therein that the internal audit party of the Service Tax Department at Ahmedabad, while conducting an audit of the appellant for the period 01 April 2004 to 31 March 2006, noticed that the appellant had paid Service Tax amounting to Rs. 94,75,098/- on ‘Goods Transport Agency Services’ for the period April 2005 to September 2005 and had availed cenvat credit of this amount in the month of September, 2005, but this cenvat credit availed of by the Appellant was inadmissible and was required to be reversed under Rule 2(I)(i) of the Cenvat Credit Rules, 2004 (hereinafter referred to as Rules). The appellant accepted the remarks made in the audit report and reversed the credit amounting to Rs. 94,75,098/- from its Cenvat Credit balance on 31 March 2007, but did not pay interest on such Cenvat credit wrongly taken earlier. Paragraph 8 of the show cause notice that invokes the extended period of five years under the proviso to Section 73(1) of the Act is reproduced below:

“8. Therefore, the said CENVAT credit wrongly taken/utilized by the assessee is required to be demanded and recovered from then with interest and the proviso to Section 73(1) read with Rule 14 of the CENVAT Credit Rules, 2004 and Section 75 of the Finance Act, 1994 by invoking extended period of five years in as much as the said assessee have suppressed the facts to the department. All these acts of contravention of the provisions of Rule 2(l)(i) of the CENVAT Credit Rules, 2004 appear to be punishable under the provisions of Section 78 of the Finance Act, 1994 read with Sub-rule (4) of Rule 15 of the CENVAT Credit Rules, 2004.”

4. The appellant was, therefore, called upon to explain why the cenvat credit amounting to Rs. 94,75,098/- should not be charged and recovered from the Appellant under Section 73(1) of the Act and why the cenvat credit amounting to Rs. 94,75,098/- reversed by the appellant should not be adjusted and confirmed against the said demand. The Appellant was also asked to explain why interest amounting to Rs. 18,15,95/- should not be recovered and why penalty should also not be imposed on the appellant.

5. The appellant submitted a reply to the show cause notice on 20 August 2009. In paragraph 2.9 of the reply, the appellant categorically stated that the extended period of limitation could be invoked under the proviso to Section 73(1) of the Act only in case there was failure to pay service tax on account of wilful suppression with intent to evade payment of service tax, but this statutory requirement was absent in the show cause notice.

6. Though paragraph 10 of the impugned order does refer to the submission made by the appellant in reply to the show cause notice that there was no basis for invocation of the extended period of limitation, but it does not deal with this submission as all that has been stated in paragraphs 18 and 19 of the impugned Order dated 16 February, 2010 is:-

“18. The service tax is a levy, which is enforced by self-assessment. Great reliance is placed on the assessee and the onus of doing correct assessment falls on the assessee. Failure to assess properly is an offence for which penalties are provided in law. In the instant case the said service provider has not availed CENVAT credit correctly tax as per law and is therefore liable to penalty. They have filed incorrect ST-3 return.

19. In view of CBEC Circular No. 897/17/2009-CX dated 3-9-2009, I hold that the interest recoverable when credit has been wrongly taken, even if it has not been utilized. “

7. It is submitted by Shri Hardik Modh, learned Counsel for the appellant that the Commissioner committed an illegality in not accepting the plea of the appellant that the extended period of limitation for issuing the show cause notice could not be invoked in the present case. It is his submission that the show cause notice contained an allegation that the appellant had not paid service tax by reason of suppression of facts, but there is no averment in the show cause notice that the suppression was wilful and with an intention to evade payment of service tax nor does the impugned order give any justification to invoke the extended period of limitation. It is, therefore, his submission that the impugned order deserves to be set aside for this reason alone. In support of his submission, learned Counsel placed reliance upon the decisions of the Supreme Court in Pushpam Pharmaceuticals Company vs. Collector of Central Excise, Bombay reported in 1995 (78) ELT 401 (SC) = 2002-TIOL-235-SC-CX and Associated Cement Companies Limited vs. Commissioner of Customs reported in 2001 (128) ELT 21 (SC) = 2002-TIOL-08-SC-CUS-LB . Learned counsel has also placed reliance on the decision of the Supreme Court in Uniworth Textiles Limited vs. Commissioner of Central Excise, Raipur reported in 2013 (288) ELT 161 (SC) = 2013-TIOL-13-SC-CUS, that has considered the aforesaid two decisions.

8. Shri T.G. Rathod, learned Authorized Representative of the Department has however, supported the impugned order and has placed reliance upon the decision of the Allahabad High Court in Commissioner of Customs & Central Excise, Ghaziabad vs. Rathi Steel & Power Limited reported in 2015 (321) ELT 200 (All.) = 2015-TIOL-1416-HC-ALL-CX, the decision of the Gujarat High Court in Commissioner of Central Excise, Surat-I vs. Neminath Fabrics Pvt. Limited reported in 2010 (256) ELT 369 (Guj.) = 2011-TIOL-10-HC-AHM-CX and the decision of the Madras High Court in Days Inn Deccan Plaza vs. Commissioner of Service Tax (Appeals) Chennai-I reported in 2016 (45) STR 502 (Mad.) 2016-TIOL-2543-HC-MAD-CX.

9. We have considered the submissions advanced by the learned Counsel for the Appellant and the learned Authorized Representative of the Department.

10. The appellant is engaged in providing services of Clearing and Forwarding Agent, Business Auxiliary Service, Storage & Warehouse Service, Cargo Handling Service, Consulting Engineering Services, Port Services and Transport of Goods by Road Services. An internal audit was conducted for the period 01 April 2004 to 31 March 2006. It was observed that the appellant had wrongly taken Cenvat credit of Rs. 94,75,098/- on Goods & Transport Agency Services in the month of September 2005 and though it had reversed the credit, it did not pay interest. The show cause notice was issued to the appellant on 18 June, 2009.

11. Section 73 (1) of Act, deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. The said section, as it stood at the relevant time, is reproduced below:-

“73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,

by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year” , the words “five years” had been substituted.”

12. The show cause notice was required to be issued within one year from the relevant date but is was not. It is, for this reason that the Department, relying upon the proviso to Section 73(1) of the Act, invoked the extended period of limitation of five years.

13. The contention of the learned counsel for the appellant is that under the proviso to Section 73(1) of Act, where any service tax is not levied or not paid or short paid or short levied or erroneously refunded by reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of the Chapter with intent to evade payment of service tax, the notice can be issued within the extended period of five years from the relevant date.

14. The provisions of Section 11A the Central Excise Act, 1944 which are almost identical to the provision of Section 73(1) of the Act, came up for interpretation before the Supreme Court in Pushpam Pharmaceuticals. The Supreme Court observed that the Section 11A empowers the Department to reopen the proceedings if levy has been short levied or not levied within six months from the relevant date but the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. It is in this context that the Supreme Court observed-

“2. ———- The Department invoked extended period of limitation of five years as according to it the duty was short-levied due to suppression of the fact that if the turnover was clubbed then it exceeded Rupees Five lakhs.

————

4. A perusal of the proviso indicates that it has been used in company of such strong works as fraud, collusion or willful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

(emphasis supplied)

15. It is, therefore, clear that the suppression of facts should be deliberate and in taxation laws it can have only one meaning, namely that the correct information was not disclosed deliberately to escape payment of duty.

16. This decision of the Supreme Court in Pushpam Pharmaceuticals was followed by the Supreme Court in Anand Nishikawa Co. Ltd. v/s Commissioner of Central Excise, Meerut reported in (2005) 7 SCC 749 = 2005-TIOL-118-SC-CX and the relevant paragraph is as follows:-

“27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceuticals Co. v. CCE we find that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made hereinabove that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in the proviso to Section 11-A of the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was not open to CEGAT to come to a conclusion that the appellant was guilty of “suppression of facts.”

(emphasis supplied)

17. In Easland Combines, Coimbatore V/s Collector of Central Excise, Coimbatore reported in (2003) 3 SCC 410 = 2003-TIOL-26-SC-CX , the Supreme Court observed that for invoking the extended period of limitation, duty should not have been paid because of fraud, collusion, wilful statement, suppression of fact or contravention of any provision. These ingredients postulate a positive act and, therefore, mere failure to pay duty which is not due to fraud, collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation.

18. The aforesaid decisions of the Supreme Court were relied upon by the Supreme Court in Uniworth Textiles Ltd. and the relevant portion of the judgment is reproduced below.

“12. We have heard both sides, Mr. R.P. Batt, learned senior counsel, appearing on behalf of the appellant, and Mr. Mukul Gupta, learned senior counsel appearing on behalf of the Revenue. We are not convinced by the reasoning of the Tribunal. The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of non-payment would amount to ordinary default? Construing mere non-payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or wilful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso. “

(emphasis supplied)

19. The Supreme Court in Continental Foundation Joint Venture v/s Commissioner of Central Excise, Chandigarh reported in 2007 (216) ELT 177 (SC) = 2007-TIOL-152-SC-CX also observed, in connection with Section 11A of the Central Excise Act, that suppression means failure to disclose full information with intention to evade payment of duty and the observations are as follows:-

“10. The expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as ‘fraud’ or “collusion” and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with knowledge that the statement was not correct. “

(emphasis supplied)

20. In the present case it needs to be noted that paragraph 8 of the notice, reproduced, above merely mentions that the extended period of five years was being invoked as the assessee suppressed the facts from the department. The show cause notice does not allege that the suppression was with an intention to evade payment of Service Tax. It was, therefore, pleaded by the Appellant in reply to the show cause notice that the extended period of limitation could not be invoked. This plea is also mentioned in paragraph 10 of the impugned order. This has, however, not been considered by the Adjudicating Authority in the impugned Order. The Commissioner completely failed to appreciate that the extended period of five years could have been invoked only when the appellant suppressed facts with an intent to evade payment of Service Tax. All that has been observed by the Commissioner is that Cenvat Credit in respect of Goods and Transport Services was wrongly taken by the Appellant. This would not be sufficient to attract the extended period of limitation.

21. This apart, the benefit of the proviso to Section 73(1) could be taken only when there was an explicit averment in the show cause notice that there was suppression of facts with an intent to evade payment of duty. In the absence of such an averment, the extended period of limitation could not have been invoked. This is what has not been observed by the Supreme Court in Commissioner of Central Excise vs HMM Limited reported in 1995 Supp (3) SCC 322 = 2002-TIOL-120-SC-CX and the observations are:

“2. Now in order to attract the proviso it must be shown that the excise duty escape payment by reason of fraud, collusion or wilful misstatement or suppression of fact or contravention of any provision of the Act or of the Rules made thereunder with intent to evade payment of duty. In that case the period of six months would stand extended to 5 years as provided by the said proviso. Therefore, in order to attract the proviso to Section 11-A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show-cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of willful misstatement or suppression of fact. In the absence of any such averments in the show cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11-A(1) of the Act.” (emphasis supplied)

22. The learned Authorized Representative of the Department has, however, relied on the decision of the Allahabad High Court in Rathi Steel & Power Limited. A perusal of the judgment indicates no plea was taken by Rathi Steel & Power Limited that the extended period of limitation could not be invoked because there was no intent to evade payment of duty. This aspect was, therefore, not considered by the Court. In Neminath Fabrics Pvt. Limited, which has also been relied upon by learned Representative of the Department, the Gujarat High Court observed in paragraph 19 that the language employed in the proviso to sub-section (1) of Section 11A of the Central Excise Act was clear and unambiguous and made it abundantly clear that when there was non-levy or short levy of Central Excise duty with intention to evade payment of duty for any of the reasons specified thereunder, then the period of limitation would got extended from one year to five years. This decision, therefore, supports the plea of the appellant. In Days Inn Deccan Plaza the Madras High Court was not called upon to consider the submission that for the period of limitation to be extended there should be intention to evade payment of service tax. This decision would not, therefore, come to the help of the Revenue.

23. Thus, for all the reasons stated above, the impugned order cannot be sustained. The order dated 16 February, 2010 passed by the Commissioner of Service Tax is, accordingly, set aside and the appeal is allowed.

(Dictated and pronounced in the Court)

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