The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the extended period of limitation cannot be invoked when the entire tax demand is derived from an assessee’s books of accounts, observing that such records negate any allegation of suppression or intent to evade tax and set aside the penalty imposed under Section 78 of the Finance Act, 1994, while permitting the assessee to avail CENVAT credit of the tax already paid. 

The bench of Rajeev Tandon (Technical Member) has observed that  information derived from an assessee’s own statutory records cannot form the basis for invoking the extended period of limitation on grounds of suppression.

The appellant is engaged in the manufacture of corrugated paper cartons and paper trays. During the period from April 2012 to March 2014, it incurred freight expenses for transportation of goods by road.

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During departmental verification, the Revenue alleged that the company had failed to discharge service tax liability under the Reverse Charge Mechanism (RCM) on services received from Goods Transport Agencies (GTA), as required under Notification No. 30/2012-ST dated June 20, 2012. 

Upon the lapse being pointed out, the company deposited the entire tax demand amounting to ₹4,84,990. During adjudication, the original authority confirmed a tax demand of ₹4,20,811 and imposed an equivalent penalty under Section 78 of the Finance Act, 1994. The balance amount deposited by the assessee was appropriated towards interest, which was also subsequently paid. 

Although the Commissioner (Appeals) later reduced the penalty to 50%, the assessee challenged the continued imposition of penalty before the Tribunal. 

The appellant contended that there had been no suppression of facts or wilful misstatement warranting invocation of the extended limitation period.

It argued that the entire demand had been computed solely from its audited books of accounts, including the balance sheet and profit and loss account. These records were always available to the department and formed part of the public domain. The service tax along with applicable interest had been paid voluntarily before adjudication. The situation was entirely revenue neutral, since the tax paid under reverse charge would have been available as CENVAT credit.

The appellant relied upon several earlier CESTAT decisions holding that demands based solely on information contained in statutory financial records cannot justify allegations of suppression or invocation of the extended period. 

The Tribunal accepted the assessee’s submissions and held that there was no material whatsoever to establish any positive act of concealment or intention to evade payment of service tax.

It observed that the Revenue itself had worked out the demand entirely from the appellant’s books of accounts, making allegations of suppression unsustainable.

The Tribunal noted that the Revenue had failed to establish any deliberate act indicating an intention to evade tax. 

The Tribunal also placed considerable emphasis on the revenue-neutral nature of the transaction.

Since the appellant would have been entitled to avail credit of the service tax paid under reverse charge, the Tribunal observed that there was no commercial incentive to evade payment of tax.

Accordingly, it held that the extended period of limitation was not invocable and that the demand pertaining to the extended period was therefore time-barred. 

Considering that the assessee had already deposited the tax amount, the Tribunal directed that status quo be maintained with respect to the payment already made.

However, it granted liberty to the appellant to avail CENVAT credit of the tax deposited, thereby preserving the revenue-neutral position. 

Having concluded that there was no suppression, concealment or wilful misstatement, the Tribunal ruled that the very foundation for imposing penalty under Section 78 disappeared.

It therefore set aside the entire penalty, modifying the order of the lower authority and allowing the appeal. 

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