The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has held that substantive eligibility for CENVAT credit cannot be denied merely because the credit was not reflected in the assessee’s ST-3 returns or was availed after the prescribed period.
The bench of P.K. Choudhary (Judicial Member) ruled that the extended limitation period could not be invoked when the service tax demand was based on third-party information obtained from the Income Tax Department, without evidence of fraud, suppression or wilful misstatement.
The appellant/assessee challenged Order-in-Appeal dated February 20, 2025. The dispute arose from a show cause notice issued on December 30, 2020, on the basis of information received from the Income Tax Department for the financial year 2014-15.
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According to the department, the assessee had disclosed gross receipts of Rs. 49.50 lakh in its income tax return, whereas its ST-3 service tax returns did not show any corresponding value of services. On this basis, the department proposed a service tax demand of Rs. 6,11,820, calculated at the applicable rate of 12.36%, along with interest and penalties.
The department stated that the exact nature and classification of the services rendered by the company were not known. It therefore took the position that the assessee could not be extended the benefit of any abatement or exemption.
During adjudication, it emerged that Panchatatva Infrabuild had rendered taxable services to NCC Ltd., Lucknow, and raised an invoice dated March 31, 2015, showing a taxable value of Rs. 49.50 lakh and service tax of Rs. 6,11,820.
The assessee had subcontracted the work to M/s Aakriti Buildtech. The subcontractor raised an invoice dated March 20, 2015, for a taxable value of Rs. 44,45,043 and paid service tax of Rs. 5,49,407. Treating the tax paid on the subcontracted services as eligible CENVAT credit, the adjudicating authority confirmed only the differential service tax demand of Rs. 62,413 and dropped the remaining demand of Rs. 5,49,407.
The adjudicating authority appropriated the Rs. 62,413 already deposited by the assessee. It also ordered the payment of interest amounting to Rs. 99,500 and imposed an equivalent penalty of Rs. 62,413 under Section 78 of the Finance Act, 1994. These amounts, which had also been deposited, were appropriated.
The Revenue challenged the adjudication order before the Commissioner (Appeals). It argued that the entire work had been outsourced to the subcontractor and that the subcontractor had completed an assignment of exactly the same description. According to the department, the subcontractor’s services could not be treated as input services used or consumed by the assessee for providing an output service to NCC Ltd.
The Revenue further maintained that the assessee had not actually taken the CENVAT credit in its credit account before setting it off against its service tax liability. The Commissioner (Appeals) accepted the department’s arguments and allowed its appeal, prompting the assessee to approach the CESTAT.
Before the Tribunal, counsel for the assessee submitted that the services had been provided by a registered subcontractor and were duly received by the company. It was also pointed out that the genuineness of the invoices and the payment of service tax by the subcontractor were not disputed by the department.
The assessee argued that the fundamental conditions for claiming CENVAT credit had been fulfilled and that the credit could not be denied merely because it had not been availed within the prescribed period. It contended that failure to reflect the output service value or CENVAT credit in the ST-3 returns was a procedural lapse that could not extinguish an otherwise valid substantive entitlement.
Reliance was placed on the Tribunal’s decision in Antares Services Pvt. Ltd. v. Commissioner of Central Excise, Chandigarh, in which it was held that non-reflection of eligible credit in a return would not, by itself, disentitle an assessee from claiming such credit.
The assessee also challenged the invocation of the extended limitation period, submitting that the entire demand had been initiated on the basis of third-party information obtained from the Income Tax Department.
The departmental representatives defended the appellate authority’s order and sought dismissal of the assessee’s appeal.
After considering the submissions, the Tribunal identified the principal issue as whether the assessee was entitled to CENVAT credit despite not mentioning it in its ST-3 returns and taking or utilising the credit after the prescribed period of six months or one year, as applicable from March 1, 2015.
The Tribunal noted that the Commissioner (Appeals) had denied the credit primarily because the ST-3 returns showed “Nil” CENVAT credit. The appellate authority had also observed that the assessee ought to have first recorded the credit in its CENVAT account and thereafter utilised it for discharging the output service tax liability.
Rejecting this reasoning, the CESTAT observed that tribunals and High Courts have consistently held that substantive eligibility for CENVAT credit cannot be denied on account of a mere procedural lapse or violation.
In the present case, it was undisputed that the assessee had received the subcontractor’s services, paid the service tax charged on those services and possessed documents evidencing their receipt and tax payment. In these circumstances, the Tribunal held that the credit could not be denied merely because it was utilised belatedly.
The CESTAT also found that the extended period of limitation had been wrongly invoked. It observed that the show cause notice was issued on the basis of third-party information obtained from the Income Tax Department, and the record did not disclose any element of suppression, misstatement, fraud or collusion with an intention to evade service tax.
The Tribunal relied on its decision in Kush Constructions v. CGST NACIN, ZTI, Kanpur, wherein it was held that when a demand is raised on the basis of data obtained from the Income Tax Department, suppression cannot automatically be alleged for invoking the extended limitation period.
The CESTAT held that the Commissioner (Appeals)’s order was unsustainable. It set aside the appellate order and restored the original adjudication order, under which only the differential service tax demand of Rs. 62,413, along with the related interest and penalty, had been confirmed.
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