CESTAT Refuses To Consider CENVAT Credit Claims Citing Service Tax Evasion

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has refused to consider cenvat credit claims citing service tax evasion. The bench of Sanjiv Srivastava (Technical Member) has observed that the assessee/appellant had not been filing the ST-3 return and was evading the payment of service tax. The conduct of appellant itself establishes that appellant has no claim in equity also for the reason that they are not making this claim with clean hands. It is also a settled principle in law that fraud vitiates all. Thus the claim of the appellant to CENVAT Credit cannot be considered and allowed at this stage. The dispute traces back to the financial year 2016–17, when Orane Consulting Pvt. Ltd., a Noida-based company engaged in SAP software development, consultancy, maintenance, and related IT services, was registered under the service tax regime. As a provider of taxable services under the Finance Act, 1994, the company was required to file periodic ST-3 returns and discharge service tax liability on taxable turnover. The matter came to light after the Service Tax Department received information from the Income Tax Department indicating that the company had reported substantial receipts in its Income Tax Returns (ITR) for FY 2016–17. A comparison between the Income Tax data (including Form 26AS) and the records available with the Service Tax Department revealed a significant discrepancy. While the company had reported gross receipts of ₹4.21 crore in its income tax filings, it had not filed any ST-3 returns for the corresponding period, nor disclosed taxable value of services in service tax records. Based on this discrepancy, the department initiated inquiries in July and September 2021, calling upon the company to furnish copies of ST-3 returns, details of service tax payments, and explanations for the difference between ITR figures and service tax declarations. According to the department, there was initially no satisfactory response, which led to the issuance of a show cause notice dated October 7, 2021. The notice alleged suppression of facts with intent to evade payment of service tax and invoked the extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994. The show cause notice proposed recovery of ₹63.21 lakh in service tax on the entire turnover reflected in income tax records, along with applicable interest under Section 75 and penalty under Section 78 for alleged suppression. A separate penalty was also proposed under Section 77(1)(d) for failure to file returns and comply with procedural requirements. In response, the company submitted detailed replies and participated in personal hearings. It contended that a substantial portion of its turnover comprised export of services and supplies to Special Economic Zone (SEZ) units, both of which were exempt under the applicable statutory provisions and notifications. The company provided invoices, foreign remittance certificates, reconciliation statements, and SEZ authorizations (Forms A-1 and A-2) to substantiate its claim that export services amounted to approximately ₹54.05 lakh and SEZ services to over ₹1.48 crore. The Adjudicating Authority examined these claims and accepted the export turnover as exempt. It also granted partial relief on SEZ supplies but concluded that services valued at ₹2.18 crore were taxable domestic supplies. On this portion, service tax of ₹32.84 lakh was confirmed along with interest and penalty. The authority further observed that the company had collected service tax on certain invoices but had not deposited the same with the government. Aggrieved by the order, the company approached the Commissioner (Appeals), who granted additional relief in respect of SEZ supplies upon verification of documentation. The confirmed tax demand was reduced to ₹21.81 lakh, though interest and penalty under Section 78 were sustained. The penalty under Section 77(1)(d) was set aside. Still dissatisfied, particularly with the rejection of its CENVAT credit claim and the invocation of extended limitation, the company filed a further appeal before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Bench. The core legal controversy before the Tribunal ultimately centered on whether the extended five-year limitation period was validly invoked on grounds of suppression, and whether the remaining tax demand and penalty were legally sustainable. The Tribunal was that the appellant had not filed any ST-3 returns for the relevant period despite being registered under the service tax regime. The Bench emphasized that the tax liability surfaced only after data was obtained from the Income Tax Department, revealing turnover of over ₹4.21 crore. According to the Tribunal, had the departmental verification not been triggered by income tax records, the non-payment of service tax would not have come to light. This, in the Tribunal’s view, demonstrated conscious non-disclosure. The Tribunal further recorded that during the adjudication proceedings, the CEO of the company had expressly admitted that service tax was payable on the domestic taxable turnover after excluding exports and SEZ supplies. The CEO had quantified the net liability at ₹26.46 lakh after adjusting claimed CENVAT credit. T he Tribunal held that an admission carried evidentiary value and that the appellant could not subsequently resile from its earlier position. Invoking the doctrine of estoppel, the Bench observed that a party cannot take contradictory stands after having made a clear representation before the adjudicating authority. The Tribunal referred to specific invoices on record showing that the appellant had charged service tax at the applicable rate (including SBC and KKC) from customers. However, despite collecting the tax, it was not deposited with the exchequer. The Bench considered the conduct significant, noting that this was not a case of bona fide interpretational dispute or mistaken classification; rather, the appellant was aware of its tax liability and had actively recovered tax amounts from service recipients. The Tribunal held, clearly established intent to evade payment and justified invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994. On the issue of limitation, the Tribunal rejected the appellant’s reliance on judicial precedents relating to suppression and extended limitation. It observed that those cases dealt with situations involving interpretational disputes or where the department was already aware of the relevant facts. In the present case, the complete absence of return filing and non-disclosure of turnover distinguished it from the cited authorities. The Bench concluded that suppression of material facts was evident from the record. With respect to CENVAT credit, the Tribunal upheld the denial of adjustment on the ground that the appellant had failed to produce requisite duty-paying documents and had not reflected the credit in statutory returns within the prescribed period. The Bench observed that CENVAT credit is subject to procedural compliance and limitation, and in the absence of supporting documentation and proper records, the benefit could not be extended. Ultimately, the Tribunal found no infirmity in the findings of the Commissioner (Appeals) insofar as confirmation of ₹21.81 lakh in service tax along with interest and equal penalty under Section 78 was concerned. It held that the appellant had suppressed facts, failed to comply with statutory obligations, and collected service tax without remittance. Accordingly, the appeal seeking further relief was dismissed. Case Details Case Title: M/s Orane Consulting Pvt. Ltd. Versus Commissioner of Central Excise & CGST, Noida Citation: JURISHOUR-165-CESTAT-2026(Allah) Case No.: Service Tax Appeal No.70827 of 2025 Date: 25 February, 2026 Counsel For Appellant: Abhinav Kalra, Chartered Accountant Counsel For Respondent: Chitra Srivastava, Authorised Representative Click Here To Read Order Read More: No Service Tax Payable On Rural Youth Skilling Courses Under DDU-GKY: CESTAT

CESTAT Refuses To Consider CENVAT Credit Claims Citing Service Tax Evasion

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