Extended Limitation Cannot Be Invoked For Non Disclosure Of Facts Not Required By Law: CESTAT Ahmedabad

The Ahmedabad Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 27 July held that the extended limitation period under Section 11A(4) of the Central Excise Act, 1944 (which permits recovery beyond the normal limitation period in cases involving fraud, suppression of facts or wilful misstatement) cannot be invoked where the law did not require a taxpayer to disclose the information allegedly suppressed.

A Bench comprising Judicial Member Dr. Ajaya Krishna Vishvesha allowed Polychem Industries' appeal and set aside the demand for Cenvat credit, interest and penalty after finding that the Department had wrongly alleged suppression of facts to invoke the extended limitation period. He observed:

“When there was no legal obligation on their part to do a particular act, non-observance of that procedure / act cannot be held to be violation of law. If the law does not requires certain information to be given by them then non-submission of the same by them cannot be held to be suppression or mis-statement, with an intent to evade the payment of duty, thus justifying the invocation of longer period of limitation. Thus, the appellant cannot be held guilty of suppression of fact or mis-statement with intent to evade the payment of duty.”

The dispute arose after the Department alleged that Polychem Industries had wrongly availed Cenvat credit on services used for setting up its factory. It claimed that the company had suppressed material facts by not disclosing the nature of the services on which it had availed credit and therefore sought to recover duty by invoking the extended limitation period.

Examining the statutory scheme, the Tribunal found that the monthly returns prescribed during the relevant period did not require taxpayers to disclose the nature of individual input services or the amount of Cenvat credit attributable to each service. Polychem Industries had disclosed the total Cenvat credit availed in its monthly returns.

It also found no material to infer any intention to evade payment of duty because the Cenvat credit was otherwise admissible and had already been reflected in the statutory returns. Therefore, the Bench held that the extended limitation period and the penalty imposed under Rule 15(2) of the Cenvat Credit Rules, 2004 could not be sustained.

Accordingly, the CESTAT held that the services used for setting up the factory qualified as “input services” under Rule 2(l) of the Cenvat Credit Rules, 2004 and set aside the demand for Cenvat credit, interest and penalty.

Appearances for the Appellant: Shri Manish Barot, Consultant

Appearances for the Respondent (Revenue): Shri Himanshu Nachane, Superintendent (Authorised Representative)