CESTAT Delhi Sets Aside ₹3.07 Crore Service Tax Demand, Upholds Cenvat Credit On Running Bills

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a service tax demand of more than ₹3.07 crore against Resident Engineer, Rajasthan Housing Board, along with interest and penalties, in a dispute over availment of Cenvat credit on running account bills and measurement books.

A bench of Judicial Member Binu Tamta and Technical Member Hemambika R. Priya held that the extended limitation period could not be invoked and that credit could not be denied where receipt of services and payment of service tax were undisputed.

“In the instant case, we note that there is no dispute that such input services were received and service tax was paid on such provision of services. Once such payment is not in dispute, denial of credit cannot be sustained,” observed the bench.

The dispute arose after the department alleged that Resident Engineer, Rajasthan Housing Board had wrongly availed Cenvat credit amounting to ₹3.07 crore during July 2012 to June 2017 on the basis of running account bills and measurement books prepared by its engineers instead of prescribed documents.

The department contended that these documents lacked mandatory particulars and therefore could not form the basis for availing credit. It also alleged a mismatch between figures reflected in ST-3 returns and Cenvat records, leading to the issuance of a show cause notice invoking the extended period of limitation and proposing penalties.

The appellant argued that the demand up to September 2016 was time-barred as details of Cenvat credit had been disclosed in ST-3 returns and there was no suppression of facts or intent to evade tax.

The appellant also submitted that, being a state instrumentality, allegations of fraud or wilful suppression were unsustainable. It further contended that credit availed on GAR-7 challans for service tax paid under reverse charge mechanism was legally admissible and that running account bills, along with payment orders, contained substantial particulars such as details of the service provider, recipient, description of service, registration number and tax amount.

The Revenue defended the demand by arguing that running account bills and measurement books were not specified documents and failed to satisfy documentary requirements under the service tax law. The department also maintained that the irregularity came to light only during audit, and therefore, the extended limitation period and penalties were rightly invoked.

Rejecting the department's stand, the Tribunal held that the extended period of limitation was not invokable as the appellant had regularly filed ST-3 returns disclosing the credit availed and there was no evidence of suppression or intent to evade tax.

“Further, we note that the appellant was registered with the Revenue, and had cooperated during the audit proceedings by furnishing all the details as sought by the audit team. Further, the details of the Cenvat credit availed by the appellant was declared in their ST-3 returns which were filed regularly. The Revenue has not led any evidence to establish that there was any malafide intent to evade duty. Further, it is an admitted fact that the appellant is a state instrumentality, and consequently no suppression or fraud can be alleged,” stated the bench.

The tribunal further noted that the appellant was a statutory body constituted under the Rajasthan Housing Board Act and relied on earlier decisions in the appellant's own cases where invocation of the extended limitation period had been rejected.

On merits, the bench held that credit availed on GAR-7 challans for reverse charge payments was admissible since such challans are recognised documents for claiming Cenvat credit.

The Tribunal also held that running account bills read with payment orders substantially complied with documentary requirements and could not be rejected merely because of nomenclature or procedural irregularities.

Accordingly, the tribunal set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: Advocates B.L. Narasimhan and Shri Ashutosh Choudhary, 

For Respondent: S.K.Meena, Authorised Representative