Mere Audit Detection Not Ground To Invoke Extended Limitation Under Finance Act: CESTAT Delhi

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi on 9 March, emphasised that the extended period of limitation cannot be invoked in the absence of a specific allegation of fraud, collusion, or suppression of facts.

A Bench comprising Judicial Member Ms. Binu Tamta and Technical Member Ms. Hemambika R. Priya, set aside a service tax demand raised against the Rajasthan Housing Board, holding that where the taxpayer had disclosed the availment of CENVAT credit in its ST-3 returns, the Department could not invoke the extended limitation period merely because the issue was detected during an audit.

The Tribunal observed:

“Extended period of limitation cannot be invoked unless there is evidence of fraud or collusion or wilful misstatement or suppression of facts with intent to evade tax.”

The Rajasthan Housing Board, a state instrumentality responsible for providing affordable housing in the State of Rajasthan, had undertaken construction of 2976 flats at Sanganer, Jaipur through a contractor. Out of these, 332 flats were constructed prior to 1 July 2012, and service tax on construction services was paid by the contractor between December 2013 and March 2014.

Based on the service tax charged by the contractor, the Board availed CENVAT credit amounting to about Rs. 52.21 lakh. Later, an audit by the Department led to the issuance of a show cause notice dated 14 February 2017, alleging that the credit was wrongly availed since the services related to a period prior to 1 July 2012.

The Department invoked the extended period of limitation under Section 73(1) of the Finance Act, 1994 and confirmed the demand along with interest and penalty.

The Tribunal observed that the entire demand was time-barred, as the credit was taken between December 2013 to March 2014, whereas the show cause notice was issued only in February 2017, beyond the normal limitation period.

It further noted that the show cause notice did not contain any allegation of fraud, collusion, wilful misstatement or suppression of facts, which are mandatory to invoke the extended period of limitation.

The Bench emphasised that the availment of CENVAT credit had been reflected in the ST-3 returns filed by the assessee, and therefore the information was already available to the department.

The Tribunal also held that mere detection of an issue during audit cannot automatically lead to the invocation of the extended limitation period.

Holding that the Department failed to establish the necessary conditions for invoking the extended period, the Tribunal concluded that the demand was unsustainable on limitation grounds.

Accordingly the Tribunal set aside the impugned order while allowing the appeal.

Appearance for the Appellant: Shri B.L. Narasimhan and Ms. Srishti Yadav, Advocates

Appearance for the Respondent: Shri V.K. Jain, Authorised Representative