Departmental Audit Bars Extended Limitation Without Wilful Suppression: CESTAT Delhi

Delhi Airport Metro Express Pvt. Ltd. Vs Commissioner of Central Excise & Customs (CESTAT Delhi)

Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, in Delhi Airport Metro Express Pvt. Ltd. Vs Commissioner of Central Excise & Customs, Rohtak, Service Tax Appeal No. 50919 of 2015, Final Order No. 50031/2024 dated 11 January 2024, set aside the Commissioner’s order disallowing CENVAT credit of ₹65,01,43,929 along with consequential interest and penalty. The Tribunal held that the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could not be invoked merely because the Department considered the credit inadmissible. The appellant had disclosed the credit in its ST-3 returns, and the Department had examined the relevant records during an audit conducted in September 2010. In the absence of wilful suppression or an intention to evade service tax, the entire demand was barred by limitation.

The appellant was a special purpose vehicle established for implementing the Airport Metro Express Line project under a concession agreement with Delhi Metro Rail Corporation. Its activities included developing, financing, installing, operating and maintaining the metro system. While passenger fare collections were exempt from service tax, revenue from commercial space rentals and advertising was taxable. For implementing the project, the appellant procured imported goods, including rolling stock, escalators and other equipment, and received engineering consultancy, project management and financial services. It claimed CENVAT credit of countervailing duty paid on imported goods and service tax paid on input services, including services received from abroad under the reverse charge mechanism.

Following an audit conducted on 22 and 23 September 2010, the Department questioned the admissibility of credit relating to goods and services allegedly used exclusively for exempt metro transportation activities. A show cause notice dated 20 July 2012 proposed recovery of credit for October 2009 to March 2011 by invoking the extended limitation period. The Commissioner confirmed the demand, holding that the appellant had deliberately availed inadmissible credit and suppressed material facts. The appellant challenged the order, contending that the relevant credit particulars had been disclosed in its original and revised ST-3 returns and that the Department was fully aware of the disputed transactions following the audit.

The Tribunal examined Section 73(1) and Section 73(6) of the Finance Act, 1994 and observed that the normal limitation period applicable to the relevant proceedings was one year from the relevant date. The ST-3 returns for the disputed periods were due on 25 April 2010, 25 October 2010 and 25 April 2011, respectively. Since the show cause notice was issued only on 20 July 2012, the entire demand fell outside the normal limitation period. The Tribunal further held that revision of certain returns to include previously omitted credit did not restart limitation, as no new material fact was disclosed that prevented the Department from issuing a timely notice.

On the allegation of suppression, the Tribunal found that the Department had examined the appellant’s records during the September 2010 audit and communicated its objection regarding the disputed credit on 30 November 2010. The appellant had also disclosed the relevant credit amounts in its ST-3 returns. The Tribunal held that an assessee cannot be accused of suppressing information that the prescribed return does not require it to disclose. Mere disagreement over the legal admissibility of CENVAT credit cannot establish deliberate concealment or an intention to evade payment of service tax. The fact that an objection arose during departmental audit was insufficient to justify extended limitation when the Department already possessed the relevant information and could have issued a notice within the normal period.

The Tribunal relied upon judicial precedents including G.D. Goenka Private Limited, Mahanagar Telephone Nigam Ltd., Pushpam Pharmaceutical Co., Anand Nishikawa Co. Ltd., Uniworth Textile Limited, Pahwa Chemicals Pvt. Ltd., Continental Foundation Joint Venture Holding and Bharat Hotels Limited. These decisions established that suppression must involve deliberate withholding of material information with an intention to evade tax and that the burden of establishing such conduct rests upon the Revenue. Applying these principles, the Tribunal concluded that neither the show cause notice nor the adjudication order established the necessary ingredients for invoking the extended limitation period.

Accordingly, the Tribunal set aside the Commissioner’s order dated 12 December 2014 and allowed the appeal. Since the entire demand was time-barred, it expressly declined to decide whether the appellant was substantively entitled to the disputed CENVAT credit. Regarding the appellant’s claim for refund under Section 142(8) of the Central Goods and Services Tax Act, 2017, the Tribunal observed that the appellant could pursue appropriate refund proceedings and expected any such application to be decided expeditiously in accordance with law.

 

Cases Discussed

• G.D. Goenka Private Limited Vs Commissioner of Central Goods and Service Tax, Delhi South, Service Tax Appeal No. 51787 of 2022, decided on 21 August 2023 (CESTAT New Delhi) — Followed on the principle that failure to disclose particulars not required in ST-3 returns does not constitute suppression of facts.
• Mahanagar Telephone Nigam Ltd. Vs Union of India and Others, W.P.(C) 7542/2018, decided on 6 April 2023 (Delhi High Court) — Relied upon regarding bona fide disputes over taxability and the requirement of deliberate intent to evade tax for invoking extended limitation.
• Bharat Hotels Limited Vs Commissioner of Central Excise (Adjudication), 2018 (12) G.S.T.L. 368 (Del.) — Relied upon to establish that mere omission or failure to pay tax does not justify extended limitation without deliberate suppression and intent to evade.
• Uniworth Textile Limited Vs Commissioner of Central Excise, Raipur, 2013 (288) E.L.T. 161 (SC) — Followed regarding the distinction between ordinary default and deliberate conduct warranting extended limitation.
• Continental Foundation Joint Venture Holding Vs Commissioner of Central Excise, Chandigarh-I, 2007 (216) E.L.T. 177 (SC) — Relied upon for the requirement of deliberate suppression and the Revenue’s burden to prove intent to evade duty.
• Pahwa Chemicals Pvt. Ltd. Vs Commissioner of Central Excise, Delhi, 2005 (189) E.L.T. 257 (SC) — Relied upon for the principle that wilful suppression or misdeclaration requires a positive act.
• Anand Nishikawa Co. Ltd. Vs Commissioner of Central Excise (Appeals), Meerut, 2005 (188) E.L.T. 149 (SC) — Relied upon to establish that mere failure to disclose information does not constitute wilful suppression without deliberate intent.
• Pushpam Pharmaceutical Co. Vs Commissioner of Central Excise, Bombay, 1995 (78) E.L.T. 401 (SC) — Relied upon for strict interpretation of suppression of facts and the requirement of deliberate concealment to evade duty.

 

FULL TEXT OF THE CESTAT DELHI ORDER

1. The order dated 12.12.2014 passed by the Commissioner disallowing CENVAT credit amounting to Rs. 65,01,43,929/- taken by M/s Delhi Airport Metro Express Pvt. Ltd.¹ and ordering for its reversal/recovery with interest and penalty under rule 14 of the CENVAT Credit Rules, 2004² read with the proviso to section 73(1) of the Finance Act, 1994³ by invoking the extended period of five years has been assailed in this appeal.

2. The issue that arises for consideration in this appeal is whether the appellant is entitled to avail CENVAT credit of service tax paid on input and input services received by the appellant from outside India, and of the countervailing duty⁴ paid by the appellant on the goods imported by it, which are used or to be used for activities under the Concession Contract awarded to it by Delhi Metro Rail Corporation⁵, which is a joint venture company of the Government of India and the Government of National Capital Territory of Delhi. Another issue that would arise for consideration, if the answer to the first issue is in favour of the appellant, is whether the appellant would be entitled to refund of Rs. 65,01,43,929/- under section 142(8) of the Central Goods and Service Tax Act, 1917⁶.

3. The Delhi Metro implemented the “Airport Metro Express Line” Project⁷ in New Delhi. It developed the Project by engaging a concessionaire for financing, design, procurement and installation of all systems. The bid of the consortium comprising M/s Reliance Energy Limited (now known as M/s Reliance Infrastructure Limited) and Construcciones Y Auxiliar De Ferrocarriles (CAF) S.A. with M/s Reliance Infrastructure Limited as its lead member was accepted by the Delhi Metro and a letter of acceptance dated 21.01.2008 was issued. Reliance Infrastructure Limited promoted a “Special Purpose Vehicle”, namely, the appellant as its subsidiary for becoming a concessionaire for the Project. The request of the consortium was accepted by Delhi Metro and a Concession Agreement dated 25.08.2008 was entered into with the appellant for execution of the Project on Build-Operate-Transfer basis. The design and construction of the basic civil structure for the Project was done by Delhi Metro and it was made available to the appellant progressively for design, supply, installation, commissioning and operation of the system and related work. The appellant was granted the concession by the Delhi Metro for a period of 30 years in respect of the Airport Metro Express Line and it included the exclusive right, license and authority to develop, design, engineer, finance, procure, construct, commission and test the Project Systems and the required buildings for reliable commercial operation of the Project. Upon completion of the Airport Metro Express Line, the appellant was also required to manage, operate and maintain the Project as a commercial enterprise for providing the members of the public with a safe, comfortable and reliable Project.

4. The Airport Metro Express Line, which stretches from New Delhi Railway Station upto Sector-21 in Dwarka via Indira Gandhi International Airport, commenced its operation from 23.02.2011. For start of the operations, the appellant required certification for safe operation by Commissioner, Metro Railway Safety. At the same time, the appellant required all necessary approvals. The said approvals were taken by the appellant.

5. After commissioning of the Project, the revenue stream of the appellant included:

i. Passenger revenue through fare collection;

ii. Retail Revenue through letting out of the space available at New Delhi, Shivaji Stadium and Dwarka Depot under the Concession Agreement; and

iii. Advertising Revenue.

6. Out of the above, the passenger revenue through fare collection was exempt from the levy of service tax. However, the other two revenues were subject to service tax, on which the appellant claims to have discharged the applicable service tax.

7. For the construction and implementation of the Project, the appellant had availed services, such as engineering and project management consultancy, consultancy for security system and technical consultancy provided from outside India and within India. The appellant had also imported goods, such as rolling stock, automatic fare collection equipment, baggage handling system, escalators, fasteners from outside India on payment of customs duty, including CVD. The appellant took the credit of the service tax and CVD paid on the said services and the imported goods in its books of account and included the details in the periodical service tax returns.

8. In the month of September 2010, an audit of the records of the appellant was conducted by the Department and the audit group observed that the availment and accumulation of CENVAT credit of service tax paid by the appellant on consulting engineer service and banking and other financial services under the reverse charge mechanism and of the CVD paid by it on the import of goods was erroneous.

9. The total CENVAT credit availed by the appellant in the books of account as on 31.03.2011 is Rs. 94,02,07,834/-. However, according to the appellant, in view of the provisions of the Credit Rules, it availed CENVAT credit of only Rs. 65,01,43,929/-. The appellant also claims that as it was providing both taxable and non-taxable/exempt services and was not maintaining separate record of the receipt, the appellant was required to reverse Rs. 2,34,20,287 (being 7% of the exempt/non-taxable turnover of Rs. 33,45,75,530) in terms of rule 6(3)(i) of the Credit Rules. However, in March 2012, out of the total CENVAT credit availed in the ST-3 returns to the extent of Rs. 65,01,43,929/-, the appellant reversed an amount of Rs. 23,88,03,177/- during investigation.

10. A show cause notice dated 20.07.2012 was, however, issued to the appellant raising a demand for the period October 2009 to March 2011. The show cause notice mentions that an audit was conducted on 22.09.2010 and 23.09.2010 by the Officers of the Service Tax Commissionerate, New Delhi. Paragraph 13 of the show cause notice gives details of the CENVAT credit availed by the appellant on the basis of the original ST-3 returns and the revised ST-3 returns, and they are as follows:

CENVAT Credit taken as per original ST-3 returns

TABLE-I

Period	Opening Balance	Inputs	Capital Goods	Input Services	Closing Balance
April 08 to Sep 08	0	0	0	0	0
Oct 08 to March 09	0	0	0	0	0
April 09 to Sept 09	0	0	0	0	0
Oct 09 to March 10	2,62,45,420/-	0	0	3,53,94,538/-	6,16,39,958/-
April 10 to Sept 10	27,89,81,941/-	32,31,15,993/-	0	2,33,90,893/-	62,54,88,827/-
Oct 10 to March 11	62,54,88,827/-	0	0	0	62,54,88,827/-
TOTAL in Rs.		32,31,15,993/-		5,87,85,431/-	62,54,8 8,827/-

CENVAT Credit taken as per revised ST-3 returns

TABLE-II

Period	Opening Balance	Inputs	Capital Goods	Input Services	Closing Balance
April 08 to Sep 08	0	0	0	0	0
Oct 08 to March 09	0	0	0	0	0
April 09 to Sept 09	0	0	0	0	0
Oct 09 to March 10 (revised)	2,62,45,420/-	21,74,81,033/-	0	3,53,94,538/-	27,91,20,991/-
April 10 to Sept 10 (original)	27,89,81,941/-*	32,31,15,993/-	0	2,33,90,893/-	62,54,88,827/-
Oct 10 to March 11 (revised)	62,54,88,827/-	0	1,92,00,475/-	54,54,627/-	65,01,43,929/-
TOTAL in Rs.		54,05,97,026/-	1,92,00,475/-	6,42,40,058/-	65,01,43,929/-

* (Rs. 1,39,050/- debited during audit)

11. Paragraph 14 of the show cause notice mentions that on scrutiny of the revised ST-3 returns for the period (i) October 2009 to March 2010, (ii) April 2010 to September 2010 and (iii) October 2010 to March 2011, it was observed that the appellant had availed CENVAT credit amounting to Rs. 65,01,43,929/- and the details have been summarized in Table III which is as follows:

TABLE-III

Particulars	CENVAT credit taken on Inputs	CENVAT credit taken on Capital goods	CENVAT credit taken on Input Services	CENVAT shown by wrong opening Balance, Closing Balance and wrong totaling	CENVAT credit closing balance as on 31.03.2011
As per original ST-3 returns	32,31,15,993/-	NIL	5,87,85,431/-	24,35,87,403/-	62,54,88,827/-
As per revised ST-3 returns	54,05,97,026/-	1,92,00,475/-	6,42,40,058/-	2,61,06,370/-	65,01,43,929/-
As per revised claim of assessee	29,95,92,447/-*	26,02,05,054/-	6,42,40,058/-	2,62,45,420/-	65,02,82,979/-

*This amount includes Rs. 1,39,050/- which was debited on audit.

12. Paragraph 16.4 of the show cause notice gives reasons as to why the CENVAT credit amounting to Rs. 26,02,05,054/-, as given in Table III, taken on capital goods would not be admissible to the assessee and it is reproduced below:

“16.4 Whereas it appears that the goods on which CENVAT Credit has been availed as Capital Goods were used exclusively in rendering construction and operation of Airport Metro Express Line. These equipments appears to have been installed at Metro stations to facilitate commuters and help in smooth operation of Metro rail and appears to be exclusively used in providing non-taxable service and therefore do not appear to be covered under the definition of capital goods under Rule 2(a) of CENVAT Credit Rules, 2004. Therefore CENVAT credit amounting to Rs. 26,02,05,054/- (as detailed in Table-III above) taken on capital goods during the period 2009-10 to 2010-2011 is not admissible to the assessee.”

13. Paragraph 17 of the show cause notice gives reasons as to why the CENVAT credit availed in respect of inputs amounting to Rs. 29,95,92,447/-, as given in Table III, would not be admissible and it is reproduced below:

“Inadmissible CENVAT Credit availed in respect of Inputs:

17. Whereas on scrutiny of ST-3 returns, it was also observed that CENVAT credit was also availed on Rolling Stock Coaches, Platform Screen Doors, Lifts, Leaky Cable, Public Information Display System, Rail Kitt, Tunnel Ventilation System Ducting, Air Conditioning Equipments, Sleepers Base Plates Fasteners, ET Limit Switch and Switch Contact, Electric Shunter during the period 2009-10 & 2010-11.

xxxxxx                 xxxxxx               xxxxxx

17.13 From the forgoing it appears that goods namely signalling cables, electric shunter, vertical conveyor belts, and switch and switch control etc. were exclusively used in construction, commissioning, installation and operation of Express Metro operation, a exempt service, and has nothing to do in relation to taxable service i.e advertisement & renting of space services mentioned at S.No. 2 & 3 of Para 9 and thus the assessee is not eligible to avail CENVAT Credit on the above goods as inputs.

Whereas in view of above, it appears that above mentioned goods on which CENVAT Credit as inputs has been taken were exclusively used in exempted service only.”

(emphasis supplied)

14. Paragraph 18.1 of the show cause notice gives reasons as to why CENVAT credit in respect of input services amounting to Rs. 6,42,40,058/-, as shown in Table III, would be inadmissible and it is reproduced below:

“18.1 Whereas during the year 2009-10 the assessee had paid service Tax amounting to Rs. 3,53,94,538/- and in year 2010-11 paid the service tax amounting to Rs. 2,88,55,520/- totaling to Rs. 6,42,40,058/- as recipients of “Banking and Financial Service” and ‘Consulting Engineering services’ under Section 66A of the Act ibid under reverse charge mechanism. These services were used in commissioning, operation and maintenance of Airport Metro Express Line which is an exempt service. However they have claimed CENVAT credit so paid in contravention of CCR, 2004.”

15. Paragraph 20 of the show cause notice gives reasons why the extended period of limitation has been invoked and it is reproduced below:

“20. From the foregoing, it further appears that the assessee had intentionally and willfully suppressed the facts of availing the said inadmissible CENVAT Credit. Hence, it appears that the said amount is liable to be denied and recovered within five years from the relevant date under proviso to Section 73 (1) of the Act ibid read with Rule 14 of the CENVAT Credit Rules, 2004.”

16. The appellant filed a detailed reply dated 21.08.2012 to the show cause notice. The appellant also pointed out in the written submissions that the extended period of limitation could not have been invoked as the show cause notice could have been issued within one year from the relevant date and the said period of one year could only be extended by five years in terms of the proviso to section 73(1) of the Finance Act, but the conditions stipulated therein were not satisfied.

17. The aforesaid show cause notice was adjudicated by an order dated 15.12.2014, wherein the Commissioner denied the entire CENVAT credit and ordered recovery for the reasons:

i. Construction of railways is not a taxable service either under “works contract service” or under “commercial or industrial construction service”;

ii. Capital goods and inputs in respect of which credit was availed as capital goods is not admissible as the said goods appear to be exclusively used in connection and operation of Airport Metro Express Lines, which is non-taxable/exempt service and such goods do not appear to be used in relation to the provision of any taxable services;

iii. Input services in respect of “banking and financial services” and “consulting engineering services” are used in commissioning, operation and maintenance of Airport Metro Express Line, which is a non-taxable service and such services are not in relation to providing any taxable service; and

iv. The extended period of limitation under the proviso to section 73(1) of the Finance Act would be applicable as the appellant had suppressed material facts intentionally from the department and had the department not conducted the audit, the inadmissible availment of CENVAT credit would not have been noticed.

18. The appellant claims to have reversed the entire credit of Rs. 65,01,44,057/- during the investigation and pendency of the appeal.

19. This appeal seeks the quashing of the order dated 12.12.2014 passed by the Commissioner.

20. Shri Prakash Shah, learned counsel for the appellant made the following submissions:

(i) The extended period of limitation could not have been invoked in the facts and circumstances of the case and since the entire demand is barred by limitation, the impugned order deserves to be set aside on this ground alone. In this connection, learned counsel pointed out that the availment of credit was reported by the appellant in the ST-3 returns filed post the commencement of the audit and even after the completion of the audit. During the course of audit, all the relevant facts had been considered by the audit team and, therefore, once the Department was aware of the entire facts, the show cause notice could have been issued within the stipulated period of one year;

(ii) As the entire case against the appellant is based on the amount of CENVAT credit disclosed in the ST-3 returns filed by the appellant, it cannot be alleged that the appellant had suppressed facts with an intent to evade payment of service tax;

(iii) There is no finding in the impugned order demonstrating any positive evidence of intent to evade payment of service tax. On the contrary, the suo motu reversal by the appellant proves the bonafide of the appellant. In this connection, reliance has been placed on the decisions of the Supreme Court in Pahwa Chemicals Pvt. Ltd. vs. CCE, Delhi⁸ and Anand Nishikawa Co. Ltd. vs CCE (Appeals), Meerut⁹;

(iv) In any view of the matter, the appellant had claimed CENVAT credit under a bonafide belief that it is legally entitled to claim the same and, therefore, there cannot be any suppression or mis-statement or malafide intention;

(v) The appellant had not provided construction/ works contract service to Delhi Metro. Accordingly, the activities undertaken by the appellant in fulfilling its obligation under the Concession Agreement were towards transfer of a right to collect revenue as a part of the overall business model, and cannot in any manner be said to be in the nature of consideration for any alleged services, namely works contract services/commercial construction services undertaken by the appellant for Delhi Metro;

(vi) In any event, an activity undertaken by the appellant cannot be classified under “works contract services” as section 65(105)(zzzza) of the Finance Act contemplates simultaneous transfer of property (by accretion) in the goods used in the execution of works contract on which the applicable sales tax/VAT is payable. Undisputedly, in the present case, the property in the goods used in constructing the Metro Project remained with the appellant during the concession period;

(vii) The appellant is entitled to avail CENVAT credit of the CVD/excise duty paid on imported inputs/capital goods and service tax paid on input services;

(viii) The capital goods on which credit is sought to be denied are not used exclusively for providing exempted services;

(ix) The appellant is liable to pay an amount equal to 7 per cent of exempt services, as the appellant had taken credit of common inputs and input services; and

(x) The appellant is entitled to refund of Rs. 65,01,44,057/- with interest.

21. Shri P.K. Sinha, learned authorized representative appearing for the Department, however, supported the impugned order. Learned authorized representative submitted that all the services were provided to further the own commercial interest of the appellant and not for providing any alleged services to Delhi Metro. The capital goods, inputs and input services on which CENVAT credit of Rs. 65,01,44,057/- was taken, have gone into providing “works contract service” on build, operate and maintain Delhi Airport Metro Service, which is non-taxable. The availment of CENVAT credit was, therefore, wrong and the appellant had rightly reversed the credit. Learned authorised represented also submitted that the extended period of limitation had been correctly invoked and in this connection placed the findings recorded by the Commissioner.

22. The submissions advanced by the learned counsel appearing for the appellant and the learned authorized representative appearing for the Department have been considered.

23. The first issue that arises for consideration is as to whether the extended period of limitation under the proviso to section 73(1) of the Finance Act could have been invoked in the facts and circumstances of the case, for if this issue is decided in favour of the appellant it would not be necessary to examine the other issues on merits.

24. In order to appreciate this issue it would be appropriate to reproduce section 73 of the Finance Act, as it stood at the relevant time. This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows;

“73(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,

by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.”

25. The show cause notice dated 20.07.2012, in so far as the invocation of the extended period of limitation is concerned, merely alleges that the appellant had intentionally and willfully suppressed availing inadmissible CENVAT credit and, therefore, the said amount is liable to be denied and recovered within five years from the relevant date. The appellant had submitted that the invocation of the extended period of limitation could not have been invoked. The Commissioner, however, held that the extended period of limitation was correctly invoked and the finding recorded is as follows:

“115 So far as ‘suppression of facts’ is concerned, the phrase implies that withholding of information is suppression of facts. P. Ramanatha Aiyar’s Concise Law Dictionary [1997 Edition Reprint 2003 -Page 822] defines the phrase very lucidly and accurately as – Where there is an obligation to speak, a failure to speak will constitute the “suppression of fact” but where there is no obligation to speak, silence cannot be termed “suppression”. The party had an obligation to comply with the statutory provisions and to furnish the information/documents as required thereunder. As discussed, supra, the assessee despite providing the exempted/non-taxable service has taken inadmissible CENVAT Credit on inputs/capital goods/input services which were used exclusively in such non-taxable service. It is needless to recapitulate that this case has arisen out of the audit conducted by the officers of Service Tax Commissionerate, New Delhi. The party deliberately availed the Cenvat credit in respect of exempted service. The case laws relied upon by the party are not applicable to the present facts & circumstances of the case as in this case it was conscious act of availing huge amount of inadmissible Cenvat credit and suppression thereof with an intent to evade payment of duty. Had the Department not conducted the audit, the inadmissible availment of such CENVAT Credit by the assessee would not have been unearthed. Hence, the assessee has suppressed the material facts intentionally from the department. Accordingly, I hold that the extended period of limitation is very well applicable in this case in terms of proviso to Section 73 (1) of the Finance Act, 1944 read with Rule 14 of the CENVAT Credit Rules, 2004 for demand and recovery of the inadmissible CENVAT Credit, and the assessee has also rendered themselves liable for penal action under Section 78 of the Act read with Rule 15 of CCR for deliberately suppressing the material facts.”

(emphasis supplied)

26. The contention of the learned counsel for the appellant is that the necessary ingredients for invoking the larger period of limitation contemplated under the proviso to section 73 (1) of the Finance Act, namely wilful suppression of facts with an intent to evade payment of service tax did not exist and, therefore, the extended period of limitation could not have been invoked. Learned counsel for the appellant pointed out that during the course of the audit all the relevant facts were considered by the audit team and the objection regarding the purported erroneous availment of CENVAT credit was communicated to the appellant by a letter dated 30.11.2010. Thus, once the department was aware of the entire facts, nothing prevented them from issuing the show cause notice within one year from the relevant date. In any case, the entire case against the appellant is based on the amount of CENVAT credit disclosed and availed in the ST-3 returns filed by the appellant. The appellant had disclosed the details of the credit availed in respect of the tax/duty paid on inputs, input services and capital goods in the returns filed. In the absence of any statutory requirement to disclose the functional utility of each of them in connection with the provision of output service, the appellant cannot be said to be guilty of suppression of facts with an intent to evade payment of duty. Even under the self-assessment regime, once the returns are filed, it is the responsibility of the department to scrutinize them. Merely because the appellant has taken CENVAT credit in respect of certain capital goods, inputs or input services, which according to the department is not admissible to the appellant, cannot be the basis to conclude that the said CENVAT credit was availed by the appellant with an intent to evade the payment of service tax. Learned counsel contended that allegations and findings with regard to suppression of facts must be specific. In the present case, there is no allegation in the show cause notice or finding in the impugned order explicitly stating the allegation/finding in respect of suppression. There is also no finding in the impugned order about any positive evidence of intent to evade payment of service tax and on the contrary, the suo-motu reversals by the appellant prove the bona-fides of the appellant. Merely because a particular fact was unearthed during an audit cannot lead to an inference that the assessee is guilty of suppression. Learned counsel also submitted that the appellant had claimed CENVAT credit under a bona-fide belief that it was legally entitled to claim the same and the issue involves interpretation of law. Thus, when the question involved is of legal interpretation, there cannot be any suppression or mis-statement or mala fide intention.

27. Learned authorised representative appearing for the department, however, supported the invocation of the extended period of limitation and in this connection extensively referred to the findings recorded by the Commissioner. Learned authorised representative pointed out that the appellant had deliberately availed CENVAT credit to which it was not entitled and, therefore, the appellant suppressed facts with intent to evade payment of service tax. Learned authorised representative also pointed out that these facts came to the knowledge of the department during the audit.

28. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within one year from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay the amount specified in the notice.

29. The ‘relevant date’ has been defined in section 73 (6) of the Finance Act as follows:

“73(6) For the purpose of this section, “relevant date” means,-

(i) In the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short paid-

(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;

(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;”

30. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word “one year”, the word “five years” has been substituted.

31. It would be seen that a notice under section 73(1) of the Finance Act has to be issued within one year from the relevant date and the relevant date under section 73(6) of the Finance Act is either the date on which the return is filed or if no return is filed, the last date on which such return is to be filed.

32. The appellant claims that it is not aware of the date on which the ST-3 returns were filed. As there is no allegation in the show cause notice that the returns were filed late and it is also the case of the appellant that the returns were filed in time, the last date for filing the returns can safely be taken as a date on which the ST-3 returns were filed.

33. The details of the ST-3 returns filed by the appellant for the period (i) October 2009 to March 2010 (ii) April 2010 to September 2010, and (iii) October 2010 to March 2011 covered by the three half yearly returns are as follows:

Year	Quarter	Period	Last date for filing return
2009-10	2	October 2009 to March 2010	25th April 2010
2010-11	1	April 2010 to September 2010	25th October, 2010
2010-11	2	October 2010 to March 2011	25th April, 2011

34. The show cause notice was issued to the appellant on 20.07.2012. It was, therefore, issued beyond one year from the date of filing of the last return for the period October 2010 to March 2011 on 25.04.2011. Thus, the entire period covered by the show cause notice is beyond one year.

35. Out of the aforesaid three ST returns, the returns for the period from October 2009 to March 2010 and October 2010 to March 2011 were revised. There was, however, no revision in the return filed for the period April 2010 to September 2010. The appellant has also explained why the two returns were revised and the reasons are as follows:

(i) October 2009 to March 2010 – Addition of credit of Rs. 21,74,81,033/- pertaining to inputs used in providing of services by the appellant were inadvertently not claimed earlier;

(ii) October 2010 to March 2011 – Addition of credit of Rs. 2,46,55,102/- pertaining to capital goods (Rs. 1,92,00,475) and input services (Rs. 54,54,627) used in providing of services by the appellant were inadvertently not claimed earlier.

36. It is, therefore, clear that only some credits not claimed earlier by mistake were inclued in the revised ST-3 returns. Thus, if the department wanted to issue notice under section 73(1) of the Finance Act, it could have issued the notice when the ST-3 returns were filed since all the relevant facts were in the knowledge of the department and no new fact for issuance of the notice was disclosed in the revised ST-3 returns. It cannot, therefore, be contended by the department that the period of limitation should be counted from the date of filing of the revised ST returns.

37. Keeping in mind the aforesaid factual position, it has to be determined whether the appellant had suppressed facts from the department. It transpires that during the course of audit of the records of the appellant on 22.09.2010 and 23.09.2010 all the relevant facts were brought to the notice of the audit team by the appellant and objections regarding the purported erroneous availment of CENVAT credit was also communicated by the department to the appellant by a letter dated 30.11.2010. Nothing prevented the department, therefore, from issuing the notice under section 73(1) of the Finance Act to the appellant immediately after the audit, in which case it would be within the stipulated period of one year.

38. Even otherwise, the appellant had disclosed the details of the credit availed on inputs, inputs services and capital goods in the three ST-3 returns that were filed. It is not the case of the department in the show cause notice that any fact required to be disclosed in the ST-3 return was deliberately suppressed by the appellant from the department. It is, therefore, difficult to accept the contention of the department that since the appellant had suppressed information, the department could take recourse to the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act.

39. A Division Bench of the Tribunal in M/s G.D. Goenka Private Limited vs. The Commissioner of Central Goods and Service Tax, Delhi South¹⁰ examined a similar situation and observed that if all the relevant facts required to be disclosed have been disclosed in the ST-3 returns, then non-furnishing of information that is not required to be mentioned would not amount to suppression of facts and the relevant observations are:

“17. The argument that the appellant had not disclosed in its returns that it was availing and using ineligible CENVAT credit also deserves to be rejected. The appellant cannot be faulted for not disclosing anything which it is not required to disclose. Form ST-3 in which the appellant is required to file the returns does not require details of the invoices or inputs or input services on which it availed CENVAT credit and the appellant is not required to and hence did not provide the details of the CENVAT Credit taken. It also needs to be pointed out that the Returns are filed online and therefore, it is also not possible to provide any details which are not part of the returns. If the format of ST-3 Returns is deficient in design and does not seek the details which the assessing officers may require to scrutinise them, the appellant cannot be faulted because as an assessee, the appellant neither makes the Rules nor designs the format of the Returns. So long as the assessee files the returns in the formats honestly as per its self assessment, its obligation is discharged.”

(emphasis supplied)

40. It is, therefore, clear from the aforesaid discussion that the appellant had not suppressed any information from the department in the ST-3, returns nor is there any allegation in the show cause notice or a finding in the impugned order that a particular fact had not been disclosed since all that has been stated is that the appellant was not entitled to take CENVAT credit but as it had taken, it suppressed material facts from the department.

41. It is also the contention of the appellant that it had claimed CENVAT credit under a bona-fide belief that it was entitled to claim the same. The department believes that the appellant was not entitled to claim the CENVAT credit. The issue, therefore, primarily is of interpretation of the provisions. It has repeatedly been held that when the question involved is of legal interpretation, the assessee cannot be held guilty suppression or mis-statement of facts. From the stand taken by the appellant in the reply filed to the show cause notice, it does appear that the appellant could have had a bonafide belief that it was entitled to take CENVAT credit. The appellant had stated in reply to the show cause notice that it had taken input credit on all inputs which were integrally connected with the services provided by the appellant and that the appellant had been advised that it could take input credit for duties paid on all capital goods procured and installed by the appellant on the entire metro network to earn composite revenue from real estate, advertisement, displays and other revenue streams allowed to the appellant in terms of the Agreement with the authorities. The appellant also stated that it had also been advised that if capital goods are partly used for exempted goods and partly for dutiable final products, the entire CENVAT credit of duty paid on capital goods would be available.

42. The Delhi High Court in Mahanagar Telephone Nigam Ltd. vs. Union of India and others¹¹ observed that where there is a substantial dispute as to whether the service is taxable or not, then non-disclosure of the same in the service tax return would not amount to suppression of material facts. The relevant observations are:

“34. xxxxxxxx. Mere non-disclosure of a receipt, which a party believes is not chargeable to service tax, in the service tax returns, would not constitute suppression of facts within the proviso to Section 73(1) of the Act, unless it is, ex facie, clear that the receipt is on account of taxable services or it is unreasonable for any assessee to believe that the receipt does not fall in the net of service tax. In cases where there is a substantial dispute as to whether receipt of any amount is on account of taxable service as in the present case the non-disclosure of the same in the service tax return cannot, absent anything more, lead to the conclusion that the assessee is guilty of suppression of facts to evade tax.”

(emphasis supplied)

43. In view of the aforesaid facts and the decision of the Delhi High Court in Mahanagar Telephone Nigam and the decision of the Tribunal in G.D. Goenka it cannot be urged that the appellant had suppressed facts from the department.

44. Even assuming that there was suppression, it still needs to be examined whether suppression was wilful and with an intent to evade payment of service tax as the Supreme Court and the Delhi High Court have held that suppression of facts has to be “wilful‟ and there should also be an intent to evade payment of service tax.

45. In Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise, Bombay¹², the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since “suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows:

“4. Section 11A empowers the Department to reopen proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

(emphasis supplied)

46. This decision was referred to by the Supreme Court in Anand Nishikawa Company Ltd. and the observations are as follows:

“26……….. This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression “suppression of facts” in proviso to Section 11A of the Act held that the term must be construed strictly. It does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held:-

“In taxation, it (“suppression of facts”) can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act.”

(emphasis supplied)

47. These two decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd. were followed by the Supreme Court in the subsequent decision in Uniworth Textile Limited vs. Commissioner of Central Excise, Raipur¹³ and the observation are:

“18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944.”

48. In Pahwa Chemicals Private Limited, while examining whether the extended period of limitation under section 11A(1) of the Central Excise Act could have been invoked, the Supreme Court observed:

“3. xxxxxx There must be some positive act on the part of the party to establish either wilful mis-declaration or wilful suppression. When all facts are before the Department and a party in the belief that affixing of a label makes no difference does not make a declaration, then there would be no wilful mis-declaration or wilful suppression. xxxxxxx”

49. The Supreme Court in Continental Foundation Joint Venture Holding vs. Commissioner of Central Excise, Chandigarh-I¹⁴ also held:

“10. The expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as ‘fraud’ or “collusion” and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct.”

(emphasis supplied)

50. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication)¹⁵ also examined at length the issue relating to the extended period of limitation under the proviso to section 73 (1) of the Finance Act and held as follows;

“27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word “suppression‟ in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. “fraud, collusion, wilful misstatement”. As explained in Uniworth (supra), “misstatement or suppression of facts” does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid excise duty.

xxxxxxx

Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention.”

xxxxxxx

The Revenue has not been able to prove an intention on the part of the Appellant to avoid tax by suppression of mention facts. In fact it is clear that the Appellant did not have any such intention and was acting under a bonafide belief.”

(emphasis supplied)

51. Very recently the Delhi High Court in Mahanagar Telephone Nigam Ltd., also observed as follows:

“28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contravened the provisions of the Act with an intent to evade service tax. Thus, the main question to be addressed is whether the allegation that MTNL had suppressed material facts for evading its tax liability, is sustainable.

xxxxxxxxxx

41. In the facts of this case, the impugned show cause notice does not disclose any material that could suggest that MTNL had knowingly and with a deliberate intent to evade the service tax, which it was aware would be leviable, suppressed the fact of receipt of consideration for rendering any taxable service. On the contrary, the statements of the officials of MTNL, relied upon by the respondents, clearly indicate that they were under the belief that the receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL‟s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return.”

(emphasis supplied)

52. It has, therefore, been settled by the Supreme Court and the Delhi High Court that mere suppression of facts is not enough and there must be a deliberate and wilful attempt on the part of the assessee to evade payment of service tax. In the absence of any intention to evade payment of service tax, which intention should be evident from the materials on record or from the conduct of the assessee, the extended period of limitation cannot be invoked.

53. Paragraph 20 of the show cause notice merely alleges that the appellant had consciously suppressed the fact of availing inadmissible CENVAT credit with intent to evade payment of duty. The show cause notice does not elaborate or specify the intention. The impugned order passed by the Commissioner also, after noticing that where there is an obligation to speak, a failure to speak will constitute suppression of facts, holds:

“In this case it was conscious act of availing huge amount of inadmissible Cenvat credit and suppression thereof with an intent to evade payment of duty. Had the Department not conducted the audit, the inadmissible availment of such CENVAT Credit by the assessee would not have been unearthed. Hence, the assessee has suppressed the material facts intentionally from the department. Accordingly, I hold that the extended period of limitation is very well applicable in this case in terms of proviso to Section 73 (1) of the Finance Act.”

(emphasis supplied)

54. The show cause notice was issued on 20.07.2012. It is, therefore, important to ascertain at what point of time the department became aware that the appellant had availed CENVAT credit which according to the department was inadmissible.

55. As noticed above, the audit of the records of the appellant was conducted on 22.09.2010 and 23.09.2010 by the officers of Service Tax Commissionerate and the records of the appellant were examined. An objection regarding the purported erroneous availment of CENVAT credit by the appellant was communicated to the appellant by a letter dated 30.11.2010. The department was, therefore, fully aware of the facts in September 2010. The show cause notice could have been issued within the stipulated period of one year from the relevant date but it was not. The show cause notice also alleges that it is because of the audit that was conducted by the department that the department became aware about the inadmissible CENVAT credit availed by the appellant. Even if it is so, the notice could still have been issued within one year. The records, however, indicate that even before the audit was conducted in the month of September 2010, the appellant had disclosed details of the credit availed of the tax/duty paid on inputs, input services and capital goods in the ST-3 return which was filed on 25.04.2010 for the period October 2009 to March 2010. After the audit was carried out in September 2010, the appellant had also filed the ST-3 return on 25.10.2010 for the period April 2010 to September 2010, in which details of the credit availed were disclosed. The ST-3 return for the period October 2010 to March 2011 in which details were disclosed was also filed by the appellant on 25.04.2011. In such a situation, it is not permissible for the department to take re-course to the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act, particularly when the notice under section 73(1) of the Finance Act could have been issued within one year from the relevant date even with respect to the last return filed in April 2011. The order passed by the Commissioner, therefore, incorrectly assumes that the appellant had consciously suppressed facts and it is for this reason only that the order also holds that the appellant had an intention to evade payment of service tax.

56. The inevitable conclusion that follows from the aforesaid discussion is that the appellant had not suppressed facts, much less suppressed facts with an intention to evade payment of service tax. The extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act, therefore, could not have been invoked in the facts and circumstances of the present case.

57. The impugned order dated 12.12.2014 passed by the Commissioner disallowing CENVAT credit taken by the appellant and ordering for its reversal with penalty and interest cannot, therefore, be sustained as the entire amount covered by the show cause notice and the order is under the extended period of limitation.

58. In such circumstances it will not be necessary to examine whether the appellant had correctly availed CENVAT credit.

59. The appellant has also claimed refund of the amount under section 142(8) of the CGST Act as a consequence of the setting aside of the order passed by the Commissioner. It is for the appellant to claim refund in appropriate proceedings, as it may be advised.

60. The impugned order dated 12.12.2014 passed by the Commissioner is, therefore, set aside and the appeal is allowed. It is, however, expected that if an application for refund is filed by the appellant, it shall be decided expeditiously and in accordance with law as the show cause notice was issued on 20.07.2012 and the order was passed by the Commissioner on 12.12.2014.

(Pronounced in the open court on 11.01.2024)

 

Notes:

¹ the appellant

² the Credit Rules

³ the Finance Act

⁴ CVD

⁵ the Delhi Metro

⁶ the CGST Act

⁷ the Project

⁸ 2005 (189) ELT 257 (SC)

⁹ 2005 (188) ELT 149 (SC)

¹⁰ Service Tax Appeal No. 51787 of 2022 dated 21.08.2023

¹¹ W.P. (C) 7542 of 2018 decided on 06.04.2023

¹² 1995 (78) E.L.T. 401 (SC)

¹³ 2013 (288) E.L.T. 161 (SC)

¹⁴ 2007 (216) E.L.T. 177 (SC)

¹⁵ 2018 (12) GSTL 368 (Del.)