CESTAT clarifies Limitation period & Assessee & Officer Roles in ST 3 Return Scrutiny

GD Goenka Private Limited Vs Commissioner of Central Goods and Services Tax (CESTAT Delhi)

Introduction: The CESTAT Delhi recently pronounced a judgement in the case of GD Goenka Private Limited Vs Commissioner of Central Goods and Services Tax. The matter was represented by Adv Pawan Arora from Athena Law Associates, Delhi. This article delves into the crux of the decision.

Key Points of the Judgement:

1. Filing ST 3 Returns: GD Goenka Private Limited, the appellant, correctly filed the ST 3 Returns. In the absence of a specific request from the Central Excise officer, the appellant isn’t obligated to furnish additional documents or make further disclosures.

2. Role of the Central Excise Officer: Once the ST-3 returns are filed, the onus lies on the Central Excise Officer to meticulously review them. Should there be any discrepancies, the officer must conduct a best judgment assessment under Section 72 and initiate an SCN under Section 73 within the stipulated timeframe. If the officer overlooks any aspect leading to a tax oversight, it’s the officer who bears the responsibility, not the appellant.

3. Loss of Revenue due to Policy Decisions: The Central Excise Officer has the authority to thoroughly inspect returns and demand records. However, if the CBIC guidelines instruct not to carry out a detailed review of returns and this leads to revenue loss, the blame cannot be placed on the assessee or the officer. The revenue loss emerges from the board’s strategic decisions.

4. Invoking Extended Limitation Period: The extended limitation period is strictly for instances of fraud, collusion, intentional misrepresentation, facts suppression, or any blatant violation of the Act’s provisions or its rules.

5. No Presumption of Intentional Suppression: The court clarified that intentional and deliberate suppression of facts couldn’t be assumed just because:

• • The appellant operated under self-assessment.
  • There was a disagreement with the audit concerning CENVAT credit’s admissibility.
  • No clarification was sought from the Revenue department.
  • Detailed scrutiny of returns and the CENVAT credit, alleged to be inadmissible, wasn’t carried out by the officer and only came to light during an audit.

Conclusion: The judgement in the GD Goenka Private Limited Vs Commissioner of Central Goods and Services Tax case underscores the significance of clear and defined roles within the tax administration system. By highlighting the responsibilities and limitations of both the assessee and the Central Excise Officer, the verdict provides clarity on how procedural lapses should be addressed.

FULL TEXT OF THE CESTAT DELHI ORDER

1. M/s. G D Goenka Private Limited¹ filed this appeal to assail the Order in Original² dated 29.4.2022 passed by the Commissioner of CGST, Delhi South in de novo proceedings. The operative part of the order is as follows:

ORDER

(i) I drop the demand of Cenvat Credit of Rs. 25,750/-received & utilised for development of franchisee service during the Financial year 2010-11, as discussed supra;

(ii) I hereby order that CENVAT Credit amounting to Rs 51,44,455/- (Rupees Fifty One Lakh Forty Four Thousand Four Hundred and Fifty Five only) availed/ utilized wrongly during the period 2007-08 to 2011-12, as discussed, to be recovered from M/s G.D. Goenka Pvt. Ltd., N-85, Connaught Place, New Delhi-01, under Rule 14 of CENVAT Credit Rules, 2004 read with Section 73 (1) of Finance Act 1994, as amended by invoking extended period of limitation. I appropriate the confirmed demand amounting to Rs.51,44,455/- out of Rs.52,95,634/-already deposited by M/s G.D.Goenka Pvt. Ltd;

(iii) I drop the demand of Service Tax amounting to Rs.1,25,429/- on wrong adjustment of excess amount paid;

(iv) I order for charging and recovery of interest at appropriate rate on late payment of service tax and on Rs.51,44,455/- of Cenvat Credit due to be reversed till the date of deposit of service tax from M/s G.D.Goenka Pvt. Ltd., N-85, Connaught Place, New Delhi-01, under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 75 of the Finance Act, 1994.

(v) I order for recovery of interest of Rs.43,231/- for the intervening period in respect of the ineligible Cenvat Credit taken prior to the date of eligibility of Cenvat Credit from M/s G.D.Goenka Pvt. Ltd., N-85, Connaught Place, New Delhi-01, under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 75 of the Finance Act, 1994;

(vi) I confirm the demand of interest of Rs 6,678/- in place of earlier demand of interest of Rs 47,163/-due to payment of Service tax on Franchise Service & Renting of Immovable Property after due date and order for recovery for the same under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 75 of the Finance Act, 1994;

(vii) I appropriate the amount of interest confirmed in Para (iv), (v) & (vi) above, out of Rs.23,35,935/-, already deposited as interest by M/s G.D. Goenka Pvt. Ltd;

(viii) I hereby dispose of the remand proceeding initiated as directed by the Hon’ble CESTAT, Delhi, vide its Final Order No. 50457-50458/2019 dated 28.03.2019, in above terms.

2. This is the second round of litigation. Initially, the matter was decided by the Commissioner by Order dated 10.4.2015 and on appeal, this Tribunal, by Final Order dated 28.3.2019, remanded the matter to the Commissioner to examine the matter both on merits and on limitation. Following this order of the Tribunal the impugned order was passed.

3. According to the learned counsel for the appellant, the appellant had built two high quality school buildings and provided high quality school education from these and this service of school education is an exempted service. The appellant also provided two other services, viz., franchisee service and renting of immovable property service on which it paid service tax.

4. The appellant availed CENVAT credit on various input services which had gone into the construction of the school building and used it to pay service tax on the franchisee service and renting of immovable property service. According to the Revenue, this credit is ineligible because the input services were used in constructing the school building to provide school education which is an exempted service. According to the appellant, CENVAT credit was available and it was correctly taken because the school building and the school were used to provide franchisee services. Learned counsel for the appellant submits that franchisee service is not just lending one’s name to someone else to provide a service but it also requires the franchisor to educate the franchisee on how to run the business and what standards to maintain which could not have been done without the school. Thus, they used the school to train franchisees and educate them regarding the standards to be maintained in the schools which will be run by them under the brand name of the appellant. According to the learned counsel, therefore, there is a direct nexus between the input services used to construct the school building and the taxable franchisee services provided by the appellant.

5. It is also his submission that the appellant had rented out a portion of the school building to its associate firm M/s. GD Goenka Group. This renting of immovable property was a taxable service on which the appellant paid service tax. Thus, the input services used for constructing the school building were also used by the appellant to provide renting of immovable property service to M/s G D Goenka group.

6. Learned counsel for the appellant further submits that as per Rule 6(5) of the Cenvat Credit Rules, 2004³, in respect of some input services, full credit will be available unless such services are exclusively used for providing exempted services and it is not necessary to apportion such input services as used for providing taxable and exempted services. All the input services in dispute are covered by Rule 6(5). Even though these services were also used to provide exempted service, viz., school education, since they were also used to provide franchisee services and renting of immovable property service, full CENVAT credit was available to the appellant as per Rule 6(5) of CCR.

7. Learned counsel for the appellant also argued on the limitation. He submits that extended period of limitation under the proviso to section 73 (1) of the Finance Act, 1994 was invoked but none of the essential ingredients to invoke it viz., fraud or collusion or wilful misstatement or suppression of facts or violation of Act or Rules with an intent to evade payment of service tax were present in the case. He submits that if the extended period of limitation is not invoked only a small portion of the demand pertaining to architectural services for the period 2011-12 remains which, they concede, was not available as input service as this service was excluded from the definition of input services through an amendment. He submits the break-up of the demand as follows.

8. Before we proceed to examine the merits of the case, we proceed to examine the question of limitation. The reasons for invoking extended period of limitation given in the Show Cause Notice⁴ was that after audit, a letter dated 7.9.2012 was sent to the appellant asking it to pay the service tax short paid due to wrong availment of CENVAT credit along with interest and penalty. The appellant had deposited it but sent a letter dated 30.11.2012 contending that the amount was not deposited by it voluntarily as it was deposited without SCN and adjudication. Further, the appellant had deposited the service tax with interest, but failed to deposit the penalty and instead contested the voluntary deposit of the service tax. By doing so, according to the SCN, the appellant had intentionally and wilfully suppressed the facts of availing inadmissible CENVAT credit on the inputs which were used for non-taxable services. Thus, according to the SCN, the appellant had deposited the disputed tax and interest but not the penalty but later contested the demand itself and by doing so, the appellant had intentionally and wilfully suppressed the facts of availing inadmissible CENVAT credit.

9. The impugned order confirmed the demand invoking extended period of limitation on the ground that from 16.7.2001, self-assessment of service tax was introduced, wherein the Superintendent of Central Excise is empowered only to verify the correctness of the Returns under section 71 of the Act. Under self-assessment, the appellant assessee was required to assess its own tax due on the services provided by it and file returns under section 70. The appellant had wrongly availed CENVAT credit on invoices which were for “input services” used in the construction of school building which was used to provide service of school education which was not chargeable to service tax. Thus, the onus is on the appellant to correctly self-assess service tax and file the return within the stipulated time was not discharged. There is no evidence to the effect that the appellant had sought any clarification from the Department in this regard. Accordingly, the appellant wilfully and deliberately suppressed the facts from the Department so as to avoid its liability. Learned authorised representative has also submitted that but for the audit the irregular availment of CENVAT Credit would not have been noticed.

10. Thus, according to the Revenue, extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 was correctly invoked for the following reasons.

(a) The appellant had, during the audit, deposited the allegedly short paid service tax but later disputed it which shows its intention to evade payment of service tax.

(b) The appellant was operating in a regime of self-assessment in which it was required to self-assess service tax and pay it and file returns correctly. Since the appellant had not assessed the service tax correctly by availing and utilising ineligible CENVAT credit, it is a violation of the provisions of the Act and Rules and it amounts to intentional and wilful suppression of the fact of availing inadmissible CENVAT credit.

(c) The appellant did not disclose to the department in its returns that it had availed CENVAT credit of the service tax paid on services which do not qualify as input services in the case.

(d) The appellant did not even seek clarification from the department regarding the eligibility of the CENVAT credit.

(e) But for the audit, the fact that the appellant availed ineligible CENVAT credit would have never come to light.

11. We have examined these grounds for invoking extended period of limitation.

12. Section 73 provides for recovery of service tax not levied, not paid, short levied, short paid or erroneously refunded. The provisions of this section apply mutatis mutandis to irregularly availed CENVAT credit recoverable under Rule 14 of CCR. This section permits invoking extended period of limitation to raise a demand on the following grounds:

a) Fraud; or

b) Collusion; or

c) Wilful misstatement; or

d) Suppression of facts; or

e) Violation of the Act or Rules with an intent to evade payment.

13. There is no other ground on which the extended period of limitation can be invoked. Evidently, fraud, collusion, wilful misstatement and violation of Act or Rules with an intent all have the mens rea built into them and without the mens rea, they cannot be invoked. Suppression of facts has also been held through a series of judicial pronouncements to mean not mere omission but an act of suppression with an intent. In other words, without an intent being established, extended period of limitation cannot be invoked. In Pushpam pharmaceuticals company vs Collector of Central Excise Mumbai⁵, the Supreme Court examined Section 11A of the Central Excise Act, 1944 which was worded similar to Section 73 of the Finance Act, 1994 and held 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 course 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.”

14. In this appeal, the case of the Revenue is that the appellant had wilfully and deliberately suppressed the fact that it had availed ineligible CENVAT credit on input services. The position of the appellant was at the time of self-assessment and, during the adjudication proceedings and is before us that it is entitled to the CENVAT credit. Thus, we find that it is a case of difference of opinion between the appellant and the Revenue. The appellant held a different view about the eligibility of CENVAT credit than the Revenue. Naturally, the appellant self-assessed duty and paid service tax as per its view. Such a self-assessment, cannot, by any stretch of imagination, be termed deliberate and wilful suppression of facts.

15. Another reason given in the SCN for invoking extended period of limitation was that the appellant had deposited the disputed amount of service tax during audit but later disputed it which shows the appellant’s intent to wilfully and deliberately suppress the facts. This reasoning of the Revenue cannot be accepted because there is nothing in the law which requires the assessee to accept the views of the audit or of the Revenue. There is nothing in the law by which an inference of intent to evade can be drawn if the assessee does not agree with the audit. It also does not matter if the assessee deposited the disputed amount as service tax during audit and later disputed it. Often, during audit or investigation, the assessee deposits some or all of the disputed amounts and later, on consideration or after seeking legal opinion, disputes the liability and seeks a notice or an adjudication order. This does not prove any intent to evade or deliberate or wilful suppression of facts.

16. Another ground for invoking extended period of limitation given in the impugned order is that the appellant was operating under self-assessment and hence had an obligation to assess service tax correctly and take only eligible CENVAT credit and if it does not do so, it amounts to suppression of facts with an intent to evade and violation of Act or Rules with an intent to evade. We do not find any force in this argument because every assessee operates under self-assessment and is required to self-assess and pay service tax and file returns. If some tax escapes assessment, section 73 provides for a SCN to be issued within the normal period of limitation. This provision will be rendered otiose if alleged incorrect self-assessment itself is held to establish wilful suppression with an intent to evade. To invoke extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed simply because the assessee is operating under self-assessment.

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.

18. Another ground for invoking extended period of limitation is that the appellant had not sought any clarification from the department. We find that there is neither any provision in the law nor any obligation on the assessee to seek any clarification. It was held by the High Court of Delhi in paragraph 32 of Mahanagar Telephone Nigam Ltd. vs. Union of India & Ors.⁶ as follows:

“32. As noted above, the impugned show cause notice discloses that the respondents had faulted MTNL for not approaching the service tax authorities for clarification. The respondents have surmised that this would have been the normal course for any person acting with common prudence. However, it is apparent from the statements of various employees of MTNL that MTNL did not believe that the amount of compensation was chargeable to service tax and therefore, there was no requirement for seeking clarifications. Further, there is no provision in the Act which contemplates any procedure for seeking clarification from jurisdictional service tax authority. Clearly, the reasoning that MTNL ought to have approached the service tax authority for clarification, is fallacious.”

Therefore, there is no force in this ground also.

19. It has also been pointed out that but for the audit, the allegedly irregularly availed CENVAT credit would not have come to light. It is incorrect to say that but for the audit, the alleged irregular availment of CENVAT credit would not have come to light. It is undisputed that the appellant has been self-assessing service tax and filing ST-3 Returns. Unlike the officers, the assessee is not an expert in taxation and can only be expected to pay service tax and file returns as per its understanding of the law. The remedy against any potential wrong assessment of service tax by the assessee is the scrutiny of the Return and best judgment assessment by the Central Excise Officer under section 72. This section reads as follows:

“72. Best judgment assessment. If any person, liable to pay service tax,—

(a) fails to furnish the return under section 70;

(b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder, the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.”

20. Thus, ‘the central excise officer’ has an obligation to make his best judgment if either the assessee fails to furnish the return or, having filed the return, fails to assess tax in accordance with the Act and Rules. To determine if the assessee had failed to correctly assess the service tax, the central excise officer has to scrutinize the returns. Thus, although all assessees self-assess tax, the responsibility of taking action if they do not assess and pay the tax correctly squarely rests on the central excise officer, i.e., the officer with whom the Returns are filed. For this purpose, the officer may require the assessee to produce accounts, documents and other evidence he may deem necessary. Thus, in the scheme of the Finance Act, 1994, the officer has been given wide powers to call for information and has been entrusted the responsibility of making the correct assessment as per his best judgment. If the officer fails to scrutinise the returns and make the best judgment assessment and some tax escapes assessment which is discovered after the normal period of limitation is over, the responsibility for such loss of Revenue rests squarely on the shoulders of the officer. It is incorrect to say that had the audit not been conducted, the allegedly ineligible CENVAT credit would not have come to light. It would have come to light if the central excise officer had discharged his responsibility under section 72.

21. This legal position that the primary responsibility for ensuring that correct amount of service tax is paid rests on the officer even in a regime of self-assessment was clarified by the Central Board of Excise and Customs⁷ in its Manual for Scrutiny of Service Tax Returns the relevant portion of which is as follows:

1.2.1A The importance of scrutiny of returns was also highlighted by Dr. Kelkar in his report on Indirect Taxation⁸. The observation made in the context of Central Excise but also found to be relevant to Service Tax is reproduced below:

It is the view that assessment should be the primary function of the Central Excise Officers. Self-assessment on the part of the taxpayer is only a facility and cannot and must not be treated as a dilution of the statutory responsibility of the Central Excise Officers in ensuring correctness of duty payment. No doubt, audit and anti-evasion have their roles to play, but assessment or confirmation of assessment should remain the primary responsibility of the Central Excise Officers.

(emphasis supplied)

22. Therefore, to say that had the audit not been conducted, the incorrect availment of CENVAT credit would not have come to light is neither legally correct nor is it consistent with the CBEC’s own instructions to its officers.

23. For the sake of completeness, it needs to be pointed out that the aforesaid Manual provides for two levels of scrutiny-preliminary scrutiny of all Returns and Detailed Scrutiny of some Returns selected based on some criteria laid down in it. Relevant extracts of the manual are as follows:

1.2A Service Tax administration has had the benefit of building on the experience of Central Excise administration which is an older tax going back to 1870. More recently, in July 2000, under the CIDA-assisted capacity building project, a detailed business process reengineering exercise was initiated. For the first time, key business processes were identified and small working groups set up to examine each business process and suggest qualitative improvements to enhance revenue efficiency and ensure taxpayer satisfaction. The business re-engineering exercise conducted for returns’ scrutiny revealed the need to distinguish between preliminary scrutiny and detailed scrutiny in a two-tier scrutiny process.

1.2B It was decided that a preliminary scrutiny would be conducted on all returns. This could even be undertaken online. Detailed scrutiny, on the other hand, would cover select returns, identified on the basis of risk parameters, drawn from the information furnished by taxpayers in the statutory returns (Service Tax returns or ST-3 in this case). CBEC felt that facilitating preliminary scrutiny online would enhance efficiency and release manpower for detailed manual scrutiny, which could then become the core function of the Range/Group.

2) A detailed scrutiny programme also serves a ‘workload development’ function by initiating referrals for audit/anti-evasion.

1.2.2 Authority and Ownership

1.2.2A The authority to conduct scrutiny of returns for verifying the assessment done by the assessee is provided in Rule 5A of the Service Tax Rules, 1994. This rule, interalia, authorizes the Commissioner to empower any officer to carry out ‘Scrutiny, verification and checks, as may be necessary to safeguard the interest of revenue’. The Rule also allows the officer to call for any record maintained by the assessee for accounting of transactions, the trial balance or its equivalent, and the Income Tax Audit Report maintained under Section 44AB of the Income Tax Act. In other words, the Rule permits the officer to examine financial records for scrutinizing the return to determine the correctness of the assessments made. In pursuance of this, the Board has also issued guidelines vide letter F.No.137/27/2007 CX.4, dated 08.02.2007, which makes it mandatory to scrutinize returns on a regular basis. Details of the Board’s guidelines on returns’ scrutiny are discussed in Chapter 2 of this Manual.

1.2.2B The guidelines clearly envisaged that returns’ scrutiny would become the core function of the Service Tax Group/Range, supervised by the Assistant Commissioner of the Service Tax Unit.

24. Thus, the CBEC took a conscious decision that detailed scrutiny of the Returns should be done only in some cases selected based on some criteria. In those Returns, where detailed scrutiny is not done by the officers some tax may escape assessment which may not be discovered within the normal period of limitation. As a matter of policy, the CBEC, took such risk and the loss of Revenue is a result of the policy.

25. To sum up:

a) The appellant assessee was required to file the ST 3 Returns which it did. Unless the Central Excise officer calls for documents, etc., it is not required to provide them or disclose anything else.

b) It is the responsibility of the Central Excise Officer with whom the Returns are filed to scrutinise them and if necessary, make the best judgment assessment under section 72 and issue an SCN under Section 73 within the time limit. If the officer does not do so, and any tax escapes assessment, the responsibility for it rests on the officer.

c) Although the Central Excise Officer is empowered to scrutinise all the Returns call for records and if necessary, make the best judgment assessment, if, as per the instructions of CBIC, the officer does not conduct a detailed scrutiny of same Returns and as a result is unable to discover any short payment of tax within the period of limitation, neither the assessee nor the officer is responsible for such loss of revenue. Such a loss of Revenue is the risk taken by the Board as a matter of policy.

d) Extended period of limitation cannot be invoked unless there is evidence of fraud or collusion or wilful misstatement or suppression of facts or violation of the provisions of Act or Rules with an intent.

e) Intentional and wilful suppression of facts cannot be presumed because (a) the appellant was operating under self-assessment or (b) because the appellant did not agree with the audit and claimed that CENVAT credit was admissible; or (c) because the appellant did not seek any clarification from the Revenue; or (d) because the officer did not conduct a detailed scrutiny of the Returns and the availment of CENVAT credit which is alleged to be inadmissible and was discovered only during audit.

26. We, therefore, find in favour of the appellant on the question of limitation. As the entire demand except what has been conceded by the appellant falls beyond the value period of limitation it is not necessary to examine the merits of the case.

27. For the above reasons, the impugned order is set aside except to the extent of denial of CENVAT credit or Rs. 1,45, 724 on the architectural services during the period 2011-12 and interest thereon and order of its recovery. The appeal is, accordingly, partly allowed.

[Order pronounced on 21.08.2023]

Notes:-

1 Appellant

2 Impugned order

3 CCR

4 SCN

5 1995 (78) E.L.T. 401 (S.C.)

6 2023-TIOL-407-DELHI HIGH COURT

7 CBEC

8 Report of the Task Force on Indirect Taxation 2002, Central Board of Excise and Service Tax, Government of India.