In a recent case, the Chennai Bench Of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the action of the department in proposing and demanding service tax on alleged wrongful availment of credit by invoking the extended period of limitation after 3 years is not justified.
The appellant/assessee, M/s. Xomox Sanmar Ltd., manufactures industrial valves and their spare parts under Chapter Headings 84818030 and 84819090. Input services to Unit II were taken as credit by the appellant (Unit I) during the CERA audit of the appellant’s 2008–2011 accounts and other related records pertaining to input service tax credit received for the 2009–2010 year issued by the Corporate Office at Chennai with an ISD certificate.
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According to the papers reviewed, the Head Office Service Tax amount that was transferred to the usage account via ISD in December 2009 was Rs. 30,07,771/-. In a letter dated February 26, 2013, the appellant further attested that the manufacturing of steel structures was exclusively performed at their Unit-II. The Input Service Distributor (ISD) distributing credit must provide an invoice with specific information, such as the name and address of the beneficiary of the credit, in accordance with Rule 4(2) of the Service Tax Rules, 1944.
Since the assessee’s name and correct address were missing from the input service tax credit document, the Department believed that the appellant could not have received the input service and was therefore unable to claim credit. As a result, credit was granted for an invoice that was unrelated to their unit.
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In order to deny or recover the cenvat credit taken on input services up to Rs. 30,07,771/-along with interest and to propose an equal penalty, a show-cause notice was sent to the appellant. A thorough response to SCN seemed to have been submitted by the appellant. Following the required legal procedures, the Original Authority verified the demand, added interest, and assessed an equal penalty in accordance with Section 11AC of the Central Excise Act of 1994 and Rule 15 of the Cenvat Credit Rules of 2044.
The two-member bench of P. Dinesha, a judicial member, has noted that nothing has been documented that would explain why the department did not issue a show-cause notice right away after discovering an incorrect availment, etc., during the audit. It’s still glaringly obvious why or what caused them to postpone the show cause notice for an additional three years. Furthermore, despite being brought to light through their response to the SCN, this has not been taken into consideration at all.
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The tribunal determined that the appellant’s use of the ineligible credit made it abundantly evident that the recovery of the credit called for the application of an extended statute of limitations. On the other hand observed that the Revenue has not satisfactorily proved the invoking of extended period of limitation while raising the impugned demand and the order that has upheld the above demand cannot sustain, for which reason, I set aside the same on limitation alone.
The CESTAT granted the appeal and determined that the ruling upholding the contested demand could not be sustained because the department had not adequately demonstrated the use of the extended period of limitation when bringing the demand.
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