Dept Audit Findings Alone Insufficient to Invoke Extended Period Without Intent to Evade or Wilful Suppression: CESTAT [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that audit findings alone are not enough to invoke the extended limitation period without intent to evade or wilful suppression.

National Engineering Industries Ltd., the appellant, is engaged in the manufacture of ball bearings and axle boxes. The appellant has several units across India, including one at Khatipura, Jaipur, and an Input Service Distributor (ISD) office in Kolkata.

During an audit in 2017, the department observed that the ISD office had incorrectly distributed credit by failing to account for the turnover of the Vadodara unit, resulting in excess credit being availed by the Khatipura unit.

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The appellant reversed the excess credit in May 2018 and later re-availed it in March 2019, claiming that both units were entitled to the credit and that the exercise was revenue neutral.

The department issued a show-cause notice in December 2019, demanding the recovery of Rs. 94,70,738, along with interest and penalty, invoking the extended limitation period under Section 11A(4) of the Central Excise Act.

The adjudicating authority confirmed the demand, holding that the distribution was in contravention of the CENVAT Credit Rules and that revenue neutrality did not apply. The Commissioner (Appeals) upheld the decision.

The appellant's counsel argued that there was no suppression or intent to evade duty, as the appellant had regularly filed returns, its records had been audited, and all relevant facts were already with the department. They argued that a difference in the interpretation of rules cannot be treated as suppression.

They also pointed out that the demand was entirely beyond the normal limitation period of two years and that proceedings under the CENVAT Credit Rules were not maintainable once the credit had transitioned into the GST regime.

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The revenue counsel argued that the appellant wrongly availed credit meant for the Vadodara unit and failed to declare the correct facts under the self-assessment system. It was argued that but for the audit, the irregular availment would not have come to light, and thus extended limitation was rightly invoked.

The two-member bench comprising Justice DilipGupta (President) and P. Anjani Kumar (Technical Member)observed that to invoke the extended period, there must be wilful suppression with intent to evade duty, not merely an error or omission.

The court explained that discovery during audit does not by itself prove suppression, especially when the assessee has been filing returns and records were available to the department.

The tribunal pointed out that the burden was on the department to establish deliberate intent to evade and this was not discharged. Since the entire demand was covered only under the extended limitation period, the tribunal set aside the demand, interest, and penalty. The appellant’s appeal was allowed with consequential relief.

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