Extended Limitation Cannot Apply When Dept Itself Disputed CERA Audit Objection: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that extended limitation could not be invoked when the department itself had disputed the CERA audit objection that led to the show cause notice.

Precision Equipments Chennai Pvt. Ltd., the appellant, manufactured heat exchangers and also undertook job work. The department viewed that certain job work activities, which allegedly did not amount to manufacture, were taxable under Business Auxiliary Service under Section 65(19) of the Finance Act, 1994.

A show cause notice dated May 21, 2007 was issued for the period from September 10, 2004 to March 31, 2006. It proposed recovery of service tax of Rs. 4,54,786 with interest and penalties. The adjudicating authority confirmed the demand and imposed penalties under Sections 77 and 78. The Commissioner (Appeals) rejected the appeal.

Advocate J. Shankarraman appeared for the appellant. The appellant’s counsel argued that the notice was barred by limitation. They submitted that the demand arose from a CERA audit objection and that the department itself had disputed the audit objection. The matter was also kept in the call book.

The appellant’s counsel argued that when the department itself did not accept the CERA objection, the issue was only interpretational. It submitted that suppression could not be alleged in such circumstances.

On merits, the appellant argued that during part of the disputed period, Business Auxiliary Service covered production of goods on behalf of a client and not mere processing. It also argued that some activities amounted to manufacture and that excise duty had been paid on certain goods.

The revenue counsel argued that the appellant had not produced sufficient evidence to show payment of excise duty or manufacture in all cases. The counsel submitted that the services were rightly taxable under Business Auxiliary Service.

The two-member bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) first examined limitation. The tribunal observed that the disputed period was from September 10, 2004 to March 31, 2006, whereas the notice was issued on May 21, 2007, beyond the then-applicable normal one-year period.

The tribunal observed that limitation goes to jurisdiction and must be examined at the threshold. It found that paragraph 21 of the original order admitted that the show cause notice was issued due to CERA audit objections and that the department had disputed the issue.

The tribunal observed that the department’s own stand showed that the matter was interpretational. It held that suppression requires deliberate withholding of material facts and cannot be inferred merely because an audit objection was raised.

The tribunal held that the extended period could not be invoked. Since the notice was time-barred, the tribunal did not examine the merits. The impugned order was set aside with consequential relief.

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