Extended Limitation Not Invocable when CENVAT Credit Availed was Disclosed in Returns: CESTAT Grants Relief to HCL Technologies [Read Order]

The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) held that the extended period of limitation cannot be invoked for recovery of CENVAT credit when the credit availed was disclosed in statutory returns and refund claims, and that penalty is not sustainable in such cases.

HCL Technologies Ltd., the appellant, is engaged in providing information technology software services and other taxable services, a significant portion of which were exported. Since the output services were exported, the appellant accumulated CENVAT credit on various input services and filed refund claims under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 5/2006-CE (NT).

During scrutiny of these refund claims, the department alleged that the appellant had wrongly availed CENVAT credit on certain input services and on invoices that did not contain complete details. A show cause notice was issued for the period April 2007 to September 2011 proposing recovery of credit by invoking the extended period of limitation, along with interest and penalty.

The Commissioner partly confirmed the demand, allowed credit on some services, invoked the extended period, and imposed a penalty under Section 78 of the Finance Act, 1994. Aggrieved, the appellant approached the CESTAT.

The appellant’s counsel argued that invocation of the extended period was unsustainable as there was no suppression or misstatement of facts. It was argued that the appellant had regularly filed ST-3 returns and had disclosed the availment of CENVAT credit in those returns. All invoices and supporting documents were submitted along with the refund claims.

The counsel argued that merely because the department examined the documents at a later stage, it could not allege suppression. They also argued that credit on many disputed input services had already been allowed in the appellant’s own earlier cases.

The revenue counsel argued that the department came to know about the inadmissible credit only during detailed scrutiny of refund claims and invoices. They argued that this justified invocation of the extended period. The revenue also argued that services such as outdoor catering, accommodation, gym-related services, and invoices lacking proper particulars were not eligible input services and that penalty was correctly imposed.

The two-member bench comprising P. Dinesha (Judicial Member) and Sanjiv Srivastava (Technical Member) examined the records and observed that the appellant had consistently filed ST-3 returns and refund claims disclosing the CENVAT credit availed.

The Tribunal observed that the statutory returns did not require service-wise or invoice-wise disclosure and that all documents were already available with the department during refund processing. The Tribunal explained that extended limitation cannot be invoked merely because the department chose to scrutinize the documents in detail at a later stage.

On merits, the Tribunal observed that CENVAT credit on several disputed input services had been allowed in the appellant’s own earlier cases. At the same time, the Tribunal observed that outdoor catering services were specifically excluded from the definition of input service after the relevant amendment and credit on such services was not admissible for the post-amendment period. The Tribunal also observed that credit on invoices lacking proper description and on services meant for personal consumption of employees was not admissible.

The Tribunal pointed out that once the extended period was held to be not invocable, the penalty under Section 78 could not survive. One portion of the demand relating to alleged double addition of credit was remanded for limited factual verification. Except for this limited remand, the appeal was partly allowed in favour of HCL Technologies Ltd.