Relief for Oman Air: CESTAT Rules Non-Reporting in ST-3 Returns Does Not Extinguish Validly Availed CENVAT Credit [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that valid CENVAT credit does not lapse simply because it was not reported in the ST-3 returns and that such non-reporting is only a procedural lapse which cannot take away the taxpayer’s right to use the credit.

Oman Air SAOC, the appellant, is an international airline operating in India and registered for service tax under the Finance Act, 1994. The airline had availed CENVAT credit of Rs. 6.70 crore on input services as of 30 September 2008.

The company did not show this credit in its biannual ST-3 returns for several years. The credit resurfaced in the April to September 2013 return after an internal review triggered by a departmental audit.

The department issued a show cause notice demanding recovery of Rs. 3.93 crore, with interest and penalty, on the ground that the credit had lapsed due to non-reporting. The Commissioner of Service Tax confirmed the demand under Section 73(2) of the Finance Act, 1994, read with Rule 14 of the CENVAT Credit Rules, 2004. Oman Air appealed the decision before the CESTAT.

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The appellant's counsel argued that the credit was validly availed, never reversed, and not wrongly used. They pointed out that there was no rule under the Finance Act or the CENVAT Credit Rules requiring credit to be reported within a specific time.

The revenue counsel argued that the credit had been lying unreported for over four years and was later brought back without permission. They said that such long-delayed restoration was not allowed under the law.

The two-member bench comprising C.J. Mathew (Technical Member) and Ajay Sharma (Judicial Member) observed that there was no allegation that the credit was wrongly availed or used improperly. It further observed that the non-reporting of the credit in ST-3 returns did not amount to a violation of any substantive law.

The tribunal stated that there was no legal requirement that credit must be reported within a reasonable time or else be forfeited. Since the credit remained recorded in Oman Air’s internal accounts and was accepted as partly used to settle prior liabilities, the tribunal held that it could not be denied merely due to procedural delay.

The tribunal ruled that the denial of credit in this case was unjustified and that the department’s order could not be sustained. The demand, interest, and penalty were set aside, and the appeal was allowed.

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