By TIOL News Service

MUMBAI, NOV 08, 2016: BOTH the assessee and Revenue are in appeal against the o-in-o passed by the CCE, Pune-I.

The assessee appellant is a manufacturer who also renders 'on-site' services and the allegations relate to the CENVAT credit account maintained at Pimpri. The demands proposed in the first show cause notice were for the centralized location at Pimpri having availed the credit of tax paid on services utilised at the Hyderabad facility, availment of credit of tax paid on services rendered to the headquarters facility, inability to furnish some documents relating to credit availed at Pimpri, availment of credit on ineligible input services, availment of credit before payments towards invoices were discharged, availment of credit on 'bought out' items supplied directly to site, wrong availment of credit on cement and steel, excess availment of credit of cess, short-payment of tax in CENVAT credit account and double utilisation of tax deposited towards tax dues. In the second SCN, the charges are some of those referred in the first SCN.

While disallowing some of the credits, the CCE, Pune-I held that the extended period of limitation could not be invoked for the earlier period (thus dropping the demand of Rs.12.22crores); nevertheless, the amounts confirmed, totaling Rs.66,91,644/- were held to have been paid as self-assessed as per section 73(3) of FA, 1994. For the later period, the amount confirmed was Rs.11760/-. Interest on confirmed amount was held as recoverable. Penalty provisions were not invoked.

The adjudicating authority while concluding that the demand is time barred took notice of audits in February 2005, March 2005, in March-April 2006, September 2005,in 2006 and in January-February 2009 to conclude that assessee was subject to periodic audits/scrutiny; that a number of notices in connection with taxes and duties pertaining to turnkey projects had been issued to the assessee implying that the scope of activities as well as their records had been subject to verification earlier; that the entire sets of demands were computed from the documents maintained and furnished by the assessee; that the entitlement of CENVAT credit was a dispute over interpretation of the statutory provisions and that, in those circumstances, suppression with deliberate intent cannot be alleged with much credibility.

The assessee is in appeal against the apparent appropriation of amounts towards the amounts confirmed, albeit held as time-barred. Revenue is in appeal against the dropping of the demand holding that the same is time barred.

The Bench opined that it would be prudent to first determine the correctness of the decision by which major portion of the demand was set aside on the ground of limitation.

Limitation:

While concurring with the finding that the demands in the first show cause notice are barred for confirmation and recovery, the CESTAT observed -

++ The audit scheme encompasses special attention to large taxpayers and the appellant-Commissioner cannot, with marked assurance, deny that the returns had not been scrutinized as part of the audit plan. There is also no allegation that returns were deficient or that these were not being filed regularly. If such magnitude of credit availment was not sufficient to excite the interest of tax auditors, then the scheme of audit needs to be revisited or the audit management concerned should be subject to inquiry for unreasonable disregard of revenue consideration.

++ It is amply clear from the grounds of appeal that the denial of CENVAT credit is sought on the basis of interpretation of definitions in the CENVAT Credit Rules, 2004. The statutory provision in Section 73 of Finance Act, 1994 are amply clear in permitting the extension of period of limitation only in the event of fraud, collusion, willful misstatement, suppression of facts, or any other contravention with intent to evade tax. Interpretational disputes and these specifically enumerated situations are mutually exclusive.

++ With the introduction and subsequent expansion of the credit scheme, there is an inbuilt disincentive to suppress facts for evasion of taxes/duty. Unlike levy and collection of duty/tax, the rules relating to CENVAT credit are not only comprehensive but also lay emphasis on record-keeping and maintenance. An assessee, especially a large one, will find it more convenient to account its transactions rather than lose by suppressing it. Hence, declarations in the semi-annual returns are adequate defense against the allegation of suppression.

Voluntary payments:

In the matter of the action of the adjudicating authority in holding that if amounts have been discharged voluntarily they are vested with the public exchequer even if barred from recovery, the Bench observed -

++ Any amount paid before such dues were held to be barred for recovery is, naturally, retainable as tax; it is not that tax was not leviable but that the mechanism for collection of that levy is incapacitated beyond the normal period of limitation. Conversely, such amounts do not have to be subject to recovery or appropriation in statutory proceedings. That the adjudicating Commissioner has done so implies that the wherewithal by which the recovery was made before it was held to be barred is not available on records. These amounts would, in other circumstances, have been disallowed and hence reversed in the CENVAT Credit account. Without a specific order of reversal, such an order of recovery is unenforceable. Except to the extent that the assessee has already reversed the said amounts, the orders relating to deemed discharge are not tenable and are set aside.

In fine, the Bench rejected the appeal of Revenue. The appeal of assessee was allowed to the extent of setting aside the demands that, despite being barred by limitation, were held to have been due for discharge by default.

(See 2016-TIOL-2895-CESTAT-MUM)