Service Tax | Extended Limitation Cannot Be Invoked Without Mens Rea, Deliberate Intent To Evade Duty To Be Proven: CESTAT Chandigarh

A Bench comprising Hon'ble Mr. S.S. Garg (Judicial Member) and Hon'ble Mr. P. Anjani Kumar (Technical Member) allowed the appeal filed by the assessee and quashed the Order-in-Original passed by the Commissioner of CGST & Central Excise, Panchkula. solely on limitation grounds, holding that the extended period under Section 73 cannot be invoked without proven mens rea deliberate fraud, suppression with evasion intent, or willful misstatement as mandated by Supreme Court in Pushpam Pharmaceuticals (1995) 78 ELT 401 (SC).

The Bench stated that mens rea is central to invoking the extended period and observed that mere negligence, bona fide mistakes, or divergent interpretations of law are insufficient grounds for invoking the extended period, a deliberate intent to evade duty must be conclusively proven by the revenue.

The assessee, KEC International is engaged in execution of works contracts and provides both taxable as well as exempt services. The assessee had been reversing proportionate CENVAT credit under Rule 6(3A) of the CENVAT Credit Rules, 2004, by taking into account only common input service credit.

The Revenue took the view that prior to 01.04.2016, the assessee was required to consider total CENVAT credit for the purpose of reversal, and not merely common credit. On this basis, a show cause notice was issued for the period 2014-15 to 2015-16, proposing recovery of ₹18.95 crore along with interest and equal penalty under Section 78 of the Finance Act, 1994. The demand was confirmed by the adjudicating authority.

The assessee argued that the issue was no longer res integra and stood settled by several Tribunal decisions, including Reliance Industries Ltd., holding that for the purpose of the reversal formula, “total CENVAT credit” refers only to common input service credit.

It was further argued that the amendment made to Rule 6 in 2016 was clarificatory in nature, that trading of goods cannot be treated as an exempted service merely because it appears in the negative list, and that exports cannot be treated as exempted services. The assessee also specifically challenged the invocation of the extended period, submitting that all details were disclosed in returns and there was no suppression or wilful misstatement.

The CESTAT examined the issue of limitation at the outset and held that the extended period of limitation could not be invoked in the facts of the case.

The Bench observed that terms such as fraud, wilful misstatement and suppression of facts require a deliberate act with intent to evade duty. It held that “mere omission, negligence, or inadvertence, without deliberate intent, does not constitute suppression”.

The Bench noted that KEC International had been regularly filing returns, disclosing the manner in which credit was reversed. It held that if the Department failed to scrutinize the returns in time, such lapse could not be attributed to the assessee.

The Bench held that the Revenue failed to establish any positive act or intent to evade tax, the Tribunal concluded that the demand was barred by limitation. On this ground alone, the impugned order was set aside, without examining the merits of the dispute.

In view of the above, the Bench allowed the appeal of the assessee.

Case Title: M/S KEC International

Case No.: Commissioner of CGST & Central Excise, Panchkula

Appaerance for Appellant: Shri Bharat Raichandani and Shri Deepak Kumar Khokhar

Appearance for Respondent: Shri Siddharth Jaiswal and Shri S.K. Meena

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