The Karnataka High Court bench of Justice P.S. Dinesh Kumar and Justice Anant Ramanath Hedge has held that the assessee is not liable for the suppression of facts as the show cause notice was issued on the basis of the disclosures made in the balance sheet.
The respondent/assessee is in the business of manufacturing and clearing turbochargers, electric motors, transformers, etc. falling under Chapter 85 of the Central Excise Tariff Act, 1985 (CETA). The assessee has been providing taxable output services such as management, maintenance, repairs, etc. For the purpose of paying service tax on the services rendered and on the import of services, the assessee has obtained service tax registration.
Based on the intelligence report, a show cause notice was issued stating that apart from manufacturing, the respondent was also engaged in the trading of electrical goods under the trade name "ABB" and it had wrongly utilised the Cenvat credit in relation to the trading activity. In the notice, the respondent was called upon to show cause as to why Rs. 5,68,00,000 should not be treated as a wrongful availment of Cenvat credit.
A reply was filed by the respondent, leading to an order in the original dated 30.04.2011 by the Chief Commissioner of Customs. The Chief Commissioner of Customs held that the Cenvat credit was inadmissible for trading activities and it was disallowed. The direction was issued for the appropriation of the sum in the Cenvat account on 31.08.2010 and it was paid under protest.
The assessee filed the appeal before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT). The tribunal held that there was no suppression of facts on the part of the assessee with an intent to evade payment of tax. The CESTAT confirmed the demand only for the normal period, i.e., disallowed appropriation of the payment made under protest on August 31, 2010 and interest at the applicable rate and penalty. The CESTAT held that there was no evasion of payment of tax and set-aside the demand for the extended period of limitation and confirmed the demand only for the normal period. The penalty relating to the normal period was also set aside during the relevant period on the ground that there was much confusion with regard to the availability of credit for trading activities.
The department has appealed against the order of CESTAT. The department submitted that the assessee did not declare its trading activities in the returns. Based on the intelligence report, the department learnt about the trading activities of the assessee. The findings recorded by the CESTAT that the department was well aware of the trading activity of the respondent were factually incorrect.
The assessee submitted that the show cause notice issued was on the basis of the balance sheet in which all activities of the assessee were truly declared. Therefore, there was no suppression of material facts.
The court ruled in favour of the assessee and against the department.
Case Title: Commissioner of Central Tax Vs ABB Limited
Case No: Central Excise Appeal No.16/2021
Citation: 2022 LiveLaw (Kar) 251
Counsel For Appellant: Advocate Jeevan J Neeralgi