Tribunal Overturns Rs. 18.95 Crore Service Tax Demand on KEC International, Citing Improper Invocation of Extended Limitation

CESTAT Chandigarh Bench rules that extended limitation period cannot be applied without evidence of deliberate intent to evade duty

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Regional Bench, has set aside a substantial service tax demand of Rs. 18,95,15,237 against M/s KEC International. The tribunal found that the invocation of the extended period of limitation by the revenue authorities was unjustifiable due to the absence of any deliberate intent to evade duty by the appellant. The judgment, delivered by Mr. S. S. Garg, Member (Judicial), and Mr. P. Anjani Kumar, Member (Technical), emphasizes strict adherence to statutory provisions governing the extension of limitation periods, particularly under Section 11A of the Central Excise Act, 1944.

KEC International, engaged in the execution of various works contracts involving taxable and exempted services, had reversed proportionate CENVAT Credit according to Rule 6(3A) of the CENVAT Credit Rules, 2004. The dispute arose when revenue authorities contended that KEC International should have considered the total CENVAT Credit, not just common input service credit, for reversal purposes prior to April 1, 2016. A show cause notice dated September 28, 2020, was issued following an investigation, leading to the confirmation of the demand along with interest and penalties.

The tribunal, however, ruled that the extended limitation period could not be invoked as there was no evidence of fraud, collusion, willful misstatement, suppression of facts, or intent to evade duty by KEC International. It highlighted that the company had regularly filed returns, disclosed its credit reversals, and cooperated with audits and investigations, thereby negating any allegations of suppression or misstatement.

Citing precedent judgments like Pushpam Pharmaceuticals Company v. Collector of Central Excise and the G.D. Goenka case, the tribunal reiterated that mens rea, or the intent to deceive, is central to invoking extended limitation. Mere negligence or divergent interpretations of law do not suffice. It underscored that the burden of proof lies with the revenue to demonstrate deliberate intent, which was not met in this instance.

The tribunal's decision is a reminder of the rigorous standards required for invoking extended limitation in tax matters. It also highlights the importance of clear legislative guidelines and adherence to established legal principles to ensure fairness and accountability in tax administration.

This ruling not only provides relief to KEC International but also sets a precedent for similar cases where extended limitation is invoked without substantial grounds. The appeal was allowed on the ground of limitation without delving into the merits of the case.

Bottom Line:

Service Tax - Extended period of limitation cannot be invoked unless there is evidence of fraud, collusion, willful misstatement, suppression of facts, or violation of provisions of the Act or Rules with intent.

Statutory provisions:

- Rule 6(3A) of CENVAT Credit Rules, 2004

- Section 66D of Finance Act, 1994

- Section 11A of Central Excise Act, 1944

- Section 78 of the Finance Act, 1994

M/s KEC International v. Commissioner of CGST & Central Excise, (CESTAT)(Chandigarh Regional Bench) : Law Finder Doc id # 2820096