Principal Commissioner Of CGST And Cx Kolkata North Commissionerate vs. M/S Surya Vistacom Private LTD

Held

The High Court held that the CESTAT was justified in allowing the assessee's appeal. Regarding the first issue, the Court agreed with the CESTAT that the adjudicating authority could not mechanically apply the 6% rule on the assessee. If the assessee did not abide by Rule 6(3), it was open to the authority to reject the claim for disputed Cenvat Credit, but not to impose the 6% option on behalf of the assessee. The Tribunal also factually noted that the department mechanically applied 6% of the entire balance sheet turnover without proper justification. The Court also noted that a new sub-rule 3(aa) of Rule 6, introduced in March 2016, was not invoked by the adjudicating authority. The Court found the demand of Rs. 3,29,07,268/- unsustainable, especially when the legible Cenvat credit was Rs. 41,17,269/-. Regarding the second issue and the invocation of the extended period of limitation, the Court concurred with the CESTAT's finding that there was no justification for invoking it. The Court found no specific allegation of deliberate suppression or misstatement with intent to evade taxes in the show cause notice. Citing Supreme Court decisions, the Court held that mere non-payment of duties does not automatically attract the extended period; there must be deliberate default and wilful intent. The details were culled from available records, and no new tangible materials were presented to establish wilful misstatement or suppression. The substantial questions of law were answered against the revenue.

Facts

The Commissioner of Service Tax-1, Kolkata (appellant/revenue) filed an appeal against an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) that set aside a demand of duty against M/s. Surya Vistacom Private Limited (respondent/assessee). The revenue had issued a show cause notice alleging that the assessee had availed and utilized Cenvat Credit on service tax paid for renting of immovable property and security services, despite primarily being engaged in trading of goods. The assessing officer contended that the assessee failed to maintain separate accounts for taxable and exempted services as required by Rule 6(2) of the Cenvat Credit Rules, 2004, and did not exercise the option under Rule 6(3). The demand proposed was Rs. 3,29,07,268/-. The assessee argued that they had voluntarily reversed excess credit before the audit and paid the differential amount with interest and penalty, and that the extended period of limitation was wrongly invoked.

Key Issues

1. Whether the CESTAT was right in setting aside the demand of duty when the respondent/assessee, providing both taxable and exempted services, failed to maintain separate accounts as required under Rule 6(2) of the Cenvat Credit Rules, 2004, and failed to exercise the option under Rule 6(3) of the said Rules? 2. Whether the respondent/assessee is under an obligation to reverse proportionate Cenvat Credit in respect of trading activity, which is exempted, in terms of Rule 2(e) of the Cenvat Credit Rules, 2004? Contentions of the Appellant (Revenue): - The assessee failed to comply with Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules, 2004, necessitating the demand. - The assessee is obligated to reverse Cenvat Credit for exempted trading activities. Contentions of the Respondent (Assessee): - The matter was concluded post-audit with voluntary reversal of excess credit, interest, and penalty. - The extended period of limitation was wrongly invoked as there was no wilful suppression or intent to evade duty, citing Supreme Court decisions in Uniworth Textiles Ltd. and Pushpam Pharmaceuticals Co. - The adjudicating authority mechanically applied the 6% rule and did not consider the specific turnover of the units providing taxable services. - Relied on the decision in Tiara Advertising vs. Union of India regarding the application of Rule 6(3).