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2025 (4) TMI 965 - AT - Service TaxAvailment of abatement under N/N. 1/2006 Service Tax dated 01.03.2006 - commercial or industrial construction construction of residential complex services - simultaneously availing CENVAT Credit of Service tax on input services used for providing such taxable services - obligation to maintain separate accounts for taxable and exempted services as prescribed under Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules 2004 - Extended period of limitation - HELD THAT - From the wordings of Notification No. 01/2006-ST dated 01.03.2006 it is apparent that the benefit of abatement is available only when service provider is not taking any CENVAT Credit either on Capital Goods/inputs/input Services. Further it is noted that Rule 6 of CENVAT Credit Rules 2004 provides for certain obligations of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services. According to Rule 6(2) a separate account is required to be maintained in respect of input services if the output services are taxable as well as exempted. Rule 6(3) considers a situation wherein when separate account is not maintained in such a situation either a flat amount as a percentage of exempted taxable services is to be paid or an amount as prescribed under Rule 6(3A) is liable to be paid - In case abatement is availed then Cenvat credit cannot be availed if they have availed Cenvat credit then abatement cannot be availed. In the instant case the appellant has chosen to avail abatement and take Cenvat credit. It was then incumbent upon him to follow the procedure as prescribed under Rule 6 of the CCR 2004. Therefore the denial of abatement for 2010-2011 is correct and the demand is sustained. It is also noted that the appellant has reversed the Cenvat credit availed for the year 2011-2012 which stands appropriated. Therefore there are no reason to differ from these findings in the impugned order. Extended period of limitation - HELD THAT - The finding recorded that suppression of facts is sufficient to invoke the extended period of limitation under the proviso to Section 73 (1) of the Finance Act and there is no necessity of any intent to evade payment of service tax is against the well settled principles. It has to be examined whether any suppression was wilful and coupled with an intent to evade payment of service tax - In Pushpam Pharmaceuticals Company vs Commissioner of Central Excise Bombay 1995 (3) TMI 100 - SUPREME COURT the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to Section 11A of the Excise Act. The proviso to Section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso one of which was suppression of facts. Conclusion - It is evident that mere suppression of facts is not sufficient but there must be a deliberate and wilful attempt on the part of the assessee to evade payment of duty. In the absence of any intention to evade payment of service tax which intention should be evident from the materials on record or from the conduct of the appellant the extended period of limitation cannot be invoked. As the extended period is held to be not invokable hence the penalty under section 78 is also liable to be set aside. The demand is upheld for the normal period only. The appeal is allowed to the extent indicated and the impugned order is upheld partially.
The core legal questions considered by the Tribunal include:
(i) Whether the appellant could simultaneously avail the benefit of abatement under Notification No. 01/2006-ST dated 01.03.2006 and claim CENVAT credit on input services used for providing taxable construction services; (ii) Whether the appellant was obligated to maintain separate accounts for taxable and exempted services as prescribed under Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules, 2004, and consequences of non-compliance; (iii) Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, was rightly invoked on the ground of suppression of facts; (iv) Whether penalty under Section 78 of the Finance Act was justified in the facts of the case. Issue-wise Detailed Analysis: 1. Availment of Abatement and CENVAT Credit Simultaneously The legal framework revolves around Notification No. 01/2006-ST dated 01.03.2006 and the CENVAT Credit Rules, 2004. The Notification explicitly states that the benefit of abatement shall not apply if the service provider has taken CENVAT credit on inputs, capital goods, or input services used for providing such taxable service. Rule 6 of the CENVAT Credit Rules mandates maintenance of separate accounts when both taxable and exempted services are provided. The Tribunal noted that the appellant was engaged in construction services, including commercial or industrial buildings and residential complexes, and had availed abatement under the Notification while simultaneously claiming CENVAT credit on input services. The Department's audit revealed that the appellant did not maintain separate accounts for taxable and exempted services as required. The appellant contended that many input services such as security, consulting engineering, and professional services were used for the entire business and could not be exclusively attributed to either taxable or exempted services. They relied on several precedents supporting the proposition that input services used for the overall business are eligible for CENVAT credit even if the output includes exempted services. However, the Tribunal emphasized the clear and unambiguous language of the Notification and Rule 6, which preclude simultaneous availment of abatement and CENVAT credit on input services. The Tribunal referred to authoritative judicial pronouncements, including a High Court decision, which held that the option to avail either abatement or CENVAT credit is a valid condition imposed by the government and cannot be challenged as discriminatory. The Tribunal found that since the appellant chose to avail abatement and also claimed CENVAT credit without maintaining separate accounts or following the prescribed procedure under Rule 6, the denial of abatement and confirmation of demand was correct. The appellant's reversal of CENVAT credit for 2011-2012 was noted and appropriated accordingly. 2. Requirement of Maintaining Separate Accounts under Rule 6 Rule 6(2) and 6(3) of the CENVAT Credit Rules, 2004, require that when a provider renders both taxable and exempted services, separate accounts for input services must be maintained. If separate accounts are not maintained, then credit attributable to exempted services must be reversed by paying an amount prescribed under Rule 6(3) or 6(3A). The appellant failed to maintain such separate accounts and did not opt for the prescribed reversal mechanism. The Tribunal held that this non-compliance justified the demand and penalty. The appellant's contention that input services were used for the entire business and not exclusively for exempted services was rejected in light of the statutory mandate. 3. Invocation of Extended Period of Limitation under Section 73(1) The Department invoked the extended period of limitation on the ground that the appellant had suppressed facts with intent to evade payment of service tax. The appellant argued that all information was disclosed in ST-3 returns and no willful suppression occurred. The Tribunal analyzed the settled legal principles concerning suppression of facts. It relied on Supreme Court and High Court decisions which clarified that suppression must be deliberate and coupled with an intention to evade tax. Mere non-disclosure or omission does not amount to suppression unless there is positive evidence of willful concealment. The Tribunal observed that since the appellant had disclosed information in returns and there was no material to establish deliberate intent to evade tax, invocation of the extended period was not justified. Consequently, the demand was upheld only for the normal period of limitation. 4. Penalty under Section 78 Since the extended period of limitation was held not invokable, the penalty under Section 78, which is linked to extended period proceedings, was also set aside. The Tribunal found no basis to impose penalty for willful suppression or evasion. Significant Holdings: "The wording of the Notification is very clear. The appellants are eligible either to avail abatement or to avail CENVAT Credit. Notification No. 01/2006-ST dated 01.03.2006 provides that benefit of abatement shall not apply in cases where the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004." "In a notification of this nature, if the person is put to election that either he can opt for Cenvat credit of duty on service tax on input services or to avail benefit under the present notification which is an option which is extended to a person which he can seek for, avail of or ignore, no grievance can be made that putting a person to such option is bad." "Suppression of facts must be deliberate and wilful. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty." "Mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression." The Tribunal upheld the demand for service tax and interest for the normal period, confirming that simultaneous availment of abatement and CENVAT credit without compliance with Rule 6 is impermissible. The extended period of limitation and penalty were set aside due to absence of willful suppression or intent to evade tax. The appellant's partial reversal of CENVAT credit was acknowledged and appropriated.
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