2025 (5) TMI 647 - AT - Service Tax

Rejection of cross objections on the ground that neither Section 84 nor Section 85 of the Act empowered the filing of such cross objections - time limitation - penalty. HELD THAT - A similar issue came up for consideration by the Tribunal as can be seen from its decision in Eveready Industries India Ltd v CCE Meerut 2011 (9) TMI 533 - CESTAT NEW DELHI where the matter was remanded to Commissioner (Appeals) for decision on merits. Ordinarily the same course of action ssholud have been adopted but the facts and circumstances of this case merits intervention. Indisputably the appellant had not conceded the matter on merits and thus the payment made was only to give quietus to the issue. The Department chose to prefer an appeal against non-imposition of penalty. Further the Appellate Authority having invited the appellant to file cross-objection then could not have decided the matter without looking into the cross objections so filed upon its invitation. This Tribunal in Eveready Industries India Ltd v CCE Meerut has already held that the cross-objections filed by the appellants are maintainable. As such the Commissioner Appeals has committed an egregious error in not looking into the merits of the cross-objection and instead dismissing it without consideration. Time limitation - HELD THAT - The Show Cause Notice itself is barred by limitation. Apart from merely stating that the appellant had suppressed facts with intention to evade payment of duty no evidence of wilful misstatement or suppression with intent to evade payment of duty has been let in in the show cause notice. As such the invoking of extended period itself was untenable as it is a settled position in law that evidence of a positive or deliberate act of wilful misstament or suppression of facts with intent to evade payment of duty ought to be brought out in the notice. Penalty - HELD THAT - There is no reason given as to why the documents submitted by the appellants are not enough without stating what more was required from the appellant. The appellant is entitled to the Cenvat credit that stood denied in the Order-in-Original No.96/2010 dated 31.12.2010. The Hon ble High Court of Karnataka has in its decision in CST v. Motor World 2012 (6) TMI 69 - KARNATAKA HIGH COURT held that when the assessing authority in its discretion has held that no penalty is leviable by virtue of Section 80 of the Act the revisional authority cannot invoke its jurisdiction and impose penalty for the first time. As such the imposition of penalty in the impugned OIA is also unsustainable. Conclusion - i) The cross-objections filed by the appellants are maintainable. ii) The Show Cause Notice itself is barred by limitation. iii) When the assessing authority in its discretion has held that no penalty is leviable by virtue of Section 80 of the Act the revisional authority cannot invoke its jurisdiction and impose penalty for the first time. The appeal is allowed in toto.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Appellate Authority was legally justified in rejecting the appellant's cross objections on the ground that neither Section 84 nor Section 85 of the Finance Act empowers the filing of such cross objections before the Commissioner of Service Tax (Appeals).

- Whether the demand for ineligible Cenvat credit confirmed by the Original Adjudicating Authority was sustainable on merits.

- Whether the invocation of the extended period of limitation for confirming the demand was valid, in the absence of evidence of wilful misstatement or suppression of facts by the appellant.

- Whether the imposition of penalty under Section 78 of the Finance Act by the Appellate Authority was sustainable, particularly when the Original Adjudicating Authority had exercised discretion under Section 80 to refrain from imposing penalty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Cross Objections under Sections 84 and 85 of the Finance Act

The legal framework involves the provisions of Sections 84 and 85 of the Finance Act which govern appeals to the Commissioner of Service Tax (Appeals). The Appellate Authority rejected the appellant's cross objections on the basis that these sections do not contain provisions analogous to Section 35E(4) of the Central Excise Act or Section 86(4) of the Finance Act, which expressly empower filing of cross objections by a party not filing an appeal.

The appellant argued that a conjoint reading of sub-section (3) of Section 84 and sub-sections (4) and (5) of Section 85 should allow filing of cross objections, especially when invited by the Commissioner (Appeals). The appellant contended that the Appellate Authority erred in negating this right, particularly as the cross objections challenged the correctness of the demand and limitation issues on merits.

The Tribunal referred to its earlier decision in Eveready Industries India Ltd v CCE, where it was held that cross objections are maintainable in light of the High Court's declaration in Southern Auto Products. The Tribunal emphasized that since the Appellate Authority had invited the appellant to file cross objections, it was legally impermissible to dismiss them without consideration.

The Tribunal concluded that the Appellate Authority committed an egregious error by not adjudicating the cross objections on merits, thereby violating procedural fairness and the appellant's substantive rights.

Issue 2: Merits of the Demand for Ineligible Cenvat Credit

The appellant was registered as a provider of works contract service and had availed Cenvat credit on various input services such as rent-a-cab, housekeeping, chartered accountant services, and business promotion services. The department during audit alleged that the appellant took ineligible Cenvat credit amounting to Rs.4,39,857/- and issued a Show Cause Notice demanding service tax on the same along with interest and penalty.

The adjudicating authority confined the demand to Rs.72,150/- and refrained from imposing penalty under Section 80. The appellant paid the differential tax and interest to give quietus to the dispute but did not concede the matter on merits.

The Tribunal noted that the services on which credit was availed have been repeatedly held by this Tribunal to be input services eligible for Cenvat credit as they relate to business activities. The Tribunal referred to the Bombay High Court decision in CCE Nagpur v Ultratech Cement Ltd., which supports the eligibility of such input services for credit.

Further, the Tribunal observed that the department failed to specify why the documents submitted by the appellant were insufficient or what additional evidence was required to deny credit. The absence of any cogent reason or evidence to negate the appellant's entitlement to credit led the Tribunal to hold that the appellant was entitled to the Cenvat credit denied by the Original Adjudicating Authority.

Issue 3: Validity of Invoking Extended Period of Limitation

The Show Cause Notice invoked the extended period of limitation on the ground of suppression or wilful misstatement by the appellant. The Tribunal found that the notice merely stated an allegation of suppression with intent to evade duty but did not furnish any evidence or particulars to substantiate this claim.

It is a settled legal principle that invoking the extended period requires clear evidence of a positive or deliberate act of suppression or misstatement with intent to evade duty, which must be disclosed in the notice. The Tribunal held that the absence of such evidence rendered the invocation of the extended period untenable.

Accordingly, the demand confirmed under the extended period was barred by limitation and unsustainable.

Issue 4: Imposition of Penalty under Section 78 of the Finance Act

The Original Adjudicating Authority, exercising discretion under Section 80, refrained from imposing penalty on the appellant. The department appealed this decision, and the Commissioner (Appeals) set aside the discretion and imposed penalty under Rule 15(4) of the Cenvat Credit Rules read with Section 78.

The Tribunal referred to the Karnataka High Court decision in CST v. Motor World, which held that once the assessing authority has exercised discretion not to impose penalty under Section 80, the revisional or appellate authority cannot impose penalty for the first time.

Applying this principle, the Tribunal held that the imposition of penalty by the Commissioner (Appeals) was unsustainable and beyond the scope of appellate jurisdiction.

3. SIGNIFICANT HOLDINGS

"The Appellate Authority, having invited the appellant to file cross-objection, then could not have decided the matter without looking into the cross objections so filed upon its invitation."

"The cross-objections filed by the appellants are maintainable in the light of the declaration of law by the Hon'ble High Court in the judgment of Southern Auto Products."

"The Show Cause Notice itself is barred by limitation. Apart from merely stating that the appellant had suppressed facts with intention to evade payment of duty, no evidence of wilful misstatement or suppression with intent to evade payment of duty has been let in in the show cause notice."

"The services on which the appellant has availed Cenvat credit such as rent-a cab service, house keeping service, chartered accountant's service, business promotion service etc have come up for consideration many a time before this Tribunal and in umpteen orders these services have been held to be input services on which an assessee can avail cenvat credit, being activities relating to business."

"When the assessing authority, in its discretion has held that no penalty is leviable, by virtue of Section 80 of the Act, the revisional authority cannot invoke its jurisdiction and impose penalty for the first time."

The Tribunal set aside the impugned Order-in-Appeal, allowed the appeal in its entirety, and granted consequential relief. The core principles established include the maintainability of cross objections when invited by the Appellate Authority, the necessity of evidentiary support for invoking extended limitation, the entitlement to Cenvat credit on bona fide input services, and the finality of the Original Adjudicating Authority's discretion not to impose penalty under Section 80.