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2025 (5) TMI 1025 - AT - Service TaxReversal of CENVAT Credit - short reversal on account of exempt service which was recoverable from them under Section 66 68 and 70 of the Finance Act 1994 read with Rule 6 7 of the Service Tax Rules 1994 and Rule 6 of the Cenvat Credit Rules, 2004 - Suppression of facts or not - extended period of limitation - revovery alongwith interest and penalty - HELD THAT - The respondent has been audited for the period from April 2008 to 2012 on 17.04.2013 again from September 2011 to March 2013 (in respect of second registration) on 10.03.2014 and then for the period from April 2013 to March 2014 on 10.09.2014 by the departmental audit officers. Each time their report mentions Nil which shows that the departmental officers did not find any irregularity in the records of the respondents including payment of taxes and reversal of credit as per CCR 2004 if any. The department proceeded to issue the show cause notice on 15th March 2017 on the basis of observations of CERA. At this juncture the department cannot take a plea that the facts of filing service tax returns with the department or audit of the records of the respondent were not in their knowledge. They cannot allege after a period six years that the assessee has suppressed vital informations from the department. Extended period of limitation - HELD THAT - It is found that neither the show cause notice nor the order of the adjudicating authority clearly elaborates as to which of the documents were suppressed by the Respondent which could not have been seen by the departmental officers during conduct of regular audit by their own officers. The department has not been able to justify invocation of extended period in this case and therefore without going into merits of the case the appeal filed by the department is dismissed. Conclusion - The export cargo handling service is excluded from the service tax net and does not constitute an exempted service requiring reversal of Cenvat credit under Rule 6(3) of the CCR 2004. The demand for service tax interest and penalties was not sustainable. Furthermore the extended period of limitation could not be invoked due to absence of any suppression or concealment. Appeal dismissed.
Issues Presented and Considered
The core legal questions considered by the Tribunal in this appeal are:
Issue-wise Detailed Analysis 1. Nature of Export Cargo Handling Service and Classification as Exempted Service The legal framework revolves around the definition of "exempted services" under Rule 2(e) of the Cenvat Credit Rules, 2004, which includes taxable services exempt from service tax and services on which no service tax is leviable under Section 66 of the Finance Act, 1994. The department contended that as export cargo handling was kept out of the service tax net, it qualifies as an exempted service, triggering reversal of Cenvat credit under Rule 6(3). The Tribunal examined the definition and noted reliance by the department on the decision of the Chennai Tribunal in St. John CFS Park Pvt. Ltd., which initially supported reversal. However, the Tribunal also considered the final decision reported in 2023, which clarified that services excluded from taxability cannot be equated with exempted services for the purposes of Rule 6 of the Cenvat Credit Rules. The relevant extract states: "The words 'does not include' in the definition of cargo handling service takes the service very much out of the purview of taxability, thereby touching upon the jurisdiction of the taxing authority and hence, the same, at no stretch of imagination, could be held or equated with an exempted service. Hence, the services rendered by the appellant in this case, insofar as the same related to the handling of export cargo, is excluded from taxability and thus, the same cannot be brought as 'exempted under Rule 2(e) ibid." The Tribunal further noted that the activity of export cargo handling is not defined as a taxable service under Section 65(23) of the Finance Act and is not covered by any exemption notification or circular. Thus, it concluded that export cargo handling is excluded from the service tax net and does not qualify as an exempted service demanding reversal of credit. 2. Demand for Reversal of Cenvat Credit, Interest, and Penalties The department issued a show cause notice alleging short reversal of Rs. 1,71,80,619/- on account of exempt services, invoking Sections 66, 68, and 70 of the Finance Act, 1994, read with Rule 6 & 7 of the Service Tax Rules, 1994 and Rule 6 of the Cenvat Credit Rules, 2004. The adjudicating authority confirmed the demand with interest and imposed penalties under Sections 76, 77, and 78 of the Finance Act and Rule 15 of the Cenvat Credit Rules. The Commissioner (Appeals) set aside the order, holding that the department's position was unclear regarding the classification of income from export cargo handling and transportation of empty containers, and that export cargo handling was outside the service tax net, negating the requirement for reversal under Rule 6(3). The penalties were also set aside. The Tribunal, while analyzing the submissions, found that the department's case was primarily limited to the period 01.04.2011 to 30.06.2012 and that the demand for reversal of credit on GTA services and materials supplied was rightly dropped by the Commissioner (Appeals). Given the clarified legal position that export cargo handling is excluded from taxability and not an exempted service, the Tribunal found no merit in sustaining the demand or penalties. 3. Invocation of Extended Period of Limitation The respondent contended that extended period could not be invoked as they had undergone multiple departmental audits for the relevant periods (April 2008 to March 2014) with "Nil" adverse observations. Copies of audit reports dated 23.02.2013, 20.02.2014, and 09.08.2014 were submitted to demonstrate compliance and absence of suppression or evasion. The Tribunal examined the audit history and found that the department was fully aware of the respondent's records and tax filings, negating any allegation of suppression or concealment. The show cause notice was issued only in March 2017, several years after the audits. Relying on established precedents cited by the respondent, the Tribunal held that the department could not invoke extended period without demonstrating suppression or fraud. The department failed to specify which documents were suppressed or concealed, and no justification was provided for invoking extended limitation. Accordingly, the Tribunal dismissed the appeal on the ground of limitation without delving into the merits of the case. 4. Validity of Department's Multiple Show Cause Notices and Registration Issues The respondent raised an objection that prior to October 2013, two separate registrations existed which were later merged, but a common show cause notice was issued covering both registrations, which was argued as procedurally incorrect. The Tribunal acknowledged this contention but did not base its decision solely on this ground. The issue was noted but subsumed within the broader findings on limitation and classification of services. 5. Applicability of Finance Act, 1994 to the Disputed Services The respondent argued that the export cargo handling service is not leviable to service tax under the Finance Act, 1994, as it is not a service defined under Section 65(23) and is excluded from the service tax net. The Tribunal concurred with this position, referencing a decision from CESTAT Hyderabad which held that services not covered under the Finance Act cannot be treated as exempt services for the purpose of reversal under Rule 6(3). Significant Holdings "The words 'does not include' in the definition of cargo handling service takes the service very much out of the purview of taxability, thereby touching upon the jurisdiction of the taxing authority and hence, the same, at no stretch of imagination, could be held or equated with an exempted service. Hence, the services rendered by the appellant in this case, insofar as the same related to the handling of export cargo, is excluded from taxability and thus, the same cannot be brought as 'exempted under Rule 2(e) ibid. Once it is held as 'excluded', there is also no scope to consider the same as an 'exempted' service just for the purposes of Rule 6 of the CENVAT Credit Rules, 2004." "The department cannot allege after a period of six years that the assessee has suppressed vital information from the department when multiple audits with nil adverse findings were conducted during the relevant period. The invocation of extended period is unjustified without concrete proof of suppression or fraud." The Tribunal conclusively held that the export cargo handling service is excluded from the service tax net and does not constitute an exempted service requiring reversal of Cenvat credit under Rule 6(3) of the CCR, 2004. The demand for service tax, interest, and penalties was not sustainable. Furthermore, the extended period of limitation could not be invoked due to absence of any suppression or concealment. Consequently, the departmental appeal was dismissed without adjudicating the merits of the case.
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