Departmental Audit Knowledge Bars Extended Limitation Under Section 73(1): CESTAT Delhi Rules in Favour of Delhi Airport Metro Express

1. Background and Nature of the Dispute

Delhi Airport Metro Express Pvt. Ltd. was a Special Purpose Vehicle incorporated by Reliance Infrastructure Limited as its subsidiary, promoted specifically to act as a concessionaire under a Concession Agreement dated 25.08.2008 entered into with Delhi Metro Rail Corporation — a joint venture of the Government of India and the Government of National Capital Territory of Delhi. The concession was granted for a period of 30 years and included the exclusive right, licence and authority to develop, design, engineer, finance, procure, construct, commission, test, manage, operate and maintain the Airport Metro Express Line on a Build-Operate-Transfer basis.

The Airport Metro Express Line, stretching from New Delhi Railway Station to Sector-21, Dwarka, via Indira Gandhi International Airport, commenced operations on 23.02.2011. Post-commissioning, the assessee's revenue streams comprised passenger fare collection, retail revenue from letting out commercial space at New Delhi, Shivaji Stadium and Dwarka Depot, and advertising revenue. Passenger fare collection was exempt from service tax; retail and advertising revenues were taxable, and the assessee discharged service tax on those streams.

For project implementation, the assessee procured engineering and project management consultancy, security system consultancy, and technical consultancy — both from within India and from abroad — and imported goods including rolling stock, automatic fare collection equipment, baggage handling systems, escalators, and fasteners. Countervailing duty was paid on the imported goods, and service tax was discharged on certain services under the reverse charge mechanism pursuant to Section 66A of the Finance Act, 1994. The assessee claimed CENVAT credit of both the CVD paid on imported goods and the service tax paid on input services, recording the details in its books of account and reflecting them in periodically filed ST-3 returns.

2. The Department's Audit and the Show Cause Notice

In September 2010, officers of the Service Tax Commissionerate, New Delhi, conducted an audit of the assessee's records on 22.09.2010 and 23.09.2010. The audit team formed the view that availment and accumulation of CENVAT credit of service tax paid on consulting engineer services and banking and other financial services under the reverse charge mechanism, and of the CVD paid on imported goods, was erroneous — on the ground that these goods and services were used exclusively in connection with the operation of the Airport Metro Express Line, which constituted an exempt service.

Following the audit, the Department communicated its objections regarding the disputed credit to the assessee by a letter dated 30.11.2010. Notwithstanding this, no show cause notice was issued within the normal limitation period. Instead, a show cause notice dated 20.07.2012 was issued, proposing recovery of CENVAT credit for the period October 2009 to March 2011 by invoking the extended limitation period of five years under the proviso to Section 73(1) of the Finance Act, 1994 read with Rule 14 of the CENVAT Credit Rules, 2004.

The total CENVAT credit availed by the assessee in its books as on 31.03.2011 stood at Rs. 94,02,07,834/-. The credit actually reflected in the ST-3 returns and sought to be recovered amounted to Rs. 65,01,43,929/-. In March 2012, during the course of investigation, the assessee reversed Rs. 23,88,03,177/- out of the credit availed.

The show cause notice, insofar as it concerned the invocation of extended limitation, alleged in Paragraph 20 that:

"From the foregoing, it further appears that the assessee had intentionally and willfully suppressed the facts of availing the said inadmissible CENVAT Credit. Hence, it appears that the said amount is liable to be denied and recovered within five years from the relevant date under proviso to Section 73 (1) of the Act ibid read with Rule 14 of the CENVAT Credit Rules, 2004."

3. The Commissioner's Order

The Commissioner adjudicated the show cause notice by an order dated 12.12.2014, confirming disallowance and directing recovery of the entire CENVAT credit of Rs. 65,01,43,929/- along with interest and penalty under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 78 and Rule 15 of those Rules. The Commissioner upheld the invocation of extended limitation, recording the following finding:

"115 So far as 'suppression of facts' is concerned, the phrase implies that withholding of information is suppression of facts. P. Ramanatha Aiyar's Concise Law Dictionary [1997 Edition Reprint 2003 -Page 822] defines the phrase very lucidly and accurately as – Where there is an obligation to speak, a failure to speak will constitute the "suppression of fact" but where there is no obligation to speak, silence cannot be termed "suppression". The party had an obligation to comply with the statutory provisions and to furnish the information/documents as required thereunder. As discussed, supra, the assessee despite providing the exempted/non-taxable service has taken inadmissible CENVAT Credit on inputs/capital goods/input services which were used exclusively in such non-taxable service. It is needless to recapitulate that this case has arisen out of the audit conducted by the officers of Service Tax Commissionerate, New Delhi. The party deliberately availed the Cenvat credit in respect of exempted service. The case laws relied upon by the party are not applicable to the present facts & circumstances of the case as in this case it was conscious act of availing huge amount of inadmissible Cenvat credit and suppression thereof with an intent to evade payment of duty. Had the Department not conducted the audit, the inadmissible availment of such CENVAT Credit by the assessee would not have been unearthed. Hence, the assessee has suppressed the material facts intentionally from the department. Accordingly, I hold that the extended period of limitation is very well applicable in this case in terms of proviso to Section 73 (1) of the Finance Act, 1944 read with Rule 14 of the CENVAT Credit Rules, 2004 for demand and recovery of the inadmissible CENVAT Credit, and the assessee has also rendered themselves liable for penal action under Section 78 of the Act read with Rule 15 of CCR for deliberately suppressing the material facts."

4. Proceedings Before CESTAT Delhi

The assessee challenged the Commissioner's order before the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, in Service Tax Appeal No. 50919 of 2015. The Tribunal's Final Order No. 50031/2024 was pronounced on 11.01.2024.

(i) Submissions on Behalf of the Assessee

Counsel for the assessee advanced the following principal contentions: