Extended Period of Limitation Cannot Be Invoked When Trading Activity Reflected in Assessee's Balance Sheet: Karnataka High Court

Background and Overview

The Karnataka High Court, in Commissioner of Central Tax Vs ABB Limited, delivered a significant ruling on the invocation of extended limitation period under central excise and service tax law. The Court dismissed the Revenue's appeal challenging the CESTAT order that had set aside an extended-period CENVAT credit demand. The judgment reinforces a well-established principle: where an assessee's activities are openly disclosed in its financial statements, there can be no allegation of suppression of facts warranting invocation of extended limitation.

Case Reference:

  • Case Name: Commissioner of Central Tax Vs ABB Limited (Karnataka High Court)
  • Appeal Number: Central Excise Appeal No.16/2021
  • Date of Order: 01/06/2022

Factual Matrix

ABB Limited was engaged in the manufacture and clearance of turbo chargers, electric motors, and transformers falling under Chapter 85 of the Central Excise Tariff Act, 1985. In addition to manufacturing, the company also provided taxable output services including management, maintenance, and repair services, for which it held service tax registration.

A show cause notice dated 23.04.2010 was issued alleging that ABB was also engaged in trading of electrical goods under the trade name 'ABB' and had wrongly utilised CENVAT credit attributable to its trading activity. The notice proposed recovery of Rs.5,68,00,000/- under Rule 14 of the CENVAT Credit Rules, 2004, read with the proviso to Section 73 of the Finance Act, 1994 and the proviso to Section 11A of the Central Excise Act, 1944.

ABB filed a reply to the notice, following which the Chief Commissioner of Customs passed an Order-in-Original dated 30.04.2011, holding that CENVAT credit was inadmissible in respect of trading activities and disallowing the same. The sum in question had already been appropriated from the CENVAT account on 31.08.2010 under protest.

Proceedings Before CESTAT

On appeal before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), the order-in-original was partially overturned. The CESTAT concluded that:

  • There was no suppression of facts on the part of ABB with any intention to evade payment of tax.
  • The demand was confirmed only for the normal limitation period, and the appropriation made on 31.08.2010 along with applicable interest was sustained.
  • The extended period demand was set aside entirely.
  • The penalty for the normal period was also set aside on the ground that there existed considerable confusion during the relevant period regarding the availment of CENVAT credit in respect of trading activities.

Aggrieved by this outcome, the Revenue filed the present appeal before the Karnataka High Court.

Questions of Law Framed

The High Court admitted the appeal to consider the following substantial questions of law: