Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that the National Institute of Public Finance and Policy (NIPFP), a premier public policy research institution, cannot be saddled with penalties under the Finance Act, 1994 and the Cenvat Credit Rules, 2004, in the absence of any evidence showing deliberate suppression of facts or intent to evade service tax. The Tribunal, presided over by Dr. Rachna Gupta (Judicial Member), ruled that although service tax and Cenvat credit demands had been rightly raised and voluntarily discharged by the institute, the imposition of penalties under Section 78 of the Finance Act and Rule 15(3) of the Cenvat Credit Rules was unjustified.

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The dispute stemmed from an audit conducted by the Central GST Delhi South Commissionerate, during which several discrepancies were noticed. These included non-payment of service tax on certain income heads, failure to discharge service tax under the reverse charge mechanism on rent-a-cab and legal services, and wrongful availing of Cenvat credit on ineligible input services. Based on these observations, a detailed show cause notice invoking the extended period of limitation was issued, alleging that NIPFP had suppressed material facts.

During adjudication, NIPFP clarified that the lapses were inadvertent and not motivated by any mala fide intent, pointing out that the institute had consistently been regular in filing statutory ST-3 returns and had voluntarily paid the entire service tax and reversed the disputed credit along with interest even before the issuance of the show cause notice. The Commissioner (Appeals) partly upheld the demands but reduced the penalties. Dissatisfied with the remaining penalty, NIPFP approached the Tribunal.

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The Tribunal carefully examined the statutory requirements for imposing penalties and reiterated that punitive action under Section 78 or Rule 15(3) can be justified only when non-payment or wrongful availment arises from fraud, collusion, willful misstatement, or conscious suppression of facts with intent to evade tax. Referring to the Supreme Court’s classic ruling in Hindustan Steel Ltd. v. State of Orissa, Dr. Gupta noted that penalties should not be imposed for mere technical lapses or venial breaches arising from bona fide misunderstanding of legal obligations. She further relied on the Supreme Court judgment in Continental Foundation v. CCE, which holds that “suppression” must be deliberate and cannot be inferred merely from non-declaration in returns.

In the present case, the Tribunal observed that NIPFP, being a government-affiliated research institution working closely with ministries and public bodies, could not reasonably be said to have had any intention to evade taxes. The immediate voluntary payment of the tax demand and reversal of credit showed good faith. Moreover, the department had failed to produce any evidence suggesting that the omissions were intentional or fraudulent.

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Holding that extended limitation was wrongly invoked and that penalties were unwarranted, the Tribunal modified the impugned order by setting aside the penalties in full, while sustaining the tax and interest already paid by the institute. The appeal was thus allowed to the extent of penalty deletion.

Appearance

Counsel For  Appellant: Ashna Kakar, Advocate

Counsel For Respondent: AR Kuldeep Rawat

Cause Title: M/s National Institute of Public Finance and Policy Versus Commissioner of Central Excise & CGST

Case No: Service Tax Appeal No. 50965 of 2025

Coram: Dr. Rachna Gupta (Judicial Member)