2014 (10) TMI 139 - AT - Service Tax

Rejection of refund claim - adjustment of unconfirmed demand with refund - Held that - while confirmed demand can be adjusted from the amount of refund, there is no provision to adjust unconfirmed demand from the amount of refund. It is seen that there has been no show cause notice given to the appellants for showing cause as to why the cenvat credit amount of ₹ 11,18,182 (adjusted from the amount of refund sanctioned) was inadmissible to them and how the same was recoverable under what provision of law and how it was not hit by time bar inspite of having been taken in the year 2005-06. Even if the corrigendum issued on 17.07.2007 is attempted to be treated as a show cause notice, the said corrigendum falls fatally short of the requirement of a notice under Section 73 of the Finance Act, 1994 inasmuch as the said corrigendum does not even mention Section 73 ibid anywhere at all and it also does not contain any grounds to allege as to how the recovery, even if the said credit was held to be inadmissible, was not hit by time bar. Indeed the said corrigendum nowhere requires the appellants to show cause as to why the said amount should not be held inadmissible and why / how the same is recoverable without being hit by time bar. It merely stated that the said amount appeared to be not admissible to them and then straightaway called upon the appellants to show cause as to why the refund claim should not be rejected to the extent of ₹ 11,18,182 As a matter of fact, it has been sanctioned 100% inasmuch as the refund sanctioned is ₹ 11,79,720/-. Having sanctioned the full amount, there was no legal authority to adjust the amount of ₹ 11,18,182/- as the same cannot be held to be a confirmed demand for the reasons recorded earlier. - Decided in favour of assessee.

Summary

Issues:
Adjustment of refund amount based on improper documents, Admissibility of cenvat credit on capital goods, Validity of corrigendum as a show cause notice, Authority to adjust unconfirmed demand from refund amount.

Analysis:

The appeal was filed against an Order-in-Appeal that upheld the adjustment of a refund amount by the Commissioner (Appeals). The Assistant Commissioner had sanctioned a refund but adjusted a significant portion, citing inadmissibility of cenvat credit taken based on improper documents. The appellants argued that the refund was for excess payment and the credit on capital goods was rightfully claimed using documents from their Head Office, considering the unity of the entities. However, the Assistant Commissioner deducted the credit amount without providing a proper show cause notice as required under the law.

The Tribunal noted that while confirmed demands can be adjusted from refund amounts, there is no provision to adjust unconfirmed demands in such a manner. The corrigendum issued by the Assistant Commissioner lacked essential elements of a show cause notice, failing to specify the legal basis for inadmissibility and recovery of the credit amount. The corrigendum did not meet the standards set by the Finance Act, 1994, and did not fulfill the requirements for a valid notice under Section 73.

Despite arguments regarding the admissibility of the credit amount based on previous cases, the Tribunal focused on the procedural irregularities in the current case. The Tribunal emphasized that the refund claim had not been rejected in part; rather, it was sanctioned in full. Therefore, there was no legal basis to adjust the amount of cenvat credit as an unconfirmed demand, especially without a proper show cause notice outlining the reasons for inadmissibility and recoverability.

Consequently, the Tribunal allowed the appeal, setting aside the impugned order and directing the refund of the remaining amount along with applicable interest. The decision highlighted the importance of following due process and providing clear justifications for any adjustments made to refund amounts, especially when dealing with issues of admissibility and recoverability of credits.