2016 (7) TMI 91 - AT - Service Tax

Rejection of Refund of cenvat credit without issuing show cause notice - export of services - wrong application of formula prescribed in the Notification No.5/2006-CE(NT) dt. 14/03/2006. - further since there was DTA services provided by other units of the appellant, the original authority observed that CENVAT credit eligible for refund has to be restricted proportionately - principles of natural justice - Held that - Admittedly, no show-cause notice was issued to the appellant specifying the grounds on which the refund claim is proposed to be rejected. No personal hearing was given at the stage of original adjudication. Thus appellant has been totally deprived of knowing the allegations or putting forward, a defence against the grounds for rejection of refund. Thus there has been in a way application of the formula twice over. Similar issue was considered by Tribunal in the case of CST, Mumbai-I Vs. Global Markets Centre (P) Ltd. 2015 (2) TMI 271 - CESTAT MUMBAI . The Tribunal observed that the formula used the word total CENVAT credit taken on input services . Therefore the inadmissible part of input services cannot be deducted before applying the formula. In the absence of show-cause notice, the rejection of ₹ 4,41,981/- is unsustainable. For the reasons discussed in earlier paragraphs, the impugned order to the extent of rejecting the refund claim of ₹ 4,41,981/- is also set aside. The appellant is eligible for refund of ₹ 57,58,829/- as claimed in the refund application. - Decided in favor of assessee.

Summary

Issues:
1. Rejection of refund claim without issuance of show-cause notice.
2. Disallowance of credit on input services due to lack of nexus with output services.
3. Reduction of refund amount due to wrong application of formula.
4. Violation of principles of natural justice in the adjudication process.

Analysis:
1. The appellant filed a refund claim for a specific period but was not issued a show-cause notice before rejection of the claim. The original authority granted a partial refund but disallowed credit on certain input services without providing an opportunity for a personal hearing. The Commissioner(Appeals) acknowledged the violation of principles of natural justice due to the lack of a show-cause notice but upheld the rejection based on the nexus between input and output services. The Tribunal emphasized that non-issuance of a show-cause notice deprives the appellant of a fair opportunity to defend the claim, rendering the rejection unsustainable.

2. The rejection of a portion of the refund claim was based on the observation that there was no nexus between the input services availed and the output services exported. The appellant contended that the disallowance was unjustified and that the input services were indeed eligible for credit. The Tribunal noted that the absence of a show-cause notice undermined the appellant's ability to present a defense against the disallowance, leading to the setting aside of the rejection and allowing the full refund claim.

3. The original authority incorrectly reduced the refund amount by applying a formula that resulted in a disproportionate deduction. The Tribunal found that the formula was misapplied, leading to an erroneous reduction in the refund amount. Citing a similar case, the Tribunal ruled that the inadmissible part of input services should not be deducted before applying the formula. Consequently, the reduction in the refund amount due to the wrong application of the formula was set aside.

4. The violation of principles of natural justice was a crucial aspect of the case, as the non-issuance of a show-cause notice deprived the appellant of a fair opportunity to contest the rejection of the refund claim. The Tribunal emphasized the importance of procedural fairness and overturned the rejection of the refund claim, emphasizing the need for adherence to principles of natural justice in adjudication processes.

In conclusion, the Tribunal allowed the appeal, set aside the rejection of the refund claim, corrected the reduction in the refund amount, and emphasized the significance of procedural fairness and adherence to principles of natural justice in adjudicatory proceedings.