2017 (6) TMI 274 - AT - Service Tax

Service tax credit - duty paying documents - denial on the ground that credit had been taken/utilized on debit notes - scope of SCN - Held that - I am unable to comprehend why and how both the authorities chose to adjudicate on areas not covered in the SCN. I am also surprised that they have done so in the case of an assessee who is the member of the Larger Tax Payer s unit, a special vehicle of the department intended for the purpose of extending highest service standards and facilitate low compliance cost. Also, it is held that the debit notes will be valid documents for the purpose of availment of CENVAT credit. Appeal allowed - decided in favor of petitioner.

Summary

Issues: Disallowance of service tax credit on debit notes, imposition of penalty under Rule 15(1) of the Cenvat Credit Rules, 2004.

Analysis:
1. The case involved a show cause notice proposing disallowance of service tax credit on debit notes during 2011-12, with an amount of ?71,192/-, interest, and penalty under Rule 15(1) of the Cenvat Credit Rules, 2004. The original authority and the Commissioner (Appeals) upheld the disallowance. The appellants challenged the decision before the forum.

2. During the hearing, the appellant's representative argued that the disallowance was solely based on debit notes, beyond the scope of the show cause notice. The Commissioner (Appeals) acknowledged that there is no bar on availing cenvat credit through debit notes but dismissed the appeal on extraneous grounds.

3. The Respondent supported the impugned order, emphasizing that cenvat credit on debit notes should be subject to the satisfaction of service eligibility, as mentioned in the impugned order.

4. After hearing both sides and reviewing the records, it was noted that the original authority and the Commissioner (Appeals) delved into issues not covered in the show cause notice.

5. The Tribunal found merit in the appellant's arguments. The show cause notice and the original authority's order focused on whether debit notes are valid for availing cenvat credit. However, there was no discussion on the eligibility of debit notes for cenvat credit, leading to ambiguity in the decision-making process. The Commissioner (Appeals) also failed to address the original authority's lack of analysis on this issue.

6. The Tribunal criticized both authorities for adjudicating on matters not raised in the show cause notice, especially considering the appellant's status as a member of the Larger Tax Payer's unit. The decision to disallow credit based on service description in debit notes was deemed beyond the scope of the show cause notice. Consequently, the impugned order was set aside, and the appeal was allowed, holding that debit notes are valid for cenvat credit.

7. The Tribunal highlighted that if the Larger Tax Payer's unit had additional concerns about the service description in debit notes, they should have raised them within the period of limitation. A copy of the order was directed to be sent to the Commissioner (LTU) for necessary corrective action.