2025 (2) TMI 9 - AT - Service Tax

Disallowance of CENVAT Credit - scope of SCN - the grounds on which the impugned order was passed in confirming such demand was not the subject matter of the dispute in the SCN issued by the Department - HELD THAT - The allegations levelled therein against the appellants was in context with mis-match of figures in ST-3 returns prepared for the period between October 2009 to March 2010 and April 2010 to September 2010. The said show-cause notice had not proposed for disallowance of CENVAT Credit on the ground that the disputed services were not confirming to the definition of input service . Such ground was considered for the first time by the Department in third adjudication order (impugned herein). Since the showcause notice is a primary document based on which the entire proceedings were initiated against the appellants for confirmation of the CENVAT demand no new ground can be taken subsequently at the time of adjudication stage inasmuch as it is only the allegation levelled in the show-cause notice which can be addressed to or acted upon by the adjudicating authority while passing the adjudication order. The issue with regard to taking of new ground/plea in the adjudication order which was not being alleged in the show-cause notice the Hon ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE NAGPUR VERSUS M/S BALLARPUR INDUSTRIES LTD 2007 (8) TMI 10 - SUPREME COURT have held that the show-cause notice is a foundation in the matter to levy and recover of duty and if certain provisions have not been quoted or discussed therein the adjudicating authority cannot invoke such statutory provisions to confirm the demand on the assessee. The Hon ble Supreme Court in the case of COMMISSIONER OF CUSTOMS MUMBAI VERSUS TOYO ENGINEERING INDIA LIMITED 2006 (8) TMI 184 - SUPREME COURT have also dealt with the identical issue holding that the grounds did not find mention in the show-cause notice then the Department cannot travel beyond such notice and the demand confirmed entirely on new grounds is liable to be set aside. Conclusion - The demands confirmed in the impugned order was not dealt with or considered in the show-cause notice dated 16.07.2013 issued by the Department such demand confirmed against the appellants cannot be sustained for judicial scrutiny in view of the settled position of law. Appeal allowed.

Summary

The judgment revolves around the issue of disallowance of CENVAT Credit claimed by the appellants under the Finance Act, 1994. The core legal question addressed was whether the adjudicating authority could confirm a demand based on grounds not specified in the original show-cause notice. The Tribunal's decision was centered on the procedural validity of the demand confirmation and the adherence to principles laid down by the Supreme Court regarding the scope of show-cause notices.

The appellants, engaged in providing taxable services, faced scrutiny from the Service Tax Department due to discrepancies in their CENVAT Credit figures reported in ST-3 returns for two consecutive periods. The Department alleged an excess CENVAT Credit claim of Rs.22,28,05,653/- and initiated recovery proceedings through a show-cause notice dated 16.07.2013. This notice led to multiple rounds of adjudication and appeals, ultimately resulting in the impugned order dated 31.07.2023, which disallowed CENVAT Credit of Rs.1,70,46,954/- and confirmed penalties and interest.

The Tribunal noted that the original show-cause notice focused solely on the mismatch of figures in the ST-3 returns and did not propose disallowance based on the nature of services claimed under CENVAT Credit. The impugned order, however, introduced new grounds for disallowance, such as improper classification of services as 'input services' under Rule 2(l) of the CENVAT Credit Rules, 2004. This included services like Rent-a-Cab, Membership subscriptions, Business Exhibitions, Health services, Legal Consultancy, and Travel Agent services.

In its analysis, the Tribunal emphasized the legal framework established by the Supreme Court in cases such as Ballarpur Industries Ltd. and Toyo Engineering India Ltd., which restricts the adjudicating authority from introducing new grounds not mentioned in the show-cause notice. The Tribunal reiterated that a show-cause notice serves as the foundation for any adjudication process, and any demand must be confined to the issues raised therein. The Tribunal found that the adjudication order's reliance on new grounds was contrary to these established legal principles.

Key evidence considered included the verification report submitted by the Department after the Tribunal's remand in the previous appeal. This report led to the partial dropping of the demand, confirming that Rs.20,57,58,699/- was not required to be confirmed. However, the remaining amount was confirmed based on grounds not originally specified.

The Tribunal concluded that the demand confirmed in the impugned order could not withstand judicial scrutiny due to the deviation from the original show-cause notice. It held that the adjudicating authority's decision to introduce new grounds at the adjudication stage was unsustainable and set aside the impugned order, allowing the appeal in favor of the appellants.

Significant holdings from the judgment include the reaffirmation of the principle that the scope of adjudication is limited to the grounds specified in the show-cause notice. The Tribunal's decision underscores the necessity for procedural fairness and adherence to statutory provisions in tax adjudication processes.