2023 (7) TMI 1018 - AT - Service Tax

Principles of natural justice - scope of SCN - no detailed grounds on the basis of which the subject credit was held not admissible - CENVAT credit - input service or not - insurance premium paid on marine cargo policy for the year 2016-17 - Rule 2(l) of Cenvat Credit Rules 2004, with effect from 01.04.2011 - HELD THAT - What is apparent from the facts and records of the case is that the show cause notice has not given any detailed grounds on the basis of which the Department has alleged that subject credit was not admissible in the facts of the case. The show cause notice has only quoted the legal provisions, but have not brought on record any grounds based on which they have came to the conclusion that the said credit i.e. premium paid for Marine Insurance was not an admissible credit, either on the grounds of nexus to manufacturers or on the grounds that the clearance being ex-work and not FOR basis etc therefore not admissible. In the absence of any clear cut charge and the grounds given in the show cause notice, the confirmation of demand by taking recourse to various contradictory grounds, which were not even alleged explicitly and explained in the show cause notice, would not be legally tenable. It is now a settled law that the matter cannot be decided by the Original Authority or in appeal by the Appellate Authority on the grounds not covered or alleged in the show cause notice. The Delhi Bench of Tribunal in their order in the case of M/s R.K. Singh Company Vs Commissioner of Customs and Central Excise, Bilaspur 2023 (5) TMI 721 - CESTAT NEW DELHI have in a case related to service tax matter, after carefully going through plethora of case laws, found that the Show Cause Notice was vague and therefore set aside the order of Commissioner confirming the demand based on said SCN. Though the case is in relation to service tax, the ratio can be relied upon in the case of matters relating to customs or central excise matter as well. Further, when the SCN lacks clarity of the grounds on which demand is raised, it deprives the noticees an effective opportunity to defend his case before the authority. It is clearly against the principles of natural justice. In this case, it is apparent that no specific grounds for denying the credit has been given except for quoting the legal provisions. Thus, on the ground itself that both Order-in-Original and Order-in- Appeal have travelled beyond allegations in show cause notice, the order of the Commissioner (Appeals) is liable to be set aside without going into the merits of the case advanced by both the sides - Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment include the interpretation of the definition of "input service" under Rule 2(l) of the Cenvat Credit Rules 2004, the admissibility of service tax credit on "insurance premium" paid on a marine cargo policy, the nexus between the service utilized and manufacturing or clearance activities, and the adequacy of grounds provided in the show cause notice to support the denial of credit.

Interpretation of "input service":
The Department alleged that the appellant was not entitled to avail service tax credit on insurance premium paid on a marine cargo policy for the year 2016-17 as it did not qualify as an "input service" under Rule 2(l) of the Cenvat Credit Rules 2004. The Original Adjudicating Authority concluded that the service in question had no nexus with the manufacturing or clearance activities of the appellants, emphasizing the burden on the assessee to establish the admissibility of credit. The authority also referenced relevant legal provisions and circulars to support its decision.

Appeal and analysis by Commissioner (Appeals):
On appeal, the Commissioner (Appeals) examined the arguments and documents provided by the appellant. The Commissioner analyzed purchase orders and previous judgments to determine that the sale was not on a Free on Rail (FOR) basis as claimed by the appellant. The Commissioner distinguished previous cases cited by the appellant and relied on other judgments to support the decision. The appellant contended that the sale was on a FOR destination basis and referenced relevant circulars and case law to support their position.

Adequacy of grounds in the show cause notice:
The judgment highlighted that the show cause notice lacked detailed grounds to support the Department's conclusion that the credit for the insurance premium paid for marine insurance was not admissible. The notice primarily quoted legal provisions without providing explicit reasons for denying the credit. The judgment emphasized that decisions cannot be based on grounds not covered in the show cause notice and referenced a previous case where a vague notice led to the set aside of the order confirming the demand. The judgment concluded that the lack of specific grounds in the notice deprived the appellant of an effective opportunity to defend their case, contravening principles of natural justice.

Conclusion:
The judgment ultimately set aside the order of the Commissioner (Appeals) based on the grounds that both the Order-in-Original and Order-in-Appeal had exceeded the scope of the allegations in the show cause notice. The judgment emphasized that the lack of specific grounds provided in the notice rendered the confirmation of demand legally untenable. Therefore, the appeal filed by the appellant was allowed, and the order of the Commissioner (Appeals) was set aside.