The Hyderabad bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) quashed the confirmation of demand by the original authority on a ground that was different from the ground in the show cause notice.
The issue revolving in this case is that the appellant, M/s Vital Paper Products Pvt Ltd. received a show cause notice dated 25.05.2017, following an audit of their accounts, seeking recovery of Rs. 25,97,840/- in irregularly availed Cenvat Credit, along with interest and a penalty under Section 78 of the Finance Act, 1994. The Department felt that certain credits were inadmissible either due to specific exclusions from the definition of “input services,” or the removal of terms like “setting up” from the definition for not having a nexus with the output service.
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In this case, the total demands have been split into 5 distinctive issues. And of the main issue here is with regard to Cenvat Credit availed on the initial setting up of a factory amounting to Rs. 5,06,401 (Rs. 4,86,242 + Rs. 13,050 + Rs. 7109).
The adjudicating authority confirmed the demand of Rs. 25,97,840/- and also appropriated Rs. 3,05,547/- reversed by the appellant and also imposed a penalty of Rs. 13,09,000/- and applicable interest.
The bench observed that with respect to Cenvat Credit of Rs. 5,06,401 (4,86,242+13,050+7,109), the adjudicating authority has observed that the assessee has not adduced evidence that there was any nexus between input services and output services, whereas the Department had proposed to deny said credit on account of it’s being used for initial setting up. The bench was of the opinion that since the grounds for confirming the demand differ from those in the show cause notice, the confirmation is untenable.
The bench observed that the demand for Cenvat Credit of Rs. 13,050 is not sustainable as the confirmation of demand by the original authority is on a ground different than the ground in the show cause notice.
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The CESTAT bench, comprising of A.K. JYOTISHI ( MEMBER TECHNICAL ), partly allowed the appeal.
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