Pranav B Prem

The Delhi Bench of the Customs Excise and Service Tax Appellate Tribunal has set aside a service tax demand involving disallowance of Cenvat credit amounting to ₹30.05 lakh, holding that the department failed to comply with binding remand directions issued earlier by the Tribunal and travelled beyond the scope of the original show cause notice. The Tribunal ruled that such an approach is contrary to settled principles of law and renders the adjudication order legally unsustainable.

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The appeal was allowed by Dr. Rachna Gupta (Judicial Member) in favour of M/s R.K. Transport Company, a provider of site formation, excavation, earthmoving and demolition services. The Tribunal quashed the demand of Cenvat credit of ₹30.05 lakh along with interest and penalty, holding that neither the factual allegations nor the legal requirements for sustaining the demand were satisfied.

The dispute arose from an audit conducted by the department, during which several alleged irregularities were noticed. These included non-payment of service tax on the value of materials supplied free of cost by service recipients, excess availment of Cenvat credit due to a mismatch between the closing balance of September 2009 and the opening balance of October 2009 in ST-3 returns, alleged wrongful availment of credit on tippers and dumpers, non-payment of interest on suo motu reversals of credit, and availment of 100% Cenvat credit on capital goods in the first year instead of the permissible 50%.

Based on these allegations, a show cause notice dated 23 October 2013 was issued proposing, inter alia, recovery of service tax exceeding ₹14 crore and denial of various Cenvat credits, including an amount of ₹30.05 lakh alleged to be excess credit. The demands were initially confirmed by an Order-in-Original passed in August 2014.

In the first round of litigation, the Tribunal, by a final order dated 22 September 2020, set aside the entire demand except for the alleged excess Cenvat credit of ₹30.05 lakh. The matter was remanded to the Commissioner with specific directions to examine the invoices produced by the assessee and reconsider the explanation offered with respect to the alleged excess credit. The remand was limited strictly to verification of documents and factual reconciliation.

However, in the remand proceedings, the Commissioner once again confirmed the demand of ₹30.05 lakh, prompting the assessee to approach the Tribunal again. The appellant contended that the remand directions were not complied with in letter or spirit and that the adjudicating authority had travelled beyond the scope of the show cause notice by introducing fresh allegations.

After examining the records, the Tribunal found that the alleged excess credit arose solely due to a clerical error in reporting the closing balance of Cenvat credit for September 2009 in the ST-3 return. It was noted that the opening balance for October 2009 exactly matched the figures reflected in the Cenvat credit register and was fully supported by 16 invoices placed on record. The Tribunal observed that although all relevant invoices were available and had been examined, the Commissioner failed to undertake an invoice-wise analysis or properly reconcile the figures, even after the limited remand.

The Tribunal further noted that instead of restricting himself to the scope of remand, the adjudicating authority introduced new allegations, including wrongful availment of 100% Cenvat credit on capital goods—an issue which was never proposed in the original show cause notice. The Tribunal reiterated the settled legal position that no demand can be confirmed on grounds not proposed in the show cause notice, and any adjudication travelling beyond its scope is impermissible.

On the issue of limitation, the Tribunal held that there was no evidence whatsoever of suppression, wilful misstatement or fraud on the part of the assessee. The show cause notice itself was based entirely on the assessee’s own records and statutory returns. The Tribunal observed that a mere clerical or inadvertent error in filing returns cannot justify invocation of the extended period of limitation. In the absence of any deliberate wrongdoing, penalty and interest were also held to be not recoverable.

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Holding that the impugned order suffered from serious legal infirmities, the Tribunal set aside the Order-in-Original dated 16 November 2023 in its entirety. The appeal was allowed in full, the demand of ₹30.05 lakh towards Cenvat credit was quashed, and the interest and penalty were dropped. The Tribunal reaffirmed that adjudicating authorities are bound by remand directions and must adhere strictly to judicial discipline.

Cause Title: M/s. R.K. Transport Company Versus Commissioner of Central Excise & CGST

Case No.: Service Tax Appeal No. 50208 of 2024

Coram: Dr. Rachna Gupta (Judicial Member)