CENVAT credit on employee mobile services cannot be denied on a new ground beyond the show-cause notice.

CENVAT credit on mobile phone services used by employees was treated as admissible where the adjudicating authority allowed the claim under the CENVAT Credit Rules, 2004 and the relevant circular. The appellate authority could not deny the credit on a new basis, namely that the phones were perquisites or fringe benefits, because that ground was outside the show-cause notice. Once the department did not challenge the finding that was decided in the assessee's favour, that finding attained finality. The contrary denial of credit was therefore not sustained, and the credit was held admissible.

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Issues: Whether CENVAT credit on mobile phone services used by employees is admissible as input service credit, and whether the appellate authority could deny the credit on a ground beyond the show-cause notice when the adjudicating authority had decided the issue in favour of the assessee.

Analysis: The dispute concerned the admissibility of credit on mobile phone services provided to executives. The adjudicating authority had found the assessee eligible for credit on the basis of the CENVAT Credit Rules, 2004 and the relevant circular, and had dealt with the allegation in the show-cause notice in the assessee's favour. The subsequent denial by the appellate authority proceeded on a different footing, namely that the phones were perquisites or fringe benefits, and thus went beyond the scope of the notice. Since the department had not challenged the adjudication order on the point decided in favour of the assessee, that finding had attained finality. In these circumstances, the denial of credit could not be sustained.

Conclusion: CENVAT credit on mobile phone services was held admissible to the assessee, and the contrary denial by the appellate authority was set aside.

Ratio Decidendi: Where the adjudicating authority has decided the admissibility of credit in the assessee's favour on the issue raised in the show-cause notice and that finding has not been appealed by the department, the appellate authority cannot deny the credit on a new and unrelated ground beyond the notice.

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