CENVAT credit dispute must be decided on its true footing; refund claim recharacterisation was held incorrect and remanded.

A dispute over denial of CENVAT credit on input services for alleged lack of nexus with output service could not be treated as a refund claim under Rule 5 of the CENVAT Credit Rules, 2004. The appellate authority was required to decide the issue actually raised, namely admissibility of the credit and the consequential demand with interest and penalties, and its recharacterisation of the matter as refund was incorrect. The order was therefore set aside and the matter remanded for fresh decision after hearing the respondent.

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Issues: Whether the Commissioner (Appeals) was justified in treating a demand arising from alleged inadmissible CENVAT credit as a refund claim under Rule 5 of the CENVAT Credit Rules, 2004 and in allowing the matter on that basis, and whether the impugned order required interference and remand.

Analysis: The show-cause notice and the order of the original authority concerned denial of CENVAT credit on various input services for alleged lack of nexus with the output service, followed by demand of the inadmissible credit with interest and penalties under Sections 77 and 78 of the Finance Act, 1994. The appellate authority, instead of examining that dispute, proceeded on the footing that the matter was a refund claim under Rule 5 of the CENVAT Credit Rules, 2004 and granted relief by remanding the matter. As the core controversy before the appellate authority was not a refund claim but the admissibility of CENVAT credit, the impugned approach was held to be incorrect.

Conclusion: The order of the Commissioner (Appeals) was set aside and the matter was remanded for fresh decision after giving the respondent a reasonable opportunity of hearing.

Ratio Decidendi: An appellate authority must decide the dispute actually placed before it on the correct legal footing and cannot convert a demand for inadmissible CENVAT credit into a refund claim without jurisdictional basis.

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