Cenvat credit denial cannot rest on grounds absent from the show cause notice; pre-deposit waiver followed.

Cenvat credit on mobile phone services was challenged on the basis of a 2003 circular, but the adjudicating authority also relied on a separate ground that the service was not input service and was not shown to be used in or in relation to manufacture. Because that additional basis was not stated in the show cause notice, the demand was treated as prima facie unsustainable at the pre-deposit stage. Pre-deposit of the service tax, education cess and penalty was waived, and recovery was stayed pending disposal of the appeal.

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Issues: Whether Cenvat credit could be denied on a ground not set out in the show cause notice, and whether pre-deposit of the service tax, education cess and penalty should be waived.

Analysis: The only ground in the show cause notice was the reliance on the 2003 circular to deny credit in respect of mobile phones. The adjudicating authority, however, denied the credit on an additional footing that the mobile phone service was not input service and that no evidence showed use in or in relation to manufacture. Since this reason was not part of the notice, the demand was found to be prima facie unsustainable at the stage of pre-deposit.

Conclusion: The pre-deposit of the entire service tax, education cess and penalty was waived and recovery was stayed pending disposal of the appeal.

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