Refund claims and limitation turn on the show cause notice and the date of reversal of credit.
Refund claims cannot be rejected on a ground not stated in the show cause notice, because adjudication must remain confined to the notice allegations. The article also notes that where service tax is paid on full freight and credit is reversed only after departmental insistence, the date of reversal can be treated as the relevant date for limitation. On that basis, a refund filed within one year from that date is not time-barred, and refund may be admissible if the corresponding credit is not retained. The impugned orders were therefore set aside on the facts discussed.
Issues: (i) Whether the refund could be rejected on a ground not contained in the show cause notice. (ii) Whether the refund claim was barred by limitation and whether the assessee was entitled to refund of the service tax paid on the full freight amount after reversal of credit.
Issue (i): Whether the refund could be rejected on a ground not contained in the show cause notice.
Analysis: The show cause notice proceeded only on limitation, but the authorities rejected the claim on the separate ground that the exemption under Notification No. 32/2004-ST was optional and could not be claimed retrospectively. A decision resting on a ground not alleged in the notice is not sustainable.
Conclusion: The rejection on a ground beyond the show cause notice was unsustainable.
Issue (ii): Whether the refund claim was barred by limitation and whether the assessee was entitled to refund of the service tax paid on the full freight amount after reversal of credit.
Analysis: The assessee had paid service tax on the full freight amount and later reversed the credit only on being required by the department. The refund claim was filed within one year from the date of such reversal requirement, which was treated as the relevant date. On that basis, the claim was not time-barred and the assessee was held entitled to refund of the amount claimed. The Tribunal also noted that the assessee was entitled to the credit of the tax paid, and refund could not be claimed if such credit was retained.
Conclusion: The claim was within limitation and refund was admissible to the assessee.
Final Conclusion: The impugned orders were set aside and the refund appeal succeeded, with the entitlement to refund recognized on the facts found.
Ratio Decidendi: A refund claim cannot be rejected on a ground not set out in the show cause notice, and where credit is reversed only on departmental insistence, the date of reversal forms the relevant point for testing limitation.
TaxTMI 
AI Drafter ✕
TaxTMI 
