SEZ unit wins appeal as CESTAT allows CENVAT credit utilization for service tax under N/N. 17/2011-S.T.

CESTAT Allahabad allowed the appeal of a SEZ unit challenging reversal of CENVAT credit utilized for service tax liability discharge. The tribunal held that exemption notification N/N. 17/2011-S.T. permits SEZ units to use accumulated CENVAT credit from non-SEZ units under centralized registration without restrictions. The adjudicating authority and Commissioner (Appeals) exceeded the scope of the show cause notice by introducing new grounds regarding invoicing series and centralized billing requirements not originally alleged. The tribunal relied on SC precedent that authorities cannot travel beyond the SCN's scope and set aside the impugned order.

---

---

Issues Involved:
1. Validity of centralized registration for SEZ and Non-SEZ units.
2. Eligibility to utilize Cenvat Credit by SEZ unit.
3. Invocation of extended period of limitation.
4. Authority of adjudicating bodies to go beyond the scope of the Show Cause Notice (SCN).

Summary:

1. Validity of Centralized Registration for SEZ and Non-SEZ Units:
The Appellant argued that it is entitled to avail and utilize Cenvat credit relating to a non-SEZ unit to discharge the tax liability of its SEZ Unit when both units are covered under a centralized registration. The learned Commissioner (Appeals) rejected the appeal on the ground that SEZ unit cannot operate under centralized billing system under Rule 19(7) of the SEZ Rules. The Tribunal found no statutory basis for holding that there was a requirement of having the same invoicing series for units under centralized registration, and the sole basis for confirmation of demands was found to be erroneous.

2. Eligibility to Utilize Cenvat Credit by SEZ Unit:
The Appellant contended that none of the statutory provisions restricts the discharge of the output liability of an SEZ Unit by utilizing the Cenvat credit of a Non-SEZ Unit of the same assessee when both units are covered under the same centralized registration. The Tribunal noted that the Exemption Notification and Credit Rules do not provide any restriction prohibiting the discharge of service tax liability of a SEZ Unit by utilizing Cenvat Credit of a Non-SEZ Unit.

3. Invocation of Extended Period of Limitation:
The Appellant argued that the extended period of limitation was wrongly invoked as they had been regularly filing service tax returns, were under a bona fide belief of correct utilization of Cenvat credit, and had disclosed all information in their financial records. The Tribunal found that the demand in the SCN was based on the reasoning that the Appellant's SEZ unit is not eligible to avail Cenvat Credit in terms of the Exemption Notification, and therefore, could not have discharged its service tax liability through its Cenvat account.

4. Authority of Adjudicating Bodies to Go Beyond the Scope of SCN:
The Tribunal held that both the Adjudicating Authority and the learned Commissioner (Appeals) had traveled beyond the scope of the SCN, which is not permitted. It cited the judgment of the Hon'ble Supreme Court in the case of CCE, Nagpur v. Ballarpur Industries Ltd., 2007 (215) ELT 489 (SC) and CC, Mumbai v. Toyo Engineering India Ltd. 2006 (201) ELT 513(S.C.), emphasizing that it is not permissible for the department to travel beyond the show cause notice.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal with consequential relief as per law, emphasizing that the adjudicating authorities had overstepped the bounds of the SCN and the applicable legal provisions did not support the demands made.

---