CENVAT credit recovery order set aside due to absence of specified legal provisions in show cause notice

CESTAT Allahabad allowed the appeal where service tax demand against appellant was dropped in the impugned order. Appellant had deposited the demanded amount under protest and was entitled to refund with interest. The tribunal held that recovery of CENVAT credit taken by appellant was unjustified as the show cause notice and impugned order failed to specify legal provisions for such recovery. Since appellant was entitled to refund of similar amount with interest, the recovery exercise was deemed nullity. The order directing CENVAT credit recovery could not be upheld due to absence of stated legal provisions.

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Issues Involved:
1. Demand of Service Tax
2. Recovery of Interest and Imposition of Penalty
3. Disallowance of CENVAT Credit Distribution

Summary:

1. Demand of Service Tax:
The appeal challenges the order dated 22.08.2014, which dropped the demand of Service Tax amounting to Rs. 1,29,31,229/- u/s 73(2) of the Finance Act, 1994. The appellant, registered as an "Input Service Distributor," had received "banking and financial services" from M/s Jefferies International Ltd., London, and paid service tax under protest. The impugned order concluded that service tax was not leviable on services provided by a person located outside India to a recipient in India before 18.04.2006, as per CBEC Circular No. 276/8/2009-CX. 8A dated 26.09.2011 and relevant Supreme Court judgments.

2. Recovery of Interest and Imposition of Penalty:
The impugned order also dropped the proceedings regarding the recovery of interest and imposition of penalty as proposed in the Show Cause Notice (SCN). The appellant had paid the service tax under protest and contended that the service tax was not applicable as the services were undertaken outside India.

3. Disallowance of CENVAT Credit Distribution:
The impugned order disallowed the appellant from passing on the service tax paid to any other manufacturer or service provider in India for availing CENVAT credit. The appellant argued that the impugned order traveled beyond the SCN, which did not propose to disallow/recover the CENVAT credit. The appellant relied on several judicial precedents to support their claim that once service tax is paid, even if not payable, CENVAT credit cannot be denied.

The Tribunal noted that the appellant had deposited the service tax under protest and distributed the credit to their manufacturing units. The Tribunal found no reason to disallow the distribution of the said amount taken as credit by the appellant, especially since the impugned order did not record any reason for disallowing the credit and its distribution. The Tribunal relied on the decision in Ajinkya Enterprises [2013 (294) E.L.T. 203 (Bom.)] and other relevant cases, concluding that the recovery of CENVAT credit was unjustified.

Conclusion:
The appeal was disposed of, with the Tribunal finding no justification in the implementation of the impugned order to the extent it ordered the recovery of CENVAT credit, given the appellant's undertaking not to claim a refund of the amount credited and distributed. The Tribunal upheld the appellant's right to distribute the CENVAT credit taken for the service tax paid under protest.

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