CENVAT credit denial must match the show cause notice; ineligible or nexus-less credits remain recoverable with penalty.
Adjudication cannot sustain denial of CENVAT credit on grounds not alleged in the show cause notice; credits for infrastructure development service and the related disputed amounts were set aside because the demand was based on different reasoning and the asserted works-contract basis was not established. Credits for roads and landscape maintenance, an SEZ invoice, and services used exclusively for trading were denied because they lacked nexus with the output service or were otherwise ineligible, and those demands were sustained. The extended period of limitation was held invocable where eligible credit was not properly established or disclosed, and penalty survived only to the extent the corresponding demand remained valid.
Issues: (i) Whether the demands relating to infrastructure development service and the credits of Rs. 4,86,242/-, Rs. 13,050/- and Rs. 7,109/- were sustainable when the adjudication proceeded on grounds different from those alleged in the show cause notice. (ii) Whether the demand relating to roads and landscape maintenance, the SEZ invoice and services used exclusively for trading was sustainable on the ground of absence of nexus or ineligibility as input service. (iii) Whether the extended period of limitation and consequential penalty could be invoked for the disputed credits.
Issue (i): Whether the demands relating to infrastructure development service and the credits of Rs. 4,86,242/-, Rs. 13,050/- and Rs. 7,109/- were sustainable when the adjudication proceeded on grounds different from those alleged in the show cause notice.
Analysis: The show cause notice proposed denial of credit on a specific basis, namely that the infrastructure development service was in the nature of works contract and that the later credits were for initial setting up after omission of that expression from the definition of input service. The adjudication, however, denied these credits on different reasoning, including want of nexus and common-service grounds. The works contract allegation was also not established on the record, and the adjudicating authority could not sustain the demand on a footing not put to notice.
Conclusion: The demands on these items were not sustainable and were set aside.
Issue (ii): Whether the demand relating to roads and landscape maintenance, the SEZ invoice and services used exclusively for trading was sustainable on the ground of absence of nexus or ineligibility as input service.
Analysis: For the credit relating to maintenance of roads and landscape, the record did not show a nexus with the output service, and the services were rendered outside the premises. The invoice in the name of the SEZ unit and the services availed exclusively for trading were also treated as ineligible credits. These items either fell within the admitted ineligible category or lacked the necessary connection with the output service, and the appellant did not contest them effectively.
Conclusion: These demands were rightly upheld and remained recoverable.
Issue (iii): Whether the extended period of limitation and consequential penalty could be invoked for the disputed credits.
Analysis: The assessee was required to take only eligible credit and maintain proper records. Mere filing of returns without disclosure of the nature of the input services did not establish bona fides or prevent invocation of the extended period. Since the disputed credits were taken contrary to the statutory requirements, penalty followed in respect of the sustainable demands, while penalty could not survive for the set-aside items.
Conclusion: The extended period was held invocable, and penalty was upheld only to the extent the corresponding demand survived.
Final Conclusion: The order was modified partly in favour of the assessee by deleting the unsustainable credits and associated penalty, while sustaining the remaining demand and consequential penalty on the admitted ineligible items.
Ratio Decidendi: An adjudication cannot sustain a demand on grounds not alleged in the show cause notice, but credits taken without establishing statutory eligibility or nexus with the output service remain liable to denial, with the extended period and penalty being available where the assessee failed to discharge the burden of proof.
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
