2025 (2) TMI 631 - HC - Service Tax

Appeal dismissed partly; earlier show-cause notice quashed but department may reassess other demands excluding free materials from CENVAT credit

HC dismissed the appeal to the extent that the earlier SCN was quashed but permitted the Department to proceed further to adjudicate other demands in ... Challenge to appeal before the Delhi High Court under Section 35 G of the Central Excise Act, 1944 - CENVAT credit on inputs and input services - exclusion of value of free materials used by the Assessee - HELD THAT:- A perusal of the order dated 8th December, 2016, passed by the Coordinate Bench of this Court would show that the SCN was quashed, but the Department was permitted to proceed in accordance with the decision in Era Infra Engineering Ltd. vs. Union of India [2016 (10) TMI 1248 - DELHI HIGH COURT] and exclude the value of free materials used by the Assessee. Both the adjudicating authority and the CESTAT were incorrect in holding that the SCN having been quashed, none of the other demands would also be liable to be adjudicated. Clearly, the decision of the Division Bench of this Court is not to the said effect. In fact, it permitted the Department to proceed further strictly in accordance with the judgment and exclude the value of free materials. All the other demands which are raised, accordingly, deserve to be adjudicated on facts and in accordance with law. Appeal disposed off. The present appeal before the Delhi High Court under Section 35 G of the Central Excise Act, 1944 challenges an impugned order dated 4th June, 2024, which quashed a Show Cause Notice (SCN) issued on 11th February, 2009 against the Respondent. The Respondent, engaged in the business of fabrication and fixing of aluminum windows/doors, availed CENVAT credit on inputs and input services. The Coordinate Bench of the High Court earlier quashed the SCN, following precedents, as the Respondent had not disclosed certain information related to taxable turnover. The Supreme Court subsequently decided in favor of the assessees regarding the inclusion of free services or materials in the gross value for service tax purposes.The Adjudicating Authority, after the Supreme Court decision, dropped the proceedings initiated through the SCN. The Department challenged this decision before the CESTAT, which also upheld the quashing of the SCN, leading to the dismissal of the Department's appeal. The Appellant argued that only the issue of free supply of materials was addressed in previous judgments, and other issues in the SCN were not considered. The Respondent contended that once the SCN is quashed, proceedings cannot continue.The High Court clarified that while the SCN was quashed, the Department was permitted to proceed in line with previous judgments and exclude the value of free materials. The Court noted that other demands in the SCN, such as short payment of Service Tax and education cess, had not been adjudicated. Both the Adjudicating Authority and the CESTAT erred in assuming that all other demands were automatically quashed with the SCN. The Court emphasized that the liberty granted to the Department indicated that other demands should be adjudicated on their merits. The Respondent was directed to respond to all other demands raised in the SCN, with an opportunity for a personal hearing if requested. The Court clarified that it had not opined on the other issues or demands in the SCN, and adjudication of these demands should proceed on their merits.In conclusion, the High Court disposed of the appeal, directing the adjudication of all other demands raised in the SCN and granting the Respondent an opportunity to respond to these demands. The Court emphasized that the liberty granted to the Department indicated a need to consider and adjudicate all demands raised in the SCN on their merits.