Refund denial cannot rest on new grounds, and reversed Cenvat credit remains refundable once admissibility is established.

A refund rejection cannot be sustained on a ground not set out in the show cause notice; the adjudicating authority must remain within the original basis for denial, and a new objection cannot be introduced later. The note also states that where Cenvat credit reversed on outward freight is subsequently found admissible under the applicable credit framework and the relevant CBIC clarification, the amount reversed with interest remains refundable. The operative effect is that refund claims should be assessed on the notice-based ground and on the legal admissibility of the underlying credit, not on an unwarranted settlement objection.

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Issues: (i) Whether the rejection of refund could be sustained on grounds not stated in the show cause notice; (ii) whether the appellant was entitled to refund of the Cenvat credit reversed along with interest after the credit was subsequently held admissible.

Issue (i): Whether the rejection of refund could be sustained on grounds not stated in the show cause notice.

Analysis: The refund claim was originally proposed to be rejected on the stated ground that there was no provision for refund under the Central Excise Act, 1944 and the Rules. The lower authorities, however, rejected the claim on a different footing, namely that the matter had been settled under Section 11A(2B) of the Central Excise Act, 1944 and therefore refund was not admissible. An adjudicating authority cannot travel beyond the foundation laid in the show cause notice, and a new basis for denial cannot be introduced at the appellate or adjudication stage when it was not part of the notice.

Conclusion: The rejection could not be sustained on grounds beyond the show cause notice, and this issue was decided in favour of the assessee.

Issue (ii): Whether the appellant was entitled to refund of the Cenvat credit reversed along with interest after the credit was subsequently held admissible.

Analysis: The appellant had reversed Cenvat credit on outward freight due to audit objection, but the credit was later found admissible under the applicable Cenvat credit framework and the CBIC circular clarifying entitlement where outward transportation is covered up to the buyer's premises in appropriate cases. Once the underlying credit itself was admissible, insistence on reversal was unwarranted, and the amount reversed with interest did not cease to be refundable merely because the reversal had been made to close the dispute.

Conclusion: The appellant was entitled to refund of the reversed credit along with interest, and this issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded on both the procedural and substantive grounds, the impugned order was set aside, and the matter was sent back for sanction of the refund claim.

Ratio Decidendi: An adjudication cannot uphold rejection of refund on a ground not forming part of the show cause notice, and where a reversed tax credit is later found to have been legally admissible, refund of the reversal cannot be denied on the basis of an unwarranted settlement objection.

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