The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside the recovery proceedings and equal penalty imposed after holding that no show-cause notice could have been issued once the assessee had voluntarily reversed the disputed CENVAT credit upon audit objection. 

The bench of Dr. Suvendu Kumar Pati (Judicial Member) has observed that Section 73(3) of the Finance Act, 1994 specifically provides that where an assessee pays the tax liability after being pointed out by departmental officers or upon self-ascertainment and informs the department, no notice under Section 73(1) should thereafter be issued.

The appeal was filed by Hindustan Construction Company Ltd. against the Order-in-Appeal passed by the Commissioner (Appeals), Raigad, which had confirmed recovery of ₹11.05 lakh along with equal penalty under Section 73(1) of the Finance Act, 1994 read with Rule 15(3) of the CENVAT Credit Rules, 2004. 

The dispute arose after an EA-2000 audit conducted for the period 2013-14 to June 2017 found certain input service credits availed by the company to be inadmissible. The disputed credits related to services such as rent-a-cab, car repair, health insurance, outdoor catering and insurance services in Jammu, which was described as a high-risk area. 

The company accepted the audit objection and reversed the CENVAT credit amounting to ₹11,05,642 through the GST portal on 21 August 2019. The assessee also contended that during the relevant period it maintained a CENVAT credit balance exceeding ₹2 crore, indicating that the disputed credit had never been utilised. 

Despite the reversal, the department issued a show-cause-cum-demand notice dated 28 October 2019 seeking recovery of the amount along with equal penalty by invoking the extended limitation period. 

Before the Tribunal, the appellant argued that once the credit had already been reversed pursuant to audit observations, issuance of a recovery notice under Rule 14 read with Section 73 of the Finance Act was legally unsustainable. The assessee also relied upon the Tribunal’s earlier decision in GF Toll Road Private Ltd. vs. Commissioner of Central Tax & GST, Thane, wherein it was held that credit merely availed but not utilised cannot attract recovery, interest or penalty. 

The department, however, defended the order and argued that the disputed input services were clearly inadmissible under Rule 2(l) of the CENVAT Credit Rules, 2004, and therefore recovery proceedings invoking the extended period were justified. 

The Tribunal further noted that Rule 14 and Rule 15(3) of the CENVAT Credit Rules apply Section 73 mutatis mutandis, thereby extending the protection under Section 73(3) even to proceedings involving inadmissible CENVAT credit. 

Importantly, the Bench recorded that the show-cause notice itself acknowledged that the appellant had already reversed the credit after the audit objection and also possessed sufficient CENVAT credit balance, establishing that the disputed credit had not been utilised. 

Holding that the issuance of the show-cause notice itself was unsustainable in law, the Tribunal allowed the appeal and set aside the order passed by the Commissioner (Appeals) with consequential relief to the assessee. 

Case Details

Case Title: M/s Hindustan Construction Company Ltd. Versus Commissioner of CGST, Navi Mumbai

Citation: JURISHOUR-1145-CES-2026(MUM) 

Case No.: Service Tax Appeal No. 85601 of 2022

Date: 05.05.2026

Counsel For  Appellant: Mahesh Raichandani, Advocate

Counsel For Respondent: Dhananjay Dahiwale, Dy. Commissioner

Read More: CESTAT Quashes Rs. 29.72 Lakh Service Tax Demand on Rent-a-Cab Services