CESTAT Quashes Cenvat Credit Demand for Breach of Remand Directions, Travel Beyond SCN

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand of over Rs. 30 crore, holding that the tax department failed to comply with binding remand directions and travelled beyond the scope of the original show cause notice. The bench of Rachna Gupta (Judicial Member), allowed the appeal filed by a transport and earthmoving services provider and quashed the disallowance of ₹30.05 lakh Cenvat credit, along with interest and penalty. The appellant was engaged in providing site formation, excavation, earthmoving and demolition services, and had availed Cenvat credit on inputs, input services and capital goods under the Cenvat Credit Rules, 2004. Following an audit, the department alleged multiple irregularities, including non-payment of service tax on materials supplied free of cost by service recipients. Excess availment of Cenvat credit due to mismatch between closing and opening balances in ST-3 returns. Wrongful availment of credit on tippers and dumpers. Non-payment of interest on suo motu credit reversals. Availment of 100% credit on capital goods in the first year instead of 50% A show cause notice issued in October 2013 proposed massive demands, including service tax of over Rs. 14 crore and denial of various Cenvat credits. In 2020, CESTAT had set aside the entire demand except the issue relating to alleged excess Cenvat credit of ₹30.05 lakh, remanding the matter back to the Commissioner solely to verify invoices and explanations furnished by the appellant. However, in the remand proceedings, the Commissioner once again confirmed the demand, prompting a fresh appeal before the Tribunal. After examining the records, invoices, and credit registers, the Tribunal made several crucial observations the alleged excess credit arose only due to a clerical error in reporting the closing balance for September 2009 in the ST-3 return. The opening balance for October 2009 exactly matched the figures in the Cenvat credit register and supporting invoices, establishing that no excess credit was actually taken. All 16 invoices relevant to the disputed period were on record and supported the appellant’s claim. Despite this, the Commissioner failed to properly analyse the documentary evidence and did not discuss invoice-wise figures, even after remand. The Tribunal noted that the adjudicating authority instead introduced new allegations, including improper availment of 100% capital goods credit—an issue never raised in the original show cause notice. CESTAT held that the impugned order clearly travelled beyond the scope of the show cause notice, violating settled principles of law. Relying on Supreme Court rulings, the Tribunal reiterated, “No demand can be confirmed on grounds not proposed in the show cause notice.” The Tribunal observed, rendered the order legally unsustainable. The Tribunal categorically ruled that the department failed to establish any suppression, misstatement or fraud on the part of the assessee. The show cause notice itself was based entirely on the appellant’s own records and returns. A mere clerical or inadvertent error cannot justify invocation of the extended period of limitation. The Tribunal held that penalty and interest were also not recoverable in the absence of any deliberate wrongdoing. Allowing the appeal in full, CESTAT set aside the Order-in-Original dated 16.11.2023, quashed the demand of ₹30.05 lakh Cenvat credit, dropped interest and penalty and reaffirmed that adjudicating authorities must strictly adhere to remand directions and judicial discipline Case Details Case Title: M/s. R.K. Transport Company Versus Commissioner of Central Excise & CGST Case No.: Service Tax Appeal No. 50208 of 2024 Date: 28/01/2026 Counsel For Petitioner: Advocate Mehak Mehra Counsel For Respondent: Rohit Issar, Authorized Representative Click Here To Read Order Read More: Transfer of Development Rights Is Not Taxable Service: CESTAT Quashes Rs. 448 Crore Service Tax Demand on Real Estate Developer

CESTAT Quashes Cenvat Credit Demand for Breach of Remand Directions, Travel Beyond SCN

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