The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has allowed the refund claimholding that reversal of CENVAT credit due to audit objection—when such credit was otherwise legally admissible—entitles the assessee to refund.
The bench of Satendra Vikram Singh (Technical Member) reiterated that adjudicating authorities cannot go beyond the scope of the show cause notice.
The appeal arose from rejection of a refund claim amounting to ₹2.84 lakh, which had been denied by both the adjudicating authority and the Commissioner (Appeals) on the ground that there was no provision for such refund under the Central Excise Act, 1944.
The dispute traces back to an audit objection raised during EA-2000, where the department questioned the availment of CENVAT credit on outward freight services for the period 2016–17 and 2017–18 (up to June 2017). Acting on the audit objection, the assessee reversed the credit along with interest and opted to settle the matter under Section 11A(2B) of the Act.
However, subsequent to such reversal, the CBIC issued a circular dated 08.06.2018 clarifying that CENVAT credit on outward transportation is admissible where the sale is on FOR basis and ownership extends till delivery at the buyer’s premises. Relying on this clarification, the assessee filed a refund claim, asserting that the reversal was not required in law.
During adjudication, the Assistant Commissioner accepted that the assessee was indeed eligible for the credit and that freight was included in the assessable value on which duty was paid. However, the refund was still denied on the ground that the matter had been settled under Section 11A(2B), thereby barring any subsequent claim. This view was upheld by the Commissioner (Appeals).
The Tribunal, however, disagreed with this approach on two key grounds.
Firstly, it found that the show cause notice issued for rejecting the refund was based solely on the absence of a refund provision under the statute. However, the lower authorities rejected the claim on entirely different grounds, including settlement under Section 11A(2B). The Tribunal held that such action amounts to travelling beyond the scope of the show cause notice, which is impermissible in law and violates principles of natural justice.
Relying on settled judicial precedents, including Supreme Court rulings, the Tribunal emphasized that the foundation of any adjudication must strictly stem from the grounds stated in the show cause notice, and no new case can be built at the adjudication or appellate stage.
Secondly, on merits, the Tribunal held that the assessee was legally entitled to avail CENVAT credit on outward freight in light of the CBIC circular. It observed that the reversal was made merely to comply with audit objections and to avoid litigation, and not because the credit was inadmissible.
The Tribunal further noted that once it is established that the credit was rightly admissible, the reversal thereof was unwarranted, and consequently, the assessee is entitled to refund of the amount along with applicable interest. It also observed that such credit could not be transitioned into the GST regime, making refund the only viable remedy.
The Tribunal set aside the impugned order and remanded the matter to the jurisdictional Assistant Commissioner with a direction to sanction the refund claim.
Case Details
Case Title: Aryan Packaging Industries Versus Commissioner Of CGST & Central Excise – Surat
Citation: JURISHOUR-1045-HC-2026(AHM)
Case No.: Excise Appeal No. 10181 of 2021–SMB
Date: 30.04.2026
Counsel For Appellant: Devashish K Trivedi, Advocate
Counsel For Respondent: Sarjeet Kumar, Superintendent (AR)
