Rule 9(1)(bb) Can’t Be Invoked to Deny CENVAT Credit When Penalty Proceedings Fail: CESTAT

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit cannot be denied under Rule 9(1)(bb) of the CENVAT Credit Rules, 2004 merely on the ground of alleged suppression or misstatement when the underlying penalty proceedings have already been set aside. The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) remanded the matter to the adjudicating authority for verification and correlation of the service tax paid through specific e-challans. The appeal was filed by M/s International Paper APPM Ltd., Rajahmundry, against an Order-in-Original dated May 30, 2014, passed by the Commissioner of Customs, Central Excise and Service Tax, Visakhapatnam-II. The department had confirmed a demand for recovery of allegedly inadmissible CENVAT credit amounting to ₹52.55 lakh and imposed penalties under Rule 15(3) of the CENVAT Credit Rules read with Section 78 of the Finance Act, 1994. The controversy arose because the company had availed CENVAT credit based on two challans dated March 8, 2012, through which it paid service tax on Goods Transport Agency (GTA) services under the Reverse Charge Mechanism (RCM). The department contended that the credit was inadmissible under Rule 9(1)(bb) of the CENVAT Credit Rules. The company had paid service tax after availing the applicable abatement on GTA services, effectively paying tax on only 25% of the value of service. The issue regarding eligibility for such abatement had been the subject matter of earlier litigation and adjudication proceedings. Subsequent appellate and adjudication orders had consistently held that the assessee was entitled to the GTA abatement. The Commissioner (Appeals), in an order dated June 29, 2022, remanded the matter only for re-quantification of the demand and also set aside penalties imposed under Sections 76 and 78 of the Finance Act. Similarly, another adjudication order dated January 31, 2019, had dropped the proceedings initiated through an earlier show cause notice. The assessee argued that the fundamental dispute had already been settled in favour of the company. According to the appellant, once the Tribunal and other authorities had recognized the eligibility to claim GTA abatement and had also concluded that penalties were not sustainable, Rule 9(1)(bb) could not be used to deny credit on the challans through which service tax had been paid. The appellant contended that the disqualification under Rule 9(1)(bb) applies only in situations involving fraud, suppression, wilful misstatement or similar circumstances attracting penal consequences. Since the penalty allegations had failed, the basis for denying credit also disappeared. The department argued that previous appellate orders had left the issue of quantification open and directed the adjudicating authority to verify duty-paid documents and re-determine the actual liability in accordance with the Tribunal’s findings. Therefore, according to the department, the matter still required factual verification. The central question was whether the appellant was entitled to avail credit based on the e-challans through which service tax had been paid. The Tribunal noted that the department’s objection was founded on allegations of suppression and intent to evade service tax. However, the dispute itself related to the assessee’s entitlement to claim abatement on GTA services under the Reverse Charge Mechanism. The Tribunal pointed out that this issue had already been conclusively settled by earlier decisions, including a Tribunal order dated November 16, 2017, and the Commissioner (Appeals)’ order dated June 29, 2022. Importantly, the Bench emphasized that the earlier proceedings did not sustain any penalties against the appellant. Consequently, the conditions necessary for invoking Rule 9(1)(bb) were absent. The Tribunal held that the department could not rely on that provision to deny CENVAT credit in such circumstances. While granting substantial relief to the assessee, the Tribunal observed that there was still a need to verify the exact amount of service tax paid through the two e-challans and establish its correlation with the credit claimed. Since this factual aspect was not sufficiently clear from the record, the matter was remanded to the original adjudicating authority for limited verification. The Tribunal directed that once the correlation is established, the assessee would be entitled to credit to the extent of service tax paid through the challans, and Rule 9(1)(bb) should not be invoked to deny such credit. Allowing the appeal by way of remand, the CESTAT held that where penalty proceedings alleging suppression or wilful misstatement have not survived, Rule 9(1)(bb) cannot be used as a basis to deny CENVAT credit. The adjudicating authority has been directed to undertake only a limited exercise of verifying the correlation between the tax paid through the challans and the credit claimed by the assessee. Case Details Case Title: M/s International Paper APPM Ltd Versus Commissioner of Central Excise & Service Tax, Visakhapatnam - II Citation: JURISHOUR-1577-CES-2026(HYD) Case No.: Service Tax Appeal No. 22840 of 2014 Date: 08.06.2026 Counsel For Appellant: R. Raghavendra Rao, Consultant Counsel For Respondent: K. Sreenivasa Reddy, AR Click Here To Read Order Read More: Customs Duty Exemption on Edible-Grade Oils Used in Cosmetics: CESTAT

Rule 9(1)(bb) Can’t Be Invoked to Deny CENVAT Credit When Penalty Proceedings Fail: CESTAT

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