Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/20

CASE LAWS

Prepared By:

Sukhvinder Kaur, LLB [FYIC]

Megha Jain,

And Mayank Palgauta

Central Excise Section:

Case: Commissioner of Central Excise, Chennai-II v/s Tarpaulin International & Ors

Citation: 2010-TIOL-58-SC-CX

Issue: - Whether the tarpaulin made-ups which are prepared after cutting and stitching the tarpaulin fabric and fixing the eye-lets would involve the process of manufacture and, hence, would fall within the definition of `manufacture’?

Brief Facts: - Respondent is carrying on the business of producing and selling `tarpaulin made-ups'. The `tarpaulin made-ups' are nothing but the tarpaulin cloth which is prepared by making solution of wax, aluminum separate and pigments which are mixed and the solution is heated in a vessel and transferred to a tank. Grey cotton canvas fabric is then dipped into this solution and passed through two rollers, where after the canvas is dried by exposure to atmosphere. Thereafter, the tarpaulin made-ups are prepared by cutting the cloth into various sizes and stitched and eye-lets are fitted. Department contended that "made-ups" prepared by means of cutting, stitching and fixing of eye-lets amounts to manufacture and, hence, they are exigible to duty under the Central Excise Tariff Act, 1985. Thus, show cause notice was issued to the respondent on the ground that tarpaulin made-ups were classified under chapter sub-heading 63.01 and demand of duty was raised. The Commissioner confirmed the demand. Respondent went into appeal before the Tribunal. The matter was remanded by the Tribunal for de-novo consideration. In fresh proceedings, the Commissioner held that tarpaulin made-ups were specifically covered under Tariff heading 63.01 by relying on Rule 3(a) of the Interpretative Rules wherein it was stated that the heading which provides more specific description is to be preferred to the heading that provides a general description.

Respondent filed appeal before the Tribunal against this order. The Tribunal held that no `manufacture' was involved in the conversion of Tarpaulin made-ups. The Tribunal had relied upon the decision give by the Andhra Pradesh High Court in State of Andhra Pradesh v. Binny Ltd [TRC No. 215/90] wherein it was held that stitching of the edges of cotton canvas and fitment of eyelets thereto did not bring about any material change in the essential character of cotton canvas and it remained cotton fabric.

Aggrieved by the decision of the Tribunal, the Revenue has filed appeal before the Supreme Court raising following questions of law:

· Whether the process of converting `Tarpaulin Fabrics' into `Tarpaulin made-ups' would amount to manufacture when the said process results in an entirely different commodity with different marketable value?

· Whether the said process would amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944?

Appellant’s Contention: - Revenue contended that Tarpaulin made ups were made out of Tarpaulin fabric by cutting Tarpaulin fabric to a required size, margins are stitched, and eye lets are punched depending on the requirement of the consumers. Tarpaulin made ups are a distinct marketable commodity and, hence, it should be held excisable to central excise duty. They have relied upon the judgment given in the cases of Kores India Ltd. Vs. Commissioner of Central Excise, Chennai, [2004 (174) ELT 7 (S.C.)] and India Cine Agencies Vs. Commissioner of Income Tax, Madras, [2009 (233) ELT 8 (S.C.)].

Reasoning of the Judgment: - The Apex Court perused the relevant entries of Chapter 63 of the Central Excise Tariff Act, 1985. The definitions of expressions “excisable goods” in Section 2(d) and of Manufacture in Section 2(f) were also considered. It was observed that the basis for the levy of Central Excise duty is on the production or manufacture of goods within the country. Accordingly, the definitions of expressions “excisable goods” in Section 2(d) and of Manufacture in Section 2(f) were considered.

The Apex Court considered the judgments given in the cases starting from Tungabhadra Industries v. CTO [(1961) 2 SCR 14], Union of India v. Delhi Cloth & General Mills Co. Ltd. [(1997) 5 SCC 767], South Bihar Sugar Mills v. Union of India, [(1968) 3 SCR 21] and line of other judgments wherein the Apex Court had observed that "manufacture implies a change, but every change is not a manufacture and yet every change in an article is the result of treatment, labour and manipulation.

It was also noted that keeping in view the detailed observations made in the case of Union of India v. Delhi Cloth and General Mills [1977 (1) ELT (J199)], the Apex court in the case of Bhor Industries Ltd., Bombay v. Collector of Central Excise, Bombay [1989 (40) ELT 280(SC)] had stated that "it is necessary, to find out whether there are goods, that is to say, articles as known in the market as separate distinct identifiable commodities...... Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985."

Further reliance was placed on the judgments given in the cases of Collector of Central Excise Vs. Kulay Flush Door and Furniture Co. (P) Ltd. [(1988) Supp. SCC 239], B.P.L. India Ltd. v. Commissioner of Central Excise, Cochin [2002 (143) ELT 3(SC)], Empire Industries Ltd. v. Union of India [(1986) 162 ITR 846(SC)], C.C.E. v. S.R. Tissues Pvt. Ltd., [2005 (186) E.L.T.385 (S.C.)].

The Apex Court also considered an Australian decision given in the case of Adams v Rau, [46 CLR 572 High Court of Australia] wherein shorthand writers were involved in process of taking notes and later transcribed the notes by using papers. Evatt J. had observed therein that "The medical practitioner, who provides the service of taking X-rays and furnishes copies of the skiagraph to the patient, although he causes a new thing or entity to come into existence, is not a producer of goods. Nor is the artist who makes an etching for a client and provides him with a dozen copies, a manufacturer of commodities." Hence, the process was not held to be manufacture.

The Apex Court held that it is not in dispute that Tarpaulin made ups are covered under sub-heading 63.01 CETA Schedule. It is now well settled that merely because certain article falls within the Schedule, it would not be dutiable under the Excise Law, if the said article is not `Goods' known to the market. Marketability, therefore, is an essential ingredient in order to be dutiable under Schedule to Central Excise Tariff Act, 1985.

It was held that when Tarpaulin sheets are stitched and eyelets are made, it does not change basic characteristic of the raw material and end product. The process does not bring into existence a new and distinct product with total transformation in the original commodity. The original material used i.e., the tarpaulin, is still called tarpaulin made-ups even after undergoing the said process. Hence, it cannot be said that the process is a manufacturing process. Therefore, there can be no levy of Central Excise duty on the tarpaulin made-ups. The process of stitching and fixing eyelets would not amount to manufacturing process, since tarpaulin after stitching and eyeleting continues to be only cotton fabrics. The purpose of fixing eyelets is not to change the fabrics. Therefore, even if there is value addition to the same, it is to a minimum. To attract duty there should be a manufacture to result in different Goods and the Goods sought to be subject to duty should be known in the market as such.

In the end, the Tribunal has rightly held that conversion of Tarpaulin into Tarpaulin made-ups would not amount to manufacture. No merit in appeals.

Decision: - Appeals dismissed.

Comments: - A very good and important decision given by the Apex Court

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Case: M/s Kirloskar Pneumatic Co Ltd v/s Commissioner of C. Ex., Pune-III

Citation: 2010 (254) ELT 328 (Tri. - Mumbai)

Issue: - Is it sustainable to issue the Show Cause Notice for recovering the duty as well as imposing the penalty on the basis of Audit Objections given by the Departmental Auditors and that too without proper investigation?

Brief Facts: - Audit was conducted of unit of appellant-assessee. With regard to receipt of input, aluminium ingots, the Auditor confirmed the opening balance as on 01.04.05 to be 1260 kgs, receipts in 05-06 to be 48, 419 kgs, Issue in 05-06 was shown to be 61,083 kgs and the closing balance to be 11, 412 kgs. The cenvat credit availed was worked out to be Rs. 3,22,525/- on the quantity of 13, 724 kgs of ingots in the year 2005-06. On the basis of the same, Revenue issued show cause notice to the appellant to recover duty with interest thereon under Section 11AB and also proposed to impose penalty under Rule 25 of the Central Excise Rules, 2002.

In reply, the appellant presented their own worksheet wherein the opening balance as on 01.04.05 was show to be 245 kgs, receipts in 05-06 to be 490, 015 kgs, Issue in 05-06 was shown to be 48,728 kgs and the closing balance to be 982 kgs. They also furnished certificate from their Chartered Accountant wherein it was certified that they had a closing balance of 982 kgs of aluminium ingots for the year ended 31.3.06. That certificate was issued on the basis of verification of the assessees books of accounts and stock records. Further, the appellant furnished the print-outs of computerized CENVAT account of inputs for the relevant period.

The Original Authority adopted the auditor's report and gave the finding that the appellant had availed inadmissible CENVAT credit. Accordingly, demand was confirmed and equal amount of penalty was imposed on the appellant. The impugned order was upheld by the Commissioner (Appeals). Hence the appellant have filed this appeal before the Tribunal.

Reasoning of the Judgment: - The Tribunal held that the show-cause notice was issued purely on the basis of audit objections without the necessary investigation which must primary action under Section 11A of the Act. Reliance was placed on the decision given in Swastik Tin Works vs. Collector [1986 (25) ELT 798 (Tri)] wherein one of the reasons cited by the Tribunal's Special Bench was that the demand had been raised on the basis of audit objections and without investigations. Reliance was placed on Ram Steel Rolling and Forging Mills vs. Commissioner [2006 (204) ELT 87 (Tri-Mumbai)] wherein it was found that the demand of duty in question had been raised on the basis of audit objection and without gathering evidence by way of investigation.

The Tribunal held that the internal auditors of the department are not investigators. They are rather fact-finding experts, whose practice it is to verify records and pick the relevant facts. The department, has an investigating agency of its own, whose job is to book cases against suspects and gather the relevant facts by way of investigation including examination of witnesses. There is a clear distinction between the two jurisdictions. A show-cause notice under section 11A (1) of the Central Excise Act should be issued only after the successful conclusion of investigation rather than from a mere report of an auditor.

Secondly, the Tribunal on facts held that the show cause notice is arithmetically blunderous in as much as it repeats the auditor's blunder. Both the auditor and the author of the show-cause notice chose to add the figure 2312 kgs to the closing balance (-) 11,412 kg of aluminium ingots to arrive at the total figure of 13,724 kg as the alleged excess quantity of input issued to the floor of the factory during 05-06.

Thirdly, it was held that the lower Authorities chose to repeat the mistake of the auditor in application of Rule 9(5) of the Cenvat Credit Rules, 2004. Apparently, it was presumed that the burden of proof regarding the admissibility of CENVAT credit to the extent of Rs.3,22,525/- lay on the assessee. The appellant has consistently denied having taken any such credit. The department, in the absence of CENVAT account, did not make out a fool-proof case of such credit having actually been taken by the assessee either. The appellant had submitted that had a quantity of 13,724 kg of aluminium ingots been issued to the floor of the factory in 05-06 as alleged in the show-cause notice, it would have resulted in the production of a corresponding quantity of final product and, had any credit been taken on the said quantity ingots, the same would have been utilized for payment of duty on the finished goods. In any case, it is premature for the department to have raised a demand of this kind.

Accordingly, the Tribunal held that the demand raised on the appellant was not sustainable on facts or in law and, consequently, the penalty imposed on them is also liable to be set aside.

Decision: - Appeal allowed.

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Case: Commr of C. Ex, Chandigarh v/s M/s Him Chemicals & Fertilizers

Citation: 2010 (256) ELT 363 (HP)

Issue: - Whether interest and penalty is imposable in case when Central Excise duty has been deposited by the assessee before issuing the show cause notice but after detection of evasion of duty by the department?

Brief facts: - Zinc metal and aluminum alloys are the raw material for the Respondent, a manufacturer of fence fittings and scaffolding. During visit by Central Excise staff, on physical verification, it was found that though the finished goods tallied with the records, there was a shortage in the said inputs which were subject to central excise and VAT duties. Department concluded that raw material which was liable to central excise and VAT had been removed from the factory premises clandestinely. Before issue of show cause notice, respondent on its own deposited the requisite amount payable as central excise duty and VAT. Thereafter, the Department issued show cause notice. The Assistant Commissioner confirmed the demand alongwith interest and also imposed penalty. In appeal, the main ground raised was that since they had deposited the amount before the issuance of the notice, the respondent was not liable to pay any penalty. The Commissioner (Appeals) allowed the appeal and set aside the order of the Assessing Officer in relation to penalty. Against this order, Revenue filed appeal before the Tribunal which was rejected on the ground that a Larger Bench of the Tribunal had taken a view that penalty cannot be imposed in case the assessee has deposited the amount before issuance of Show Cause Notice. Against this decision, Revenue is in appeal before the High Court.

Appellant’s Contention: - Revenue submitted that once there was requisite mensa rea, which conferred jurisdiction to levy penalty, mere deposit of the amount of duty and interest by itself did not deprive the authority of jurisdiction to levy penalty.

Reasoning of the Judgment: - The High Curt perused the provisions of Section 11AC of the Central Excise Act and held that the said provision incorporated liability to pay penalty in the situations mentioned therein. Once a case is covered by the situation mentioned in the Section, mere deposit prior to issuance of show cause notice under Section 11A of the Act will not necessarily counteract the situation mentioned in the said Section.

Reliance was placed on the judgment of the Apex Court in Sony India Ltd. v. Commissioner of Central Excise, Delhi [2004 (167) ELT 385 (S.C)] wherein the Apex Court had held that where the assessee has made fault by taking an action which is not genuine then penalty can be imposed. This is also in connection with the settled principle of law that a person who is guilty of trying to escape duty by mala fide methods should not be given the benefit of not having to pay penalty when his clandestine and mala fide acts are discovered by the revenue. Accordingly, the High Court held that applicability of Section 11AC is not barred merely on deposit of the amount before the issuance of show cause notice.

The substantial question of law answered in favour of the revenue and against the respondent-assessee.

Decision: - Appeal allowed.

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Case: Grasim Industries Ltd v/s UOI

Citation: 2010 (256) ELT 553 (Del)

Issue: - Whether rebate claim in respect of duty paid inputs under notification No. 21/2004-CE (NT) dated 06.09.2004 is also allowable in case where rebate of duty paid on finished goods under notification No. 19/2004-CE (NT) dated 06.09.2004 has already been claimed?

Brief Facts: - Petitioner manufactures man-made fabrics as well as polyester/ viscose blended yarn falling under Chapter 55 of the Schedule to the Central Excise Tariff Act, 1985. For the purposes of manufacturing the said final products, the petitioner uses duty paid inputs as well as other inputs. The duty paid inputs include polyester staple and viscose staple fibre as well as other packing materials and consumables. Petitioner was clearing its finished goods for home consumption as well as for exports. For the period from 2005 to 2006, appellant filed rebate claims in relation to duty paid on the finished goods and also in respect of duty paid on raw materials.

The Assistant Commissioner passed order rejecting the rebate claims in respect of both raw materials as well as finished products. Petitioner went in appeal before the Commissioner (Appeals), wherein part relief was given to the petitioners and allow the rebate claim in respect of the duty paid on final products. Petitioner then filed revision application before the Government of India under Section 35EE. In revision, the Government allowed rebate claims in relation to the duty paid on final products but rejected the rebate claims in respect of raw materials. Hence, petitioner has filed this writ petition.

Petitioner’s Contention: - Petitioner contended that the Central Government had issued notification No. 21/2004-CE (NT) dated 06.09.2004 for rebate on inputs and notification No. 19/2004-CE (NT) dated 06.09.2004 for rebate on finished excisable goods, and as the petitioner having complied with the conditions stipulated in the notifications, it was entitled to the grant of rebate under both the notifications.

Respondent’s Contention: - Revenue contended that the grant of rebate of duty paid could be availed either on the duty paid on excisable goods or on the duty paid on the materials used in the manufacture or processing of such goods and not both. It was contended that that the Notifications are only machinery provisions implementing the principles laid down in Rule 18 of the said Rules. Thus, even where a case falls for grant of rebate under both the notifications, the same cannot be granted because the rule itself prescribes that the grant of rebate shall be made on duty paid on excisable goods “or” on duty paid on materials used in the manufacturing or processing of such goods.

Reasoning of the Judgment: - The High Court held that the Government of India in its revisional order had placed reliance on a decision of the Bombay High Court in the case of CEE, Nagpur v. Indorama Textiles Ltd [2006(200) E.L.T 3 (Bom.)]. The Bombay High Court had observed that in principle the Government had accepted that goods, which are exported from India, should be pleased of domestic duties in order to promote export of domestic products from India and to make them internally competitive and, therefore, the intention of the Legislature was to grant some concession on duty paid on excisable goods or inputs and in order to achieve this objective, Rule 18 was framed whereby rebate of duty paid either on excisable goods, which are exported, or on inputs is provided. The Bombay High Court clearly read the provisions of Rule 18 as prescribing an “either – or” situation meaning thereby that the word “or” appearing in Rule 18 should be read as it is and should not be read as “and” as suggested by the learned counsel for the petitioner. In paragraph 20 of the said decision, the Bombay High Court observed that if the word “or” is read as “and”, it would be wholly inconsistent with the intention of the Legislature as well as object of Rule 18 of the said rules. The Bombay High Court clearly held that the intention of the Legislature was not to grant rebate of duty paid on exported goods as well as on inputs used in such goods simultaneously, which is clear from the language used in Rule 18 of the said Rules itself.

In the end, the High Court held that the Government in exercising its revisional power under Section 35EE has correctly followed the decision of the Bombay High Court in coming to the view that the petitioner was not entitled to rebate of duty paid on raw materials after it had already been granted rebate in respect of duty paid on finished products. The High Court completely agreed with the view taken by the Bombay High Court.

Decision: - Writ petition dismissed.

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Service Tax Section

Case: CCE, Trichy v/s Rasi Travel & Cargo Pvt Ltd

Citation: 2008-TIOL-1183-CESTAT-MAD

Issue: - Whether Penalty under Section 76 and 78 of Finance Act, 1994 can be reduced in case where the assessee is not well-known with the procedures relating to Registration etc. and not paid the service tax within the time as the assessee is waiting for reply of conformity of Registration from the Appropriate Authority?

Brief Facts: - Respondent-assessee were providing the service of travel agents during the period from October, 2002 to September, 2003. Revenue contended that they had failed to pay the service tax on the said service. Show cause notice was issued. The Original Authority confirmed the demand of service tax with interest and appropriated the amount already paid towards the amount demanded. Penalties under Section 78, under Section 77, under Section 76 and under Section 75A were also imposed. In appeal, the respondent submitted that they had sought permission of the Chennai-II Commissioner to allow them (Kumbakonam Unit, the appellant) to follow centralized billing at Chennai. Their request was rejected by the communication dated 26.09.2003. Immediately after that they started paying the service tax. Delay in paying tax had occurred owing to the belated reply from the Commissioner.

The Commissioner (Appeals) upheld the demand for service tax alongwith appropriate interest. However, the penalties imposed under Section 76 and Section 78 were reduced considerably. Commissioner (Appeals) did not interfere with the penalties imposed under Section 75A and Section 77. The Commissioner (Appeals) gave finding that the service tax being a new levy, the respondents was not familiar with the procedures relating to registration etc. Moreover, delay in payment of tax by Kumbakonam branch had occurred due to the delay in receipt of reply to their representation from the authorities. The Commissioner (A) found that the respondents were not aware of the formalities and therefore, various penalties have been imposed for this failure. Reliance was also placed on various case laws.

Against this order, Revenue has filed appeal before the Tribunal.

Appellant’s Contentions: - Revenue contended that the respondent had failed to follow the provisions of Finance Act, 1994 and also failed to pay the service tax due on the service of travel agents provided by them. It was further submitted that the Commissioner, Chennai-II had replied the respondent's representation within 20 days and that the delay in registering themselves and paying service tax was not on genuine grounds. There was no provision in law to waive the penalty and pardon a tax evader on the ground of payment of service tax before of the order in appeal.

Reasoning of the Judgment: - The Tribunal found that the Commissioner (Appeals) had reduced the penalties following case law wherein penalties were reduced finding that the failures of the assessee therein inviting penalties under Sections 76, 77, 78, and 79 of the Act had occurred owing to reasonable cause. Penalties were reduced in terms of Section 80 in the various cases as in the impugned order.

The Tribunal found that the Commissioner (Appeals) had taken flexible view of the failure on the part of the respondents and reduced the penalties considerably. The Tribunal was satisfied that the failures occurred as the respondents were not well versed with the procedures relating to the new levy of service tax. Moreover, Section 80 ibid, provided for waiver of penalties in such cases if the party had established bona fide grounds for such failures.

Tribunal found that in the instant case the lower Authority was satisfied with the existence of sufficient cause for the delay. There are no reliable grounds to disagree with this finding. No reasons to interfere with the impugned order.

Decision: - Appeal dismissed.

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Case: Commr. of C. Ex., Vishakhapatnam v/s M/s Andhra Pradesh Paper Mills Ltd

Citation: 2010 (254) ELT 354 (Tri. – Bang)

Issue: - Is Cenvat credit of service tax paid on Rent-a-cab service; telephone service and Practicing Chartered Accountants service admissible? Whether the credit is allowed based on various decisions of the Tribunal or it has to establish the nexus between these services and main part / explanation to the definition of “Input services”?

Brief Facts: - Respondent-assessee, a manufacturing unit took Cenvat credit of service tax paid on cab services availed by them for transporting their officials, on landline phones and on installed in the residences of the Director and their officials and on professional charges raised by the Chartered Accountants. Revenue issued show cause notice to reverse the Cenvat credit of service tax paid on the said services.

The Commissioner (Appeals) allowed already taken credit in the impugned order. With regard to cab services, the Commissioner (Appeal) relied upon its order-in-appeal no. 37/2008(V-II) CE dated 29.08.2008 wherein it was held that the cab services availed by the appellant to provide transportation to their officials is essential for timely completion of job and hence it cannot be considered in the nature of GTA services for denial of credit. With regard to credit availed on telephones installed at the residence of the executives of the company, it was held that the ratio of the judgment given in Keltech Energies Ltd v/s Commissioner of C. Ex., Mangalore [2008 (10) STR 280] was applicable and as the bills were paid by respondent, credit was available. With regard to cenvat credit on professional charges raised by the Chartered Accountants it was held by the Commissioner (Appeal) it was observed that the said services were covered by the definition of input services under Rule 2(l) of the CCR, 2004 which includes activities relating to business. It was held that as it related to business of the respondent and the charges incurred were paid by the company and the service tax was paid on such input service, cenvat credit was admissible.

Hence, Revenue is in appeal before the Tribunal.

Appellant’s Contention: - Revenue relied upon the observation of the Adjudicating Authority that the cab services were utilized for the conveyance of their officers/managers and other individuals of the organization. In other words it was a facility given by the respondent to their officers for their personal comfort. It was neither for inward transportation of goods/inputs or capital goods nor used in or in relation to the manufacture of goods as per the Explanation given in the CCR, 2004.

Revenue has further relied upon the observation of the Adjudicating Authority that in the Explanation given under Rule 2, input service has been defined to include certain services to be eligible for availing of Cenvat Credit on such services. In the instant case, it was not clear as to whether these cabs are engaged/ used in relation to the services mentioned in the Explanation to Rule 2. Further it was held that the respondent could not produce any evidence to indicate that these Cabs are used for the services mentioned in the definition of “input Services”.

Accordingly, Revenue contended that it is clear that the Cab services are used by the officials & other individuals of the company for their personal use and assessee did not produce any evidence either direct or corroborative to establish that such service used by their employees is in or in relation to manufacturing activity. Therefore, it is clear that the claim made by respondent is not authentic. Thus the nexus of service with the claim made by them clearly falls short of any strong reason. Consequently, the services claimed to be used by assessee are not in relation to the manufacture of final products and hence, such input service credit availed was not eligible.

Reasoning of the Judgment: - The Tribunal found that the issue is now squarely settled by various decisions of the Tribunal, including this Bench decision in the cases of Keltech Energies Ltd. Vs. CCE, Mangalore [2008 (10) S.T.R. 280 (Tri.-Bang.)] and Stanzen Toyotetsu India Pvt. Ltd. Vs. CCE, Bangalore-III [2009 (14) S.T.R. 316 (Tri.-Bang.)]. The issue of eligibility of Cenvat credit of service tax paid on telephone service as well as Rent-a-cab service has been settled in favour of the assessee. As regards the professional charges paid by the assessee to the Chartered Accountants, it can be directly related to the business. The Tribunal found that the impugned orders of the Commissioner (Appeals) are correct and no infirmity is found.

Decision: Appeals rejected.

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Case: Bhilai Auxiliary Indus. v/s Commissioner of C. Ex, Raipur

Citation: 2010 (19) STR 49 (Tri. – Del)

Issue: - Whether the cenvat credit of Service Tax on services provided by Good Transport Operator pertaining to the transportation of the finished goods upto the customers place is admissible or not?

Brief Facts: - Appellants are manufacturers of goods falling under Chapter 73 of the First Schedule to the Central Excise Tariff Act, 1985. They were availing cenvat credit facility for the period April, 2005 to December, 2005. Appellants utilised Cenvat credit of service tax paid on the Goods Transport Operator service in respect of outward freight. They also availed service tax on the commission paid to the commission agent for sale of finished goods. The Department contended that the appellants were not entitled to avail Cenvat credit of Service Tax paid on both of services. Accordingly, show cause notice was issued for disallowance of the said credit. The Deputy Commissioner disallowed the cenvat credit and imposed penalty and demanded interest on the amount due.

In appeal, the Commissioner (Appeals) set aside part of the order disallowing the credit to the extent of the amount paid in the form of commission for services rendered but rejected the claim in relation to the Service Tax relating to outward services. Penalty was also reduced. Hence appellant filed this appeal before the Tribunal.

Appellant’s Contention: - Appellant submitted that the decision of the Larger Bench in the matter of ABB Ltd. vs Commissioner of Central Excise & Service Tax, Bangalore, [2009 (15) S.T.R. 23 (LB-T)] has been stayed by the Karnataka High Court.

Respondent’s Contention: - Revenue contended that the Commissioner (Appeals) has dealt with the point of law relevant for the decision in detail; however, before applying the law to the matter in hand, the Commissioner (Appeals) has not considered the realistic aspects of the matter.

Revenue has relied upon decision of the Punjab & Haryana High Court in the matter of Ambuja Cements Ltd. vs Union of India [2009 (236) 431 (P&H)], wherein it was held that, it is clear from the definition that for a manufacturer/consignor the eligibility to avail credit of the Service Tax paid on transportation during removal of excisable goods would depend upon the place of removal. It was submitted that the High Court had also referred to the Board's Circular dated 23.08.2007 wherein it was clearly stated that, place of removal has to be determined by taking into account the facts of each case.

Reasoning of the Judgment: - The Tribunal perused the order of the Commissioner (Appeals) and concluded that the definition of input services has been referred to in detail but, the facts of the case have not been referred therein. The Tribunal held that whether the manufacturer would be entitled for cenvat credit of the Service Tax paid on transportation during the removal of excisable goods would depend upon the facts of the case and in that regard the contract in relation to the same between the manufacturer and buyer would assume great importance.

The Tribunal referred to the observations made in the judgment of the Punjab & Haryana High Court in the matter of Ambuja Cements Ltd. vs Union of India wherein the Circular dated 23.08.2007 was noted.

The Tribunal further held that although the Larger Bench decision in ABB Ltd.'s case was referred but the issue is that whether services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an 'input service' in terms of Rule 2(1)(ii) of the Cenvat Credit Rules, 2004 and thereby enable the manufacturer to take credit of the Service Tax paid on the value of such services or whether the 'input service' should be limited only to outward transportation upto the place of removal in terms of the inclusive definition as held in the matter of Gujarat Ambuja Cements Ltd. vs Commissioner of Central Excise, Ludhiana [2007 (212) ELT 410]. The said issue was answered in favour of the assessee holding that, the transportation of goods to the customer's premises is an activity relating to business and it is an integral part of the business of a manufacturer to transport and deliver manufactured goods.

The Tribunal noted the fact that the decision given in ABB Ltd is under challenge before the Karnataka High Court and therein the decision has been stayed by the Karnataka High Court. It was held that the stay order has no applicability to the matter in hand nor it would be a obstacle to dispose of the matter in hand. Accordingly, it was held that the Authorities below have to consider the decision of the Punjab & Haryana High Court in Gujarat Ambuja Cements case and will have to decide each matter based on the facts of each case.

Impugned order set aside. Matter remanded to the Commissioner (Appeals) to ascertain the entitlement of cenvat credit based on the facts of the case and bearing in mind the law laid down by the Punjab & Haryana High Court.

Decision: - Appeal allowed by way remanded.

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Case: M/s Admec Logistics Ltd v/s CCE, Tirunelveli

Citation: 2010 (19) STR 116 (Tri. – Chennai)

Issue: - Whether the benefit of abatement under Notification No. 12/03-ST dated 20.06.23 can be denied on the value of the materials which were not sold during the course of providing service of “maintenance and repair of containers” as sales tax on these materials has also not been paid.

Brief Facts: - Applicant was engaged in providing the service of maintenance and repair of containers. They were using materials such as iron-bents, screws, plates etc. Applicant sought to avail the benefit of abatement under Notification No. 12/03-ST dated 20.06.23. Revenue objected to the same and issued show cause notice. The Adjudicating Authority confirmed the demand, denying the benefit of abatement on the value of materials sold during the course of providing the service under Section 67 of the Act. The benefit was denied on the ground that materials such as iron-bents, screws, plates etc., were only used for performing repair work and not sold and the applicant had also not paid any sales tax upon the value of the materials claimed by them used during the course of providing the service.

Applicant has accordingly, before the Tribunal. Application has been filed for waiver of service tax with interest and of penalty imposed under Section 78.

Reasoning of the Judgment: - The Tribunal held that no prima facie case has been made out by the applicants as prima facie there is no merit in the submissions made by the applicants that their admission of non-payment of sales tax does not lead to the conclusion that no sale of materials was taken place. The Tribunal further held that although the show cause notice alleged suppression of facts and such allegation was upheld by the Authorities below, the applicants neither raised the plea against the charge of suppression of facts before the Adjudicating Authority nor before the lower Appellate Authority. Tribunal therefore, directed the applicants to pre-deposit the tax amount within a period of eight weeks from today and on such deposit, pre-deposit of the penalty stands waived and recovery thereof stayed pending the appeal. Failure to comply with this direction shall result in dismissal of the appeal.

Decision: - Application for stay partly allowed.

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Customs Section

Case: State of Himachal Pradesh v/s Sardara Singh

Citation: 2008-TIOL-160-SC-NDPS

Issue: - The Judicial Authority passing an order should give reasons for its decision.

Brief Facts: - Respondent was facing trial for alleged commission of offences punishable under Section 15 of the Narcotic Drugs and Psychotropic Substances Act, 1985. The trial court directed acquittal on the ground that the evidence of the official witnesses cannot be accepted and accordingly the acquittal was recorded. State therefore filed application under Section 378 before the High Court which dismissed summarily. Against this dismissal of their application, State is in appeal before the Apex Court.

Appellant’s Contention: - State submitted that the manner of disposal of the application was contrary to the decisions of this court in a large number of cases.

Respondent’s Contention: - Respondent submitted that there is no merit in the case and, therefore, the decision of High Court was justified in rejecting the application for grant of leave.

Reasoning of the Judgment: - The Apex Court held that the Trial Court was required to carefully assess the entire evidence and then come to a conclusion. If the trial Court had not done the same, the High Court was obliged to undertake such an exercise by entertaining the appeal. The Trial Court gave the decision based on law without performing duties. The High Court be worthy of in such circumstances granted leave and thereafter as a first court of appeal, re-appreciated the entire evidence on the record independently and returned its findings objectively as regards guilt or otherwise of the accused. It has failed to do so. The questions involved were not insignificant. The primary ground for acquittal seems to be that the alleged eye-witnesses did not support the prosecution case and, therefore, their presence is doubtful. The High Court has not given any reasons for refusing to grant leave to file appeal against acquittal, and seems to have been completely unconscious to the fact that by such refusal, a close scrutiny of the order of acquittal, by the appellate forum, has been lost once and for all. The manner in which appeal against acquittal has been dealt with by the High Court leaves much to be preferred. Reasons establish clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons. The absence of reasons has made the High Court order not sustainable.

Reliance was placed on the judgment given in State of U.P. v. Battan and Ors [2001 (10) SCC 607]. It was observed that in State of Maharashtra v. Vithal Rao Pritirao Chawan [AIR 1982 SC 1215] the desirability of a speaking order while dealing with an application for grant of leave was highlighted. The requirement of indicating reasons in such cases has been judicially recognized as essential.

The Apex Court has also relied upon the views in respect of administrative orders given by Lord Denning M.R. in Breen v. Amalgamated Engineering Union [1971 (1) All E.R. 1148] wherein it observed that "The giving of reasons is one of the fundamentals of good administration". In Alexander Machinery (Dudley) Ltd. v. Crabtree [1974 LCR 120] it was observed: "Failure to give reasons amounts to denial of justice. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at". Reasons substitute bias by objectivity. Right to reason is a requisite part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the valuable requirements of natural justice is communicate the reasons for the order given. The "inscrutable face of a sphinx" is ordinarily inappropriate with a judicial or quasi-judicial performance. These aspects were highlighted in State of Punjab v. Bhag Singh [2004 (1) SCC 547].

Accordingly, the Apex Court directed the High Court to grant leave as grounds raised were material.

Decision: - Appeal allowed.

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Case: Commissioner of Customs, Nhava Sheva v/s Panasonic Battery India Co Ltd

Citation: 2010 (256) ELT 354 (Bom.)

Issue: - Has Commissioner (Appeals) empowered to condone delay of appeal beyond the condonable period of 30 days under Section 128 of the Customs Act where a ‘law point' was raised by the appellant.

Brief Facts: - Respondent-assessee had imported goods and the Bill of Entry no. 784348 dated 11.4.08 was assessed by the Assessing officer accepting the value declared by the importer. Thereafter, against the order of assessment, the assessee preferred an appeal to the Commissioner (Appeals) after delay of 12 months and 29 days. The Commissioner (Appeals) held that as the respondent had raised a ‘law point' and therefore, the delay of the appeal could be ignored. Accordingly, the delay was condoned and the appeal was allowed. It was held that necessary amendments could be made in the Bill of Entry on the basis of evidence. Against this order, Revenue filed appeal. This stay application has been filed to stay the impugned order.

Appellant’s Contentions: - It was mainly argued that the Commissioner (Appeals) had no jurisdiction to condone any delay of appeal beyond the condonable period of delay under the proviso to Section 128(1) of the Customs Act. Reliance was placed on the judgment given in Singh Enterprises vs. Commissioner [2008 (221) ELT 163 (SC)] wherein the Apex Court had held that the Commissioner (Appeals) was empowered to condone delay of 30 days only and that Section 5 of the Limitation Act, 1963 was not applicable to appeal filed with the Commissioner (Appeals).

Respondent’s Contention: - Respondent has filed cross objections wherein prayer is made for rejecting the department's appeal. Respondent has relied upon the copy of the Invoice no. DM-PTM 7001 dated 25.3.2008, a copy of Bill of Lading no. FIT 4633 dated 21.3.2008 and a copy of the subject Bill of Entry no. 784848 dated 11.4.08. Respondent have invoked Sections 149 and 154 of the Customs Act for reassessment of the Bill of Entry on the ground that there are many clerical mistakes in the Bill of entry.

Reasoning of the Judgment: - The Tribunal held that it is settled law that the Commissioner (Appeals) has no power to condone delay of appeal beyond the condonable period of 30 days under Section 128 of the Customs Act as well as Section 35 of the Central Excise Act. With reference to Section 35, the Tribunal observed that Supreme Court in the case of Singh Enterprises vs. Commissioner has so held. Admittedly, the provisions of Section 128 of the Customs Act should read with those of Section 35 of the Central Excise Act. Therefore, the decision of the lower Appellate Authority to condone the heavy delay of 12 months and 29 days involved in filing of appeal by the respondent was beyond its jurisdiction.

Further, the Tribunal held that the lower Appellate Authority considered that where a ‘law point' was raised by the appellant, such delay could be condoned. According to The Tribunal, this view is not supported by the express provisions of Section 128 of the Customs Act. As there is no legislative intention to carved out an exception under the proviso to Section 128(1) of the Act and to enable the appropriate authority to condone any delay beyond 30 days in cases involving any ‘law point'. Therefore, the view taken by the Commissioner (Appeals) is not tenable. Accordingly, the stay application filed by the department is allowed.

Further, with regard to reassessment of the Bill of Entry for correction in terms of Section 154 read with Section 149 of the Customs Act, the Tribunal held that Section 154 is not available for this purpose inasmuch as, under that provision, the Central Government, the Board or any officer of Customs is authorized to correct any clerical or arithmetical mistake or any error arising from any accidental slip or omission. In the present case the mistake was not on the part of the assessing authority but on the part of the assessee. The Assessing Authority accepted the declared value and assessed the goods to duty of Customs. Section 154 does not authorize correction of such mistakes. If in case where assessee made erroneous entries in the Bill of Entry, it was upto them to seek amendment of the Bill of Entry before assessing authority on the basis of documentary evidence which was in existence at the time of clearance of the goods. In present case it appears that no action was taken by them in this regard under Section 149 of the Act.

A case involving the interplay of Section 149 (which provides for amendment of Bills of Entry on the basis of documentary evidence in existence at the time of clearance of goods) and Section 17 (which provides for reassessment) was considered by this Tribunal in I. P. Rings Ltd. vs. Commissioner [2006 (202) ELT 61 (Tri - Chennai)]. The judgment in I. P. Rings Ltd's case has been consistently followed by this Tribunal. It is upto the assessing authority to take appropriate steps in terms of the Tribunal's decision in I. P. Rings Ltd's case, if it is approached by the assessee with a proper application under Section 149 of the Act.

Decision: - Appeal allowed.

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PJ/Case Laws/2010-11/20

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