Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/21

CASE LAWS

Prepared By:

Sukhvinder Kaur, LLB [FYIC]

Megha Jain,

And Mayank Palgauta

Central Excise Section:

Case: Dominent Financial Services (P) Ltd v/s Union of India

Citation: 2010 (256) ELT 683 (Bom)

Issue: - Whether the bank guarantee furnished by the assessee can be held by the Department when the entire demand with penalty has been deposited by the assessee?

Brief Facts: - The accounts of the petitioners were freezed due to action taken against them under the provisions of Foreign Exchange Management Act, 1999. For de-freezing the accounts, petitioner furnished a Bank Guarantee of Rs. 89 crore as security before Respondent No. 2-Authority. Thereafter, the Adjudicating Authority i.e. Special Director of Enforcement confirmed the show cause notice and imposed penalty of Rs. 50 lakh on the petitioner-company and Rs. 5 lakh on the Director. The petitioner filed a writ petition seeking mandamus in the nature of direction against Respondent No. 2 for release of the Bank Guarantee furnished by it. During the pendency of this appeal, the petitioner has paid the amount of penalty imposed on it.

Respondent’s Contention: - Revenue contended that the prayer of the petitioner should not be allowed as Revenue had filed an appeal against the impugned order with application for stay before the Tribunal.

Reasoning of the Judgment: - The High Court observed that the petitioner had paid the penalty imposed on them. No other liability exists against them. Therefore, Revenue is not justified in holding the bank guarantee furnished by the petitioner which is a substantial amount. Moreover, no order of stay has been granted in the appeal filed against the impugned order. Accordingly direction is given to Revenue to return the bank guarantee before 01.07.2010.

Decision: - Petition disposed off.

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Case: Premier Electrodes Ltd v/s Union of India

Citation: 2010 (256) ELT 354 (Bom)

Issue: - Whether non availability of the report submitted by the revenue in the High Court is violation of natural justice?

Brief Facts: - Petitioner and Revenue are before the Settlement Commission for settling of the matter. Earlier an order dated 25.02.2008 was passed which was challenged before the High Court. The High Court had vide order dated 14.08.2008 set aside the impugned order and remanded the matter back for de-novo consideration. Fresh proceedings were initiated and an order dated 29.06.2009 was passed. Against this order, the petitioner went in appeal before the High Court.

Petitioner’s Contention: - Petitioner contended that they had submitted their report before the Commissioner on 31.12.2008 and the Revenue had submitted their report on 9.09.2009 before the Commissioner. It is contended that the report submitted by the Revenue was not made available to them and therefore they were not given an opportunity to consider the same and there was violation of principles of natural justice.

It was also submitted that penal interest under Section 11AB of the Central Excise Act could not have been due since the section was introduced in the Act w.e.f. 29.09.1996 and as such no interest was payable. It is submitted that this aspect was not considered and the Commissioner has directed payment of interest.

Reasoning of the Judgment: - The High Court held that the report of the Revenue submitted on 09.02.2009 was based on the report given by the petitioner earlier and it was relevant material when the Commissioner has relied upon the said report while passing his order. Therefore there was violation of principles of natural justice as opportunity was not given to the petitioner to submit their reply to the report. Further on the second ground also, the High Court held that the order was liable to be set aside. Accordingly, it was directed to the Revenue to give the report dated 09.09.2009 to the petitioner and also an opportunity of replying to the same is to be given to them. It was directed that the issue of interest payable to be decided keeping in mind that Section 11AB of the Central Excise Act came into effect from 28.09.196.

Decision: - Petition allowed by way of remand.

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Case: Commissioner of Central Excise, Chandigarh v/s M/s Guwahati Carbons Ltd

Citation: 2010-TIOL-609-HC-P&H-CX

Issue: - Whether the excess amount paid as excise duty, not refunded available for Cenvat credit?

Brief facts: - Respondent purchased goods from their supplier and paid excise duty. The cost of goods was paid by the supplier firm but on excise duty so paid cenvat credit was claimed by the respondent. Revenue contended that the duty paid was more than what was due and therefore, the respondent could avail credit of duty actually paid. The Adjudicating Authority ordered the respondent to reverse the credit availed by them and imposed penalty. In appeal the Commissioner (Appeal) held that once duty was paid, higher cenvat credit could be availed and there was no justification for effecting recovery or even imposing penalty. Revenue filed appeal before the Tribunal.

The Tribunal observed that Revenue has only alleged that freight was added to the basic price at the time of clearance, which had increased the excise liability. There was no other evidence to show that both the parties intentionally acted to evade payment of duty. It was held that the duty paid by the respondent had gone to the treasury through the supplier, the respondent should not be debarred to take credit of the same in the absence of any questionable conduct.

Revenue is in appeal against this decision before the High Court.

Appellant’s Contention: - Revenue contended that the duty paid was more than due in as much as freight charged were wrongly included in the assessable value of goods.

Respondent’s Contention: - Respondent relied upon the judgment given in CCE v/s Ranbaxy Labs Ltd [2006-TIOL-438-HC-P&H-CX], CCE v/s Swaraj Automobiles Ltd {[2002] 139 ELT 504}, CCE v/s CEGAT, Chennai {[2006] 202 ELT 753}. Reliance was also placed on Board Circular No. 877/15/2008-CX dated 17.11.2008. It was submitted that credit would be available to the extent duty was paid.

Reasoning of the Judgment: - The High Court held that Revenue was not able to show any law that even if duty paid was in excess of the amount due, without excess amount being refunded, the assessee will be debarred from availing of the cenvat credit. It was held that the decision of the Tribunal was consistent with the view given by the earlier judgments. Questions of law raised by the Revenue are not substantial questions of law.

Decision: - Appeal dismissed.

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Case: M/s Ford India Pvt Ltd v/s Commissioner of Central Excise, Chennai

Citation: 2010-TIOL-1153-CESTAT-MAD

Issue: - Whether the time limit of 6 months in any Notification makes a claim time barred as it is going beyond the statutory period mentioned in Section 11B?

Brief Facts: - Appellant paid duty on motor cars @ 23% advalorem. Later on they became aware that as the cars were intended for use as taxis, they were eligible for concessional rate @ 16% advalorem by virtue of Notification No. 3/2001-CE dated 01.03.2001. Accordingly, they applied for refund of excess duty paid by them. Refund claims were rejected on the ground that they were filed beyond the period of 6 months from the date of payment of duty which was the prescribed period of limitation under the Notification. Against this, appellant are in appeal before the Tribunal.

Reasoning of the Judgment: - The Tribunal held that the statutory period of limitation under Section 11B of the Central Excise Act, 1944 was one year, The Notification sought to whittle down the period provided under the statute. This issue has already been decided in the cases of Mahindra & Mahindra [2007 (214) ELT 234] and in Mahindra & Mahindra [2007 (216) ELT 256]. The Tribunal applied the statutory period of one year as provided under Section 11B and held that the refund claims cannot be held to be time barred only for the reason that they were filed beyond 6 months which is the period prescribed under the relevant notification.

Accordingly, the Tribunal held that claims were not barred by limitation. However, on the merits of the case, no findings have been given by the authorities below. Impugned order set aside and matter remanded for fresh decision.

Decision: - Appeal allowed by way of remand.

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Case: Globe Steels (P) Ltd v/s CCE, Chennai

Citation: 2010 (100) RLT ONLINE 84 (CESTAT-CHE)

Issue: - Whether any permission from the department is required when goods are removed as such to sister concern for storage?

Brief Facts: - Appellants cleared the goods to their sister concern without obtaining the permission from the Department for storage. The said goods were returned back to the appellant’s factory within 180 days. Department objected to the same and initiated proceedings against the appellant. Interest was demanded on the cenvat credit taken on the so removed goods was confirmed on the ground that CENVAT credit availed by the assessee was attributable to each consignment covered under each outward delivery challan from the date of their dispatch from unit I to unit II upto the date of receipt of the unit I and penalty was also imposed. Appellant has challenged the impugned order.

Appellant’s Contentions: - Appellant contended that the removal for storage did not require prior permission from the excise authorities under Rule 8 of the CENVAT Rules 2004 and that the movement to their sister unit for storage is to be treated as a removal in terms of Rule 4 (5) which does not require prior permission. It was contended that no interest could be demanded as the goods were returned within 180 days.

Reasoning of the Judgment: - The Tribunal held that appellant was not liable to interest as the inputs were returned within the period stipulated in relevant rule. However, the contention of the appellant with regard to imposition of penalty cannot be accepted as Rule 8 specifically covers removal of goods as such, for the purpose of storage. Rule 8 specifically requires prior permission of the department. Therefore, penalty imposed was justified. However, looking to the facts, penalty reduced to Rs. 5,000/-.

Decision: - Appeal partly allowed.

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Service Tax Section

Case: Pushpak Travel Agency v/s Commr of Service Tax, Bangalore

Citation: 2010 (19) STR 775 (Tri-Bang)

Issue: - Whether delay in filling of appeal can be condoned when reason behind the same is justifiable.

Brief Facts: - Order passed against the appellant-company confirming the demand of service tax with interest. In revision, the Commissioner exercising powers under Section 84 of the Finance Act, 1994 imposed penalties on the appellant under Section 76 and under Section 78. Appellant therefore filed an appeal before the Tribunal after a delay of 14 days. Application is also filed for condonation of delay in filing appeal as well as for waiver of pre-deposit of penalties.

Appellant’s Contentions: - Appellant submitted that they have deposited the entire service tax and interest demanded from them during the proceedings before the Adjudicating Authority.

With regard to delay in filing appeal after 14 days, it was submitted that delay was due to illness of the proprietor of the appellant-company. Medical certificate was submitted.

Reasoning of the Judgment: - The Tribunal examined the medical certificate which showed that the proprietor was undergoing treatment, thus, the delay of 14 days was justifiable reason in filing appeal belatedly. Condonation of delay application allowed. Further, as the service tax with interest has been deposited by appellant, application of waiver of pre-deposit is allowed and recovery stayed.

Decision: - Stay application allowed.

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Case: Commissioner of Service Tax, Bangalore v/s Ada Rangamandira

Citation: 2010 (257) E.L.T. 59 (Kar.)

Issue: - Respondent liable for Service Tax under "Mandap Keeper" services with penalty. Appellate Tribunal's waived penalty without specify reason. So issue arises that whether penalty of service tax is not leviable if there is a bona fide belief on the part of the respondent?

Brief Facts: - Respondent-assessee was running business of letting out of hall for organizing social and cultural functions from Feb 1998 to June 2002. Department contended that they were liable to pay service tax under the category of “Mandap Keeper” but they had not paid service tax. So, the department issued show-cause notice demanding service tax. The Adjudicating Authority confirmed the demand and also imposed penalty under Section 75A, Section 76 and Section 78 of the Act. In appeal, the Tribunal held that respondent was under bona fide belief that they were not liable to pay service tax and therefore, set aside the penalties imposed on the appellant. Revenue has therefore filed this appeal before the High Court.

Reasoning of the Judgment: - The High Court held that the Tribunal has not shown reasons for waiver of penalties. Also, it has not considered the question that whether a bona fide belief on the part of the respondent with regard to the payment of service tax was considered for setting aside order imposing penalties. Accordingly, the High Court remanded the matter back to the Tribunal to consider the reasons assigned by the respondent for non-payment of service tax and thereafter decides that whether penalties can be set aside by invoking provisions of Section 80. Substantial questions of law not answered.

Decision: - Appeal allowed by way of remand.

Case: Commissioner of Central Excise, Guntur v/s M/s CCL Products Vishakhapatnam

Citation: 2010-TIOL-1138-CESTAT-BANG

Issue: - Whether Cenvat credit of service tax paid is allowed on the mobile phones which are given to staff and used outside the factory premises.

Brief Facts: - Respondent availed cenvat credit on the service tax paid by them on the mobile phones given to their staff which was used outside the factory premises. The Adjudicating Authority allowed the availing of credit. In appeal, the Commissioner (Appeal) considered the definition of input service given in Rule 2 of the Cenvat Credit Rules, 2004 and concluded that from plain reading of the same it is clear that for a service to qualify as input service, the said service has to be used in or in relation to the manufacture of final products and clearance of final products from the place of removal. It was held that no case is made out by Revenue that the mobile phones and the service provided through them were not used for the manufacturing activity. Reliance was placed on the judgment given in CCE (LTU), Chennai v/s M/s Brakes India Ltd.

Against this decision, Revenue is in appeal.

Appellant’s Contention: - Revenue are placing reliance on the judgment given in Vikram Ispat v/s CCE, Aurangabad [2009-TIOL-997-CESTAT-MUM].

Respondent’s Contention: - Respondent have relied upon the judgment given by Gujarat High Court in CCE v/s Excel Crop Care [2008-TIOL-568-HC-AHM-CX].

Reasoning of the Judgment: - The Tribunal held that since the issue has been settled in the case of CCE v/s Excel Crop Care by the High Court, the issue is to be decided in favour of the respondent. Judgment relied upon by the respondent not of any help. Impugned order upheld.

Decision: - Appeal dismissed.

Case: M/s Bhushan Power & Steel Ltd v/s Commr of Central Excise, Customs & Service Tax, BBSR-II

Citation: 2007-TIOL-1828-CESTAT-KOL

Issue: - Whether Cenvat credit of service tax paid on GTA service which is an input service.

Brief Facts: - Appellants were liable to pay the service tax on the GTA service which was an input service for them. During the period 01.01.2005 to 30.09.2005, appellants paid service tax liability on GTA from the cenvat credit account. Revenue objected to the utilisation of cenvat credit for paying service tax. Appellants therefore paid the service tax in cash on 30.03.2006. Impugned order was passed demanding interest for delayed payment.

Appellant’s Contention: - Appellant contended that under Rule 2 (p) of the Cenvat Credit Rules, 2004 the GTA service is very much an output service even though the tax is paid and credit is earned by the recipient of service itself. It was stated that under Rule 3 (4) (e), the cenvat credit on service tax was permitted to be utilised for payment of service tax on any output service. As such the initial payment by the appellant through cenvat credit was authorised under the rules and hence subsequent payment in cash cannot entail a liability to pay interest on the impugned amount. Reliance was placed on the decision given in Commr of C. Ex., Chandigrah v/s Nahar Innduatrial Enterprises Ltd [2007 (7) ATR 26 (Tri-Del), The India Cements Ltd v/s Commr of Central Excise, Salem [2007-TIOL-645-CESTAT-MAD], CCE, Nagpur v/s Visaka Industries Ltd [2007 (82) RLT 559 (CESTAT-MUM), M/s MMS Steels Ltd & othrs v/s CCE Trichy, Madurai [2007-TIOL-1317-CESTAT-MAD].

Reasoning of the Judgment: - The Tribunal held that the issue was squarely covered by the judgments relied upon by the appellant. Appellant were clearly entitled to utilise the cenvat credit available to them in respect of the input service towards payment of the service tax on GTA services which is an output service by definition. Impugned order set aside.

Decision: - Appeal allowed.

Customs Section

Case: Union of India v/s Pharmacia India (P) Ltd

Citation: 2010 (256) ELT 685 (Kar)

Issue: - Whether benefit of exemption notification can be provided by way of refunding duty when earlier it was mistakenly paid and there is no any unjust enrichment.

Brief Facts: - Respondent-assessee had imported certain machinery on payment of duty. Later on they found that the said machinery was exempted from payment of customs duty by virtue of Notification dated 2.06.1998. Therefore, respondent applied for refund of duty mistakenly paid by him. The Deputy Commissioner held that the application was hit by unjust enrichment and rejected the claim on the conclusion that imported machinery was not covered by the Notification regarding exemption.

In appeal, the Commissioner (Appeal) held that the machinery was entitled to exemption under the said Notification and that respondent was entitled for refund. However, he directed that the amount be deposited with Consumer Welfare Fund on the ground that respondent had unjustly been enriched. In further appeal, the Tribunal held that respondent was not enriched unjustly and allowed their appeal. The Tribunal considered the fact that exemption was granted by the Commissioner(Appeal).

Against this decision, Revenue has come up in appeal before the High Court.

Appellant’s Contention: - Revenue contended that when there was no challenge to the assessment order passed which has attained finality, then the application for refund could not have been considered and therefore, the Authorities below could not have granted exemption with regard to payment of custom duty when the assessment order was not amended or reviewed. It was contended that when the assessee had unjust enrichment in the context of duty which had been paid by the assessee and was subsequently exempted, the Tribunal was not justified in holding that there was no unjust enrichment on the part of the respondent. Reliance was placed on the judgment given in the cases of Union of India v/s Solar Pesticides Pvt Ltd [2000 (116) ELT 401 (SC)] and in Priya Blue Industries v/s Commissioner of Customs [Preventive] [2004 (172) ELT 145 (SC)].

Respondent’s Contention: - Respondent contended that against the order of the Commissioner (Appeal) no appeal was filed by the Revenue with regard to the entitlement of exemption granted under the notification dated 02.06.1998 to the assessee and therefore, present appeal was not maintainable.

Reasoning of the Judgment: - The High Court found that while initially the authority with regard to Refunds had held that the respondent was not entitled to exemption, the appellate authority has allowed the exemption under as per Notification dated 02.06.1998. However, a direction was given to deposit the amount in Consumer Welfare Fund on the ground of unjust enrichment. It was the Tribunal which has considered the issue and held that in fact there was no unjust enrichment by the respondent when in fact there was no collection of the duty amount from their customers and the duty had been mistakenly paid by the assessee to the department and when that was noticed, exemption claimed which was just and proper and when the order entitling exemption was granted, then the question of the respondent having unjust enrichment or benefit does not arise at all.

The High Court also noted that respondent had installed the machinery in its own factory premises to be used for the purpose of manufacture as captive consumption and not for further sale of the same, in which event there would have been no occasion to collect the duty from its customers. It was also held that the judgments relied upon by the Revenue were not applicable to the facts of this case. Thus, it was held that the order of the Tribunal was correct and no interference was required with it.

Decision: - Appeal dismissed.

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PJ/Case Laws/2010-11/21

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