Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/23

CASE LAWS

Prepared By:

Sukhvinder Kaur, LLB [FYIC]

And Mayank Palguata

Central Excise Section:

Case: Commissioner of C. Ex., Bangalore-I v/s Alfred Herbert (India) Ltd

Citation: 2010 (257) ELT 29 (Kar)

Issue: - Judgment based on provisions before the amendment will not apply if after the amendments, the legal position changes.

Brief Facts: - Respondent-assessee sought to avail cenvat credit on inputs used for repair and maintenance of the machinery. In appeal before the Tribunal, the Tribunal allowed the respondent to avail the benefit of cenvat credit. Against this, Revenue is in appeal before the High Court.

Appellant’s Contention: - Revenue contended that in view of the ratio laid down in the case of SAIL v/s Commissioner of Central Excise, Ranchi which has been affirmed by the Apex Court [2008 (229) ELT A127 (SC)], the Tribunal was not justified in allowing the appeal of the respondent.

Respondent’s Contention: - Respondent contended that the judgment given in SAIL v/s Commissioner of Central Excise, Ranchi [2008 (222) ELT 233 (Tri-Kolkata)] was delivered considering the provision of law which was in existence prior to the amendment and that the case of SAIL was in respect of the assessment year 1995, but in the year 2000 an amendment has been made. In terms of the amendment to the provision of Central Excise Act, the assessee is entitled to claim Cenvat even in respect of the inputs used for repair and maintenance of the machinery. The said question was considered by the High Court in the case of Union of India v/s Hindustan Zinc Ltd [2007 (214) ELT 510 (Raj)] which was confirmed by the Apex Court [2007 (214) ELT A115 (SC)] while dismissing the appeal filed by Union of India.

Reasoning of the Judgment: - The High Court held that the Tribunal was justified in allowing the appeal of the respondent considering the fact that the case of the respondent has arisen subsequent to the amendment brought into in the year 2000 and relying upon the provisions of amended provision, the Tribunal was justified in granting relief.

The judgment relied upon by the Revenue is not applicable to the facts since the judgment is delivered prior to the amendment.

Decision: - Appeal dismissed.

Comment: - From the present case it is clear that the amendment in any provision will be applicable from the day it is inserted and the effect of the old provision will nullify.

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Case: Collector of Central Excise, Jaipur-II v/s Jupiter Industries

Citation: 2006 (206) ELT 1195 (Raj.)

Issue: - Whether the duty is to be paid for the three successive months from dismantling of the machine under the compounded levy scheme when no manufacturing process has taken place after dismantling of machine?

Brief Facts: - Respondent is engaged in the manufacturing of stainless steel pattas-patties falling under Chapter 72 of the Central Excise and Tariff Act. The respondent was paying duty under compound levy scheme. For the period from 01.06.1998 to 31.08.1998, the respondent had dismantled one cold rolling machine w.e.f. 29.05.1998. The Competent Authority held that the respondent was required to pay duty for 3 successive months even after the removal of one cold rolling machine at the compound rate in terms of sub-rule (2) of Rule 96ZB read with Rule 96AC and he, therefore, called upon the respondent to pay additional duty. Respondent paid such duty under protest but challenged the levy of such duty and applied for refund of such duty paid in excess by him.

The Adjudicating Authority rejected the refund claim. In appeal, the Commissioner (Appeal) rejected the appeal by holding that same is payable under Sub-Rule 96ZB and the amount shall be calculated by the application of such rates to the maximum number of cold rolling machines installed by or on behalf of such manufacturer at one or more premises at any time during 3 calendar months immediately preceding the calendar month in which the application under Section 96ZC is made.

Against this decision, respondent filed appeal before the Tribunal. The Tribunal allowed the appeal directed the refund of amount paid for the period during which the machine was not in operation. The Tribunal was in the opinion that none of the Rules under Chapter E-VI contemplated charge of duty after the machine has been dismantled and production of that machine is discontinued and there is no bar also contained in the special procedure as per rules or in Section 11B prohibiting refund of excess duty paid by an assessee working under the Special Procedure Rules. The Tribunal held that the payment of duty by respondent was clearly in excess of the sum payable under Compounded Levy Scheme and was refundable in terms of Section 11B of the Central Excise Act.

Against this, Revenue is in appeal before the High Court.

Appellant’s Contention: - The Revenue has referred to the provision of sub-rule (2) of Rule 96ZB read with Rule 96AC in which the Respondent is liable to pay the Additional duty for 3 successive months under Compounded levy scheme after the machine is discarded. Thus the Question of refund of the same duty paid for 3 months doesn’t arise at all as the same view has been considered by the Commissioner (Appeals) also.

Respondent’s Contention: - Respondent contended that during the relevant period as only one machine was in operation, therefore, he was liable to pay compound duty only in respect of that machine.

Reasoning of the Judgment: - The High Court held that under the special procedure the excise duty is levied on the processing or manufacture of stainless steel pattas/patties of a given quantity per machine and retain the basic character of excise duty leviable on the manufacture of goods. The measure of manufactured articles, as per the special procedure, is determined on the basis of estimated manufacture per machine and accordingly, levy is also payable on estimated manufactured articles per machine at the prescribed rate for such manufactured articles per machine for a given period but the rate is applicable to the production of article by the machine concerned. It is not de-linked.

It was held that sub-rule (2) of Rule 96B cannot be leaded independent by sub-rule (1) of Rule 96ZB. Thus read in all cases whatever may be situation, the tax is to be levied on the basis of maximum number of cold rolling machines installed and operated by and on behalf of such manufacturer in immediately preceding three calendar months. If that were so, the expression, immediately preceding three calendar months in which that application is made, the rule may become redundant.

It was held that there is no such requirement making such application under Rule 96AC relating to removal of cold rolling machines. The sub-rule (3), which deals with the change in number of cold rolling machines does not require any such specified application but only requires the manufacturer that he has to intimate the officer in writing of any change in the number of machines.

Thus, it was held that if in any particular month, no machine is operated and no production had taken place, there cannot be any levy of excise Duty. The manufacture of goods is condition precedent for charging of excise duty without which no levy can be made. Therefore, the rule cannot be made to go beyond the scope of charging provision. On the undisputed premises that no production had taken place from the cold rolling machine which has been removed on 29th May, 1998. Therefore, there is no justification for taking the view that since the tax has been paid under the special provision it is not subject to refund. Refund is a consequence of recovery of duty which is not leviable under the provisions of taxing statute or of excess payment of Duty. In given circumstances, such excess collection of Duty may be refused to be refunded, if it results in unjust enrichment because passing of duty to buyers of goods. It depends on furnishing satisfactory proof by the manufacturer that such duty has been passed on to buyers. No interference required with the impugned order.

Decision: - Question answered in favour of the assessee and against the Revenue.

Comment: - The High Court is right that the refund should not be denied when no manufacture has taken place then excise duty cannot be levied.

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Case: Tata Motors Ltd v/s CCE, Pune-I

Citation: 2010 (100) RLTONLINE 293 (CESTAT-MUM)

Issue: - Whether the principal manufacturer is liable to pay the duty on scrap generated in the premises of the Job worker which he has cleared from his premises on payment duty?

Brief Facts: - Appellant is engaged in the manufacture of motor vehicles. During the period April 2000 to March 2003, appellant sent iron castings under cover of challans to their job workers for the purpose of machining and the machined castings were returned within the period 180 days prescribed under Rule 57AC of the Central Excise Rules, 1944. But the scrap generated at the job workers’ premises was not returned. The job worker himself disposed of the scrap. Department issued show cause notice to the appellant demanding differential duty equivalent to Cenvat Credit of duty paid on the input contained in the scrap with interest and penalty was also proposed to be imposed. The Adjudicating Authority confirmed the demand of duty and imposed penalty. Appeal before the Commissioner (Appeal) was also dismissed. Thus, appellant is before the Tribunal.

Reasoning of the Judgment: - The Tribunal placed reliance upon the judgment given in the case of Rocket Engineering Corporation Ltd Vs. CCE [2006 (70) RLT 876 (CESTAT-Mum.)] which was affirmed by the High Court [2006 (76) RLT 8 (Bom.)]. In this judgment it was held that there was no liability for them to pay duty on any scrap generated at their job worker’s premises after 31.3.2000 in view of the provisions of Rule 57A of the Central Excise Rules, 1944. The judgment of the High Court is squarely applicable to the facts of the present case. The scrap generated in the job worker’s premises during the period 1.4.00 to 31.3.03 was not dutiable in the hands of the appellant (principal manufacturer), inasmuch as they had no such liability under Rule 57AC. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

Comment: - The above judgement of the Tribunal is based on the Rule 57A of the Central Excise Rules, 1944 in which the principal manufacturer is held not liable to pay the duty on scrap generated in the premises of the Job worker which was disposed of by him.

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Case: Simplex Steel Industries v/s Commissioner of Central Excise

Citation: 2010 (257) ELT 28 (P & H)

Issue: - Whether Cenvat credit of duty will be admissible on the basis of the Invoice only but where the goods have not been received into the factory?

Brief Facts: - The appellant-dealer claimed cenvat credit. In appeal before the Tribunal, a categorical finding was recorded that the invoices on the basis of which Cenvat credit has been claimed had mentioned the vehicle no. which were found to be fictitious. The Tribunal also took note of the fact that the consignor M/s Northern Industrial Corp. who had issued invoices did not even produced any G R or Lorry receipt in support of the claim of having despatch the goods and it was found to be a common practice for the trucks to use the fake number plates. In respect of two invoices issued by M/s Northern Industrial Corp. to M/s Avtar Foundry and workshop on their physical verification it was found that no goods have been received. It was taken to mean that M/s Northern Industrial Corp. in deed issued invoices without sending any goods. After recording the aforesaid finding, the Tribunal concluded that the Cenvat credit has been rightly denied and equal amount of penalty on the appellant company under Section 11AC of the Act was also upheld.

Against this order, the appellant has approached the High Court by filing appeal under Section 35 G of the Central Excise Act, 1944.

Reasoning of the Judgment: - The High Court held that there was pure finding of fact and false claim of Cenvat credit was made by the appellant-dealer. The impugned orders of lower Authorities and of the Tribunal did not suffer from any legal infirmity. No substantial question of law involved.

Decision: - Appeal dismissed.

Comment: - The Cenvat credit of duty paid inputs can only be allowed to the assessee at the time of receipt of inputs into the factory as per Rule 3 (1) of Cenvat credit Rules, 2004. An assessee cannot avail the Cenvat credit merely on receipt of Invoice only, the goods should also be received in the factory.

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Service Tax Section

Case: Commissioner of Service Tax, Chennai v/s Lumax Samlip Industries

Citation: 2007 (006) STR 0411 (Tri. - Chennai)

Issue: - Whether appeal filed after delay of 315 days by the Department can be admitted on condonation of delay?

Brief Facts: - The impugned order was passed on 20.04.2005. The said order was accepted by the Commissioner on 10.06.2005 and no appeal was filed. Thereafter, on 18.04.2006, the Commissioner came to know about the fact that matter on similar issue was pending before the Apex Court as well as before the Mumbai High Court and the Chief Commissioner had advised all to keep the issue open by filing appeal. Thereafter, the Commissioner has filed appeal on 09.05.2009 against the impugned order after delay of 315 days. Application is filed for condonation of delay in fling appeal.

Reasoning of the Judgment: - The Tribunal held that the impugned order was accepted by the Commissioner on 10.06.2005 after completing the process of review. After nearly a year, the Commissioner decided to file appeal against the impugned order. This decision taken on 19.05.2006 is in the nature of review of the review already done by the Commissioner on 10-6-05. The Finance Act, 1994 did not provide for this kind of review. Once the order of the appellate Commissioner is accepted by the Commissioner concerned in accordance with provisions of review under Section 86 of the Finance Act, 1994, it is an acceptance for ever until that decision is disturbed by a competent court of law in a proceeding initiated by the Department. The decision taken by the Commissioner on 10-6-05 for accepting the appellate Commissioner's order was not so disturbed and the same became final and binding on the department. Hence, there is no cause of action. Even otherwise, the plea raised by the appellants that the Chief Commissioner's letter advising his Commissioners to keep similar issues open was received only on 18-4-2006 and therefore, there was no occasion for filing appeal against the impugned order earlier cannot be of any aid to the Department in the present application. There was no issue surviving when the Chief Commissioner's letter was received by the appellant in as much as the impugned order had already been accepted and such acceptance had become final and binding on the Department. Hence there was no question of keeping any issue open by filing appeal.

Decision: - Appeal dismissed.

Comment: - Any order once passed which attains finality is binding on both the department as well as the assessee until the same is not being disturbed by any other Appeal in court of law filed within prescribed time limit.

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Case: M/s Vijay Kumar Sharma & Co v/s CCE, Chandigarh

Citation: 2010-TIOL-1215-DEL-LB

Issue: - Whether service provided by the sub-broker is taxable under stock broker service? Whether service tax is payable by the sub-broker when the same is paid to the stock broker who in turn has deposited it to the Government Exchequer?

Brief Facts: - Appellants are sub-brokers engaged in the sale or purchase of securities dealt in recognized stock exchange on behalf of the stock broker. The Tribunal in CEA No. 130 of 2008 held that sub-brokers were not liable to pay service tax as has already been paid by the main stick broker. However, in M/s Unique Investment Centre v/s Commissioner of Central Excise, Chandigarh, (STA No. 1 of 2009) the Tribunal held that the judgment given in the earlier case by the Tribunal was given by overlooking the import of the term “in connection with’ sub-clause (a) of clause (105). It was held that the decision would appear to have been rendered per in curiam.”

The High Court accordingly, directed for constituting the Larger Bench as there were 2 conflicting decisions of the same Tribunal. Thus, the Larger Bench has been constituted and the issue raised is that “Whether service provided by sub-brokers are covered under the ambit of service tax and are taxable or not?”

Appellant’s Contention: - Appellant contended that they have paid the service tax to the main broker who ultimately deposited the service tax on their behalf for which they were not liable to pay the service tax. It was contended that when the statutory definition did not include sub-broker, within the meaning of stock broker, levy of service tax on them was unwarranted. A sub-broker provides service to a stock broker who as such provides service to the clients. Therefore, sub-brokers and stock brokers are agent and principal. Therefore, no liability is fastened on the appellants in terms of the definition of stock broker. Asking the sub-broker to pay the service tax would amount to double taxation. And as the service tax has been paid by the stock broker there is no loss to the Revenue.

Respondent’s Contentions: - Revenue submitted that in the initial definition of stock-broker under Section 65(101) of the Finance Act, 1994, sub-broker was not included but an amendment was made on 10.09.2004 by which they were included. If the service provided by a sub-broker in connection with sale or purchase of securities dealt in recognized stock exchange is of similar nature as that is provided a stock broker, there is no difference between the two. If a sub-broker is registered under SEBI Rules and Regulation or made application for such purpose under such Regulations, to provide the service of aforesaid nature, he qualifies to be service provider of taxable service under the category of stock broker. They received consideration for the service of broking provided by them.

Reasoning of the Judgment: - The Larger Bench of the Tribunal held that there is no dispute that w.e.f. 10.09.2004, sub-broker were included under the definition of sub-broker. There is no dispute that when an application is made to the SEBI by a sub-broker, he is registered as a stock broker. There is no dispute that under Section 65 (105) (a), services provided to any person by a sub-broker or stock broker in connection with the sale or purchase of securities listed on a recognized stock exchange shall be taxable service from 10.09.2004. Thus, a sub-broker is liable to pay service tax for the services provided by him which is taxable service provided under the Finance Act.

It was further held that in the absence of any provision to the contrary, providing of service being event of levy, self same service provided shall not be double taxable. If service tax is paid by a sub-broker in respect of same taxable service provided by the stock broker, the stock broker is entitled to take credit of the tax so paid on such service if entire chain of identity of sub-broker and stock broker is established and transactions are provided to be one and the same. Matter remanded to Original Authority to decide the matter.

Decision: - Appeals allowed.

Comment: - From 10.09.2004 the sub-broker is liable to pay the service tax on the services provided by him to the stock broker under section 65 (105) (a) of Finance Act, 1994 of which credit can be taken by the stock broker.

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Case: V Mohan v/s Commissioner of Central Excise (Service Tax), Trichy

Citation: 2010-TIOL-1214-CESTAT-MAD

Issue: - Plea of limitation being a legal plea can be raised even at a subsequent stage.

Brief Facts: - Appellant entered into a contract with BSNL for providing of service. However, they did not discharge their service tax liability for the period 2001-02 and 2002-03. Demand was raised by invoking extended period of limitation by alleging suppression of facts. Demand of service tax was confirmed against the appellant and penalty was also imposed.

Aggrieved by this, appellant filed appeal before the Tribunal challenging the order on merits as well as on limitation. Before the Tribunal, appellant filed an application by rising an additional ground that there was no suppression on their part as they did not have knowledge that they were liable to pay the service tax.

Respondent’s Contentions: - Revenue relied upon the agreement entered between the appellant and the BSNL and alleged that the appellant were aware of their liability to tax.

Reasoning of the Judgment: - The Tribunal allowed the appellant to raise the additional plea of limitation on the ground that it is a legal plea which can be raised even at the subsequent stage. The agreement relied upon by the Revenue was held to be not relevant for deciding the issue for the reason that in the agreement during the relevant period there is no clause relating to the liability to pay service tax and for the first time, in the agreement with BSNL for the period 2004-06, there was a clause pertaining to payment of service tax. The burden of establishing that the assessees were guilty of suppression lies on the Revenue and in this case, the burden has not been discharged.

The Tribunal has therefore, accepted the plea of limitation raised by the appellant and held that as they did not suppress anything; extended period of limitation couldn’t have been invoked against them. Demand is barred by limitation. Impugned order set aside.

Decision: - Appeal allowed.

Comment: - When it is proved by an order that there is no suppression of facts done by the assessee, the time limit of 5 years of issuing of the show cause notice for demand will no more sustainable and reduce to one year only. Legal plea of limitation can be raised at any time.

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Customs Section

Case: Commissioner of Customs, Bangalore v/s Mohan Aluminium Pvt Ltd

Citation: 2010 (256) ELT 698 (Kar)

Issue: - Whether the order passed by the Commissioner of Customs is sustainable to whom the fact of extension of Export obligation period is not known?

Brief Facts: - Respondent obtained import licence on 03.08.1999 from Joint Director General of Foreign Trade under the Exim Policy 1997-2002 for import of Capital Goods. The licence was renewed from time to time till the year 2007. Revenue initiated proceedings against the respondent for recovery of duty. It was alleged that the respondent has imported goods in the first block and extension was not granted by JDGFT for the first block but was granted only for second and third block. The Adjudicating Authority confirmed the demand by holding that respondent had failed to comply with the terms and conditions of the licence issued under EPCG scheme and the relevant Notification No. 29/2007 dated 01.04.1997 in relation to the first block.

In appeal before the Tribunal, the Tribunal carefully perused the communication dated 12.08.2004 issued by JDGFT by which the respondent was informed about the amendments to the import licence dated 03.08.1999 held by him wherein the export obligation period was extended for 2 years i.e. upto 02.08.2007 in terms of para 5.11 of Handbook of Procedures, 2004-09.

Accordingly, the Tribunal relying upon the said communication as well as the judgment given in Torus India Ltd v/s CC, Chennai [2005 (183) ELT 87 (Tri-Chennai)], set aside the impugned order passed by the Commissioner of Customs.

Against this decision, Revenue is in appeal before the High Court.

Reasoning of the Judgment: - The High Court noted the submission of the parties that as per the communication dated 12.08.2004, the period of import obligation in respect of respondent was extended upto 02.08.2007. But this aspect was not brought before the Commissioner of Custom at the time of adjudicating. However, this fact was noted by the Tribunal. Thus, it was held that there was no error of law, much less material irregularity committed by the Tribunal in allowing the appeal of the respondent. Revenue has not made out any good grounds for interfering with the order of the Tribunal.

Decision: - Appeal dismissed.

Comment: - An order should be passed only after keeping in mind all the facts relating to the same. Without considering all the facts it cannot be said as based on good justification.

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Case: R. K. Enterprises v/s Board of Trustees, Chennai Port Trust

Citation: 2010 (257) ELT 67 (Mad.)

Issue cum Brief facts: - Petitioner imported 2 consignments of diodes on 29.06.2000 and 11.10.2000 through and by two bills of entry dated 02.11.2000. Respondent no. 3 – customs authority investigated the imported goods on the suspicion that the goods were grossly under valued. Respondent no. 2 authority detained the goods in the premises of Respondent No. 1 – port trust. Show cause notice was issued to the petitioner on 23.03.2000. Respondent no. 2 authority dropped all the proceedings initiated against the petitioner vide order dated 01.05.2003. The value declared by the petitioner and both bills of entry were accepted. Respondent no. 3 authority advised petitioner to contact Respondent no. 2 for further action.

Petitioner had paid the dues on 01.05.2003. Accordingly, the respondent customs authorities assessed the bills of entry and passed the release order on 24.07.2003.

The demurrage charges incurred during 29.07.2002 to 24.07.2003 were not paid by the customs authorities. Therefore, petitioner filed applications to the Customs authorities to issue the detention certificates for the said period. Since there was no response to various reminders, the petitioner approached the high Court. On the direction issued in the said writ petition, Respondent No. 2 issued the detention certificate dated 10.11.2003 for considering the waiver of transit dues (demurrage) for the period of detention of goods.

The goods imported by bill of entry dated 27.09.2000 were allowed clearance by M/s C.C.T.L, Chennai after full waiver of demurrage charged based on the detention certificate issued by the respondent no. 2. However, respondent no. 1-port trust refused to waive the demurrage charges with respect to second bill of entry and asked the petitioner to pay the same by an order.

Against this order, petitioner has come before the High Court asking for direction to respondent- customs authorities to pay the demurrage charges.

Petitioner’s Contention: - Petitioner submitted that imports made by them were according to law and the value declared by them was accepted after adjudication and the investigation conducted by the respondent no. 2 showed that the petitioner were in no way responsible for the detention of goods and therefore, they are not liable to pay the demurrage charges and the respondent no. 2 custom authority is liable to pay the amounts.

Petitioner relied upon the judgment given in Shipping Corporation of India Limited v/s C. L. Jain Woolen Mills [2001 (129) ELT 561 (Supreme Court)], Donald & Macarthy (P) Ltd v/s Union of India [1997 (89) ELT 53 (Cal)] and Sujana Steels Ltd v/s Commissioner of Customs & Central Excise (Appeals), Hyderabad [2002 (141) ELT 343 (AP)].

Respondent’s Contention: - Respondent No. 2 submitted that respondent no. 1- port trust has to waive the demurrage charges as they has been done by M/s C.C.T.L, Chennai on the basis of detention certificate. It was submitted that the respondent no. 1 are bound to consider the waiver application filed by petitioner on the basis of the detention certificate issued by the custom authority. It was submitted that the Custom authority cannot be held liable.

Respondent No. 1 submitted that they were only custodian and the charges have to be paid for the space occupied by the goods of the petitioner. It was submitted that Madras Port Trust was governed by Tariff Authority for Major Ports and is also governed by scales of rates. On the basis of the guidelines, it was submitted that since the port trust is liable to charge, charges for detention of goods there was no application filed to waive the charges based upon the detention certificate. It was submitted that respondent no. 1 was a statutory body and it could not be carried away by the act of any third party except to follow the scales of rates fixed by the Tariff Authority for Major Ports. Under Section 170 of the Indian Contract Act, respondent no. 1 was entitled to have rights to retain a lien over the goods until dues were paid.

Reasoning of the Judgment: - The High Court held that the demurrage charges in respect of petitioner’s goods which were detained in the premises of respondent no.1 –port trust at the instance of respondent no. 2- customs authority. The custom alone is liable to pay the charges. The confiscation/retention of goods on suspicion was dropped by order dated 01.05.2003. Therefore, the Customs Authority cannot escape the liability of paying demurrage charges in respect of goods covered by relevant bill of entry to respondent no. 1 - port trust. Impugned order sustained. Direction was given to respondent no. 2 to pay the charges to respondent no. 1.

Decision: - Petition disposed of accordingly.

Comment: - If the port trust has been requested to detain the imported goods for scrutiny by the custom authority then they cannot deny for paying the demurrage charges also.

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