Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/24

CASE LAWS

Prepared By:

Sukhvinder Kaur, LLB [FYIC],

Mayank Palgauta and

Manish Mehta

Central Excise Section:

Case: Commissioner of C. Ex., Chandigarh-I v/s Diplast Plastics Ltd

Citation: 2010 (257) E.L.T. 397 (P & H)

Issue: - Whether the benefit of exemption notification can be granted to the assessee, when they had not fulfilled the condition and did the same only after being pointed out by the Department?

Brief Facts: - Respondent is engaged in the manufacture of PVC Pipes & Plastic storage tanks. The plastic storage tanks up to the capacity 300 liters have been exempted for payment of duty on the condition that cenvat credit of duty paid on inputs is not taken. Respondent was maintaining separate account of raw material i.e. plastic granules used for manufacturing exempted goods as well as excisable goods. The Department carried out a detailed examination of respondent’s account for the assessment years 1996-97 and 1997-98. They found that there was excess consumption of the manufacture of tanks of above capacity of 300 liters. Department was of the view that credit had been taken on the inputs/raw material meant for non-exempted water storage tanks, but it has not been used in the manufacture of such goods by the manufacturer. Accordingly, show cause notice was issued. The Adjudicating Authority confirmed the demand of cenvat credit. The Commissioner (Appeal) set aside the impugned order and the Tribunal also held in favour of the respondent-assessee.

Revenue therefore, has filed appeal before the High Court raising the substantial question of law that “Whether the benefit of exemption notification can be granted to the party, when they had not fulfilled the condition and did so, only after being caught by the department.”

Appellant’s Contention: - Revenue contended that the assessee not initially fulfilled the condition and had not reversed entire Modvat credit of raw material in the finished exempted goods and as had reversed the credit only after being detected by the Department, therefore, the respondent was not eligible to avail the benefit of exemption.

Respondent’s Contention: - Respondent contended that as they have already reversed the entire Modvat credit of raw material, so the benefit cannot be withdrawn in view of the law laid down in the case of Chandrapur Magnet Wires (P) Ltd v/s Collector of C. Excise, Nagour [1996 (81) ELT 3 (SC)] and in The Commissioner of Central Excise, Ludhiana v/s M/s Nestle India Limted, Moga and Another {C.E.A. No. 1 of 2006].

Reasoning of the Judgment: - The High Court held that the respondent was entitled to exemption as they had reversed the credit in respect of inputs used in the manufacture of exempted was well as non-exempted products. The argument of the Revenue that credit was reversed after they had pointed the said fact to the respondent and therefore, they were not eligible for exemption, is devoid of merit and is misplaced. Mere fact of reversal of credit is sufficient compliance to claim the benefit of exemption, in respect of inputs used in the exempted goods as the respondent is manufacturing exempted as well as dutiable goods using the same material.

The High Court relied upon the judgment of the Supreme Court in Chandrapur Magnet Wire (P) Ltd and of the High Court in M/s Nestle India Limited, Moga’s. Thus, it was held that respondent was entitled to benefit of exemption. Legal question answered in favour of the assessee.

Decision: - Appeals Dismissed.

Comment: - The fact of reversal of credit is sufficient compliance to claim the benefit of exemption in respect of inputs used in the exempted goods.

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Case: Jindal Stainless Ltd. v/s Union of India

Citation: 2010 (257) E.L.T. 401 (Ori.)

Issue: - Will amendments made in respect of classification of goods or for levy of excise duties in Rules be applicable retrospectively as they are clarificatory in nature? Will Show cause notices be considered validly which have been issued after such amendments?

Brief Facts: - Show cause notices issued and reply filed regarding admissibility of cenvat credit on inputs. Matter was pending before the Commissioner. Amendments made to Rule 2 (k) of the Cenvat Credit Rules, 2004 and Explanation 2 added. Board issued instructions under F. No. 267/11/2010-CX.8 dated 08.07.2010 and the Larger Bench of the Tribunal in the case of Vandana Global Ltd [2010 (253) ELT 440 (Tri-LB)] held that the Explanation 2 is clarificatory in nature and therefore will be applicable retrospectively.

The petitioner has filed these writ petitions before the High Court seeking issuance of writ of certiorari to quash the Circular No. 267/11/2010-CX.8 dated 08.07.2010, to set aside the judgment given in the case of Vandana Global and also to quash the show cause notices issued against them.

Petitioner’s Contention: - Petitioner submitted that impugned Circular was issued by the Board under the signature of OSD (CX-8) which is relatable to Section 37B of the Central Excise Act, 1944 which provides that the Board (CBEC) which is constituted under the Central Boards of Revenue Act, 1963 may issue instructions to Central Excise officers for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods and also issue such orders, instructions and directions to the Central Excise officers. It is submitted that the impugned circular has been issued in view of the judgment given by the Larger Bench in the Vandana Global Ltd case.

Respondent’s Contention: - Revenue relied upon the Cenvat Credit (Amendment) Rules, 2009 published vide Notification No. 16/2009-CE (NT) on 07.07.2009 wherein amendments has been made to the Rules, 2004 and clarification is made with regard to the ‘input’ or ‘capital goods before being put to use’ in respect of the Cenvat credit facility which has been availed by the petitioner herein. It is further contended that prayer made by the petitioner cannot be awarded until and unless the vires of Cenvat Credit (Amendment) Rules, 2009 is not challenged.

Revenue has also contended that there is no need to quash the Circular as the Commissioner (Adjudicating Authority) will not be relying upon the Circular to decide the issues involved in the show cause notice. They will be decided on their own merits.

Reasoning of the Judgment: - The High Court held that in view of the submission of the Revenue that reliance will not be placed on the impugned circular; therefore, there is no need to quash the said Circular. However, direction given that another hearing will be given before deciding the matter by the Commissioner (Appeal).

Further, with regard to prayer of quashing the show cause notices, the High Court held that it is not necessary of this Court to interfere in the matter as the replies have already been submitted and the Commissioner is required to decide the same after considering the factual and legal aspects which have been raised by the petitioner before the Commissioner. It is open for the petitioner to raise all the contentions including the contention that the amended Rules of 2009 have no retrospective effect before the Commissioner. Also, the petitioner can raise the contention of prospectively of the amended Rules before the Commissioner which is raised herein based on the judgment of Karnataka High Court in the case of Grasim Industries Ltd. v/s C.B.E. & C., New Delhi [2004(163) E.L.T. 10 (Kar.)].

Decision: - Appeal Disposed off.

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Case: Commr of C. Ex., Pondicherry v/s IBM (I) Ltd.

Citation: 2010 (257) E.L.T. 281 (Tri. – Chennai)

Issue: - What is the key condition of availing the exemption under Notification No. 19/1997-CE dated 1/3/1997? Whether the certificate under DSIR letter no. 525/15/2003-Cus is to be presented compulsorily?

Brief facts: - Respondent supplied general purpose computers to a privately funded college. They claimed benefit of exemption under Notification No. 19/1997-CE dated 01.03.1997 which granted exemption to the computers supplied for research purposes. The Adjudicating Authority denied the benefit and demanded service tax with interest. In appeal, the Commissioner (Appeal) set aside the impugned order. Hence Revenue is in appeal before the Tribunal.

Respondent’s Contention: - Respondent pleaded for cum-duty assessment and for adjustment of 8% Cenvat credit which was reversed by them in respect of the impugned goods.

Reasoning of the Judgment: - The Tribunal found that the College to which computers were supplied was not registered with Department of Scientific and Industrial Research. The university which the college was affiliated had also not given the required essentiality certificate under DSIR Letter No. 525/15/2003-Cus (TU) dated October 1998 for availing the exemption under Notification No. 19/1997-CE. Therefore, the respondents are not eligible to avail exemption. However, the Tribunal has accepted the plea of the respondent and directed that they be given the cum-duty benefit and the Cenvat credit @ 8% reversed by the appellant should also be considered. Accordingly, direction is given to re-quantify the duty demand to the Adjudicating Authority.

Decision: - Appeal allowed accordingly.

Comment: - The exemption of Notification No. 19/1997-CE can only be available when the recipient of goods has been registered with the Department of Scientific and Industrial Research.

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Case: Commissioner of Central Excise, Tiruchirapalli v/s M/s Maris Spinners Ltd

Citation: 2010-TIOL-1243-CESTAT-MAD

Issue: - At the time of reversal of capital goods after being put to use, whether full reversal of Cenvat credit taken at the time of receipt of such capital goods is required in view of Rule 3(4) of the Cenvat Credit Rules, 2004?

Brief Facts: - Respondent cleared capital goods after use and paid duty on the depreciated value. But the Department objected to the same and demanded that the respondent reverse the initial Cenvat credit which was taken at the time of purchase. The lower Authority upheld the reversal of depreciated value. Against this, the Department is in appeal before the Tribunal demanding payment of differential duty and also proposing to impose penalty. Cross objections have been filed by the respondent.

Reasoning of the Judgment: - The Tribunal relied upon the judgments orders given in the cases of Commissioner of Central Excise, Chandigarh v/s Raghav Alloys (P) Ltd. [2009 (242) ELT 124 (Tri. Del.)], Rogini Mills v/s Commissioner of Central Excise, Salem [Final Oder No. 160/10 dated 05.02.2010] and LG Balakrishnan & Bros Ltd v/s Commissioner of Central Excise, Comibatore [Final order No. 284, 285/10 dated 05.03.2010] wherein the reversal of credit on the depreciated value of the capital goods was sufficient for the purpose of Rule 3(4) of the Cenvat Credit Rules, 2004. This was held based on the decision given in Commissioner v/s Cummins India Ltd. [2007 (234) ELT 120 (Bom.)].

In the instant case, the respondent has reversed the differential amount demanded and accordingly, it is held that no additional amount is to be reversed. No penalty can be imposed as the case relates to interpreting the statutory provisions and the issue was the subject-matter for decision before the Larger Bench in Modernova Plastyles Pvt Ltd v/s Commissioner of Central Excise, Raigad [2008 (222) ELT 557 (Tri-Mumbai)]. Impugned order upheld.

Decision: Appeal dismissed. Cross objections also dismissed.

Comments: - The reversal of Cenvat credit is required at the time of removal of Capital goods from the factory after put to use but this amount of reversal will be calculated on the depreciated value of such goods.

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Case: Apollo Tyres Limited v/s CCE, Pune-III

Citation: 2010 (100) RLTONLINE 302 (CESTAT-MUM)

Issue: - Whether the second clearances of the goods would be covered by the first part of sub-rule (2) of Rule 16 or by the second part of such sub-rule?

Brief Facts: - Appellant is engaged in the manufacture of automotive tyres and tubes. In their Pune unit, they were only manufacturing tubes. These tubes were cleared on payment of duty to the tyre manufacturing units, which used the goods captively in the manufacture of motor vehicle parts. In the year 2002-03, several consignments were cleared on stock transfer basis to a tyre manufacturing unit. Out of this some consignments were returned for ‘logistical reason’. IN D-3 intimation, the particulars of goods were returned for reason stated the purpose as ‘storage’. Appellant took the Cenvat credit on the returned tubes. Thereafter, the said goods were cleared to other tyre manufacturing unit of the same company on payment of duty under Section 4 of the Central Excise Act, 1994. The subsequent clearances were made between the period from July 2002 to April 2003.

Department issued show cause notice to the appellant on the ground that no manufacturing process was carried out on the returned tubes under Rule 16(1) of the Central Excise Rules, 2002, which were cleared subsequently. It was alleged that the duty paid on the second clearances was based on the value determined under Section 4 of the Act, which was lower than the amount of CENVAT credit. Differential duty was demanded.

The Adjudicating Authority confirmed the demand of differential duty with interest and equal penalty under Section 11AC was also imposed. In appeal, the Commissioner (Appeal) upheld the order of the Adjudicating Authority. Hence, appellant is in appeal before the Tribunal.

Appellant’s Contentions: - Appellant contended that under sub-rule (1) of Rule 16, the duty-paid goods returned by a customer need not necessarily be subjected to any process of manufacture. The phrase “for any other reason” used in the sub-rule has been significantly adverted to in this context. Such goods could be cleared as such under sub-rule (2) of Rule 16 on payment of appropriate duty at the rate applicable on the date of removal and on the value determined under Section 4 of the Act. The second clearances made by the appellant were covered by the second part of sub-rule (2). The appellant paid duty accordingly and nothing more is liable to be paid.

The Demand of duty was also challenged on the ground of limitation. It was contended that there was no evidence of intent to evade payment of duty. It was submitted that a company of their stature could not be expected to evade payment of duty of Rs. 55,000/-. Any duty paid on the second clearances would have been available as CENVAT credit to the consignees who are tyre manufacturing units of the same company. There would be a revenue-neutral situation. In this regard reliance was placed on the ratio laid down in Continental Foundation Jt. Venture V/s. Commissioner of Central Excise [2007 (82) RLT 689 (SC)].

Appellant argued that such goods could be brought back into the factory of production for “any other reason” also. The appellant had cleared the goods as such, for “logistic reasons”, to other tyre-manufacturing units of the company.

Respondent’s Contentions: - Revenue contended that the second clearances made by the appellant without undertaking any manufacturing process would be covered by the first part of sub-rule (2) of Rule 16 and, therefore, they ought to have paid duty equal to the CENVAT credit taken on the goods returned by the first consignee. In other words, the CENVAT credit so taken should have been reversed. Reliance has been placed on the judgment given in Punjab Tractors Ltd. vs. Commissioner of Central Excise [2005 (67) RLT 460 (SC)], Hindalco Industries Ltd. Vs. Commissioner of Central Excise [2007 (82) RLT 60 (CESTAT-Mum.)].

Revenue contended that the expression for any other reason used in sub-rule (1) to be read as ejusdem generis with the preceding expressions (re-made, refined, etc.). Under sub-rule (1) of Rule 16, duty-paid goods returned by a customer can be brought back to the factory of production only for some kind of a process.

Reasoning of the Judgment: - The Tribunal noted that the goods returned by the original assignee were admittedly received by the assessee under sub-rule (1). They were received in the assessee’s factory “for being re-made, refined, re-conditioned or for any other reason”.

The Tribunal held that sub-rule (2) pre-supposes that the goods received by the assessee under sub-rule (1) should be subjected to some process. If this process does not amount to ‘manufacture’, the assessee shall pay an amount equal to the CENVAT credit taken under sub-rule (1), at the time of the second clearance. If the process amounts to ‘manufacture’, they shall pay duty at the appropriate rate based on the value determined under Section 4 of the Act. The expression ‘in any other case’ found in the second part of sub-rule (2) is significant.

The Tribunal held that a case in which the manufacturer of final product receives the goods back from the customer under sub-rule (1) and removes the same as such without undertaking any process thereon is also covered by the second part of sub-rule (2). The expression ‘any other case’ is apparently wide enough to cover such a case. In the D-3 intimation given by the appellant to the department, the purpose of bringing the returned duty-paid goods back into their factory was shown as ‘storage’. The appellant did not mention any ‘process’ in the D-3 intimation. Appellant had not claimed that the goods returned by the first consignee were subjected to any process before its second clearance to other units. Neither the original authority nor the first appellate authority entered any finding to the contra. In the impugned order, there was an observation to the effect that the appellant had removed the goods as such without carrying out any process. The Commissioner (Appeal) also recorded that the goods did not undergo any process amounting to manufacture. Having so found, the lower Authorities have demanded reversal of the CENVAT credit on the premise that the first part of sub-rule (2) of Rule 16 covers second clearances of finished goods as such without undertaking any process.

The Tribunal held that as it is already held that such second clearances, as in the instant case, are also covered by the expression ‘any other case’ figuring in the second part of sub-rule (2). It would follow that the duty paid by the appellant on their second clearances of tubes is in order and no additional amount of duty can be demanded from them.

No penalty can be imposed as demand of duty set aside on merits.

Decision: - Appeal allowed with consequential relief.

Comment: - An assessee is required to pay duty as per Section 4 of Central Excise Act, 1944 on the clearance (second) of returned goods. He is not liable to reverse the amount of Cenvat credit taken at the time of receipt of returned goods into the factory even though no manufacturing process has been done by such assessee.

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Service Tax Section

Case: Sundaram Industries Ltd. v/s Commissioner of C. Ex., Madurai

Citation: 2010 (19) S.T.R. 881 (Tri. - Chennai)

Issue: - Will Cenvat Credit be admissible only when the invoice issued by the service provider will have all the details prescribed by Rule 4A of the Service Tax Rules, 1994?

Brief Facts: - Appellant availed cenvat credit on the basis of invoices. Revenue contended that the appellant was not eligible to take credit as the invoices did not contain necessary particulars like: Service Tax Registration no., Description of service, Address of consignee, name of assessee etc. Also, some of the invoices were issued prior to 10.09.2004. The Adjudicating Authority denied the cenvat credit and confirmed the demand of service tax with interest and also imposed penalty of Rs. 10,000/-. In appeal before the Commissioner (Appeal), the appellant submitted a detailed worksheet/chart containing all the details of the Registration certificate no. of the service providers, Description of services and the address of the consignee. However, the Commissioner (Appeal) upheld the impugned order passed by the Adjudicating Authority. Hence, appellant is in appeal before the Tribunal.

Reasoning of the Judgment: - The Tribunal held that appellant were not eligible to take credit on the invoices where input service was utilised before 10.09.2004 and in those cases where the invoice bearing no name of the assessee anywhere. This has also been accepted by the appellant and they have reversed the amount of cenvat credit in these two instances.

With regard to remaining amount, the Tribunal held that the Commissioner (Appeal) has not considered the detailed worksheet containing all the details of service providers. Therefore, the impugned order is set aside and matter is remanded to the Commissioner (Appeal) to consider all the aspects involved.

Decision: - Appeal allowed by way of remand.

Comment: - Cenvat credit of service tax paid on inputs services is allowed to the recipient only when the invoice of the service provider contains all the information required under Rule 4A of the service tax rules, 1994. Appeal should be decided only after considering all the submissions submitted by the assessee.

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Case: Nagaraja Printing Mills v/s Commissioner of Central Excise, Salem

Citation: 2010 (19) S.T.R. 828 (Tri. - Chennai)

Issue: - Once service tax is paid by the GTA, raising the demand of service tax against the consignee of goods would amount to double payment and therefore not sustainable.

Brief Facts: - Appellant-assessee was the consignee of goods. Appellant paid service tax on GTA service with freight to the Transporter. As per Service Tax Rules, the liability of paying the service tax on GTA service is on recipient of service. Department raised demand against the appellant. Demand was confirmed. In appeal before the Commissioner (Appeal), appellant produced documentary evidence showing that the transporter had paid the service tax to the Government. However, the Commissioner (Appeal) upheld the order of the Adjudicating Authority. Hence, appellant is in appeal before the Tribunal.

Reasoning of the Judgment: - The Tribunal held that as it is established that service tax has already been paid by the Goods Transport Agency (Transporter), upholding the demand of service tax against the appellant would amount to double payment of service tax. Therefore, impugned order is set aside.

Decision: - Appeal Allowed.

Comment: - Once service tax paid by the Transporter on GTA service is established then the Revenue cannot demand the same service tax from the recipient also as it will result into tax on tax i.e. arising of cascading effect.

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Case: Shanti Fortune (I) Pvt. Ltd. v/s Commissioner of C. Ex., Coimbatore

Citation: 2010 (19) S.T.R. 883 (Tri. - Chennai)

Issue: - Whether the benefit of Notification No. 32/2004-ST will not be available for that claimant who is service recipient also? Whether an order passed on the different ground from the one that has been raised in the SCN is sustainable?

Brief Facts: - Appellant had availed the service of transportation from Goods Transport Operator. Appellant claimed the benefit of abatement under Notification No 32/2004-ST dated 03.12.04. Department issued show cause notice contending that benefit of abatement was not available to the appellant who was the recipient of service also. The Adjudicating Authority, however, held that abatement was available only if the conditions set out in the Board’s circular were satisfied. The appellant did not satisfy the said conditions in the instant case.

Appellant is therefore in appeal before the Tribunal.

Appellant’s Contention: - Appellate contended that service availed by them as service recipient was not provided by the ‘Goods Transport Agency’ but by ‘Goods Transport Operator’ i.e. an individual either owning or operating the truck. Therefore, the said service was not taxable service.

Reasoning of the Judgment: - The Tribunal noted that in the show cause notice the ground raised was that benefit of abatement was not available to the appellant as he was service recipient. However, in the impugned order, the demand was confirmed on an altogether different ground that the appellant had not satisfied the condition of Board’s Circular. Therefore, the Tribunal held that the demand was confirmed on a ground which has not raised in the SCN and therefore is not sustainable.

Further, the Tribunal held that the service was received by the appellant from GTO and not from GTA. Therefore, reliance was placed on the decision given in the Commissioner of Central Excise & Custom, Gantur v/s Kanaka Durga Agro Oil Products Pvt. Ltd.& others [2009 (15) S.T.R. 399 (T)] wherein it was held that there is no liability taken in case of service is provided by individual truck operators. On these reasons, the Tribunal has set aside the impugned order.

Decision: - Appeal allowed.

Comment: - Any demand was confirmed by an order on a ground which has not been raised in the SCN and therefore is not sustainable.

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Case: M/s Celtone v/s CCExcise, Salem

Citation: 2010-TIOL-1245-CESTAT-MAD

Issue: - An assessee is to be liable for paying the penalty also even though he has paid the service tax and interest thereon before issuing of SCN but after caught by the Department.

Brief Facts: - Appellant-assessee had paid the service tax with interest when this fact was pointed out by the Department. Department issued show cause notice thereafter. Penalties were imposed under Section 76 and Section 78 of the Finance Act, 1994. Hence, appellant is in appeal before the Tribunal.

Appellate Contention: - Appellate contended that when they had paid service tax with interest amount prior to issue of show cause notice then no notice for imposition of penalty could have been issued under the provisions of Section 73(3).

Reasoning of the Judgment: - The Tribunal held that the issue has already been decided in the case Shanti Casting Works v/s Commissioner of Central Excise, Coimbatore [2009 (15) STR 219] wherein it was held that penalty cannot be imposed when the service tax and interest is paid prior to issue of show cause notice. Accordingly, in the present case also, the penalties were not to be imposed and are set aside.

Decision: - Appeal allowed.

Comment: - Penalty under section 76 and 78 of the Finance Act, 1994 cannot be imposed when the service tax and interest is paid prior to issue of show cause notice

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Customs Section

Case: Commissioner of Central Excise, Delhi III v/s B E Office Automation Products Pvt. Ltd

Citation: 2010-TIOL-658-HC-P&H-Cus

Issue cum Brief Facts: - Respondent-assessee filed Bill of entry for clearance of old and used main frames of photocopier machine. Department objected to the value of machine as well as to their importability. The Adjudicating Authority passed the order and valuation was done by applying the value of new machines and the said goods were confiscated and respondent could redeem them on the payment of redemption fine. In appeal, the Commissioner (Appeal) set aside the impugned order by holding that the imported goods were capital goods and therefore, did not required import licence. The Commissioner (Appeal) also held that the objection of the importability was untenable. Valuation of the photocopier machines which were second hand, as declared by the respondent was accepted. Against this, Revenue went in appeal before the Tribunal which was dismissed on the ground that the opinion of the committee constituted under Section 129A (2) of the Act was not filed which is a condition precedent for entertaining the appeal. Hence, Revenue is before the High Court.

Appellate Contention: - Revenue contended that opinion of the committee was available and mere fact that the same was not filed with the appeal was not enough to dismiss the appeal. Revenue fairly stated that as per ratio in the case of Atul Commodities Pvt. Ltd. v/s Commissioner of Custom, Cochin, 2009 (235) ELT 385 (SC)], objection to importability was no longer valid.

Reasoning of the Judgment: - The High Court followed the judgment given in case of Atul Commodities Pvt. Ltd. v/s Commissioner of Custom, Cochin. Further, with regard to valuation, it was held that Revenue has been unable to show any error in the finding that the machines being second hand, their valuation could not be compared with the new machines.

Decision: - Appeals dismissed.

Comment: - When there is no error has been found with regards to machines being second hand, the valuation of such machines cannot be evaluated as these are new machines.

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