PJ/Case Laws/2010-11/27
CASE LAWS
Prepared By:
Sukhvinder Kaur, LLB [FYIC],
And Mayank Palguata
Central Excise Section:
Case: Tata Chemicals Limited v/s Commissioner of C. Ex., Haldia
Citation: 2007 (214) ELT 95 (Tri-Kolkata)
Issue: - Whether demand of reversal of duty can be raised even if on the materials used in manufacturing of exempted goods the assessee has paid duty at appropriate rate?
Brief Facts: - Appellants were manufacturing chemical Sodium Tri-Poly Phosphate (STPP) out of rock phosphate, on which there is no duty. Soda Ash and Sodium Hydroxide were used therein and the appellant were taking credit on them. Neutral Filter Cake (NFC) was being produced during this process. NFC was further used by the appellants in the manufacture of a fertilizer Di-Ammonium Phosphate (DAP) which was exempted from excise duty.
Appellants were also manufacturing Acid Slurry by using inputs Linear Alkyl Benzene (LAB) and Sulphonic Acid. They were taking credit of duty paid on these inputs. In this process, Spent Sulphuric Acid was also being produced, which was used by the appellants in the manufacture of SSP, a fertilizer which is exempt from excise duty.
Revenue contended that appellants were required to pay 8%/10% amount equal to the sale value of fertilizers DAP and SSP which were exempt from duty as common inputs were used in the manufacture of the same and no separate accounts were maintained by the appellants. Impugned order was passed confirming the demand with penalty. Extended period of limitation was also invoked.
Against the impugned order, appellant is in appeal before the Tribunal.
Appellant’s Contentions: - Appellant contended that the plants manufacturing STPP and Acid Slurry were separate from the plants manufacturing DAP and SSP. The entire quantity of Neutral Filter Cake and Spent Sulphuric Acid arising from the manufacture of STPP and Acid Slurry was being used in the manufacture of DAP and SSP. They had since paid 16% duty on the entire quantity of Neutral Filter Cake and Spent Sulphuric Acid after the Order-in-original was passed, and hence they were entitled to the input duty credit taken by them in respect of all the inputs.
Appellant clarified that the payment had been made in respect of the normal period of demand, as the demand for the period beyond the normal period of one year is hit by limitation. It was submitted that the appellants had disclosed all the facts to the Department regarding the production of Neutral Filter Cake and Spent Sulphuric Acid and their use in the manufacture of fertilizers. They have referred to letter of the Department dated 10-7-92 in which the Superintendent had requested the appellants to maintain proper and regular accounts of manufacture of Neutral Filter Cake and removal thereof in the RG-I Register. Further, reference is made to the classification declaration filed on 11-11-99 in which Spent Sulphuric Acid produced by the appellants was declared by the appellants and it was also stated that Spent Sulphuric Acid was being transferred by the appellants by tankers to the SSP Plant for use there.
Reliance was placed on the judgments given in Texmo Industries Ltd. v. CCE [2007 (208) E.L.T. 338 (LB)] wherein it was held that 8% of the value of pumps sought by the Revenue is not required to be paid, but 8% of the value of Castings which was the intermediate product is required to be paid. In this case, the Tribunal held that Castings made from duty-paid inputs is to be treated as finished goods. Reliance was also placed on decision of the Tribunal in the case of Shivalik Agro Poly Products Ltd. v. CCE [1999 (114) E.L.T. 760 (Tribunal)] wherein it was held that if the duty is paid on intermediate duty-paid inputs, the benefit of exemption for the final product cannot be denied.
Respondent’s Contentions: - Revenue contended that the appellants themselves had earlier claimed the Neutral Filter Cake to be non-excisable being in the nature of waste product. Reliance is placed on the decision in the case of Rallies India Ltd. v. Commissioner of Central Excise, Salem [2007 (208) E.L.T. 25 (Tri. - LB)] in which it was held that even if by-products arise in the process of manufacture, 8% of the value of such by-products is required to be recovered, if no separate accounts have been maintained. Further, reliance is placed on the decision given in the case of Amrit Paper v. Commissioner of Central Excise, Ludhiana [2006 (200) E.L.T. 365 (S.C.)] wherein it was held that once credit has been availed while making payment of duty on exempted goods, subsequently it is not permissible to reverse the credit and seek refund of duty paid.
Reasoning of the Judgment: - The Tribunal held that the Adjudicating Commissioner had come to a finding that NFC though a by-product was to be considered as a final product in terms of the Cenvat Credit Rules, 2004. It was further held that Spent Sulphuric Acid was also to be considered as a final product.
The Tribunal held that once the Commissioner had come to a finding that these two intermediate products were treated as final products in terms of the Cenvat Credit Rules, all that required was to be seen was that these products should either pay the duty or if exemption is sought on these products, then 8% of the value of these goods should be recovered. There is no justification for ordering to recover 8% of the value of the exempted fertilizers in the production of which small quantity of NFC and Spent Sulphuric Acid was used in the subsequent process and in a different plant. The Tribunal noted that the appellants themselves, subsequent to the passing of Order-in-original, had paid 16% of the duty on all these items and hence, the credit of duty taken by them on the relevant inputs was in order. There was no reason to demand 8% or 10% of sale value of the fertilizers. Reliance was placed on the decisions given in the cases of Texmo Industries and Shivalik Agro Poly Products Ltd.
The Tribunal further held that the decision given in the case of Rallies India Ltd. relied upon by the Revenue merely required the by-product either to pay the duty or to recover 8% of the value of the goods, if the same is exempted. But in the present case, the appellants themselves had paid duty on the by-products. Hence the decision in the case of Rallies India was not applicable. The issue dealt in Amrit Paper was also different from the issue in the present case, in as much as the appellants were not seeking any exemption on the impugned goods namely, NFC and Spent Sulphuric Acid.
With regard to invoking of extended period of limitation, the Tribunal held that appellants had not suppressed any facts from the Department and this was evidenced from the Department’s own communication and the classification declaration submitted by the appellants.
Appeal allowed by way of remand. Direction was given to the Original authority to verify whether the appellants have paid the duty on the two impugned products namely, Neutral Filter Cake and Spent Sulphuric Acid for the normal period of limitation at the appropriate rate. In case there is any shortfall, the appellants shall make good the shortfall immediately after the calculation is completed. Penalty set aside.
Decision: - Appeal allowed by way of remand.
Comment: - Assessee is not required to pay any further amount equal to the sale value of fertilizers DAP and SSP which were exempt from duty as common inputs were used in the manufacture of the same and no separate accounts were maintained by the appellants if the assessee has already paid duty at appropriate rate.
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Case: The Commissioner of Central Excise, Mumbai-III v/s M/s Valson Dyeing Bleaching & Printing Works
Citation: 2010-TIOL—HC-MUM-CX
Issue: - The Tribunal is bound to follow the judgment delivered by a High Court even if the High Court is of another State and there is no contrary judgment of any other High Court on the issue.
Brief Facts: - Respondent-assessee were engaged in the manufacture of man-made fabrics falling under chapter 52, 54, 55 and 60. The said goods were being manufactured with the help of hot air stenter machines by the respondent, who are independent processor by virtue of Notification No. 42/98-CE dated 10.12.1998. Thus, from 16.12.1998, the said goods were notified goods on which excise duty was to be levied according to the provisions of Section 3A of the Central Excise Act, 1944.
The Commissioner provisionally fixed the rate of duty per chamber per month on the basis of declaration made by the respondent. And total amount of duty for 4 chambers was fixed. Thereafter, the Annual Capacity of Production was determined by the Commissioner and the rate of duty determined was more than what was fixed provisionally. Accordingly, Department raised demand for differential duty. The Adjudicating Authority confirmed the demand and demanded duty with interest and penalty was also imposed. The said order was upheld in appeal before the Commissioner (Appeals). Against this, the respondent went in appeal before the Tribunal.
The Tribunal relied upon the judgment of the Madras High Court in the case of Beauty Dyers v/s Union of
Accordingly, the Tribunal set aside the impugned order passed against the respondent. Revenue has come in appeal before the High Court raising the question that whether the Tribunal was justified in setting aside the impugned order by following the judgment of the Madras High Court which is of another state.
Appellant’s Contention: - Revenue contended that it was not open for the Tribunal to rely upon the judgment of High Court and declare the Notification No. 42/98-CE as ultra vires the provisions of the Act. It was contended that the validity of the Notification was to be independently examined and decided by this Court independently bereft of the judgment of Madras High Court. Reliance was placed on the decision of the Apex Court in the case of Commissioner of C. Ex., Gujarat v/s Roop Textiles Mills Ltd [2007 (213) ELT 486 (SC)].
Respondent’s Contention: - Respondent contended that the judgment of the Madras High Court in Beauty Dyer’s case was binding on the Tribunal. The Tribunal was could not have ignored bound the judgment of the Madras High Court when there was no contrary judgment of the jurisdictional High Court or of any High Court. The
It was further submitted that in the case of Roop Textile Mills Ltd the question was very different from the question raised in this case. In that case, the question of validity of subject Notification was referred by the Tribunal to Gujarat High Court in exercise of the power of reference. Gujarat High Court had rejected the reference made by the Revenue, on the basis of the judgment of the Madras High Court in Beauty Dyer’s case. It was submitted that the order of the Gujarat High Court was a subject matter of challenge before the
Reasoning of the Judgment: - The High Court relied upon the judgment of the Division bench in the case of Smt. Godavaridevi Saraf wherein the question involved was regarding the effect of the Madras High Court holding that Section 140 (3) is unconstitutional as violative of Article 19(1) (f) of the Constitution. The Division Bench had relied upon the judgment given in the case of East India Commercial Co. Ltd v/s Collector of Customs,
On facts and circumstances of the said case, the Division Bench had held that until contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, It has to proceed on the footing that the law declared by the High Court, though of another state, is the final law of the land. When the Tribunal set aside the order of penalty it did not go into the question of intra vires or ultra vires. It did not go into the question of constitutionality of Section 140A(3). That section was already declared ultra vires by the competent High Court in the Country and an authority like an Income Tax Tribunal acting anywhere in the country had to respect the law laid down by the High Court, though of a different state, so long as there is no contrary decision of any other High Court on that question. What the tribunal really did was that in view of the law pronounced by the Madras High Court it proceeded on the footing that Section 140A(3) was non existent and so the order of penalty passes there under cannot be sustained.
Accordingly in the present case the High Court held that the tribunal in the impugned order had not examined the issue relating to the validity of the Notification no. 42/98 because the Tribunal had no jurisdiction to examine the subject issue. The Tribunal did not independently consider the validity of the notification. The Tribunal has merely followed the judgment of the High Court of Madras which was binding on the Tribunal in view of the law laid down by Division bench in the case of Smt. GodavariDevi Saraf. Thus the High Court held that the Tribunal had no option but to follow the judgment of the Madras High Court.
Impugned order passed by the Tribunal was justified. Question of law answered in favour of assessee and against the revenue.
Decision: - Appeal disposed of accordingly.
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Case: Kumaragiri Spinners Limited vs Commisioner of Central Excise, S
Citation: 2010 (257) ELT 589 (TRI-Chennai)
Issue: - Whether duty is payable on goods obtained under Notification No. 43/2001-CE (NT) without payment of duty but subsequently were not actually exported? If such duty is paid then the assessee will eligible for the refund of the duty paid?
Brief Facts: - Appellant obtained approximately four lakh kgs of viscose staple fibre under notification no. 43/2001-CE (NT) without payment of duty for the purpose of export. Approximately 3.20 lakhs kgs of quantity was utilised for export. The remaining 80,000 kgs was cleared for home consumption in domestic market on payment of duty under notification no. 30/2004-CE. There after appellants claimed refund of duty amount and also claimed Cenvat credit on inputs used in the impugned staple fibre. The claims of the appellant were rejected by the lower authorities. Hence appellant is before the Tribunal.
Reasoning of the Judgment: - The Tribunal found that part of the goods obtained duty free for export purposes were not exported. Therefore the duty is payable on the same and there cannot be any question of refund of said amount which is legally payable. With regard to refund of Cenvat credit of duty paid on inputs, the tribunal held that since duty has been paid under notification no. 30/2004-CE and a condition had been prescribed therein that Cenvat credit is not to be taken, no question of refunding any amount towards such credit can arise. No reason to interfere with the impugned orders.
Decision: - Appeal Dismissed.
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Case: Collector of Central Excise v/s Chemphar Drugs & Liniments
Citation: 1989 (40) ELT 276 (SC)
Issue: - Whether extended period of limitation can be invoked when there was no fraud or collusion or willful misstatement or suppression or contravention of any provision of any Act by the assessee?
Brief Facts: - Respondent-assessee are engaged in the manufacture of patent and proprietary (P & P) medicines falling under Tariff Item 14E and also pharmacopoe preparations falling under T.I. 68. They cleared the said goods without payment of duty by availing the benefit of exemption Notification No. 80/80 dated 19.06.1980 during the period 1-4-1979 or 31-3-1980.
A condition was prescribed in Notification No. 80/80 and under Notification No. 71/78 dated 01.03.1978 that the benefit of exemption will not be available to a manufacturer who manufactures excisable goods falling under more than one item of the First Schedule of the Act, and the aggregate value of the clearances of all such excisable goods by the manufacturer or on his behalf are cleared for home consumption from one or more factories during the preceding financial year had exceeded Rs. 20 lakhs.
For the clearances made for the period from 01.04.1980 to 29.10.1980, the respondent filed a declaration for exemption under Notification No. 71/78 and furnished details of P&P medicines manufactured and cleared during the preceding financial year 1979-80. They did not furnish the particulars of value of goods cleared under Tariff item 68 during the F.Y. 1979-80. It was noticed that the manufacturer did not file any declaration under Notification No. 111/78 dated 9-5-1978 claiming exemption from the licensing control. But they filed classification list in respect of P & P medicines claiming exemption under Notification No. 80/80 on 30.07.1980.
Revenue issued show cause notice demanding excise duty on clearance of P & P medicines under proviso (a) to Rule 10(1) of the Central Excise Rules, 1944 for clearing goods without payment of duty contravening Rule 173Q (a) and (b).
The Adjudicating Authority held that respondent were not eligible for the benefit of the two notifications and demand of duty was confirmed. It was held that respondent had failed to reveal the correct position to the Department. The extended period of limitation of 5 years under Section 11A was invoked.
Respondent filed appeal before the Tribunal. The Tribunal held that respondent had not suppressed any information about the range and nature of the goods manufactured by them. Respondents had taken the stand that the value of exempted goods under Tariff Item 68 and the value of medicines containing alcohol were not required to be included for computing the total excisable goods cleared by them. There was no evidence that respondents had acted with mala fide intention. Department was in full knowledge about the facts as declarations were filed by respondents. And if the respondent had not included the value of the said goods, the Department could have taken corrective action in time. Accordingly, it was held that longer period of limitation could not be invoked and the demand beyond the period of 6 months was not sustainable.
Against this decision, Revenue has filed appeal before the
Reasoning of the Judgment: - The Apex Court held that in order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section 11A of the Act, it was required to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise was required before it was saddled with any liability, before the period of six months.
It was held that it was a question of fact to be determined on the facts of each case that whether in a particular set of facts and circumstances there was any fraud or collusion or willful misstatement or suppression or contravention of any provision of any Act.
In the present case, it was held that the Tribunal came to the conclusion that there was no fraud. The respondent had declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. These findings of the Tribunal have not been challenged in this appeal.
In the end it was held that in view of the requirements of Section 11A of the Act, the claim had to be limited for a period of six months. Tribunal was right in its conclusion. No interference required.
Decision: - Appeal dismissed.
Comment: - It cannot be said that there is a fraud or collusion or willful misstatement has been conducted by the assessee in case the Department has full knowledge of the facts about manufacture of all the goods manufactured by the assessee when the declaration was filed by the assessee.
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Service Tax Section
Case: Nehanki Enterprises v/s Commissioner of C. Ex., Mangalore
Citation: 2010 (19) STR 700 (Tri-Bang)
Issue: - Whether delay of more than 600 days can be condoned by the Tribunal holding the view that the appellant was not aware of the provisions of the Finance Act, 1994?
Brief Facts: - Order-in-Original was passed against appellant on 09.01.2007. The said order was received by the appellant on 12.01.2007. An appeal before the Commissioner (Appeals) was filed on 13.04.2007. The said appeal was rejected by the Commissioner (Appeal) on the ground that there was delay of one day in filing appeal. On the day of receipt of impugned order on 19.04.2007, appellant who is the daughter of the deceased partner approached the Commissioner (Appeal) condoning the delay of one day in filing appeal. The appellant waited for the reply of the Commissioner (Appeal). Thereafter, the appellant have filed appeal before the Tribunal after delay of 606 days. Application for condonation of delay is also filed.
Appellant’s Contention: - Appellant submitted that delay in filing appeal before the Tribunal was due to bona fide belief that the appeal before the Commissioner (Appeals) was pending consideration. They were under bona fide belief because the application for condonation of delay was accepted and so acknowledged by the office of the Commissioner (Appeal). There was no communication from the Commissioner (Appeals) office that their request was rejected.
It was submitted that there was no negligence or willful act on their part for causing delay.
Respondent’s Contention: - Revenue contended that reasons for condoning an inordinate delay of 606 days were not justified.
Reasoning of the Judgment: - The Tribunal held that the applicant was the daughter of deceased partner and may not be aware of the provisions of the Finance Act regarding filing of appeals before the Tribunal once the Commissioner (Appeals) has rejected their appeal. Thus, on the facts and circumstances of the case and in terms of judgment given in Collector, Land Acquisition Anantnag and Another v/s MST, Katiji and others [1987 (28) ELT 185 (SC)], delay is condoned and stay petition taken for disposal.
Further, the Tribunal held that the Commissioner (Appeal) had rejected the appeal of the appellant only due to delay of one day in filing appeal. But no opportunity was granted to appellant to explain the delay of one day. Moreover, the impugned order was not passed on merits. Accordingly, the Tribunal held that the matter has to go back to the Commissioner (Appeal) for fresh consideration on merits. Impugned order set aside. Matter remanded.
Decision: - Stay application and appeal allowed by way of remand.
Comment: - The order, without giving an opportunity of being heard as per principle of Natural Justice, is not considered to be good in law.
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Case: BSR Enterprises v/s Commissioner of Service Tax, Chennai
Citation: 2010 (19) STR 727 (Tri-Chennai)
Issue: - Whether any proceedings can be made by the Revenue only on the basis of figures shown in the Balance Sheet of the assessee without other corroborative evidence?
Brief Facts: - Appellants had provided erection, commissioning and installation services. While providing this service they also supplied parts and other materials to their customers. The value of the materials so supplied was not included in the value of taxable service in terms of Section 67 of the Finance Act, 1994. Appellant claimed exemption under Notification No. 12/2003-ST dated 20.06.2003. In proceedings before the Adjudicating Authority, the demand against the appellant was quantified on the basis of the figures in the Balance sheet. Exemption under Notification No. 12/2003-ST was denied to the appellant.
Against this order, appellant are in appeal before the Tribunal.
Appellate Contention: - Appellant contended that mere reliance on figures in Balance sheet for quantifying the demand of service tax was not justified. The Adjudicating Authority ought to have considered all the invoices where the cost of such material was shown separately. It was submitted that only sample invoices were examined instead of all the invoices. It was contended that part of the demand was time-barred as they had not suppressed any information.
It was submitted that the material cost was not mentioned due to their understanding that the value of the same was required to be excluded while computing service tax. Reliance was placed on the judgment given in ASL Motors Ltd v/s CCE & Service Tax, Patna [2008 (9) STR 356 (Tri-Kolkata)] and submitted that the value of material on which sales tax was paid cannot be charged to service tax.
Respondent’s Contention: - Revenue fairly agreed that figures in Balance sheet were relied upon to compute service tax liability of the appellant. It was further contended that the longer period of limitation was applicable since the appellants had not furnished the full details regarding the value received by them towards services provided by them. The bifurcation of value of service and material cost was disclosed to the department.
Reasoning of the Judgment: - The Tribunal held demand was quantified merely on the basis of the figures in the Balance sheet of the appellant. It was held that since the appellant are in apposition to submit all the invoices it is required that the same be examined the applicability of Notification No. 12/2003-ST. The question of applicability of limitation is also required to be examined. Accordingly, impugned order set aside. Matter remanded for fresh consideration.
Decision: - Appeal allowed by way of remand.
Comment: - The demand confirmed by the department merely on the basis of the figures of service provided showing in the Balance Sheet of the assessee is not sustainable. The department has to examine all the records relating to the same.
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Case: Commissioner of Central Excise,
Citation: 2010-TIOL-720-HC-MUM-ST
Issue: - Whether Cenvat credit of service of repair and maintenance and civil construction used in the colony of their employees is allowable to the assessee?
Brief Facts: - Respondent-assessee is engaged in the manufacture of cement. They constructed residential colony for their employees. The services of repair and maintenance and civil construction were used in the colony. Respondent availed cenvat credit of service tax paid on these services. Revenue initiated proceedings for denying the credit. The Adjudicating Authority passed the order denying the credit. This order was upheld in appeal before the Commissioner (Appeal).
In further appeal before the Tribunal, it was held that respondent was entitled to credit on said services used at the residential colony of the respondent. Against this decision, Revenue is in appeal before the High Court.
Appellate Contention: - Revenue placed reliance on the judgment of the Apex Court in the case of Maruti Suzuki Ltd v/s Commissioner of Central Excise, Delhi [2009 (240) ELT 641].
Respondent’s Contention: - Respondent contended that constructing the residential colony was indirectly related with the manufacturing of cement and the services were relating to their business.
Reasoning of the Judgment: - The High Court held that establishing a residential colony for the employees and rendering taxable services in that colony may be a welfare activity undertaken while carrying on the business and such expenditure may be allowable under the Income Tax Act. But in order that the said service falls under the definition of input service, the activity must have nexus with the business of the assessee. It was held that the expression ‘relating to business’ in Rule 2(l) of the CCR, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities by the assessee.
The Ratio laid down in the case of Maruti Suzuki was applied and it was held that unless nexus is established between the services rendered and the business carries on by the assessee, the benefit of Cenvat credit is not allowable. In the present case, it was held that the services provided at the residential colony which was established for the benefit of the employees, were not an activity integrally connected with the business of the respondent. Therefore, the Tribunal was not justified in holding that the said services rendered at the residential colony were input services for claiming cenvat credit. Question answered in favour of the Revenue and against the respondent-assessee.
Decision: - Appeal disposed of accordingly.
Comment: - For taking credit of service tax paid on input services, there must be a nexus between the services rendered and the business carries on by the assessee. The aforesaid services rendered at the residential colony of the employees were not input services for claiming Cenvat credit.
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Case: CCE,
Citation: 2010 (101) RLTONLINE 319 (CESTAT-CHE)
Issue: - Whether suo motu adjustment of the excess payment of service tax towards subsequent payments is valid under Rule 6 (3) of the Service Tax Rules, 1994?
Brief Facts: - Respondent-assessee rendered services to SEZ and paid excess service tax on the said services. They on their own i.e. suo motu adjusted the excess payment of service tax towards subsequent payments for the period October 2005-March 2006. Department objected to the suo moto adjustment on the ground that adjustment was provided for only under Rule 6 (3) of the Service Tax Rules, 1994 and the said provisions were not applicable to the case of the respondent as they had provided service to SEZ.
The Lower Appellate Authority relied upon the judgment given in the case of Nirma Architects & Valuers v/s CCE, Ghaziabad [2006 (1) STR 305] and Prachar Communications Ltd. Vs. CCE, Mumbai [2006 (76) RLT 413 (CESTAT-Mum.)] and held in favour of the respondent. Revenue is in appeal before the Tribunal.
Reasoning of the Judgment: - The Tribunal held that in view of the judgments given many cases including the cases relied upon by the Lower Appellate Authority; the adjustment carried out by the assessees has been accepted by the Tribunal.
It was further held that even if the stand of the Revenue that strict interpretation of the rule did not allow the adjustment is correct, the Tribunal had consistently held that liberal view of the rule or liberal interpretation of the rule has to be taken.
Accordingly, impugned order is upheld.
Decision: - Appeal dismissed.
Comment: - The benefit of adjustment of excess payment of service tax is available to the assessee even in case of service provided to SEZ since Tribunal held that liberal view of the rule or liberal interpretation of the rule has to be taken.
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Case: Ultratech Cement Ltd v/s Commissioner of Central Excise,
Citation: 2010-TIOL-1325-CESTAT-AHM
Issue: - Whether credit of service tax paid on the vehicles used in the residential colony of the assessee as well as on the insurance amount of the residential building is allowable?
Brief Facts: - Appellants availed credit of service tax paid on the vehicles used in the residential colony of the appellant. Credit was also taken on insurance of the residential building. Adjudicating Authority denied the credit on the ground that they were not in the nature of input services. Reliance was placed on the Maruti Suzuki case [2009-TIOL-94-SC-CX].
Appellant’s Contentions: - Appellant contended that the above judgment was related to the credit of duty paid on inputs which are used in the manufacture of final product. Reliance was placed on M/s ISMT Ltd v/s CCE, Ahmedabad [2010-TIOL-27-CESTAT-MUM].
Reasoning of the Judgment: - The Tribunal held that the expression “business” appearing in Rule 2 (l) of CCR was an integrated/continued activity and not confined or restricted to mere manufacture of product. The activities in relation to business can cover all activities related to functioning of a business and the expression “business” is of wide import in physical statutes. It was held that credit on the said services was allowable to the appellant. Reliance was placed on Manikgarh Cement v/s CCE & Cus, Nagpur, Millipore India Ltd v/s CCE,
Decision: - Appeal allowed with consequential relief.
Comment: - The credit of the aforesaid services is allowable to the assessee due to the word “Business” covers all the activities relating functioning of a business.
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Customs Section
Case: Shyamaraju & Co. (
Citation: 2010 (100) RLTONLINE 132 (KAR.)
Issue: - Whether export duty can be levied under the provisions of the Special Economic Zones Act, 2005?
- Whether export duty could be imposed under the Customs Act, 1962 while incorporating the definition of the expression “export” under the SEZ Act, 2005, into the Customs Act, 1962?
Brief facts: - The petitioners are either ‘Developer, a ‘Co-Developer’, an ‘Entrepreneur’, or an ‘existing Unit’, as defined under the sub-clauses of Section 2 of the Special Economic Zones Act, 2005. With the Finance Act, 2008 many items were added to the Second schedule (Export Tariff) to the Customs Tariff Act, 1975. These includes pig-iron, ferrous products, iron and steel products of various types.
The Government of India simultaneously issued Notification No. 66/2008 dated 10.5.2008 prescribing the effective duty at 5% to 15% on various steel products. This Notification was subsequently amended by Notification No. 77/2008 dated 13.6.2008. The Authorities held that supplies to SEZs from a Domestic Tariff Area should be treated as exports and opined that such supplies would attract export duty.
There was wide-spread objections by the industry, the Ministry of Commerce and Industry, issued a letter wherein it was stated that the Department of Revenue had suggested that supply of steel products on which export duty is applicable should be permitted after payment of prescribed amount of duty. Pursuant to this clarification, Demands were raised on the petitioners to pay duty on export of steel products. Hence, petitioners are before the High Court challenging the demands raised.
Petitioner’s Contention: - The Petitioners contended that the instructions issued by the Department of Commerce construing the Notifications dated 10.5.2008 and 13.6.2008, issued under Section 25 of the Customs Act, 1962, as enabling its officers to exact or levy customs duty, acting as an authority under the SEZ Act, were wholly without jurisdiction and were illegal. The said instructions defeated the provisions of Section 26 of the SEZ Act and SEZ Rules made thereunder, particularly Rule 22.
It was contended that the said instructions were contrary to the meaning and legal import of the definition of expressions used and postulated in the Customs Act, 1962, which are to be reconciled and applied to the provisions of the SEZ Act in terms of Section 2(zd) of the latter Act. As for instance “India” would have to be understood according to the provisions of the Customs Act read with Article 1 of the Constitution of India and it leads to an absurdity to equate the SEZ units, entrepreneurs or developers as being situate in a foreign territory so as to tax items received by them from indigenous manufacturers in India as import of goods and conversely tax supply of goods made by local manufacturers or suppliers in India as export of goods.
It was contended that the petitioners are neither importers nor exporters under either the SEZ Act or the Customs Act, 1962 in respect of the notified items and hence cannot be called upon to pay export duty thereof.
It was stated that the incongruity which is created is evident from the circumstance that the Ministry of Finance itself had sought for clarification from the Ministry of Legal Affairs as reported in the newspapers and published in the Income-tax Reports dated 28.7.2008. It is therefore prayed that by the impugned directions to collect purported export duty on materials named in the said communication from the petitioners, which if not prevented by this Court, would be violative of the Constitutional mandate under Article 265 and 300A of the Constitution of India.
It was emphasized that by virtue of the impugned directions, an artificial and fictional theory is sought to be created in relation to the meaning of the expressions “
Reliance was placed on the decision of the Apex Court in Aban Loyd Chiles Offshore Limited Vs. Union of India [2008 (227) ELT 24 (SC)], wherein the Supreme Court has held that the territorial jurisdiction of India under the Customs Law would extend to the continental shelf and exclusive economic zones and that the principles of international law including United Nation Conventions on the Law of Sea 1982, would be applicable while interpreting fiscal laws such as the Customs Act, 1962.
It was submitted that the impugned instructions are also contrary to the decision of the Apex Court in Collector of Customs Vs. Sun Industries [1988 (35) ELT 241 (SC)] wherein it was held that in order to constitute an export, goods should be taken out to a place outside India.
Relying upon the provisions of Section 26 of the SEZ Act, it was submitted that the petitioners are carrying on activities as duly approved under the SEZ Act. If the impugned instructions were implemented then it would have the effect of depriving the petitioners of the benefits of duty exemption guaranteed to them by law and would result in converting a privilege into a disadvantage. The petitioners, therefore, contended that the Doctrine of Promissory Estoppel would be applicable in the circumstances. It was pointed out that in respect of several compliances under various laws, the SEZ is considered as being an integral part of
It was further submitted that the Gujarat High Court had in the case of Essar Steel Limited Vs. Union of India [2010 (249) ELT 3 (Guj.)] had addressed the very same issues and had held that the action of the respondents in levying export duty on goods supplied from the domestic tariff area to the SEZ is not justified.
Respondent’s Contention: - Revenue relied upon various provisions of the SEZ Act as well as of Customs Act, 1962. It was contended that exemptions from customs, central excise and certain other duties were prescribed under Section 26 of the SEZ Act. It also created a category of persons called “developer” who took over the responsibility for investing in and providing facilities in a SEZ that were used by the exporting units to be set up in the SEZ, both the developer and the exporting units are eligible for the exemptions. The SEZs are notified by the Department of Commerce and there is compound wall to enclose the processing area of the SEZ. The SEZs are under the administrative control of a Development Commissioner, who is an officer of the Central Government. Developments are approved by the Board of Approvals, as are co-developers. They are authorized certain operations within the SEZ. The goods required for carrying out the authorized operations are eligible for exemptions under Section 26 of the SEZ Act. Section 2 of the SEZ Act defines ‘imports’ and ‘exports’ for the purpose of goods moving into and out of the SEZ. Likewise, an exporting unit is approved by the Approval Committee and is eligible for exemption under Section 26 of the SEZ Act for goods brought into and out of the SEZ. Procedures are prescribed under the SEZ Rules for taking goods into and out of the SEZ as well as claiming any benefits as laid down under the SEZ Rules. The goods supplied into the SEZ are considered as physical exports for exemption under the Central VAT duties/Central Excise duties under the SEZ Act. However, under the SEZ Rules, export documents - shipping bills are required to be filed and processed only when goods are consigned outside
It was contended that in order to give effect to this system without recourse to amendments in the Customs Act or Central Excise Act, the SEZ Act by Section 53 deems zones to be territories outside the customs
It was contended that Section 47 or any other provisions of the SEZ Act cannot be read with any other provision of law unless the provision SEZ Act requires that to be done specifically or generally. It was further contended that Section 4 of the Customs Act has been invoked by Notifications to enable the officers under the SEZ Act to exercise powers under the Customs Act outside the SEZ for a limited area and for a limited purpose in order to check the possibility of smuggling out of a SEZ.
It was emphasized that there is no attempt to use exemption provision in Section 25 of the Customs Act to impose a duty. The duty of export of these items are prescribed under the amended Schedule of the Customs Tariff Act and the Notifications referred to above only fix the effective rate of duty to be levied within the ceiling of the prescribed rate of duty. Section 25 therefore has been pressed into service legally. The goods in question manufactured in India and supplied to SEZs are not subject to levy of Central Excise Duty by virtue of exemption under Section 26 (1) (c) of the SEZ Act. It was contended that insofar as SEZs are concerned, the ‘exports’ and ‘imports’ are defined as including, bringing goods from a domestic tariff area into a SEZ in terms of Section 2(m) of the SEZ Act and such rates would not be covered by the exemptions on export duty granted under Section 26 for export out of the SEZ.
The allegation that the impugned instructions seek to convert the SEZs into a foreign territory or a overseas territory is misplaced and incorrect. Duties of customs are levied under the Customs Act and the first respondent has merely conveyed the view of the Department of Revenue that export duty as per the Customs Notification would be applicable.
With regard to the contention that the impugned directions have created any artificial or notional theory to levy a duty is denied and it is stated that the duty is levied under the Customs Act, 1962 and collected by the authorized officer of the SEZ in accordance with the interpretation of the Department of Revenue. This is supported by the opinion of the Ministry of Law, and the first respondent has merely conveyed its opinion and there is no instruction issued which runs contrary to the decisions of the
With regard to decision of the Gujarat High Court sought to be relied upon is concerned, it was stated that the same was subject to challenge before the
Reasoning of the Judgment: - The High Court held that the levy of goods exported from India would be as per the definition of ‘export’ under the Customs Act, 1962 under Section 2 (18) of the Customs Act, as already seen, “export” is defined as taking goods out of India to a place outside India. And “export goods” are likewise defined. In the absence of any definition of “export” would necessarily have to be as defined under the Customs Act, 1962.
- For purposes of the SEZ Act and to facilitate various benefits that are intended to be conferred on a SEZ territory in order to keep the costs from artificially increasing in relation to the operations from SEZ, the SEZ Act has been introduced in order not to impose any kind of domestic duties on the supplies made to the SEZs.
- Apparently, the definition of “export” under the SEZ Act was meant also to cover supply of goods from the Domestic Tariff Area to SEZ. Thus, under Section 26 of the SEZ Act, corresponding exemptions have been granted, keeping in view that the goods used by the SEZ should not be fastened with domestic duty liability, nor from any import duties when the SEZ imports and export duty was also exempt when the SEZ exports to any place outside India and it is also clear that it was in order to avoid the full incidence of domestic excise duty when goods are manufactured in a Domestic Tariff Area and supplied to a SEZ unit, the goods which moved from the Domestic Tariff Area from the SEZ were treated as an export.
- For goods manufactured in a DTA Section 26 provided exemption from excise duty. Drawback benefits were also made available on goods brought from the DTA into a SEZ treating the same as being they are exports for the purpose of the SEZ Act. But, with a view to defray such duties from being imposed on the SEZ units, the scheme of Drawback being granted on such duties was adopted by treating the supply made from DTA to a SEZ as an export.
- Section 7 of the SEZ Act provided that any goods procured from the DTA to a SEZ unit would be exempt from the payment of taxes, duties or cess, under all enactments specified in the First Schedule. It is thus clear that there was absolutely no intention to levy any kind of duty on the goods moving from a DTA into the SEZ.
- Though Section 53 of the SEZ Act provides that the SEZ shall be deemed to be a territory outside the customs territory of India, for the purpose of undertaking its authorized operations the question would be whether a SEZ does not continue to be a part and parcel of India. If a SEZ was to be treated as being outside
- Section 26 which provides for exemption and the manner of effectuating the exemptions are provided under the Rules. Rule 12 lays down that the goods may be procured from the DTA without payment of duty, taxes and cess. Thus, if there is a manufacture in the DTA excise duty is not levied on the goods entering the SEZ area.
- No customs duties are imposed when goods move from the DTA to a SEZ in terms of the Rule. Rule 27 also lays down that procurement from a DTA shall be without payment of duty and taxes. Export entitlements are also extended to the DTA units. It is seen that when a DTA clears its goods to SEZ unit, the transaction is treated as if it is an export from the DTA to the SEZ. A Bill of export is filed by the DTA unit and all duty paid is refunded to the DTA unit by way of drawback, rebate and so on.
- If export duty is to be levied under Schedule II to the Customs Tariff Act, 1975 it is only if the goods supplied from the DTA to SEZ are treated as if they are in export out of
- But, it does not indicate that such a supply ought to be treated as supply of goods being exported outside the
- When the goods are re-imported into the SEZ unit and likewise, exports from SEZ also not subject to the duty under Section 26. It was wholly unnecessary to provide for such exemptions if the SEZ was treated as being outside
- Rule 30, which lays down that a DTA supplier, supplying the goods to a SEZ unit, has to clear the goods “as in the case of exports” either under bond or as duty paid goods and claim rebate. The phrase “as in the case of exports” was introduced to effectuate the benefits for a supply carried out by a DTA supplier to a SEZ unit and this rule cannot be equated with a provision of a Act of plenary legislation to render the DTA supply into the SEZ as being export outside India. It is also necessary to note that it is in consonance with the overall scheme to prevent any duty impact on DTA goods supplied to the SEZ, the provisions of the Customs, Excise Duties and Service Tax Drawback Rules, 1995 promulgated under Section 75 of the Customs Act were suitably amended only for this purpose, whereby the definition of “export” was amended to read that it ought to be understood as taking out of India to a place outside India or “taking out from a place in a Domestic Tariff Area to a Special Economic Zone. This was obviously on account of the fact that as per Rule 27 read with Section 26, drawback has to be allowed which is referable to the said drawback Rules when the domestic tariff supplies to a SEZ and therefore the amendment was made in the definition of “export”.
- It was held that a similar argument was advanced with reference to erstwhile EPZ units when they cleared goods to the DTA, in the case of Thermax Private Limited Vs. Collector of Customs [1992 (61) ELT 352 (SC)] it was held that imports made into India would be entitled for the purpose of payment of countervailing duty to press into service the central excise exemptions which were sought to be denied on the reasoning that an export-oriented unit and export processing zones are deemed to be outside India and by such reasoning, when an EPZ Unit clears goods into a DTA, there was a measure of duty as if the goods were imported into India and countervailing duty, was also to be levied.
- The argument that excise exemption was not applicable since export-oriented units are to be treated as being outside India and re-processing activity had taken place outside India, was turned down by a Division Bench of the Delhi High Court in the case of Plastic Processors and Others Vs. Union of India [2002 (143) ELT 521 (Del.)] which attained finality before the Supreme Court in Union of India Vs. Plastic Processors [2005 (186) ELT A27 (SC)].
- In the absence of any amendment of the expressions - “export” and “India” under the Customs Act, 1962, or any amendment under the charging Section 12, contemplating the movement of goods from the DTA to a SEZ as a taxable event entailing a levy of export duty, as in the case of export, the levy of export duty cannot be justified under the provisions of the Customs Act, 1962. This is apparent from the circumstance that such a charging provision namely. Section 76F as was introduced by inserting Chapter-XA under the Customs Act, 1962, being a special provision relating to the SEZs, that Chapter having been omitted by the Finance Act, 2007 and in the absence of the newly added provision, contemplating the movement of goods as aforesaid, would amount to a taxable event, attracting levy of excise duty, it cannot be said that it is a taxable event under the Customs Act, 1962.
- As laid down by the
- A reading of Rule 23 of the SEZ Rules, 2006, would indicate that supplies from the DTA to a SEZ would be eligible for export benefits as admissible under the FTP. The procedure to claim such benefits is provided under Rules 24 and 30. Rule 27 permits a unit or a developer under the SEZ to import or procure from the DTA all types of goods without payment of duty or procure from the DTA such goods after availing export entitlements. This would lead to the conclusion that export entitlements available on account of either the export of goods from the DTA to the SEZ are available either to the DTA supplier or a SEZ unit or a developer, at their option. Therefore, duty drawback and other export benefits would be available to either party at their option. Such provision exempts goods brought in by the SEZ unit from all levies and duties and since the duty is leviable on the goods, it is not rational to contend that the export leviable on the goods, it is not rational to contend that the export from the DTA to the SEZ should be taxed while the inward movement of the goods from the DTA to the SEZ would be exempt.
- It is thus clear from the Statement of objects to the SEZ Act that the intention of the Legislature was to make available goods and services to the developer or unit, within the SEZ free of taxes and duties. Hence, the levy of export duty is neither expressly nor impliedly contemplated under the Act.
- The movement of goods from the DTA to the SEZ is treated as an export under the SEZ Act only by a legal fiction for the purposes of the Act, namely, for making available benefits as in the case of actual exports like, duty drawback and other export benefits to the SEZ unit or the developer or a DTA supplier at their option. To construe this movement of goods as entailing a liability of payment of duty would run counter to the purpose for which the legal fiction is created under the SEZ Act. The levy of export duty as is evident arises under the Customs law and not under the SEZ Act. The levy of customs duty on exports is sanctioned by Entry 83 of List I of the VII Schedule to the Constitution.
- The respondents seeking to rely on the provisions of the SEZ Act would render the provisions unconstitutional as a levy of customs duty on export of goods from
It is therefore, declared that no export duty as would be payable for supply of goods by the parties in the DTA to the petitioners in the SEZs and all proceedings initiated in this regard are therefore liable to be quashed.
Decision: - Petitions allowed accordingly.
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SOY P ITTY on 21 Apr, 2016 wrote:
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