PJ/Case Laws/2010-11/34
CASE LAWS
Prepared By:
CA Pradeep Jain
Sukhvinder Kaur, LLB [FYIC]
Mayank Palguata and Megha Jain
Excise Section
Case: CCE,
Citation: 2010 (259) ELT 641 (SC)
Issue: - The term “Related person” has to be considered to the facts of each case.
Brief Facts: - The respondent was providing ice-cream to M/s Hindustan Lever Limited which is a related person. To ascertain the valuation done in the sale of ice-cream the issues involved were those whether the price for the sale of ice – cream to M/s Hindustan Lever Limited is not the sole consideration? And whether the sale was not on the principal to principal basis and cannot be considered at the arms length between the assessee and M/s Hindustan Lever limited who are favoured buyers and related persons under the Central Excise Act, 1944?
The Tribunal relied upon the judgment given in Kwality Ice Cream Co. v. CCE,
Brief Facts: - The
It was further held that Tribunal has copiously referred to the findings in the said judgment but without saying anything as to how those findings are applicable to the facts at hand. The Tribunal disposed of the appeal with the observation that the findings in the earlier case are clearly applicable to the facts at hand.
It was held that the question whether they are related persons within the meaning of the Section 4 (4) (e) of the Act is to be considered with reference to the facts in each case. The Tribunal failed to advert even to the basic facts and disposed of the appeals in a summary manner interfering with the order passed by the Authority. Impugned order cannot be upheld and therefore set aside.
Decision: - Matter remitted back to the Tribunal for fresh consideration.
Comments: - The order, passed without saying anything as to how those findings of earlier decided cases are applicable in present case, is not good in law.
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Case: Bhor Industries Ltd. v/s Collector of Central Excise
Citation: 1989 (40) ELT 280 (S.C.)
Issue: - Whether a certain article falling within the Schedule of Central Excise Tariff Act, 1985 will said to be dutiable under excise law if the said article is not “marketable goods”?
Brief Facts: - Appellant is a manufacturer of crude PVC films for the purpose of use in final products such as leather cloth and laminate jute mattings and PVC tapes - both insulation and adhesive. The said crude PVC films are manufactured by the appellant in a continuous process in their factory premises.
Appellant had filed classification list dated 20.11.1975 in respect of crude PVC films used for lamination with jute and for tapes claiming that the PVC films were non-excisable on the ground that the same were non-marketable intermediate products used exclusively for captive consumption. The said classification was approved by the Assistant Collector on 09.12.1977.
The Appellate Collector on 14.06.1974 passed an order holding that crude PVC films were not marketable and were not liable to excise duty. It was held that PVC films/sheets for the clearance of which demand letters are issued are not marketable as the same are neither embossed nor printed nor any finishing work is done when compared to PVC films/sheets which are marketed by them. It was further held in the said order that from the technical point of view, crude PVC sheets are different from marketable PVC sheets inasmuch as the tensile strength of crude PVC sheets is much lower than that of marketable PVC sheets.
Thereafter, the Classification List was filed in respect of crude PVC films manufactured for use in adhesive tapes on 09.12.1975 and the said list was approved by the Assistant Collector. However, show cause notice was issued on 15.02.1977 by the Assistant Collector raising the issue as to why crude PVC films should not be classified under Tariff Item 15A(2) and appropriate duty not recovered under Rule 10 of the Central Excise Rules, as these then stood, read with Rule 173J of the Central Excise Rules. By corrigendum dated 23.02.1977 the words ‘Rule 10’ were substituted by the words ‘Rule 10A’.
An order was passed on 16.02.1978 confirming the Show Cause Notice. Appeal against the said order was rejected by the Appellate Collector. Thereafter, a revision application was preferred by the appellant to the Joint Secretary, Government of India which was transferred to the Tribunal.
The Tribunal was of the view that the tariff entry did not spell out whether it covered only finished film/sheet or whether it covered also crude film/sheet. The tariff item covered all types of films/sheets. The concept of marketability was not relevant and all sorts of crude films would be covered by the entry. The Tribunal’s view was that if the description of the goods in question fell into the entry, it was dutiable in the intermediate list and as such the goods had become goods as known to the market and the question of marketability or being capable of being sold in the market was not relevant. The Tribunal rejected the appeal.
Aggrieved by the same, appellant has preferred this appeal before the Supreme Court.
Appellants Contention: - Appellant contended that it was only the ‘goods as specified in the Schedule’ to the Central Excise that could be subject to the duty. It appears that under the Central Excise Act, as it stood at the relevant time, in order to be goods as specified in the entry the first condition was that as a result of manufacture goods must come into existence. For articles to be goods these must be known in the market as such or these must be capable of being sold in the market as goods. Actual sale in the market is not necessary, user in the captive consumption is not determinative but the articles must be capable of being sold in the market or known in the market as goods. That was necessary.
Reliance was placed on the judgment given in Union of India v. Delhi Cloth & General Mills [1977 (001) ELT (J 199)] wherein it was held that excise duty being leviable on the manufacture of goods and not on their sale, the manufacturer could not be taxed unless manufacturing process resulted in production ‘of goods as known in the market‘.
Appellant submitted that as it was found that the goods were not marketable by the Appellate Collector in the order of 1974 and no evidence was adduced before the Tribunal to the contrary and the Tribunal had refused to consider the question of marketability no useful purpose would be served in remanding the matter to the Tribunal. The appeal should be allowed and no duty should be charged.
Reasoning of Judgment: - The Supreme Court held that the first principle that emerges is that excise was a duty on goods specified in the Schedule. In order to be goods an article must be something which can ordinarily come to the market and is brought for sale and must be known to the market as such. Therefore, the marketability in the sense that the goods are known in the market or are capable of being sold and purchased in the market is essential.
Reliance was placed on the judgments given in South Bihar Sugar Mills Ltd., etc. v. Union of India & Ors [1978 (002) ELT (J 336)], Union Carbide India Ltd. v. Union of India [1986 (024) ELT 0169 (S.C.)].
The Supreme Court held that to decide the excisability of a product, it was necessary to reiterate the basic fundamental principles of excise. Reliance was placed on the judgments given in Governor General in Council v.
It was held that Section 3 of the Act enjoins that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or ‘manufactured’ in India. “Excisable goods” under Section 2(d) of the Act means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt.
Therefore, it was held that it is necessary, in a case like this, to find out whether there are goods, that is to say, articles as known in the market as separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule. Simply because a certain article falls within the Schedule it would not be dutiable under excise law if the said article is not “goods” known to the market. Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985.
On facts of the present case, the Supreme Court found that the crude PVC films as produced by the appellant were not known in the market and could not be sold in the market and was not capable of being marketable. The Appellate Collector had on 14-1-1974 held that the crude PVC sheets/films which formed the subject-matter of the appeal are manufactured by the appellant for the production of leather cloth in the factory are not marketable as PVC sheets and had allowed the appeal. In view of the Appellate Collector’s order dated 14-1-1974 it was the duty of the revenue to adduce evidence or proof that the articles in question were goods. No evidence or proof was produced. The Tribunal was wrong in not applying the proper test. The test of marketability or capable of being marketed was not applied by the Tribunal.
In that view of the matter that there being no contrary evidence found by the Tribunal in this case subsequent to the finding by the Appellate Tribunal, this Court is of the opinion that the appeal should be allowed and no excise duty should be charged under Section3/15A(2) of the Central Excise Tariff on the Crude PVC sheets.
Decision: - Appeal allowed.
Conclusion: - Simply because a certain “article” falls within the Schedule it would not be dutiable under excise law if the said article is not “marketable goods”.
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Case: CCE, Visakhapatnam-II v/s Andhra Pradesh Paper Mills Ltd
Citation: 2010 (102) RLTONLINE 515 (A.P.)
Issue: - The refund is admissible if the price charged at factory gate is higher than the price charged at depot due to various discounts offered. The concept of unjustenrichment is not applicable only on the ground that composite price is charged.
Brief Facts: - Respondent are manufacturers of paper and paper boards falling under Chapter 48. They clear their goods at factory gate on payment of duty and transfer them to their depots at Chennai,
For the period from May 1996 to November 1999, Respondent filed refund claims on the ground that the goods manufactured by them were sold at lower prices through their depots than the assessment value per metric ton at which price duty was paid at the time of clearing the goods on STB from the factory to the respective depots in different cities.
The Original Authority concluded that the time barred claims cannot be accepted and that the claim becomes ineligible in the cases where the depot invoices do not tally with corresponding factory invoices. Therefore, show cause notice was issued. Order was passed for refund of eligible amount and the ineligible part was disallowed. Various orders were passed for different period.
Respondent as well as Department filed appeals before Commissioner. Appeals of respondent were allowed directing entire refund of claimed amount be granted to them and Departmental appeals were dismissed. Department then filed appeals before the Tribunal. The Tribunal allowed the appeals and remanded the matter to the Appellate Commissioner.
The Commissioner partly allowed the Department appeals rejecting the claim for refund for a minor amount. Otherwise the claim for refund by respondent was accepted. Department again filed appeals before the Tribunal which were rejected.
Hence, Department has filed appeal before the High Court.
Appellant’s Contentions: - Department contended that respondent were required to show element of duty on the depot sale invoice but they have shown all inclusive price without bifurcation of excise duty elements. As per the ratio in Mafatlal Industries v Union of
It was submitted that the Appellate Authorities and the Tribunal had not appreciated the work sheets enclosing refund claims and the invoices produced by respondent. Department also produced one such invoice to show absence of the bifurcation of excise duty elements.
According to Department, it has to be presumed that the incidence of duty has been passed on to the buyer. In view of the amendment of Section 4(4)(b)(iii) of the Act with effect from 28.09.1996 (subsequently again amended with effect from 01.07.2000) and the Central Valuation Rules, 2000 as well as Rule 7 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000, even if depot sale is at a lesser price than the factory invoice, the transaction value shall be the invoice price when the goods are cleared for the purpose of stock transfer to depot. Department placed strong reliance on Mafatlal Industries and on Arhan Spinning Mills v CCE, Jaipur [2003 (159) ELT 597 (Tri.-Del)].
On the issue of unjust enrichment, it was contended that the refundable amount is to be credited to Consumer Welfare Fund (CWF) established under Section 12C of the Act, as respondent has not proved that they had not passed on the incidence of duty to the buyer. Reliance for this argument is placed on Section 12B of the Act.
Respondent’s Contention: - Respondent submitted that the Department cannot be permitted to take a new ground in an appeal under Section 35G, which was not raised before the Assistant Commissioner or Commissioner or the Tribunal. The matter was remanded by the Tribunal once. Even at that stage, no such ground was raised and therefore, based on Section 4(4)(b)(iii), it cannot be allowed to be raised. It is contended that they have not passed on the incidence of duty to the buyer and the same was proved before the Assistant Commissioner as well as Commissioner by producing evidence. The invoices would show that goods were sold at lesser price than the price at which goods were cleared at the factory paying the duty thereon, but when they were sold at the depot, the invoice price was less.
It was submitted that the Assistant Commissioner has considered all the invoices and arrived at refund amount based on invoices. Even if the depot sale invoice does not separately indicate, excise duty elements, presumption under Section 12B cannot be pressed into service. Lastly, it was urged that the fact that the Assistant Commissioner did not allow all the refund claims, and rejected those of the clients where the factory invoices and depot invoice were not tallying would itself show that they are not beneficiary of unlawful enrichment.
Therefore, by inviting the attention of this Court to just one invoice where the element of excise duty is not separately mentioned though there are sufficient columns thereof, the Department cannot succeed in this appeal under Section 35G of the Act. The Assistant Commissioner, the Adjudicating Authority had scrutinized the invoices and was satisfied that there was no unjust enrichment.
Reasoning of Judgment: - The High Court pointed out that the refund claims are for the period from May 1996 to November, 1999 and the sale depot of a manufacturer was also included as “place of removal” with effect from 28.09.1996. Though ‘the place of removal’ includes a sale depot, Rule 52A as introduced by Notification No. 4/94-CE (NT), dated 01.03.1994 remained unchanged. As per Rule 52A, no excisable goods shall be delivered from a factory or warehouse except under an invoice consigned by the owner or authorised agent. Therefore, the transaction value of the goods is the invoice price at the time of delivery of goods to the buyer. When the goods are cleared from the factory on payment of excise duty and transferred to the depot from where they are delivered to the buyer, assessable value of the goods for the purpose of duty shall have to be necessarily the transaction value of the goods at the time of delivery from the depot. Therefore, there cannot be any dispute that respondent is entitled to claim/refund of excess duty paid under Section 11B on the admitted fact that the price declared at the time of clearance of the factory, is higher than the price at which the goods are sold at the depot, by reason of giving various discounts as per the market policy.
The High Court further held that the plea of the Department that the refundable amount is to be credited to Consumer Welfare Fund (CWF) established under Section 12C cannot be accepted. The Assistant Commissioner had scrutinized all the invoices and recorded a finding of fact that respondent itself had borne the burden of duty paid on clearance effected at factory at cash discounts, which are refundable and that relevant invoice numbers were noted in the depot invoices.
The High Court noted that wherever the respondent failed to produce evidence for exact correlation between depot invoice and factory invoice, claims were disallowed. The Appellate Authority in the first round of litigation had considered the matter and allowed the refund claims. After remand by the Tribunal, the Appellate Commissioner had again scrutinised invoices at random covering the disputed period, and recorded a finding of fact that respondent had not been paid any consideration over and above the amount invoiced at the depot in all the cases. It is a finding of fact by the Adjudicating Authority as well as Appellate Authority which has been accepted by the Tribunal and in such an event, ordinarily no interference is called for in appeal under Section 35G of the Act.
On facts and circumstances, the High Court held that when the respondent had paid the duty on the price at which the goods are cleared from the factory, they would certainly be entitled to claim refund if the incidence of excise duty is not passed on to the buyer. When the claim for refund is legitimate and sustainable, the next question would be whether the amount should be paid to the respondent or to be credited to the CWF.
The High Court noted that under clause (d) of the proviso to sub-section (2) of Section 11B of the Act, an assessee can claim payment of refundable amount to him only when he proves that the incidence of duty was not passed on to any other person. In the absence of any such proof, presumption that the incidence of duty has been passed on to the buyer as adumbrated in Section 12B of the Act is attracted.
In the present case, the Adjudicating Authority, Appellate Authority and the Tribunal had consistently found that respondent had proved that the incidence of duty was not passed on to the buyers at the time of sale at discount price from the depots.
The High Court did not accept the submission of the Department that it is an inclusive invoice and that a presumption should be drawn against respondent as the Adjudicating Authority as well as the Appellate Authority had considered the invoices of the respondent and had determined that the incidence of excise duty was not passed on to the buyer. The case decided by Delhi Bench of the Tribunal was altogether different where the element of excise duty was not separately shown or mentioned. Indeed, as held by Constitution Bench in Mafatlal Industries, “just because the duty is not separately shown in the invoice price, it does not follow that the manufacturer is not passing the duty nor does it follow thereform that the manufacturer is absorbing the duty himself. The manner of preparing the invoice is not conclusive”.
No substantial question of law involved in appeals.
Decision: - Appeals dismissed.
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Case: CCE,
Citation: 2010-TIOL-1605-CESTAT-BANG
Issue: - Penalty u/R 25 is not imposable when the intention to evade payment of duty is absent. The penalty cannot be imposed in cases where the demand is confirmed invoking extended period of limitation.
Brief Facts: - Respondents manufacture and clear Hydraulic cylinders, parts thereof, Hydraulic steering assembly etc for M/s Caterpillar Ltd. During the period from May, 1999 to March, 2003, the respondents had received several inputs free of cost from its customer and paid duty on assessable value in which the landed cost of such inputs was not included.
Department alleged that the respondent had short paid the duty due on clearances of its finished goods made to M/s Caterpillar Ltd. The respondents paid the duty so short paid with interest before the issuance of the show cause notice.
Show cause notice was issued alleging contravention of provisions of Section 4 of the Central Excise Act and Rule 6 of Central Excise Valuation Rules, 2000. Proviso to Section 11A was proposed to be invoked and penalty under Rule 25 of the Central Excise Rules, 2001/2002 readwith Section 11AC was proposed to be imposed.
The Adjudicating Authority confirmed the demand but did not imposed any penalty on respondent under Rule 25 of CER by relying upon the judgments given in Machino Montell (I) Pvt Ltd v/s CCE [2004 (168) ELT 466 (Tri-LB)], Commissioner v/s Rashtriya Ispat Nigam Ltd [2004 (163) ELT A 53 (SC)] and Shree Krishan Pipe Industries v/s CCE [2004 (165) ELT 508 (Kar)]. The Commissioner (Appeal) found that the only question before him was whether the Original Authority was right in not imposing the penalty under Rule 25 of CER when the duty had been confirmed invoking proviso to Section 11A(1) of the Act. The Commissioner (A) rejected the appeals of the Department.
Aggrieved by the same, the Department filed appeal before the Tribunal.
Petitioner’s Contentions: - Department contended that penalty under Rule 25 of CER was leviable on the respondent as they had cleared excisable goods without paying the entire duty, knowingly contravening the provisions of rules, with intention to evade paying the entire duty, knowingly contravening the provisions of rules with intention to evade payment of duty. Reliance was placed on Zunzarrao Bhikaji Nagarkar v/s UOI [1999 (112) ELT 772 (SC)].
It was also contended that since the demand was confirmed invoking larger period under Section 11A(1) for suppression of facts etc penalty under Rule 25 was rightly invokable.
Reasoning of Judgment: - The Tribunal held that from the material on record it is not established that the respondent had willfully evaded the duty short paid. It was held that excisable goods were cleared by the respondents for using it in further manufacture and clearance of dutiable goods by its customer. Whatever duty the respondents paid, it received from its buyer; the buyer took credit of the duty paid. Therefore, there was no willful intention to evade payment of duty on the part of the respondent.
Reliance was placed on Hindustan Steel Ltd v/s State of Orissa [1978 (2) ELT J 159 (SC)] wherein it was held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
Reliance was also placed on International Auto Ltd v/s CCE,
Accordingly, it was held that no penalty was imposable on the respondents.
Decision: - Appeal rejected.
Comment: - It is good decision wherein the demand of extended period is confirmed but the penalty under rule 25 was waived.
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Service Tax Section
Case: Karvembu & co versus under secretary, department of revenue
Citation: 2010 (20) STR 591 (Mad.)
Issue: - In the light of the Notification issued on 27.7.2009 granting exemption from paying service tax for the works in relation to management, maintenance or repair of roads, whether the said exemption can be taken advantage of by the petitioners for the earlier period i.e., for the period from 16.6.2005 to 25.7.2009?
Brief Facts: - Petitioners are Road Contractors. They are engaged in laying new roads and also doing the job of patch work for the past several years. The said works are awarded by the Highways Department or Local Bodies.
A Circular No. 110/4/2009-ST dated 23.02.2009 was issued which provided a clarification is issued stating that resurfacing, renovation, strengthening, relaying of roads and filling up of potholes will fall under the category of maintenance, and repair activities and is liable to tax under "Management, Maintenance and Repair Services" under section 65(105)(zzg) of the Finance Act, 1994. Thereafter, Notification No. 24/2009-ST, dated 27.07.2009 granted exemption from paying the service tax in relation to works namely management, maintenance/repairs of roads under Section 66 of the Finance Act, 1994.
The Department issued show cause notices/summons to the Petitioners for giving the details and for appearance pursuant to the said Circular. Against the same, Petitioners have filed writ petitions praying for either quashing the Circular No. 110/4/2009-ST dated 23.02.2009 or to quash the show cause notices/summons issued by the Department.
Petitioner’s Contentions: - Petitioners contended that they are not covered under the definition of maintenance and repair as defined under Section 65(64) of the Finance Act, 1994. It is submitted that any clarification issued by the department is binding on the lower authorities and therefore the said clarification is challenged in the writ petitions contending that the said clarification is contrary to the Finance Act, 1994.
It is also stated in the affidavit that the State Highways Authorities and Local Authorities, who are in charge of laying and relaying of roads in the State, regularly call for tenders for the said works. Tenders are awarded to the successful contractors. The Contractors are carrying on the work of road laying and relaying and maintenance for the past several years. The State Highways Department and Local Authorities are having necessary data regarding the execution of the works and the contractors on completion of the contract will hand over the roads to the respective authority.
According to the petitioners, the nature of the contract awarded falls under the definition of "Works Contract" under the TNGST Act, 1959, and TNVAT Act, 2006. Sub Clause (zzza) to Clause 65(105) of the Finance Act, 1994 was inserted by Section 134 of the Finance Act, 2007 with effect from 1.6.2007 which states that taxable service means "any service provided or to be provided to any person, by any other person in relation to the execution of the works contract, excluding works contract in respect of roads, airports, railways transport terminals, bridges, tunnels and dams". The petitioners are doing road repair works and they have not taken any registration for service tax and they are continuously assessed under TNVAT Act, 2006, for the levy of tax of deemed sale of goods in the works contract and they are paying the same.
According to the petitioners, prior to 16.6.2005, a service called construction service was defined under section 65(30a) of the Act. Under the said provision, construction services does not include laying or relaying of roads. Therefore from 16.6.2005, construction service was named as commercial and industrial construction services under Section 65(25b) of the Act. However, road laying or relaying are not included. Section 65(105)(zzza) of the Act excludes works contract relating to roads, airports, railways transport terminals, bridges, tunnels and dams. It is the case of the petitioners that the Government thought fit to keep out the scope of service tax to the works connected thereto viz., repairing and relaying for the purpose of reducing the cost of the project and the first respondent by Circular No. 110/4/2009-ST dated 23.2.2009 stated that even now the laying of new road, widening of narrow road to broader roads, changing road surface, etc., are excluded from service tax.
The intention of the parliament specifically excluding the activities relating to the roads and the incidental works has been borne in mind by the first respondent while issuing Notification No.23/2009 Service Tax, dated 27.7.2009 and for the earlier period only the respondents are demanding the details of road repair works and therefore the action of the respondents in demanding the details regarding the earlier period is unsustainable in view of the latest Notification dated 27.7.2009.
Petitioners further submitted that when the road works are excluded from the provisions of the Service Tax, the incidental works viz., maintenance relating to roads also cannot attract service tax as these works are also carried out by the Government/Local Authority and if tax is payable for these kind of works, the Government/Local Authority have to incur more expenses and there will be no purpose in collecting service tax for such work even if the same is appropriated between the Union Government and State Governments.
Petitioners also submitted that the object of granting exemption for the road works cannot be defeated by the impugned Circular issued by the first respondent and realizing the said position, subsequent Notification was issued on 27.7.2009 which clearly shows that at any point of time the contractors doing road works need not pay service tax.
Respondent’s Contention: - Revenue stated that the impugned Circular dated 23.2.2009 clarified the exclusion of maintenance or repairs of roads as there is no specific exemption for management, maintenance or repair of roads. Therefore the only conclusion possible is that the construction of road is not a taxable service, however, management, maintenance or repair of roads are in the nature of taxable service attracting service tax.
Further it is contended that by the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union list for levying tax on services including taxes on service. By 88th Amendment to the Constitution of India, a new entry 92C was introduced in the Union list for the levy of service taxes. The department is now only collecting information from the petitioners and has not yet issued any legal demand from the petitioners and therefore the prayers sought for in these writ petitions are premature. Even if any demand is made, the petitioners have to exhaust the legal remedy available under the Finance Act, 1994, and therefore these writ petitions are not maintainable.
Respondents further submitted that the Notification dated 27.7.2009 is an exemption from paying service tax in relation to management, maintenance or repair of roads and the said exemption benefit cannot be applied retrospectively as claimed by the petitioners, particularly when the notification is not stating about the retrospective exemption.
Reasoning of Judgment: - The High Court held that the Central Government on 27.7.2009 taking note of public interest granted exemption from paying service tax in relation to works namely management, maintenance/ repairs of roads under Sec.66 of the Finance Act, 1994. But the said Notification nowhere states that the exemption is granted with retrospective effect. It is well settled in law that unless a notification issued specifically stating 'with retrospective effect', such notification will operate only prospectively. In this regard, reliance is placed on the decision in Commissioner of Central Excise v. Mustang Rubbers Industrial Estate [2009 (237) ELT 257 (Ker)].
The High Court observed that the same is the view taken by the Himachal Pradesh High Court in Commissioner of Central Excise v. Himachal Aluminium Pvt. Ltd [2009 (236) ELT 47 (H.P.)] wherein it was held in para 4 that notification which may affect the rights of the parties are treated to be prospective in nature unless the notification itself clearly indicates that it will have retrospective effect A similar notification was considered by the Supreme Court in the decision in Jay Mahakali Rolling Mills v. Union of India [2007 (215) ELT 11 : (2007) 12 SCC 198].
It was further noted that the Supreme Court in Suchitra Components Ltd. v. Commissioner of Central Excise,
It was held that the Notification dated 27.7.2009 cannot be given retrospective effect in the absence of specific and express provision as held by the Supreme Court in the decision in Commissioner of Customs v. Spice Telecom [(2006) 10 SCC 704]. Thus, the notification dated 27.7.2009 granting exemption from levy of service tax to road maintenance and repairs is to be held only as prospective and for the earlier period the petitioners are bound to produce the records to the show cause notice/summons. The circular dated 23.2.2009 cannot be set aside as it reflects the changes made in the Finance Act, 2005.
The Government of India, Ministry of Finance, having issued exemption Notification No.24/2009 on 27.7.2009, it is beyond doubt that prior to the said date, the items of works namely maintenance and repair of roads was covered for the payment of service tax. The provision of the Act is not challenged by the petitioners in these writ petitions. Hence, High Court is unable to uphold the contentions of the petitioners challenging the validity of the circular dated 13.2.2009 as it is a clarification of the Finance Act, 2005 and the Circular dated 1.6.2005. If the Finance Act does not empower the respondents to levy service tax for maintenance of roads, repair works, the petitioners can raise the said plea, if any demand is made. At this stage the said issue is premature. If the petitioners are able to establish that there was any ambiguity in the Finance Act, definitely they will get benefit.
As far as the summons issued for the production of documents for the period from 16.6.2005 to 26.7.2009 are concerned, the petitioners are bound to produce the same before the authority concerned. The authorities are bound to consider all aspects and decide the matter in the light of the Finance Act, 1994 and 2005, particularly whether road maintenance and repair is coming within the taxing statute without reference to the circulars issued while adjudicating the matter. Even after the Adjudicating Authority's order, the petitioners can very well agitate their non-liability before the appellate authority or appropriate forum and finally before this Court as held by the Supreme Court in the decision in Raj Kumar Shivhare v. Directorate of Enforcement [(2010) 4 SCC 772]. Thus the writ petitions are not maintainable.
The High Court clarified that any finding given in this order need not be construed as giving any finding on the merits of the matter and the Department is bound to decide the issue in accordance with law, particularly Finance Act, 1994 and 2005.
Judgment: - Writ petitions dismissed accordingly.
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Case: Godrej Consumer Products Ltd v/s Commr. of C. Ex.,
Citation: 2010 (20) STR 609 (Tri. –
Issue: - Debit note is not valid duty paying document for availing Cenvat credit.
Brief facts: - Revenue denied the credit of service tax taken on the strength of debit notes and imposed penalty of Rs. 20, 000 under Rule 15 of CCR, 2004. Appellant is challenging the denial of credit and the levy of penalty.
Respondent’s Contention: - Revenue contended that Rule 9(1) of the Cenvat Credit Rules, 2004 deals that which documents are required to avail Cenvat Credit and those documents are invoice, challans, supplementary invoices and bills of entry. No other document is permissible to avail Cenvat credit. Hence, denial of Cenvat credit is correct.
Reasoning of Judgment: - The Tribunal found that the Lower Appellate Authority had rightly denied the input service credit to the appellants, which they have taken on the strength of debit notes. As per Rule 9 (1) (i) of the Cenvat Credit Rules, 2004, the credit can be availed on the strength of invoice, supplementary invoice, challans or bills of entry. Hence, there is no infirmity in the impugned order for denial of input service credit. Accordingly, the demand for the input service credit is confirmed.
With regard to imposition of penalty under Rule 15 of the Cenvat Credit Rules, 2004, no finding has been given as how the Lower Authorities arrived at a decision to impose penalty. In fact the Rule provides for the penalty of Rs. 2000/- or duty whichever is greater and that too at the discretion of the authority penalizing the assessee. In this case, imposition of penalty is arbitrary and hence the Tribunal reduced the penalty to Rs. 2000/-.
Decision: - Appeal disposed off.
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Case: Hindustan Gum & Chemicals Ltd v/s Commr of C. Ex., Ahmedabad
Citation: 2010 (20) STR 666 (Tri-Ahmd)
Issue: - There is no requirement of producing the challans deposited by CHA for claiming refund claim under notification 41/2007-ST.
Brief Facts: - Appellant filed refund claim of service tax paid on the services utilised for export of their goods under Notification No. 41/2007-ST, dated 06.10.2007. Out of the total refund claim, part of the refund claim was denied.
Appellant’s Contentions: - The appellant contended that refund claim has been denied on the ground that appellant had not produced the evidence of payment of service tax on the CHA service for which refund claim of service tax paid is filed.
It is submitted that the refund is also rejected in the cases where the registration number of CHA is not there in the invoices, but the appellant is not contesting the same as the amount involved is very small.
For the remaining amount, it is submitted that as per Notification No. 41/2007-ST dated 06.10.2007 in terms of Proviso the exporter claiming the exemption has to show that he has actually paid the service tax on the specified services. While the notification required the claimant to show that he has actually paid the service tax, the department has insisted that he should produce copy of the challans under which the service tax was paid to the exchequer by the service provider. It is submitted that this requirement indicated by the Lower Authorities is not at all in accordance with the law and the notification.
Respondent’s Contentions: - Revenue contended that without copy of the challan under which payment of service tax was made by the service provider, they cannot ensure that service tax had been paid.
Reasoning of Judgment: - The Tribunal held that the stand taken by the Lower Authorities it totally unreasonable and is not required as per the notification. It is not the case of Revenue that appellants have not paid the service tax amount to the CHA who provided them the service. The claim has been rejected on the ground that the challans under which service tax was paid by the CHA has not been produced. This is not a requirement as per the Notification.
Further, it was held that the Commissioner (Appeals) had also held that refund of service tax is not admissible for the service of Customs House Agent service. However, Notification No. 17/08-ST, dated 01.04.2008 clearly provided that refund of service tax paid in respect of services provided by the Customs House Agent in relation to export goods. Thus, appellants were eligible for the refund claim in respect of all the invoices excepting the four invoices in which registration number of the service provider is not available. Matter remanded to Adjudicating Authority to reconsider the refund claim in the light of the observations made in this appeal by the Tribunal.
Decision: - Appeal disposed off accordingly.
Comments: - Very good decision. The Department has put many conditions for granting refund to exporters. There is no requirement of producing challan deposited by CHA. Many such conditions are imposed in new notification17/2009 like production of licence of CHA which is not required under law. We have already series of articles titled “Johnny and service tax refund” on this issue.
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Case: M/s Mandev Tubes v/s Commissioner of Central Excise, Vapi
Citation: 2009-TIOL-1231-CESTAT-AHM
Issue: - The service tax on GTA paid by the transporter then the service tax cannot be demanded from the recipient by mechanical interpretation of law.
Brief Facts: - Appellant is engaged in the manufacture of copper tubes of various sizes. During Audit conducted in August 2006, it was found that during the period of January 2002 to July 2006, appellant had availed GTA services but had not paid the service tax on the same. Revenue alleged that in terms of Notification No. 36/2004-ST, dated 31.12.2004, appellant was the recipient of the GTA services who is required to pay the tax, but had not paid the service tax on the same. Show cause notice was issued to the appellant. The Deputy Commissioner dropped the proceedings by observing that service tax was paid by the appellant to the transporters, who in turn had deposited the same with the Revenue. The Deputy Commissioner had also examined the various consignment notes/LRs/bills raised by the transporters and the fact of their being registered with the Service Tax Department and the fact of payment of such services by the transporters.
In revision proceedings, the Commissioner held that it was the duty of the appellant to pay the duty and confirmed the demand of service tax and imposed penalty on the appellant.
Aggrieved by the same, appellant has filed this appeal before the Tribunal.
Reasoning of Judgment: - The Tribunal held that the Commissioner has nowhere in his impugned order disputed that the service tax on the GTA services so availed by the appellant has already been paid by the transporters. It was held that the Commissioner has gone only by the technical and mechanical implementation of the Notification to hold that it was the responsibility of the appellant to deposit the amount. However, the fact remains that the tax amount stands deposited with the exchequer as the same was paid by the transporters, therefore, second time confirmation from the appellant is not called for. On this short ground, Tribunal set aside the impugned order and restored the order of the Original Adjudicating Authority.
Decision: - Appeal allowed.
Comments: - Very good decision. The audit parties are raising paras on such transactions. This decision is very useful in defending these times. There cannot be double taxation on same transaction.
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Case: V.K. Industrial Corporation Ltd v/s Union of
Citation: 2010 (259) ELT 660 (Bom)
Issue: - The refund cannot be withheld on the ground that ROM is filed with settlement commission.
Brief Facts: - The Settlement Commission had passed an order dated 25.02.2010 wherein the direction was given to the Revenue to refund the amount of Rs. 2, 45, 02, 687/- to the petitioner. However, Revenue did not implement the said order for eight months. Therefore, petitioner has filed this writ petition under Article 226 of the Constitution before the High Court seeking refund of the said amount.
Respondent’s Contention: - Revenue submitted that they have approached the Settlement Commission and made a written request for rectification of the order. They also submitted the reminders sent to the Commission from time to time.
Further, Revenue has sought 15 days time to seek appropriate order from the Settlement Commission.
Reasoning of Judgment: - The High Court held that it was surprised to see the procedure adopted by the Revenue in the matter of seeking rectification which is sought by writing a letter to the Settlement Commission as if it is one of the Departments of the Central Excise Commissionerate or the Department of the Revenue, forgetting that it is a statutory adjudicatory body established to bring about settlement of disputes bestowed with judicial powers. The practice of entering into the correspondence with the Commission is unknown to the law.
The High Court declined to grant adjournment considering the fact that the amount of refund has not been paid for more than 8 months and that it does not carry any interest, in the event of failure on the part of Revenue to pay the refund amount to the petitioner well within reasonable time, the grant of request for adjournments would cause substantial prejudice to the petitioner which can not be compensated in terms of money. It was also held that the request was not bona fide. As till now no notice has been issued to the petitioner about the rectification of mistake application filed by the Revenue.
Accordingly, High Court directed the Revenue Department to deposit the amount of the refund with the High Court to enable this Court to make interest bearing investment with any nationalised bank. Amount to be deposited within 3 weeks, failing to refund the amount carry 10% per annum interest till deposit.
Decision: - Matter adjourned for 4 weeks.
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Customs Section
Case: Commissioner of Customs (Preventive), Mumbai v/s M/s Ambalal & Co
Citation: 2010-TIOL-111-SC-CUS
Issue: - Whether goods that are smuggled into the country can be read within the meaning of the expression ‘imported goods’ for the purpose of benefit of the exemption notification?
Brief Facts: - From the office premises of the respondent-firm large quantity of rough diamonds was recovered. Partner of respondent-firm was not able to explain satisfactorily or produce documentary evidence in relation to the import of diamonds. The diamonds were seized by the Department. Show cause notice was issued proposing confiscation of the said diamonds. The Adjudicating Authority passed the order confiscating the diamonds under Section 111(d) of the Customs Act, 1962. Option was given to the respondent to redeem the diamonds on payment of redemption fine. Respondent were also asked to pay the appropriate duty. Additionally penalty was imposed under Section 112 of the Act.
Respondent filed appeal before Tribunal. The Tribunal confirmed the redemption fine of Rs. 60 Lakhs and the penalty of Rs. Twenty-five lakhs. Aggrieved by the same, respondent filed write petition before the High Court which was withdrawn to avail the benefit of Kar Vivad Samadhan Scheme, 1998.
The designated authority directed the Respondent to pay Rs. 42 Lakhs and fifty thousand towards redemption fine and penalty and gave liberty to the respondent to redeem the seized diamonds on payment of duty.
Respondent requested the Department to release the diamonds by availing the benefit under Notification No. 247/76-Cus dated 02.08.1976. The request was turned down. The writ petition filed by respondent was dismissed by the High Court by specifically observing that the respondent had imported diamonds of foreign origin without a valid licence. Further appeal, before the Supreme Court was dismissed directing the Additional Collector of Customs (Preventive) to decide the amount of duty payable under the Customs Act in respect of seized goods.
Accordingly, the Commissioner quantified the duty payable to be Rs. 2, 20, 50, 125/-. Being aggrieved by the same, respondent filed appeal before the Tribunal. The Tribunal allowed the appeal and held that the exemption would be available to the goods imported by the respondent in the light of Notification No. 247/76-Cus. The Tribunal had held that the situation was covered by the case of Associated Cements Company v/s Commissioner of Customs [2001 (128) ELT 21 (SC)].
Against the order of the Tribunal, Revenue department has filed appeal before the Supreme Court.
Appellant’s Contentions: - Revenue contended that Benefit of exemption notification cannot be extended to a person who/which had illegally imported rough diamonds into the country. The Benefit of exemption could not be availed by those persons who did not have the licence to import diamonds, or who had smuggled rough diamonds into the country clandestinely without payment of duty.
Respondent’s Contentions: - Respondent contended that the relief was granted by the Tribunal by relying upon the principles laid down by the Supreme Court.
Reasoning of Judgment: - With regard to interpretation of the Notification the Supreme Court held that it is well settled that Notification is to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The Rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact majority of judgments emphasize that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal Statutes are to be liberally interpreted giving an apparent impression that they are contradictory to each other. But this is only apparent. A close scrutiny reveals that the general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to 2 different sets of circumstances.
Accordingly, the language of the Notification No. 247/76-Cus, dated 02.08.1976 was held to be plain and unambiguous therefore, it was to be considered in their ordinary sense. It was held that s construction which permits one to take advantage of one’s own wrong or to impair one’s own objections under a Statute should be disregarded. The interpretation should as far as possible be beneficial in the sense that it should suppress the mischief and advance the remedy without doing violence to the language.
It was held that the benefit of exemption envisaged is for goods that are imported. The definition of ‘imported goods’ given under Section 2 (25) was required to be read alongwith Section 11, Section 111 and Section 112 of the Act. Thus, it was concluded that the goods which were smuggled or which were imported without a valid licence cannot be treated to be lawfully “imported goods” within the definition of that term in Section 2 (25).
Relying upon the judgment given in Union of
On the facts of present case, it was held that the respondent were not entitled to the benefit of the said Notification.
The Apex Court held that ‘smuggled goods’ will not come within the definition of ‘imported goods’ for the purpose of the exemption notification, for the reason, the Act defines both the expressions looking at the different definitions given to the two classes of goods: imported and smuggled. If the two are to be treated as the same, then there would be no need to have two different definitions.
A conjoint reading of Section 2 (25), Section 11, Section 111 and Section 112 provided that one of the primary purposes for prohibition of import referred to the latter is the prevention of smuggling. The entire scheme of the Customs Act was examined and it was concluded that one of the principal functions of the Act was to curb the ills of smuggling on the economy. This, it was held that it would be antithetic to consider that ‘smuggled goods’ could be read within the definition of ‘imported goods’ for the purpose of the Act. This it would be contrary to the purpose of the exemption notifications to accord the benefit meant for imported goods on smuggled goods.
The
It was further held that the High Court had reached a finding that respondent had imported diamonds of foreign origin without a valid licence and that finding had become final.
Impugned order of the Tribunal set aside for being untenable. Matter remanded for consideration of 2 other issues which were raised before the Tribunal but were not considered.
Decision: - Appeal disposed of accordingly.
Comments: - This is far reaching decision by the
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