PJ/Case Laws/2010-11/35
CASE LAWS
Prepared By:
CA Pradeep Jain
CA Ridhi Anchalia
Sukhvinder Kaur, LLB [FYIC]
and Megha Jain
Excise Section
Case: Commissioner of Central Excise, Vapi v/s Kisan Mouldings Ltd
Citation: 2010 (260) ELT 167 (SC)
Issue: - Whether mistake by an assessee in availing Cenvat credit subsequently rectified makes him liable for penalty under section 11AC?
Brief Facts: - The assessee had availed excess credit which was subsequently rectified. Department imposed penalty under Section 11AC of the Central Excise Act, 1944. The Tribunal held that it was a case of bona fide mistake and set aside the penalty imposed under Section 11AC. The High Court also upheld the finding of the Tribunal. Therefore revenue filed an appeal before the
Reasoning of Judgment: - The Apex Court relied upon the judgment given in Union of India v/s Rajasthan Spinning and Weaving Mills [2009 (238) ELT SC] wherein it was observed that penalty under Section 11AC is punishment for an act of deliberate deception by the assessee with the intent to evade duty for adopting any of the means mentioned in the Section. Accordingly, it was held that in the present case, there was a bona fide mistake and there was a categorical finding that there was no intention to evade tax by the respondent. Therefore, no interference was required.
Decision: - Appeals dismissed.
Comments: - When there is no intention of the assessee to evade payment of duty penalty under Section 11AC cannot be imposed on him.
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Case: Flex Art Foil Pvt. Ltd v/s Commissioner of C. Ex.,
Citation: 2010 (260) ELT 261 (Tri. – Ahmd)
Issue: - Whether permission required for availing credit in terms of Rule 10 of Cenvat Credit Rules, 2004?
Brief Facts: - Partnership firm under the name of M/s Sushmit Packaging was converted into a Private Limited under the name M/s Flex Art Folio Pvt. Ltd. As there was accumulated Modvat credit lying with the earlier unit, the new unit in terms of provisions of Rule 10 of the CCR, 2004 took the credit and informed the Revenue.
Audit objection was raised that such credit could not be availed suo motu. The appellant reversed the same. Subsequently, they realized that in terms of Rule 10 no permission is required, they accordingly again reversed the debit entry and took the credit.
Revenue objected to the same and issued show cause notice to the appellant. The Lower Authorities held that such suo motu re-credit was not permissible and demanded interest in respect of suo motu re-credit. Revenue had relied upon the Larger Bench decision in the case of BDH Industries Limited v/s CCE, (A), Mumbai [2008 (229) ELT 364 (Tri.–LB)] wherein it was held that for every refund an assessee is required to file a claim for the same with the Central Excise Authorities. The appellant therefore filed the appeal before the Tribunal.
Appellants Contention: - Appellants referred to provisions of the Rule 10 and submitted that they provided for availment or transfer of credit without seeking any permission from Central Excise Authorities. As such, it was not a case of suo motu refund.
Appellant relied upon decision in the case of Hewlett Packard (I) Sales (P) Limited [2007 (211) ELT 263 (Tri.–Bang.)] and Solaris Bio-chemicals Limited [2005 (179) ELT 216 (Tri.–Mumbai)] wherein under identical circumstances, the Tribunal has held that such transfer of credit lying unutilized with the previous firm, in case of amalgamation or sale of factories, is available with the new firm without any permission from the competent authorities.
Respondent’s Contention: - Revenue submitted that even if the stand of the appellant is correct, admissibility of the credit on merit has not been adjusted by the Lower Authorities, as the credit stands confirmed without going into the merits.
Reasoning of Judgment: - The Tribunal held that no formal permission is required from the Central Excise officers in terms of Rule 10. As such, denial of credit on this ground was not justified.
Tribunal accordingly, set aside the impugned orders. However, as admissibility of credit on merits has not been adjudged by the Lower Authorities, for this purpose, matter is remanded back to decide this issue on merits.
Decision: - Appeal allowed accordingly.
Comments: - The Tribunal has agreed with the fact that no permission is required for taking credit under Rule 10.
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Case: Bando India (P) Ltd v/s CCE, Delhi-III
Citation: 2010 (103) RLTONLINE 276 (CESTAT-DEL)
Issue: - Whether in the case of importing the goods, bill of entry in the name of contractor is a valid document?
Brief Facts: - Appellants are engaged in the manufacture of power transmission belts, rubber belts and other items and for the purpose of setting up of its plant, the machinery equipments were imported from M/s Bando Singapore Pte Ltd. The work of installation of the plant was entrusted to M/s Mitsui Kensetsu India Limited.
M/s Bando Singapore Pte Ltd had issued Letter of Intent dated 15.06.2003 in favour of the contractor M/s Mitsui Kensetsu India Limited stating that Bando (Singapore) Pvt. Ltd. were the promoters and proposed to set up a company under the name of Bando (India) Pvt. Ltd. or Bando India Ltd. and necessary steps had already been initiated by the said company to incorporate the said company in terms of Indian Companies Act, 1956 much prior to import of the goods in question. On incorporation of such company in
The Letter of Intent further specifically mentioned that “terms and conditions of this LOI shall be legally binding on Bando
Pursuant to the LOI, Mitsui placed an order on the Singapore Company, for supply of equipment for setting up the factory of the appellant. The goods were supplied to Mitsui under cover of invoice dated October 29, 2003 alongwith the Certificate of Origin and Bill of Lading.
The bill of entry was issued in the name of the contractor with a rider that “notify M/s Bando India (P) Ltd.”. In the bill of lading disclosed the consignee to be the contractor alongwith the name of the appellants in the bracket stating that the consignment was on account of the appellants.
The imported goods were directly taken to the factory of the appellant for installation and setting up. After installation of capital goods, appellant took credit of 50% of the additional duty of customs (CVD) paid under the aforesaid Bill of Entry, with due intimation to the Department in the ER-1.
Revenue issued show cause notice disallowing the credit on the ground that the credit was not taken on a valid document as specified in Rule 7/Rule 9 of the Cenvat Credit Rules, 2002/2004.
The Adjudicating Authority observed that there is no provision for endorsement of bill of entry and ex-facia bill of entry is in favour of the contractor and, therefore, there is no valid document in favour of the appellants to claim cenvat credit in relation to the goods stated to have been received by the appellants in their factory.
In appeal, the Commissioner (Appeals) dismissed the appeal by holding that the issue involved relates the eligibility for availing cenvat credit of duty paid in respect of the goods imported under the bill of entry and the said bill of entry had been in the name of the contractor and, therefore, on the basis of such document and taking into consideration the provisions of the said Rules, the appellants were not entitled to avail the cenvat credit.
Appellant’s Contentions: - Appellant relied upon the judgment given in Marmagoa Steel Ltd v/s Union of India [2005 (192) ELT 82 (Bom.)] which was confirmed by the Apex Court in the matter of Union of India v/s Marmagoa Steel Ltd. [2008 (88) RLT 893 (SC)] and also on judgment in Vimal Enterprise v/s Union of India [2005 (69) RLT 403 (Guj.)]. It was submitted that records clearly disclose that the credit was availed in relation to the duty paid goods which were factually received in the factory premises of the appellants and were utilised by the appellants and, therefore, the Authorities below erred in denying the credit to them.
Respondent’s Contentions: - Revenue relied upon the judgment given in Forma Pack Industries v/s CCE, Delhi-II [2005 (192) ELT 525 (Tri.
Reasoning of Judgment: - The Tribunal observed that the credit availed corresponded to the amount of duty paid on the imported goods. The Tribunal perused the Letter of Intent with the bill of entry and the bill of lading and noted that the goods under the bill of entry were for the appellants and further there being no dispute that the said goods were subjected to the payment of duty and were directly transported to the premises of and utilized by the appellants and that the contractor had not availed the credit. Therefore, the benefit of credit could not be denied.
The Tribunal further held that Rule 7 of CCR, 2002 and sub-rule (9) of CCR, 2004, undoubtedly describes the various documents based on which the cenvat credit can be claimed. They include invoice issued by the importer as well as bill of entry. Sub-rule (1A) of Cenvat Credit Rules, 2002 and sub-rule (2) of Rule 9 of Cenvat Credit Rules 2004, however, further clarifies that in case of any deficiency to be found in such documents in relation to the particulars which are required to be disclosed therein to justify the claim of credit, such deficiency shall not be in relation to the relevant aspects which are specified in those provisions. However, the said clarification nowhere provides that the presence of name of the contractor in the invoice alongwith that of consignee would disentitle the manufacturer to avail credit on the basis of such invoice irrespective of the fact that goods were actually received and utilized by the manufacturer and the contractor had not availed any credit in respect of the duty paid on such goods. Therefore, merely because the invoice discloses the name of the contractor alongwith that of the consignee, but the documentary materials placed before the authority establish to the satisfaction of the Adjudicating Authority that the goods which described in the invoice were in fact received in the factory of the consignee/manufacturer and those goods were subjected to payment of duty as disclosed in the invoice and further that the goods were utilized or were to be utilized by the manufacturer, certainly the credit in relation to duty paid on such goods cannot be disallowed to such manufacturer.
Reliance was placed on judgment in Commissioner of Central Excise, Ludhiana v/s Ralson India Ltd [2008 (77) RLT 36 (P&H)] wherein in referring to sub-rules (3) and (6) of Rule 57G it was held that “Being a beneficial legislation, its object of input duty relief to a manufacturer should not be defeated on a technical and strict interpretation of the Rules governing modvat”. Reliance was also placed on judgments given in Marmagoa Steel, Vimal Enterprise, Commissioner of Central Excise, Ludhiana v/s Ralson India Ltd [2008 (77) RLT 36 (P&H)], Commissioner of C. Ex., Delhi-III, Gurgaon v/s Myron Electricals Private Limited [2007 (78) RLT 467 (P&H)].
It was further held that the decision given in Forma Pack Industries case is not applicable to the facts of the present case as the said decision was given in a totally different set of facts as well as on the basis of the Board Circular dated 29.02.1996.
It was further held that contentions raised by the Revenue were without substance for the following reasons. Firstly, the credit is taken not because of endorsement but on the basis of bill of entry which also disclosed the name of the appellant, apart from the fact that the goods accompanying the Bill of entry were subjected to the payment of duty, and on clearance, were directly transported to the appellant’s factory premises and were utilized by the appellants for installation of their factory, and no credit in respect of duty paid on those goods was taken by the contractor. Secondly, the effect of endorsement is only to amend the name of consignee and nothing more. Black’s Law dictionary depicts the term “endorsement” as amendment of the installment signifying the same being made referable to a person other than the one disclosed earlier. And, it is not the case of the department that on endorsement of the Bill of entry in favour of the appellant, it was, in any manner, rendered to be invalid document or that the import under such document become unlawful.
Impugned order set aside.
Decision: - Appeal allowed with consequential relief.
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Case: M/s Shakti Met-Dor Ltd v/s The Commissioner of Customs, Central Excise & Service Tax,
Citation: 2010-TIOL-807-HC-AP-CX
Issue: - Whether the challenge to the issuance of show cause notice can be entertained in Writ Petition?
Brief Facts: - Petitioner manufactures special type of fire resistant doors against specific orders placed on them by various Indian and International corporate clients. Show cause notice was issued to the petitioner alleging that the doors/door frames etc manufactured by them, along with their essential/integral parts i.e., hardware items, should be treated as pre-fabricated housing material classified under heading no.94060091 & the steel toilet product should be classified under heading no. 94060099. Accordingly, duty was demanded with interest and penalties were sought to be imposed on the charge of mis-declaration and suppression of facts.
The Petitioner filed writ petition in the High Court challenging the issuance of show cause notice to them.
Petitioner’s Contentions: - Petitioner submitted that the taxable event in respect of excise duty is manufacture; the expression 'manufacture' means bringing into existence a new article having a distinctive name, character or use; excise duty is payable when the goods are cleared from the factory; any subsequent event, after the sale, has no bearing on excise duty; the duty chargeable on excisable goods is with reference to their value at the time of clearance from the factory.
It was submitted that the classification list, giving details of the goods, was filed in the year 1995 which was duly verified and approved by the Excise department. They had been filing returns and paying duty under the said classification for the last fifteen years. In addition to manufacture of steel doors, the petitioner also carries on business of trading in hardware items such as locks, hinges, tower bolts, door closures, glasses etc., for the doors. They also undertake service of fixing the hardware to the door, and installing them at the site of the customer; these trading and service activities do not amount to manufacture. The petitioner does not manufacture locks, hinges or tower bolts; they are purchased by the petitioner and sold to customers for which sales tax/VAT is paid. Similarly, for the service activity of fixing the hardware on the door, the petitioner is paying service tax. This activity of trading and rendering service is being carried on by the petitioner for the past fifteen years which are reflected in their audited accounts and annual reports. The petitioner enters into three agreements with their customers (a) for manufacture and supply of doors, (b) supply of bought-out hardware items, (c) installation of doors etc. They are not engaged in the manufacture of pre-fabricated housing material. They are exclusively engaged in the manufacture of steel doors, frames and nothing else. The sale of door is an independent activity when compared with the sale of hardware items.
It was submitted that the goods, not manufactured by the petitioner, cannot be assessed to excise duty; procurement of hardware items by the customers, from the petitioner, is purely optional and at their sole discretion; in many cases doors have been supplied without any hardware items; merely by affixing the hardware items to the door, and installing the door in the building, does not convert a door into a new item which is the sine qua non for levy of excise duty; the bought-out hardware items have never been brought into the petitioner's factory and no cenvat credit, on the duty paid on such hardware, has ever been taken.
It was submitted that the Department has pre-judged the issue and the proceedings before the respondent is an empty formality. The order of the Commissioner suffers from non-application of mind; inspite of the legal position being set out in the reply, and representations submitted by them, the Commissioner has issued the impugned proceedings without taking into consideration either the petitioner's reply or their representation; and the impugned proceedings are without jurisdiction and are liable to be set aside.
Petitioner submitted further that that the respondents had, on 16.8.2004, accepted that the value of bought-out items were excludable from the value of manufactured items, and it was not open to them to now contend that they form an integral part of the manufactured items.
The matter relating to commodity classification, whether it falls under one heading or the other or attracts higher or lower duty, has to be decided on the facts arising in each case. Even though a decision may have been taken earlier, the matter may have to be re-examined on further investigation, on discovery of new facts or where the law has changed. It is not proper for the High Court to interfere in such matters at the stage of a show cause notice. (Commissioner of Cus. & C. Ex. v. Charminar Nonwovens Ltd [(2004) Vo.167 ELT 372 ( S.C )]; M/s Vasavi Business Combines).
Petitioner would further submit that, while demanding duty beyond one year, the onus is on the department to prove that non- payment or short payment of duty was due to fraud, collusion, willful mis - statement or suppression of facts; the notice does not give any evidence in support of such allegations; on the contrary, the facts were known to the department through audits and balance sheets submitted every year to them; in the year 2003 the petitioner's explanation, regarding inclusion of hardware items in the value of doors, was called for to which they had submitted a detailed reply; the respondents had accepted that the value of bought-out hardware items were not includable in the value of the doors; the decision was communicated to the petitioner by the respondents vide their letter dated 16.08.2004; the petitioner has not suppressed even a single fact; the audit personnel of the department visit the petitioner's office each year, and Annexures are submitted to them; copies thereof would show that the petitioner had furnished particulars of their manufacturing and trading activity separately; the petitioner has also submitted statutory forms like Form - I giving details of the doors to be manufactured; and the respondents, having admitted that the petitioner does not manufacture locks, hinges, tower bolts etc., cannot allege that the petitioner has suppressed any fact.
Respondent’s Contention: - Department submitted that the petitioner has an effective remedy of filing his explanation to the show cause notice raising all grounds which are available to them; the question, whether the commodity is to be classified under one head or the other attracting higher or lower duty, is to be decided in the facts arising in each case. After introduction of the new 8-digit tariff heading from 28.2.2005 the scope of Chapter Heading 9406 has been widened by providing separate sub-headings for pre-fabricated housing material and residuary entries. The petitioner's product, which was earlier classified under Chapter Heading 73083000, is now more appropriately classifiable under Chapter Heading 94060091. The different types of doors and products manufactured by the petitioner must be linked/fixed/attached with the said hardware items to make it a complete door/partition for the purpose of general doors, fire doors etc. In order to fix/attach the hardware items certain apertures/perforations/punching are made in the manufactured items, at the factory itself, as per designs/technical specifications; this activity confirms that the hardware items form an integral part of the manufactured items; these hardware items are also to be assessed to excise duty; the hardware items, supplied separately by the petitioner from their godown, are integral parts of the doors without which the door is not a complete article; its value had to be added for the purpose of payment of excise duty.
It was contended that the petitioner paid duty only on the value of ss doors/frames supplied from their manufacturing premises, keeping aside the value of hardware items supplied from their godown against separate trading invoices; establishment of a separate godown for transactions relating to hardware items has been done only to avoid value addition of the finished products though they are tailor made with the specifications/ designs given/ordered by the customers; the value of hardware items must be added to the assessable value of the steel doors; the petitioner would be entitled to cenvat credit on the duty paid on the hardware items; they are liable to pay excise duty and sales tax/VAT on the value added portion of the steel doors to the extent of the hardware items inclusive of their trading profit.
It was submitted that they have merely been issued a show cause notice and would have the opportunity of representing their case in writing, as well as for a personal hearing, before the Adjudicating Authority. They would also have an opportunity of invoking the appellate remedy, if need be. The department has not prejudged the issue, and no order has been passed against the petitioner. The impugned show cause notice can neither be said to be without jurisdiction nor ultra-vires; and the petitioner should be relegated to file their reply to the show cause notice.
Revenue also submitted that after 28.2.2005, when a new eight digit tariff heading was introduced, and on further investigation, the authorities were of the view that excise duty is leviable on the hardware items.
Reasoning of the Judgment: - The High Court held that the practice of entertaining Writ petitions questioning the legality of show cause notice, stalling the proposed enquiry and retarding the investigative process to ascertain facts with the participation and in presence of the parties, must be deprecated. Unless the High Court is satisfied that the show cause notice is non-est Writ Petitions should not be entertained for the mere asking, and as a matter of routine, and the petitioner should, invariably, be directed to respond to the show cause notice and take all stands, highlighted in the writ petition, therein. (Special Director v/s Mohd. Ghulam Ghouse [2004-TIOL-05-SC-FEMA] and other judgments)
The High Court observed that a show-cause notice does not give rise to any cause of action as it is not an adverse order which affects the rights of a party. It is quite possible that, after considering the reply to the show-cause notice, the authority concerned may drop the proceedings and/or hold that the allegations are not established. A show-cause notice does not infringe the rights of anyone. It is only when a final order, adversely affecting him, is passed that the said person can be said to have any grievance. (Union of
It was held that when a show-cause notice is issued under a statutory provision calling upon a person to show-cause he must, ordinarily, place his case before the authority by showing cause. The purpose of issuing a show-cause notice is to afford an opportunity of hearing to the person concerned, and Courts should be reluctant to interfere at that stage as it would be premature. (State of U.P. v Shri Brahma Datta Sarma [AIR 1987 SC 943]; M/s Vasavi Business Combines; M/s Jasper Industries Pvt. Ltd). The appropriate course for the recipient is to reply to the show-cause notice enabling the authorities to record their findings and then, if necessary, the matter can be carried in appeal to the Tribunal and, thereafter, to this Court. (Union of India v Bajaj Tempo Limited [1997 (94) ELT 285 (SC)]; M/s Vasavi Business Combines; M/s Jasper Industries Pvt. Ltd)
The High Court noted that interference would be justified only when the notice is ex-facie a 'nullity' or non- est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into the facts, or totally "without jurisdiction" in the traditional sense of that expression i.e., even the commencement or initiation of the proceedings on the face of it, and without anything more, is totally unauthorised. In all other cases, it is only appropriate that the party shows cause before the authority concerned and takes up the objection regarding jurisdiction therein. (Executive Engineer,
It was held that Abstinence from interference at the stage of issuance of the show-cause notice, in order to relegate parties to the proceedings before the authorities concerned, is the normal rule. However the said rule is not without exception. Where a show-cause notice is issued either without jurisdiction, or is an abuse of process of law, the
On the facts of the present petition, the High Court decided to examine only those grounds on the basis of which the impugned show cause notice is said to suffer from inherent lack of jurisdiction. It was noted that the other grounds can as well be agitated by the petitioner, after submitting their reply to the show cause notice, before the Adjudicating Authority.
The High Court held that the jurisdiction of the High Court, under Article 226 of the Constitution, should not be permitted to be invoked in order to challenge a show-cause notice unless, accepting the facts stated therein to be correct, the show-cause notice is, ex facie, without jurisdiction (State of U. P. v. Anil Kumar Ramesh Chandra Glass Works [2005) 11 SCC 451)]). Mere assertion by the petitioner that a notice is without jurisdiction would not suffice. It should, prima facie, be established to be so. Where factual adjudication is necessary interference is, ordinarily, ruled out. (VICCO Laboratories; Saravani Impex Pvt. Ltd.)
The High Court therefore briefly referred to the contents of the show cause notice and observed that it is not in dispute that the petitioner's godown, from which the bought-out items were supplied directly to the customers is located far away from the petitioner's factory premises; and these bought-out items neither entered the petitioner's factory premises nor were they cleared therefrom. The case of the respondents, in short, is that these bought-out items form an integral part of the manufactured items i.e., stainless steel and other doors, and excise duty is liable to be paid thereupon. In order to relegate the petitioner to the remedy of filing a reply to the show cause notice this Court must be satisfied, prima facie, that the contentions urged on behalf of the department, is not without merit; and the bought-out items, which allegedly form an integral part of the manufactured items, are also liable to be subjected to excise duty even though such bought-out items never entered the petitioner's factory premises; they were not manufactured by the petitioner; and were not cleared from the factory.
The High Court relied upon the case of Commissioner of Central Excise v. Frick India Ltd [(2007) Vol. 216 ELT 497] and noted that it is evident, from the judgment of the Supreme Court that bought-out items, even if they are not manufactured by the petitioner and are supplied from their godown located at a far distance from their factory, are also liable to excise duty if they form an integral part of the manufactured items. On the premise, that the bought-out items form an integral part of the products manufactured by the petitioner, the value of the bought-out items are liable to be included in the assessable value of the manufactured items for the purpose of determining the excise duty payable.
Thus, it was held that the impugned show cause notice cannot, therefore, be said to be non- est, a nullity or as wholly without jurisdiction. The High Court clarified that it did not examine the issue whether, in fact, these bought out items form an integral part of the manufactured items as these are questions of fact which the Adjudicating Authority would first examine on a reply being submitted by the petitioner to the show cause notice.
The High Court did not examine the issue whether the judgment of the Supreme Court in Frick India Ltd runs contrary to several judgments of larger benches of the Supreme Court on the ground that as the prima-facie opinion of the adjudicating authority, when examined in the light of the law laid down in Frick India Ltd, is certainly a possible view. In such circumstances the show cause notice cannot be said to suffer from an inherent lack of jurisdiction.
It was observed that the while the submission of the Respondent cannot be said to be without merit, the High Court did not propose to examine them at this stage since all these contentions can as well be urged in the reply to the show cause notice. At the stage of a show-cause notice, this Court is required to presume that the allegations in the show cause notice are true. The contentions urged before the High Court in this regard can as well be raised by the petitioner before the Adjudicating Authority, after they submit their reply to the show-cause notice.
The High Court further held that the Adjudicating Authority shall, without being influenced by the observations made hereinabove on merits, consider the matter, duly dealing with all the contentions urged, both in the reply, if any, submitted by the petitioner within three weeks from today and in the course of oral hearing, and, thereafter, pass orders in accordance with law.
Judgment: - Appeal dismissed.
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Case: CCE & C v/s Saurashtra Cement Ltd
Citation: 2010 (103) RLTONLINE 169 (GUJ.)
Issue: - When the assessee has no intention to evade payment of duty, should he be penalized?
Brief Facts: - Respondent- assessee has cleared excisable goods without payment of duty in time. The delay in payment of duty was about 25 to 56 days. Department issued show cause notices demanding duty under Section 11AC of the Central Excise Act, 1944 along with interest under Section 8(3) of the Act and penalty under Rule 25 of the Rules was proposed to be imposed. The Adjudicating Authority confirmed the duty demand was confirmed with interest under Rule 8(3) and also imposed penalty of equal amount of duty demanded under Rule 25 of the Rules.
In appeal, the Commissioner (Appeals) confirmed the demand of duty as well as the interest but reduced the penalty to Rs. 5 lakhs in one of the appeals. In all other matters, the Commissioner (Appeals) confirmed the orders passed by the Adjudicating Authority.
In further appeal, the Tribunal considering Rule 25 observed that Rule 25 provides for imposition of penalties which shall not exceed the duty on the excisable goods, when there is contravention of the nature referred to in clause (a), clause (b), clause(c) or clause(d). The Tribunal found that clause (a) of Rule 25 refers to removal of excisable goods in contravention of any of the provisions of the Rules. When goods were removed, no excise duty was required to be paid at that point of time. As such, it cannot be said that the contravention of the nature mentioned in the said clause has been committed by the assessee. Clause (b) is to the effect that the manufacturer does not account for any excisable goods manufactured by him. The said clause does not stand contravened in as much as the goods were duly reflected in the statutory records. Similarly, clause(c) does not stand contravened in as much as the assessee has not manufactured goods without applying for registration. Clause (d) refers to contravention of any of the provisions of the Rules with intent to evade payment of duty. Excisable goods were entered in records, cleared on Central Excise invoices and duty was also paid subsequently, though belatedly along with interest. As such, the said clause (d) is also not contravened. After analyzing and examining all these four sub-clauses of Rule 25, the Tribunal held that the invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law.
The Tribunal relied upon the judgments given in M/s Condor Power Products P. Ltd., [2007 (79) RLT 124 (CESTAT-Del.), M/s Automotive
Against this order, Revenue is in appeal before the High Court.
Appellant’s Contention: - Revenue submitted that the Tribunal seriously erred in appreciating the provisions of Rule 8(1) of the Central Excise Rules, 2002, while passing the impugned order and therefore, the impugned orders are bad and illegal and are required to be quashed and set aside.
Revenue has further submitted that the respondent herein had defaulted in payment for more than a month and therefore, the respondents have violated the provisions of Rule 8(1) and 8(3) of the Rules. It was further submitted that the duty liability stands discharged only when an assessee pays the amount by the specified date. Further, a grace period of a month is provided in the Rules to pay the duty along with the interest after the specified date. The respondents have not followed either of the provisions of Rule 8 and have cleared the said goods without payment of duty, and thereby contravened the said Rule and attracted the exemplary penalty.
Revenue has further submitted that when the goods are deemed to be cleared without payment of central excise duty, the penalty provision under the Central Excise law is applicable.
It is submitted that the decisions relied upon by the Tribunal were not applicable to the facts of the present case.
Revenue has further submitted that, in the present case, the respondents appears to be habitual offenders and are well aware that they would not be able to fulfill the obligations for payment of duty by the due date and hence, the respondents have contravened the provisions of Rule 25.
Respondent’s Contention: - Respondent contended that the Tribunal had in its order had discussed each clause of Rule 25 and had concluded that there was no contravention of any of these clauses and held that invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law. Respondent referred to the provisions of Section 11AC and submitted that “Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts” in these cases only, penalty shall be leviable equal to the duty so determined. Respondent submitted that in their case, there is no allegation that there was an intention to delay the payment. It is only because of the stringent financial circumstances, the payment was delayed, otherwise the duty was paid along with interest @ 24%.
They relied upon the judgments given in Commissioner of Central Excise, Guntur v/s Andhra Cements Limited [2007 (216) ELT 362 (A.P.)], Supreme Industries Ltd. v/s C.E.S.T.A.T., New Delhi [2007 (214) ELT 187 (M.P.)], Superintendent of Central Excise v/s Sance Pharmaceuticals [2009 (247) ELT 136 (Ker.)] and Union of India v/s Rajasthan Spinning & Weaving Mills [2009 (238) ELT 3 (SC)].
Reasoning of Judgment: - The High Court observed that the provisions of Rule 25 are subject to the provisions of Section 11AC of the Central Excise Act, 1944. And for the purpose of invoking Section 11AC, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.
The High Court relied upon the judgment given in the case of Commissioner of C. Ex. Guntur v/s Andhra Cements Limited (Supra) wherein it was held that there should be an element of intention to evade payment of duty for imposing penalty under Rule 25. Evasion of payment of duty is not sufficient to impose penalty on a producer or manufacturer.
Reliance was also placed on Superintendent of Central Excise v/s Sance Pharmaceuticals (Supra) wherein it was held that imposition of penalty should be preceded by a finding that there was a willful default as such.
Reliance was also placed on Supreme Industries Limited v/s C.E.S.T.A.T., New Delhi wherein it was held that enforcement of penal clause to be done subject to strict proof of intention to evade payment of duty. Similarly, reliance was placed on the judgments given in Union of
Accordingly, on facts of the present case the High Court held that there was no intention on the part of the respondent assessee to evade any payment of duty. It is only because of stringent financial condition, that the duty could not be paid in time and as soon as liquidity was available, duty was paid along with interest. The Tribunal rightly concluded that penalty could not be levied under Rule 25 of the Rules and for the alleged default, the penalty was restricted to Rs.5000/- in each matter under Rule 27 of the Rules.
No substantial question of law involved in the appeal.
Judgment: - Appeal dismissed.
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Service Tax Section
Case: Commissioner of C. Ex., Jalandhar v/s Ambika Forgings
Citation: 2010 (20) STR 662 (Tri.–Del)
Issue: - Whether credit of service tax on the overseas commission is available as credit?
Brief Facts: - The assessee was availing credit of service tax levied on overseas commission paid by them. Revenue proceeded against the respondent on the ground that the said service was not an input service. The Commissioner (A) held that the overseas commission is an input service and allowed Cenvat credit.
Appellant’s Contentions: - Revenue contended that the overseas commission paid by the respondent was not an input service and was having no connection with manufacture or selling activities. Revenue relied upon the meaning of promotion according to Webster’s Dictionary. Revenue conceives that the meaning of the term “promotion” if not defined by law, meaning thereof shall be the meaning as has been given by the grounds of appeal of revenue. Revenue submitted that the overseas service does not relate to manufacture and also that relates to the place beyond place of removal.
Reasoning of Judgment: - The Tribunal held that where the legislative meaning of a term used in law, it is unsafe to adopt dictionary meaning. In common business or commercial parlance business promotion adds to earning of revenue for a seller or a manufacturer. Whether addition to revenue earning by a manufacturer is made by manufacture of extra quantity goods has earned excise duty is also relevant. If business promotion activity adds to revenue by manufacture and sale of incremental quantity, the business promotion activity may have nexus to such sales. Accordingly, service tax paid on such service may be attributable to input service tax. Claim of Cenvat credit is made to avoid cascading effect under Rule 2 (1) (ii) of the Cenvat Credit Rules, 2004. Once Legislative mandate is apparent, then no technical meaning need to be assigned to deny relief to the Respondent-assessee.
In the absence of the Revenue’s finding that the business promotion has not resulted with any promotion of business activities there would have been a case for Revenue. But, that is not the case. When the order suffers from such an infirmity there is nothing to impeach the order of the Commissioner (A). In terms of the word” includes” in Rule 2 (1) (ii) of the Cenvat Credit Rules, 2004, broad activities which are having nexus to business and integrally connected are brought to the fold of input services. Therefore a pedantic view cannot be taken.
Judgment: - Appeal dismissed.
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Case: Regency Ceramics Ltd v/s Commissioner of C. Ex.,
Citation: 2010 (20) STR 664 (Tri–Bang)
Issue: - Whether all the documents pertaining to the refund claim filed on the last date makes the refund ineligible?
Brief facts: - Appellant are engaged in manufacture and export of ceramic tiles. For service tax paid on transportation of export goods from January, 2008 to March, 2008, the appellant filed refund claim under Notification No. 41/2007-ST, dated 6/10/2007.
The Adjudicating Authority restricted the refund claim and disallowed refund for a short amount as it was found that said amount claimed did not pertain to the relevant quarter.
Notification No. 41/2007-ST was amended by the Notification No. 3/2008-ST, dated 19.02.2008. By this amendment, the exemption allowed in the original Notification was also extended to service tax paid for transportation of export goods from the place of removal to the ICD. The Original Authority allowed both the claims of the appellants.
The Commissioner initiated revision proceedings under Section 84 of the Finance Act, 1994 and passed an order demanding recovery of total amount sanctioned and paid to the appellant. The Commissioner discussed the appellant’s entitlement to claim for refund relatable to transport of goods from the place of removal to the ICD. The Commissioner found that the appellant had filed the refund claim on the 59th day of the end of the quarter but the tax due was credited to the nominated bank only on the 60th day.
Against this revision order, appellant has filed appeal before the Tribunal.
Appellant’s Contentions: - Appellant contended that they had filed the complete refund claim with necessary documents as prescribed in the Notification within the 60 days of the end of the quarter. Therefore, the Commissioner could not have held that the appellant was not entitled to the refund claim. As regards the claim relatable to transport of goods from ICD to port, the Commissioner has not given any findings in the impugned order.
Respondent’s Contention: - Revenue contended that the appellant had filed the refund claim without having paid the service tax as required under the Notification. As regards the claim, Revenue submitted that it is not clear from the impugned order whether the appellant had filed documents substantiating the claim. Revenue submitted that the matter may be remanded back for examination by the Original Authority.
Reasoning of Judgment: - The Tribunal found that the appellant had filed claim with the Authorities on 29.05.2008 and vital document necessary to sanction the claim viz. TR6 challan for proof of payment of service tax was furnished with the Authorities only on 30.05.2008. The submission of the appellant is that copy of the challan could not be obtained from the concerned bank owing to connectivity problem on 29.05.2008. However, the Department was in possession of the refund claim with all the necessary documents on 30.05.2008.
The Tribunal found considerable merit in the submission of the appellant and accepted it. It was held that the appellant had satisfied all the conditions of the Notification to qualify for the refund allowed by the Original Authority. As regards the balance amount, the Tribunal held that the impugned order does not give any reason why the same has to be recovered from the appellants.
The Tribunal held that the Original Authority had analysed the entitlement of the appellant to the entire claim with reference to the terms of the Notification and found them to be eligible for refund of both the amounts. Impugned order set aside.
Decision: - Appeal allowed with the consequent relief.
Comments: - This is a very good decision where the refund claim is allowed by the Tribunal under Notification No. 41/2007-ST.
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Case: M/s IBM India (P) Ltd v/s Commissioner of Central Excise,
Citation: 2009-TIOL-2441-CESTAT-BANG
Issue: - Whether the call centre services provided from
Brief Facts: - Appellants are engaged in promotion of sales of computers and peripherals of M/s. IBM, World Trade Corporation,
The Commissioner held that the impugned activity did not constitute export of services. It was held that the call centre service and sales promotion services were classifiable under Business Auxiliary Service (BAS). The Commissioner found that show cause notice to the proceedings was a periodical notice as demand for service tax on similar transactions had already been raised in an earlier show cause notice dated 22.4.2008. The present show cause notice dated 23.5.2008 was issued within time prescribed for raising demand for the normal period. He rejected the contention of the appellant that on the basis of show cause notice invoking proviso to Section 11A (1) of the Central Excise Act, demand could not be confirmed for normal period. He found that the judgment of Apex Court in the case of Collector of Central Excise, Jaipur v/s Alcobex Metals [2003 (153) ELT 241] cited by the appellant did not support their claim; the Apex Court had held that since the show cause notice had been issued by the Deputy Collector and the demand involved suppression, fraud or collusion, only Collector was competent to issue the show cause notice. He found that part of the amount for which the demand was proposed in the show cause notice was covered by an earlier show cause notice dated 22.4.2008 and confirmed demand of service tax along with applicable interest. Penalty was also imposed under Section 76 of the Finance Act, 1994.
Appellant challenged the impugned order. Present is the application for stay and waiver of pre-deposit.
Appellant’s Contentions: - Appellant contended that the show cause notice issued had proposed to levy service tax on marketing commission received by them and the same did not cover Business Transformation Outsourcing services (call centre service). The impugned order did not give any rational finding not to treat the impugned services as exports. The appellants were not heard on taxability of BTO services. The order was not sustainable to the extent it covered BTO services.
Appellants relied on various judicial authorities in support of the plea that an order containing a finding without appropriate proposals in the show cause notice was not sustainable. The demand of service tax on call centre service was therefore bad in law.
BTO services were classifiable under the category BAS under Section 65 (19) of the Act being customer are service/ provision of service on behalf of the client. As per the relevant rules governing export of service the following conditions were to be satisfied to treat the impugned services as export during the material period:
(i) Service should be provided in relation to business or commerce;
(ii) Service recipient to be situated outside
(iii) Consideration to be received in convertible foreign exchange; and
(iv) Service to be provided from
The appellants satisfied first three. The appellants undertook to answer inbound and outbound calls relating to its customers wherein they would answer their queries. Additionally, the appellants maintained the Finance and Accounts related services and provided data processing services to companies outside
Respondent’s Contentions: - Revenue contended that the provision of service was the taxable event which had taken place in
Reasoning of Judgment: - The Tribunal held that there was no dispute that the impugned services benefited the foreign client of the appellants by promoting sales of its products. The benefit of services accrued outside
The Tribunal further held in the All India Tax Practitioners of India case, their Lordships had observed that applying the principle of equivalence, there was no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stood consumed by the service receiver. Their lordships were not concerned with the question whether services were exported when the marketing/sales promotion of products exported into
This was clarified by the CBEC in the Circular cited by the appellants. Indian entrepreneurs engaged foreign agents to canvass orders for their products which are exported against such orders. Such services are taxed when imported; the Indian recipient pays service tax under the reverse charge mechanism. When services are similarly provided to a foreign enterprise by Indian agents, it cannot be held that export of services is not involved. Therefore there is no logic in the view that in the instant case export of marketing services (BAS) was not involved. Benefit of service accrued to the manufacturer of computer systems and peripherals based abroad. In any case, Commissioner cannot validly hold a view contrary to that held by the CBEC and communicated for implementation by the officers in the field. The case laws cited also support the claim of the assessee on export of services. Therefore prima facie the appellants are not liable to pay service tax and interest thereon and penalty imposed on them.
Accordingly, Tribunal ordered waiver of pre-deposit and stay recovery of dues adjudged against IBM India (P) Ltd pending decision in the appeal.
Decision: - Stay application allowed.
Comments: - The services provided of the call centre are provided from
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Case: Andhra Pradesh Paper Mills Ltd v/s Commissioner of Central Excise, Visakhapatnam-II
Citation: 2007 (008) STR 0166 (Tri. - Bang.)
Issue: - Whether service tax on freight could be paid utilizing the cenvat credit?
Brief Facts: - For the period from 01.01.2005 to 30.09.2005, appellant paid the service tax on freight paid for the transportation of goods from Cenvat credit account. Revenue alleged that the appellant were required to pay the service tax in cash by TR-6 Challan as there is no provision for utilization of Cenvat credit for payment of Service tax on input service.
The Adjudicating Authority held that the inward transportation of goods by road service is an "input service" as provided in clause (ii) of Rule 2(1) of the Cenvat Credit Rules, 2004. Since in terms of Rule 3(4)(e) of the Cenvat Credit Rules, Cenvat credit may be utilized for payment of Service tax on any Output Service, the appellant is not entitled to utilise the Cenvat credit for payment. The Commissioner confirmed the demand with interest. Penalty under Section 76 was imposed. Penalty was also imposed under Rule 15 (3) of the CCR, 2004.
Reasoning of Judgment: - The Tribunal perused the definition of “Output service” given in Rule 2 (p) of the CCR, 2004 and held that in terms of the explanation contained in the said definition, the service on which the appellant pays Service tax will be deemed to be an 'output service', as the appellant is only a recipient of the transport of goods by road service. When the service is deemed to be an 'output service', the Service tax can be paid by way of Cenvat Credit in terms of Rule 3(4) (e) of the Cenvat Credit Rules.
Impugned order set aside.
Decision: - Appeal allowed.
Comments: - This is a very good decision as prior to recent Notification the GTA service was treated as deemed output service and so Cenvat credit can be utilized for its payment.
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Customs Section
Case: Commissioner of Customs, Chennai v/s M/s Ford (
Citation: 2010-TIOL-1637-CESTAT-MAD
Issue: - Whether the exports made under one EPCG license could be adjusted for other EPCG licence to fulfill export obligation thereunder?
Brief Facts: - Respondents obtained two EPCG licenses for import of capital goods duty-free against export obligation to be met within a specified period. They included vendor manufactured components with the goods manufactured by them towards computing the export obligation against two licenses. DGFT subsequently clarified that respondents cannot include the value of such vendor manufactured components.
The respondents wanted to account for some of the exports made against one licence to be accounted under the other to meet the shortfall arising out of exclusion of vendor manufactured components. In an earlier hearing, it was suggested by the Bench that the issue should be sorted out with the Licensing Authority as to whether such a shifting of export from one licence to another is permissible under the EXIM policy in force. Respondents approached the DGFT Authorities. The matter was considered by the EPCG Committee held on 3.6.2010 as reflected in the letter dated 21.6.2010 issued by the Foreign Trade Development Officer to the respondents.
In the Minutes of the EPCG Committee, it was noted that the export product is same in all the three licences. The export obligation period is also concurrent. The firm would be able to regularize the subject licences if the shipping bills contained in Annexure - II of the Agenda are allowed for adjustment from one licence to another.
The Committee also noted that there is no loss to the exchequer on this account. In view of this, the Committee decided to allow adjustment of exports from 1st EPCG licence and 2nd EPCG licence to 3rd EPCG licence. The remaining requests for re-fixation of EO and issue of EODC are acceded to & would accordingly be disposed off on file.
Reasoning of Judgment: - In the light of the decision taken by the EPCG Committee which has been forwarded to the Zonal Joint DGFT for necessary action, the Tribunal felt it expedient that the earlier orders passed by the Authorities below should be set aside. Matter remanded to the Original Authority for fresh decision on the issue keeping in view the Minutes of the EPCG Committee and any further communication to be issued by the Zonal Joint DGFT based on such Minutes. Impugned orders set aside.
Decision: - Appeals disposed of.
Comments: - As there was no loss to the revenue in the instant case the Tribunal has remanded the matter to take other committees decision into consideration.
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