CASE LAWS

 

Prepared By:

CA Pradeep Jain

Sukhvinder Kaur, LLB [FYIC]

and Megha Jain

Excise Section

 

Case: CCE & C v/s Gujarat Bottling Co. Ltd

 

Citation: 2010 (102) RLTONLINE 138 (GUJ.)

 

Issue: - Whether credit is to be taken within a reasonable time of 6 months from the date of receipt of input or can be taken later on?

 

Brief Facts: - Here the Respondent being the assessee is engaged in the manufacture of aerated water and Maaza soft drink. The assessee is working under self removal procedure prescribed under Chapter No. VIIA of the Central Excise Rules, 1944. They were availing the benefit of credit of excise duty paid on inputs used in the manufacture of Thums-up and utilizing it to pay central excise duty leviable on Thums-up under Rule 57-A of the Rules.

 

Intimation was sent by the assessee to the Revenue that they had taken differential higher credit of BED in their RG23A Part II (Maza) on 18.09.1991 on inputs, namely, Crown corks received earlier in the factory. They stated that they have failed to take the aforesaid credit due to their lack of knowledge of the correct applicable provision of the law.

 

Revenue issued show cause notice to the respondent as they were of the view that the respondent had wrongly taken credit under Rule 57-B as in absence of any specific provision under the Rule 57B, notional credit under Rule 57B at a later date than the receipt of inputs in the factory of the Modvat user cannot be allowed merely on the ground of lack of knowledge of the correct applicable provision of the Rules for the purpose of claiming Modvat credit under Rule 57B.

 

The Adjudicating Authority disallowed the higher notional Modvat credit taken by the respondent. In appeal, the Collector (Appeals) set aside the impugned orders disallowing the taking of credit.

 

Revenue filed appeal before the Tribunal. The Tribunal relied upon the judgment given in Commissioner of Central Excise V/s. Mysore Lac & Paint Works [1991 (52) ELT 590] wherein it was held that Modvat credit once taken does not disentitle the assessee to take the additional credit if later it is found that credit was taken short. The Tribunal further observed that such subsequent taking of the additional higher notional credit should be taken within a reasonable time limit of six months. The Tribunal dismissed the said appeals.

 

Appellants Contention: - Revenue contended that there is no provision in Rule 57B which permits the assessee to claim Modvat credit at a later date. Reliance was placed on Board’s letter dated 07.9.1988. It was submitted that the issue was raised in RAC meeting (Hyderabad) on 12.12.1988 and the Chairman of the CBEC had clarified that the law does not permit to claim credit at a later date, if not taken initially, in absence of any specific provisions under the Modvat Rules. It was submitted that the assessee is not entitled to take credit at a later date. The respondent had made mistakes repeatedly even after benefit granted by Collector (Appeals) on similar issue. It was submitted that the respondent should not be allowed to make mistakes of law repeatedly, when they know about the provisions of law very well.

 

Reasoning of Judgment: - The High Court observed that the Tribunal had merely followed the judgment given in Collector of Central Excise, Pune V/s. Associated Flexibles and Wires Private Limited [1994 (74) ELT 902 (Tribunal)] wherein the credit was taken by assessee at a later date on account of some clarification which was issued subsequently. Further the Tribunal had relied on Mysore Lac & Paint Works V/s. Commissioner of Central Excise, 1991 (52) ELT 590 wherein it was held that the Credit could be taken within a reasonable time after the receipt of the inputs and extended the same principle by further holding that considering the entire scheme of the Central Excise Act and allied matters, the period of six months was a reasonable period.

 

The High Court relied upon the judgment in Commissioner of Central Excise, Pune V/s. SPM Tools [1998 (99) ELT 147 (Tribunal)], wherein it was held that there is no bar expressly or impliedly provided for in any of the relevant Rules disentitling the party from availing of credit at a later date. Further, reliance was placed on Government of India V/s. Citedal Fine Pharmaceuticals [1989 (42) ELT 515 (S.C.)] wherein on facts it was held that the High Court committed error in holding that Rule 12 provides for recovery of escaped duty although the Act is silent on question of escaped assessment and, therefore, it is ultra vires of the Act. The Court further held that the Rule 12 is not unreasonable and violative of Article 14 of the Constitution of India merely because it provides no period of limitation for recovery of duty escaped.

 

Further reliance was placed on Torrent Laboratories Private Limited V/s. U.O.I., 1991 (55) ELT 25 (Gujarat) wherein it is held that recovery of credit wrongly availed of within reasonable period can certainly be effected, in absence of specific period of limitation. The Court further held that provisions of Section 11-A of the Central Excise and Salt Act, 1944 cannot be read into Rule 57I, special provision regarding recovery of Modvat Credit wrongly availed of to which the Legislature did not intend general provisions of Section 11A.

 

Thus, on the facts of the case, it was held by the High Court that Rule 57-B prescribes no time limit for claiming Modvat Credit. If it is not existed at the initial stage, there is no bar to claim such credit at subsequent stage. The only criteria which is laid down in the Rule is that it should not exceed 90% of the duty paid. An analogy can also be drawn from the provisions contained in Rule 57G of the Central Excise Rules which prescribes the time limit of six months. In any case, no prejudice is caused to the Central Government if the additional credit is allowed to be taken by the assessee. Question answered in favour of assessee and against the Revenue.

 

Decision: - References disposed of accordingly.

 

Comments: - This is a good decision as the Rules do not specify any time limit for availment of the credit and so the benefit of the same was provided to the assessee. Even in the current Cenvat credit rules also, no time limit has been prescribed. The only word “immediately” is written in the rules. This does not mean that the credit cannot be taken at a later date.

 

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Case: K.P. Pouches (P) Ltd v/s Union of India & Anr

 

Citation: 2008 (085) RLT 0483 (Del.)

 

Issue: - Whether imposition of 100% penalty on the appellant in terms of Section 11AC of the Central Excise Act, 1944 is justified when duty was paid immediately on discovery of non-payment?

 

Brief Facts: - Appellant is a manufacturer of Ghutka. On 16.09.2003, two tempos carrying Ghutka were intercepted by the Excise Authorities. From an enquiry from the tempo staff, they reached the factory premises of the appellant. On questioning, one employee admitted to have cleared the goods without payment of duty. He further stated that he has done this despite of the specific direction from the Director not to do so. The Director of the Company admitted that his employee had committed a mistake and he took full responsibility for the acts of his employee. On the same date, by making an adjustment in the PLA Register, the duty in respect of the impugned goods was debited by the Appellant.

 

Thereafter, show cause notice was to the appellant mentioning that the debit entry had voluntarily and admittedly been made by the Appellant towards duty payable on the goods.

 

The Assistant Commissioner held that the appellant had violated the provisions of the Central Excise Act, 1944, and ordered confiscation of the goods and also appropriation of the duty. The Assistant Commissioner also imposed a penalty on the appellant of 100% of the duty under the provisions of Section 11AC of the Act.

 

Aggrieved by the imposition of 100% penalty, appellant preferred an appeal before the Commissioner (Appeals) who rejected the same. Further appeal before the Tribunal was also dismissed. Appellant then filed miscellaneous application, wherein the Tribunal held that since the appellant had not paid the penalty within 30 days of the adjudication order, it was not entitled to the benefit of the first proviso to Section 11 AC of the Act.

 

Appellants Contention: - Appellant contended that in view of the first proviso to Section 11 AC of the Act, penalty in excess of 25% could not have been levied since the entire duty was paid by the Appellant on the date of the search and seizure, which was of course well before the date of the show cause notice. It is also submitted that the appellant has deposited an amount of Rs. 50,000/- before the Tribunal at the time of waiver of pre-deposit. This amount is a little short of 25% of the duty amount.

 

Appellant contended that they will make the balance payment within ten days of the receipt of the order passed by HC.

 

Respondent’s Contention: - Revenue placed reliance upon the second proviso to Section 11 AC and contented that since the penalty determined by the Assistant Commissioner was not paid by the Appellant within 30 days of the adjudication order, the Appellant is not entitled to the benefit of the first proviso to Section 11 AC.

 

Reasoning of Judgment: - The High Court held that the purpose of the Section and the provisos is to give a benefit to the assessee if he pays the duty demanded within 30 days of the adjudication order. In that event, the assessee would be liable to pay only 25% of the duty amount by way of penalty; otherwise he would be liable to pay 100% of the duty amount by way of penalty. In the present case, the appellant had deposited the entire duty amount well before the show cause notice was issued and, therefore, the appellant would be liable to pay only 25% of the duty amount as penalty.

 

It was held that the Assistant Commissioner could not have demanded more than 25% of the duty amount by way of penalty, in view of the first proviso to Section 11 AC of the Act. The demand of 100% of the duty amount by way of penalty was incorrect and contrary to the benefit that the appellant was statutorily entitled to under the first proviso to Section 11 AC of the Act.

 

It was held that the Authorities below did not pay attention to the terms of the first proviso to Section 11AC of the Act. On facts, it was observed that no one can say that if the Assistant Commissioner had in fact imposed only 25% of the duty amount by way of penalty, the appellant would not have paid the penalty amount within 30 days of the Adjudication order. However, the benefit of doubt in this regard must go to the Appellant considering its bona fides, which are obvious from the fact that the appellant debited the duty amount on the date of the search, well before a show cause notice was issued to it. Under these circumstances, the High Court inferred that if the correct penalty had been imposed upon the Appellant, he would have paid it within the time prescribed.

 

It was held that since the statutory authorities have themselves acted illegally and contrary to the first proviso to Section 11 AC, the Appellant cannot be faulted for challenging the impugned order. Consequently, the failure of the Appellant to pay the penalty amount within 30 days of the adjudication order cannot be held against the Appellant on the facts of the case.

 

Time given to the appellant to deposit the remaining amount towards 25% penalty under Section 11AC.

 

Decision: - Appeal allowed.

 

Comments: - It is clearly held by Apex court in Dharmendra Textile that penalty under Section 11AC is mandatory. Further, it was held that there should be fraud, willful suppression of facts, collusion etc. for imposing penalty under Section 11AC ibid. But the penalty is reduced to 25% if the duty, interest and 25% penalty is paid with in thirty days of order. The Board issued circular that this benefit is available only if these are paid within 30 days of order-in-original. But Hon’ble Delhi High court has held that the benefit of this proviso is also available at later stage also if the adjudication officer has not given the option to assessee in his order-in-original.  This is landmark judgement.

 

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Case: Collector of Central Excise, Kanpur v/s Flock (India) Pvt Ltd

 

Citation: 2000 (120) ELT 285 (SC)

 

Issue: - Whether refund claim is maintainable when the assessment order is not challenged by the assessee in appeal and has attained finality?

 

Brief Facts: - Respondent was manufacturer of jute hessian floked with nylon flocks. They filed a classification list claiming that the said product comes under tariff item 22-A. The Assistant Collector held that the said product was classifiable under tariff item 22-B and not under tariff item 22-A and the applicable rate of duty would be 25% ad valorem.

 

Respondent did not challenge this order in appeal. Thereafter, respondent filed application for refund of duty alleging inter alia that the said product was wrongly classified under tariff item No. 22-B, instead it ought to have been classified under tariff item No. 22-A and that the differential duty should be refunded.

 

The Adjudicating Authority rejected the refund claim on the ground that the earlier order classifying the said product under tariff item 22-B had attained finality.

 

The appeal filed by the respondent against this order was allowed by the First Appellate Authority. Matter was remanded with direction to reconsider the matter on merits including the question whether the goods were classifiable under tariff item 22-A or 22-B.

 

Aggrieved by this order, Revenue filed an appeal before the Tribunal which was rejected. Hence, Revenue is before the Apex Court.  

 

Respondent’s Contentions: - With the regard to the question that whether the jurisdiction of the Assistant Collector while considering an application for refund of duty paid is independent of the jurisdiction exercised by him in determining classification of the product in question, Respondent submitted that the jurisdiction to determine the validity and sustain ability of the claim for refund of duty is an independent jurisdiction and in exercise of that jurisdiction the Assistant Collector is not fettered by any order passed by the authority regarding classification of the product. As such the Assistant Collector could independently consider the claim for refund of duty on merits without being fettered by the previous order passed by him in the matter relating to the question of classification of the product and failure on the part of the assessee to challenge the orders of classification of the product under tariff item 22-B is of no consequence.

 

Reasoning of Judgment: - The Apex Court pursued the provisions of Section 11B and of Section 35 of the Central Excise Act, 1944 and held that from these provisions the position is clear that any order passed by an authority under the Act is appealable to the Collector (Appeals) and a further appeal to the appellate tribunal against the order of the Collector (Appeals) is also provided in section 35. The hierarchy of authorities for adjudication and determination of a matter relevant for charging the excise duty is for a purpose. It is not an empty formality. Classification of the goods manufactured by an assessee is important for the purpose of levy and collection of excise duty. Under Rule 173B every assessee is required to file with the proper officer a list of goods manufactured by him for approval and the proper officer shall after such inquiry as he deems fit approve the list with such modifications as are considered necessary and all clearances are to be made only thereafter.

 

It was further held that a right of appeal is a creature of the statute. It is a substantive right. An order of the appellate authority is binding on the lower authority who is duty bound to implement the order of the superior authority. Refusal to carry out the direction will amount to denial of justice and destructive of one of the basic principles in the administration of justice based on hierarchy of authorities.

 

It was further held that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order. If this position is accepted then the provisions for adjudication in the Act and the Rules, the provision for appeal in the Act and the Rules will lose their relevance and the entire exercise will be rendered redundant. This position will run counter to the scheme of the Act and will introduce an element of uncertainty in the entire process of levy and collection of excise duty. Such a position cannot, be countenanced.

 

It was further held that the view taken by the Apex Court also gains support from the provision in sub-rule (3) of Rule 11 wherein it is laid down that where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to any person, the proper officer, may refund, the amount to such person without his having to make any claim in that behalf. The provision indicates the importance attached to an order of the appellate or revisional authority under the Act therefore, an order which is appealable under the Act is not challenged then the order is not liable to be questioned and the matter is not to be reopened in a proceeding for refund which if the Court may term it so is in the nature of execution of a decree/order.

 

It was held that in the present case it was specifically mentioned in the order of the Assistant Collector that the respondent may file appeal against the order before the Collector (Appeals) if so advised.

 

Thus, impugned order set aside.

 

Decision: - Appeal allowed.

 

Comment: - Although it is old case but it is still important. When the custom clearance is done and assessment is done then it is advisable to file the appeal. Normally, the assessee files the refund and it is rejected in view of this decision.

 

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Case: Parle Bisleri Pvt Ltd v/s Commissioner of Customs & Central Excise, Ahmedabad

 

Citation: 2010-TIOL-115-SC-CX

 

Brief Facts: - The appellant manufactures soft drink flavours which are assigned `code names', namely G-44T, L-33A, T-11PC, T-11P, R-66M, K- 55T and L-22L. During the period from years 89-90 to 93-94, the appellant availed of the benefit of Notifications 175/86 & 1/93 as an SSI unit. Appellant is the holding company of M/s. Parle Exports Ltd (PEL). Appellant sells its product to PEL, Parle International Ltd (PIL) and franchise bottlers of M/s PEL.

 

M/s PEL uses the products sold by the appellant to manufacture Non-alcoholic Beverages Base (NABB). In addition to NABB, M/s PEL also manufactures flavours as the appellant does. During the same period, M/s PEL enjoyed the benefit of Notification No. 175/86 and 1/93 for the year 92-93 and 93-94 (Oct. 93). The flavours named above are researched and developed by PEL, but were allowed to be manufactured by the appellant with the code names given by PEL. The flavours are used in the manufacture of beverages like Gold Spot, Limca, Rimzim etc.

 

Revenue officers visited to the factory premises and office premises of Parle Group of Companies on the basis of the information that M/s PEL and their Group Companies were indulged in evasion of excise duty, various documents were seized and the statement of key personnel recorded. Consequently, show cause notice was issued.

 

The Original Authority dropped the demand for differential duty and found no case for imposition of penalty for any of the companies in question.

 

Revenue filed appeal before the Tribunal. It was alleged that the clearances of the appellant during the period from 1989 to October 1993 must be clubbed with that of M/s PEL and M/s PIL as they are effectively one and the same company, and thus the appellant is not entitled to the benefit of the aforesaid Notifications. It was also alleged that appellant was using the brand name belonging to another person (M/s PEL) who was not entitled to the benefit of the said Notifications. It was also alleged that there was undervaluation of flavours by the appellant which resulted in an inaccurate assessment and hence the differential duty should be demanded from them.

 

The Tribunal held the Revenue's claim of undervaluation in favour of the appellant primarily on the ground that the Department did not come out with quantifiable data to indicate the extent to which the price was suppressed by the appellant. However, on the issue of misuse of brand name by the appellant, the Tribunal held that M/s PEL did in fact, own the brand name and held that the defence of the appellant that the flavours were marked only by virtue of a code and not identified as a brand did not hold water.

 

On the primary issue of whether the clearances of the said companies could be clubbed together, and the companies themselves could be treated as one manufacturer, the Tribunal found that the effective financial control and management emanated from a common core, and therefore the companies could well be said to be interdependent and even interrelated.

 

However, the Tribunal only partly allowed the appeal of the Revenue by holding that the appellant were indeed entitled to SSI exemption between the periods from 88-89 to 92-93 (up to 31.3.93]. Reliance was placed on the judgment given in Commissioner of Central Excise, New Delhi v. Modi Alkalies & Chemicals Ltd. & Ors [2004 (171) E.L.T. 155 (S.C.)] which purportedly took notice of Circular 6/92 issued by the Ministry of Finance, Government of India which stated that the clearance of Limited Companies are not be clubbed together, and held that the Circular was concurrent in operation with that of Notification No. 175/86.However, since this Court, according to the Tribunal, also held that the same Circular was not applicable after the issue of Notification No. 1/93, the appellant could not claim SSI exemption from 1.4.1993 to October, 1993.

 

Reasoning of the Judgment: - The Apex Court held as under:

 

Issue I: The first issue was that whether the value of production/clearances of the three Companies, namely the appellant, M/s PEL Ltd and M/s PIL Ltd can be clubbed for the purposes of ascertaining the eligibility to exemption under Notification No. 1/93-CE dated 28.02.93? 

 

With regard to this issue of clubbing the value of production/ clearances, the Apex Court noted that it is now beyond dispute that Circular 6/92 operated concomitantly with Notification No. 175/86. Thus the only point of question is whether the operation of Circular 6/92, and consequently, the benefit of SSI exemption may be halted from the commencement of Notification No 1/93?

 

The Apex Court observed that the Tribunal had relied solely on an interpretation of the decision in Modi Alkalies & Chemicals Ltd. & Ors. The Apex Court therefore examined the operative part of the decision wherein on facts it was held that the statements of the employees/Directors show that the whole show was controlled, both on financial and management aspects by MACL. If these are not sufficient to show inter-dependence probably nothing better would show the same. The factors which have weighed with Tribunal like registration of three companies under the sales tax and income tax authorities have to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The Circular no. 6/92 dated 29.5.1992 has no relevance because it related to Notification No. 175/86-CE dated 1.3.1986 and did not relate to Notification No. 1/93.

 

Thus, in that decision it was emphasized that Circular 6/92 has no effect upon commencement of Notification No. 1/93, but also the fact that the distinct legal nature of Companies cannot be used as eyewash to portray its independent nature. Where the companies are indeed interdependent and possibly even related through financial control and management, the value of clearances has to be clubbed together in the interests of justice. The operation of Circular 6/92 admittedly protected entities like the appellant prior to the commencement of Notification No. 1/93, but certainly not after the same.

 

On the facts of the case, it was held that the preponderance of evidence suggest that the companies are related not only in terms of financial control, but also through management personnel. In Modi Alkalies & Chemicals Ltd. & Ors this Court has held that two basic features which prima facie show interdependence are pervasive financial control and management control. The Apex Court applied these two tests to the facts of this case.

 

It was noted that M/s PEL Ltd advanced an interest-free loan of Rs. 1 crore to the appellant, which was used for purchase of raw material by the latter. Furthermore, the flavours being manufactured by the appellant were developed by M/s PEL at their R & D Lab at Bombay, whose services were at the disposal of the appellant. They were at one point of time were manufactured by M/s. PEL and admittedly owned by them. It was held that all this points to the inescapable conclusion that the three companies in question were intertwined in their operation and management. A careful scrutiny of the records therefore establishes that both the aforesaid two basic features are overwhelmingly present in this case. Therefore it would likely seem that the purported fragmentation of the manufacturing process was but a mere ploy to avail of the SSI exemption. Piercing the corporate veil, when the notions of beneficial ownership and interdependency come into the picture, are no longer res integra. On this count, the Apex Court affirmed the order of the Tribunal which was justified.

 

Issue II : - The second issue was whether the ‘code names' used to denote soft drink flavours manufactured by the appellant could in fact be termed as `brand names' and if so, whether they belonged to another entity?

 

The Apex Court held that the yardstick in this regard is Explanation VIII which is pari materia in both Notifications No. 175/86 and No. 1/93. The Apex Court held that the mere difference in nomenclature cannot take away the import of the Explanation from its applicability to present case. The appellants manufactured flavours which fall within the ambit of the ‘code names’ and it is a fact on record that these codes are key to identifying the flavours which are commercially transferable. 

 

Furthermore, it was held that the code names on the flavours indicate a connection in the course of trade between the specified goods and such person using such name or mark. The flavours in question, which were earlier manufactured by M/s PEL Ltd and supplied to the franchise holders, were subsequently allowed to be made by the appellant. The franchise holders were in effect buying the very same flavours from the appellant and were placing orders by referring to the same code name, as is evident from the respective purchase orders. The users of the flavours, i.e. M/s PEL Ltd, M/s PIL Ltd and specified bottlers are all interconnected since the latter group comprises franchisees of PEL and thus there is more than an iota of evidence to prove the connection in the course of trade between the flavours and the entity using the flavours through code names. Furthermore, the ownership of the codenames by M/s PEL Ltd is clearly evidenced from the fact that these flavours were developed, researched and concocted by M/s. PEL Ltd in its research labs. That M/s. PEL Ltd have given the brand names to the flavours and allowed them to be manufactured by the appellant, their holding company cannot hide the fact that M/s PEL Ltd were in fact, the owner of the code/brand names. This conclusion is fortified by the fact that it was M/s PEL Ltd who transferred the right of the codes when they were sold to M/s. Coca Cola Company in November, 1993. Since the appellant was not the owner of the said brand names in question, the Tribunal was justified in holding that the appellant will not be entitled to the benefit of Notification No. 175/86 and 1/93 for the products with code names G-44T, L- 33A, T-IIPC, T-IIP, R-66M and K-55T which belonged to M/s PEL Ltd.

 

Judgment: - Appeal dismissed.

 

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Case: CCE, Cal-IV v/s Waldies Ltd.

 

Citation: 2010 (102) RLTONLINE 166 (CESTAT-KOL.)

 

Issue: - Whether the expenses of loading the goods within the factory for clearances to a party are includible in the assessable value of the goods?

 

Brief Facts: - Respondents were clearing their goods from the depot and in some cases the buyer faces difficulty in lifting the material from the depot and at the request of the buyer, the respondents were arranging transport to deliver the material to the buyers place and in respect of this the respondents were raising separate invoices.  

Proceedings were initiated against the appellant to include the said expenses in the assessable value of the goods.

 

In appeal, the Commissioner (Appeals) held that in the show cause notice it was alleged that the appellant had realized excess amount in the name of transportation cost but had not included the same in the assessable value but the Adjudicating Authority had held that the charges reflected in the depot invoices fall in the category of outward handling charges and the outward handling charges are chargeable to duty as per definition of transaction value given under Section 4 (3) (d) of the said Act. Thus, it was held that the impugned order was passed without proper scrutiny and without appraisal of facts and law and set aside the impugned order.

 

Revenue is in appeal before the Tribunal.

 

Appellant’s Contention: - Revenue contended that the amount collected as handling charges in respect of transportation of goods from the depot to the place of buyer at the request of the buyer is includible in the assessable value of the goods.

 

Revenue relied upon the decision of the Larger Bench in the case of CCE v/s Supreme Petrochem Ltd. [2009 (240) ELT 38 (Tri.-LB)].

Reasoning of Judgment: - The Tribunal held that in the case of CCE v/s Supreme Petrochem Ltd, the issue before the larger bench was whether the expenses of loading the goods within the factory for clearances to a party are includible in the assessable value of the goods. But in the present case, there is no such dispute hence the ratio of the decision is not applicable on the facts of the present case.  As the respondents arranged transportation of goods to buyer’s place, in some cases at the request of buyer therefore these charges are not includible in the value of the goods.  

 

Judgment: - Appeal dismissed.

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Case: Dhampur Sugar Mills Ltd v/s Commissioner of C. Ex, Meerut-II

 

Citation: 2010 (260) E.L.T. 271 (Tri- Del.)

 

Issue: - What will be the effect when the show cause notice itself has no foundation under law?

 

Brief Facts: - Show cause notice was issued to the appellant alleging that HR Coil and Plate as well as Graphite packing were not capital goods and therefore, they could not take credit on the same. The period involved was from February 2005 to September 2005.

 

The Adjudicating Authority confirmed the demand raised in the show cause notice and in appeal, the Commissioner (A) upheld the impugned order. Hence, appellant has filed further appeal before the Tribunal.

 

Appellant’s Contentions: - Appellant submitted in its reply to show cause notice that the use of said goods as part of the fermenter, Yeast Propogation Vessels, Pre-Fermenter main Hole flange connection and connecting pipe line network of yeast propagation vessels to pre-Fermenter.

 

Appellant relied upon the decisions given in the case of L.H. Sugar Factories Ltd. V. CCE, Meerut [2010 (251) E.L.T 135 (Tri. Del.)] & Sarjoo Sahkari Chini Mills Ltd. V. CCE, Lucknow [2009 (248) E.L.T. 559 (Tri. Del.)].

 

Appellant also relied upon the judgment of the Rajasthan High Court in Union of India v/s Hindustan Zinc Ltd [2007 (214) ELT 510 (Raj)] wherein the High Court had dealt the matter in great length and concluded that the goods once brought to factory for use in upkeep and maintenance of plant and machinery which are directly used in manufacture of excisable articles are the capital goods.

 

Respondent’s Contentions: - Revenue submitted that thread bare examination of every item was done by the Adjudicating Authority and what that was done at the adjudication stage was also tested in the appellate stage. According to them goods in question do not qualify the capital goods, since those were neither components nor spares or accessories of capital goods.

 

Reasoning of Judgment: - The Tribunal held that the show cause notice failed to speak anything about the nature of goods, its uses and its classification on the body of it. But the appellant had explained in detail each and every item of the Annexure to show cause notice submitting that when those goods are either components, spares or accessories supporting the capital goods of the class as defined by Rule 2(a)(i) of the Cenvat Credit Rules, 2004, Cenvat credit is undeniable.

 

It was noted that H.R. Coil was not subject matter of show cause notice except the figure appearing in show cause notice as 7208. 11.

 

It was noted that the Adjudicating Authority examined the graphic packing which was subject matter of show cause notice. Moreover packing AMP 031, 032 and Smart PTFE/ Graphite Fibre in para 7 and was of the opinion that Cenvat Credit is not admissible to the assessee under the class of the capital goods. No where in para 7, they could demonstrate that they has considered pleadings of the assessee made in the reply to show cause notice. And Examined the packing item in para 8. It was recorded that the appellant did not produce any document to prove that duty on these products was paid. Appellant went through the definition of capital goods and came to the conclusion that disallowance is justified.

 

It was observed that so many technicalities were raised by the appellant but none of them were put into test by Technical experts.

 

The show cause notice failed to speak anything about the nature of goods, its uses and its classification on the body of it. But the appellant explained on each and every item of the Annexure to show cause notice submitting that when those goods are either components, spares or accessories supporting the capital goods of the class as defined by Rule 2(a)(i) of the Cenvat Credit Rules, 2004, Cenvat credit is undeniable.

 

The Tribunal held that a casual show cause notice was issued without depicting the cause against the proposed action. When the show cause notice losses its foundation to bring the appellant to the proper charge under the law, the proceeding shall be ill-founded. When the show cause notice did not assign the reason as to why the proposed proceeding has been initiated, a bald statement therein does not meet the end of justice. No doubt, the authorities have examined various items but they have travelled beyond the scope of show cause notice. If the notice is not brought to charges, and never face charges by any order passed beyond show cause notice.

 

In view of the circumstances, it is made clear to both sides that on the basis of governing facts and attending circumstances; this order has been passed against an ill-founded proceeding. Impugned order set aside.

 

Decision: - Appeal allowed.

 

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Service Tax Section

 

Case: CCE, Ahmedabad-II Vs M/s Dishman Pharmaceuticals & Chemicals Ltd, Ahmedabad

 

Citation: 2010-TIOL-1639-CESTAT-AHM

 

Issue: - How will the time limit be considered for a refund claim when the services availed does no pertain to the period for which the refund claim is filed?

 

Brief Facts: - Respondents is engaged in the manufacture of Bulk drugs and Fine Chemicals. They filed refund claim of service tax paid during the 3^rd quarter of Calendar Year under Notification No. 41/2007-ST dated 06.10.2007, Notification No. 03/2008-ST dated 19.02.2008 and Notification No. 17/2008-ST dated 01.04.2008 on 10.11.2008. The refund claim was filed for availing the services of Goods Transport Agency, Port Service and Custom House Agent services classified under Section 65 (105) (zzp), (zn) and (h) respectively of the Finance Act, 1994.

 

Department issued show cause notice proposing to reject the refund for non-compliance of the provisions of aforesaid Notifications and under the provisions of Section 11B of the Central Excise Act, 1944. By impugned order the refund claim was rejected.

 

In appeal, the Commissioner (Appeal) rejected part of the refund claim. Claim pertaining to Port services was rejected on the ground that service providers were not authorised by the Port to carry the said services and the services provided like THC, Documentation, Repo charges were not covered under Port Services but were covered under Custom House Agent (CHA) services. It was held that since the CHA services was specified under Notification No. 17/2008-ST w.e.f. 01.04.2008 the appellant were eligible for refund of service tax paid on the said services. It was held that as long as the payment of service tax made towards shipping bill charges, loading and unloading charges, forklift/crane charges, sealing and strapping charges, DDC, haulage, THC, Documentation, Repo charges etc and their utilisation is not disputed in the show cause notice, the same cannot be denied to the appellant as long as the conditions of the said notification are not violated. Thus, the refund of CHA was held admissible to the appellant.

 

Regarding the rejection of refund claim pertaining to the invoices issued by the CHA of the appellant by the Adjudicating Authority on the ground that the service provider had not followed the conditions specified in column 4 of the Notification No. 17/2008-ST, dated 01.04.2008, the Commissioner (Appeal) held that it was not specified the condition which was violated. The said refund claim was held admissible on the ground that the invoices of CHA mentioned the basic details like name of the appellant, service tax registration no. of CHA, gross amount charges, applicable service tax & education cess etc and the payment for all the invoices covered under the refund claim has been borne and the services are used in respect of export of goods.

 

Further, the Commissioner (Appeal) rejected the refund claim pertaining to GTA, on the ground that the respondent had failed to produce the invoices issued by the transport agencies giving details of the exporter invoice relating to the exported goods.

 

The Commissioner (Appeal) further observed that part of the refund was filed for period from 01.07.2008 to 30.09.2008, whereas the services availed do not belonged to the said period. It was observed that if service tax paid is not related to the said quarter, the refund of service cannot be granted for which no claim stands filed.

 

Against this Revenue is in appeal before the Tribunal.

 

Appellant’s Contentions: - Revenue contended that the service providers were registered under the category of Business Auxiliary Services and not under the Port services/ CHA services.

 

Respondent’s Contention: - With regard to refund claim relating to GTA service, respondent submitted that the transporters never raise the invoice and give lorry receipts only, which reflects upon the entire particulars. Such lorry receipts mention the exporter’s invoice and the corresponding shipping bills so as to co-relate their claim.

 

Respondent further contended that the time limit for claiming refund stands extended from 60 days to six months from the end of the quarter. It was submitted that the Board in his Circular No. 112/06/2009-ST dated 12.3.2009 has clarified that the refund of service tax in respect of goods exported during the quarter March to June 2008 could be filed till 31 December 2008, if the refund is otherwise admissible.

 

Reasoning of Judgment: - With regard to the issue that the service provider was registered under different category, the Tribunal held that the said issue stands clarified by the Board vide its Circular No. 112/06/2009 dated 12/3/2009 that procedural lapses are to be dealt with separately, independent of the process of refund. Thus, Revenue’s contention that service provider was registered under different category cannot be made a basis for denial of refund to the appellant. In any case, the Tribunal noted that the amount of refund sanctioned by Commissioner (Appeals) is also less than Rs. 50,000/-, therefore, the Tribunal found no reason to interfere in the impugned order of Commissioner (Appeals).

 

With regard to refund claim of service tax not pertaining to allowed period of filing refund, relying upon the clarification given by Circular No. 112/06/2009-ST dated 12.3.2009, the Tribunal held that reasoning adopted by the Commissioner (Appeal) in this regard cannot be upheld.

 

With regard to refund claim relating to GTA service, the Tribunal held that there is no rebuttal to the appellant’s contention that the lorry receipts and the corresponding shipping bills specify the relevant details relating to export goods. The rejection of the claim on the technical ground that there was no invoice but instead there were lorry receipts is not justified. Part of impugned order in this regard set aside.

 

Accordingly, Tribunal set aside the part of the impugned order of Commissioner (Appeals) and remanded the matter adjudging the admissibility of the refund claim on merits.

 

Judgment: - Appeal partly allowed and partly remanded.

 

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Case: Commissioner of C. Ex., Nagpur v/s Ultratech Cement Ltd.

 

Citation: 2010 (20) STR 577 (Bom.)

 

Issue: - Whether the outdoor 'catering services' provided in the factory for employees of the factory is an input service falling under the ambit of the definition of "Input service" specified under Rule 2(l) of Cenvat Credit Rules, 2004?  

 

Brief facts: - Respondent-assessee is engaged in the manufacture of cement. On scrutiny of their records, the Excise Authorities noted that during the period 2004-08, the respondent had availed credit of service tax paid on outdoor catering services under the provisions of CC R, 2004 & utilized the same in paying excise duty on clearance of cement manufactured by the appellant.

 

Revenue was of the opinion that outdoor catering services was not a "Input service" under Rule 2 (l) of the 2004 Rules and therefore, the respondent was not entitled to take credit of service tax paid on outdoor catering services. Show cause notice was issued. The Adjudicating Authority disallowed the credit so taken and imposed penalties and demanded interest.

 

Being aggrieved by the same, respondent filed appeal before the Commissioner (A). The Commissioner (A) allowed the appeal by following the Larger Bench decision in Commissioner of Central Excise vs. GTC Industries Ltd [2008 (12) STR 468 (T-LB)]. The Larger Bench in the case of GTC Industries Ltd had held that the cost of food borne by the factory would form part of the cost of production and hence, credit of duty paid thereon was allowable.

 

Against this order, Revenue filed appeal before the Tribunal. The Tribunal upheld the order of the Commissioner (A) by following the Larger Bench decision in GTC Industries Ltd.

 

Challenging the said order of the Tribunal, the Revenue has filed the present appeal before the High Court. 

 

Reasoning of Judgment: - The High Court held that after taking into consideration, the definition of “input services” in brief, the definition of 'input service' not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition.  

 

On the facts of the present case, the High Court noted that the services covered under the inclusive part of the definition of input service are services which are rendered prior to the commencement of manufacturing activity as well as services rendered after the manufacture of final products and includes services rendered in relation to business such as auditing, financing …..... etc. Thus, the substantive part of the definition "input service" covers services used directly or indirectly in or in relation to the manufacture of final products, whereas the inclusive part of the definition of "input service" covers various services used in relation to the business of manufacturing the final products. In other words, the definition of "input service" is very wide and covers not only services, which are directly or indirectly used in or in relation to the manufacture of final products but also includes various services used in relation to the business of manufacture of final products, be it prior to the manufacture of final products or after the manufacture of final products. To put it differently, the definition of input service is not restricted to services used in or in relation to manufacture of final products, but extends to all services used in relation to the business of manufacturing the final product.  

 

The expression "activities in relation to business" in the definition of "input service" postulates activities which are integrally connected with the business of the appellant. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2(l) of the 2004 Rules.  

 

In the opinion of the High Court, the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd in the context of the definition of 'input' in Rule 2(k) of 2004 Rules would equally apply while interpreting the expression "activities relating to business" in Rule 2(l) of 2004 Rules. No doubt that the inclusive part of the definition of `input' is restricted to the inputs used in or in relation to the manufacture of final products, whereas the inclusive part of the definition of input service extends to services used prior to/during the course of/after the manufacture of the final products. The fact that the definition of `input service' is wider than the definition of `input' would make no difference in applying the ratio laid down in the case of Maruti Suzuki Ltd while interpreting the scope of `input service'. Accordingly, in the light of the judgment of the Apex Court in the case of Maruti Suzuki Ltd, it was held that the services having nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product would qualify to be input service under Rule 2(l) of 2004 Rules.  

 

It was further held that in the facts of the present case, use of the services of an outdoor caterer has nexus or integral connection with the business of manufacturing the final product namely, cement. Hence, it was held that the Tribunal was justified in following the Larger Bench decision of the Tribunal in the case of GTC Industries Ltd and holding that the appellant is entitled to the credit of service tax paid on outdoor catering service.  

 

The High Court held that in view of the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd, it cannot be said that the definition of `input service' is restricted to the services used in relation to the manufacture of final products, because the definition of `input service' is wider than the definition of `input'.  

 

Therefore, it was held that the definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In the facts of the present case, use of the outdoor catering services is integrally connected with the business of manufacturing cement and therefore, credit of service tax paid on outdoor catering services would be allowable.  

 

The High Court rejected the argument of the Revenue that the expression "such as" in the definition of input service is exhaustive and is restricted to the services named therein. It was held that the substantive part of the definition of `input service' as well as the inclusive part of the definition of `input service' purport to cover not only services used prior to the manufacture of final products, subsequent to the manufacture of final products but also services relating to the business such as accounting, auditing..... etc. Thus the definition of input service seeks to cover every conceivable service used in the business of manufacturing the final products. Moreover, the categories of services enumerated after the expression 'such as' in the definition of 'input service' do not relate to any particular class or category of services, but refer to variety of services used in the business of manufacturing the final products. There is nothing in the definition of `input service' to suggest that the Legislature intended to define that expression restrictively. Therefore, in the absence of any intention of the Legislature to restrict the definition of 'input service' to any particular class or category of services used in the business, it would be reasonable to construe that the expression 'such as' in the inclusive part of the definition of input service is only illustrative and not exhaustive. Accordingly, High Court held that all services used in relation to the business of manufacturing the final product are covered under the definition of `input service' and in the present case, the outdoor catering services being integrally connected with the business of the manufacture of cement, credit of service tax paid out on catering services has been rightly allowed by the Tribunal.  

 

The argument of the Revenue that the expression "such as" in Rule 2(l) of 2004 Rules is restricted to the categories specified therein, runs counter to the C.B.E.C. Circular No.97, dated 23rd August, 2007. In that Circular the CBEC has held that the credit of service tax paid in respect of mobile phone service is admissible provided the mobile phone is used for providing output service or used in or in relation to manufacture of finished goods. Mobile phone service is neither used in the manufacture of final product nor it is specifically included in the definition of input service. Even then, the C.B.E.C. has construed the definition of input service widely so as to cover not only the services specifically enumerated in the definition of 'input service' but also cover all services which are used in relation to the business of manufacturing the final products. Therefore, the argument of the revenue which runs counter to stand taken by the C.B.E.C. cannot be accepted.  

 

The High Court agreed with the judgment given in the case of Coca Cola India Pvt Ltd. But held that the observation of the Division Bench in the case of Coca Cola India Pvt Ltd has to be construed to mean that where the input service used is integrally connected with the business of manufacturing the final product and the cost of that input service forms part of the cost of the final product, then credit of service tax paid on such input service would be allowable.  

 

The High Court held that Larger Bench in GTC Industries Ltd has also observed that the credit of service tax would be allowable to a manufacturer even in cases where the cost of the food is borne by the worker. It was held that that part of the observation made by the Larger Bench cannot be upheld, because, once the service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer.

 

Respondent has fairly conceded to the above position in law and have submitted that the proportionate credit to the extent embedded in the cost of food recovered from the employee/worker has been reversed by them.  

 

Question of law answered in favour of the respondent-assessee and against the revenue.

 

However, the CENVAT credit reversed by the respondent, belatedly, having not been verified by the Excise Authorities, the Excise Authorities are directed to verify the same and pass an appropriate order in that behalf.  

 

Decision: - Appeal disposed of accordingly.

 

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Customs Section

 

Case: Asstt. Coll. of Cus. (Prev.), Mangalore v/s Abdulla @ Abdulla Kunhi

 

Citation: 2010 (260) E.L.T. 181 (Kar.)

 

Issue: - Different statements were given by different people at different time. In such a case how the prosecution proceedings are to be dealt with?

 

Brief Facts: - The Asst. Collector of Customs got credible information that contraband gold is concealed in the room of Hotel Rivera, Mangalore. They conducted a search of the said premises in the presence of the witnesses. It is the case of the prosecution that Respondents No. 1 to 3 were found in the said room. During the course of search, an old Samsonite Pouch and some bundles of currency were found in the drawer of the said room. The Pouch contained five palates of gold of foreign origin. When counted, the currency amount to Rs. 34,800/-. The smith who tested the gold palates certified that they are 24 carat of purity gold. Immediately, a panchanama was drawn and the property was seized. Thereafter, A1 and A3 were produced before the custom officials. A1 gave statement saying that he is managing partner of hotel Rivera and that the above pouch was given to him by A2 and further they gave statement to the effect that A3 was employed for disposal of the pouch on the basis of commission. Thus it was alleged that they had contravened the provisions of the Customs Act and Gold Control Act.

 

Accordingly, prosecution proceedings were initiated against the respondents. But the Trial Court acquitted the respondents.

 

Appellant’s Contentions: - Revenue submitted that as per Sec. 108 of the Customs Act, the statement given by the accused persons to the Customs Officer as per Ex. P2 to P4 are admissible in law and therefore, statement containing the fact that respondents were in possession of gold biscuits.  Further, it was submitted that the evidence of officers of MINT is relevant and is admissible in law. Further such a report can be produced before the court of law for the purpose of proving the case.

 

Respondent’s Contentions: - Respondent submits that referring to the evidence of PWs at the relevant time the respondents were in the custody of the customs officers and that the statement was taken either by threat or by promise of some form. Therefore, they cannot be relied upon. So far as recovery of gold is concerned, no independent witness is examined in the case.  Therefore it was submitted that the prosecution case is not proved beyond reasonable doubt. Reliance was placed on following judgments:

 

(1)       Asst. Collector of Central Excise, Rajamundry v. Duncan Agro Industries Ltd. [2000 (120) E.L.T. 280 (S.C)]

(2)       Asst. Collector of Customs v. Pratap Rao Sait [1972 CRL L.J. 1135]

(3)       Hira H. Advani. V. State of Maharashtra [1983 (13) E.L.T. 1413 (S.C)]

(4)       Harbansingh sardar Lenasingh v. the State of Maharashtra [2004 (177) E.L.T 13 (S.C)]

 

Reasoning of Judgment: - The High Court was of the opinion that the said certificate does not bear any seal of the office from which it is supposed to be originated nor it contains any information of the office where the said certificate was issued. It is further noticed that the said certificate is a stencil cut form where certain information is not filled up in hand nor the person who has signed it has been examined before the court. It also does not bear any details of examination conducted in respect of the gold articles sent to him. Hence, no reliance can be placed on P6 to hold the material seized is gold of foreign origin.

 

So far as the statement of the accused person recorded in the case is the evidence that they have produced and recorded the statements. It is to be noted that as soon as witness’s recovered the alleged contraband gold from A1 to A3 were in custody. Further in the statement under Sec. 313 the accused has stated that they were threatened and beaten.

 

Under the circumstances, the High Court held that the statement alleged to have been made by A1 to A3 is not voluntary and hence, the same cannot be relied on to convict the appellants.

 

Hence, the prosecution has miserably failed to bring home the guilt of accused beyond reasonable doubt and the judgment of the Trial Court is sound and proper and does not warrant interference by this court.

 

Decision: - Appeal dismissed.

 

 

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