Pradeep Jain - Chartered Accountant

PJ/Case laws/08-09/02

PJ/Case laws/08-09/02 Date: 08-05-2008

CASE LAWS

1. The petitioner M/s Nagarjuna Constructions Co. Ltd. filed a writ petition particularly in the nature of Writ of Mandamus with the High Court of Andhra Pradesh against the Circular No. 98/1/2008-ST dt. 4-1-2008. The said circular provided for the non applicability of Works Contract Service (Section 65 (105) (zzzza)) for the ongoing projects prior to 01-06-2007.

Hon’ble High Court has set stay on the said Circular till further orders.

This was a big dispute going on between the department and construction industry on this issue. The service tax on works contract was introduced from 1.06.2007. Prior to that, the construction industry was paying the service tax under “Commercial Construction” or Construction of Residential Complexes” category of service tax. The Composition scheme under the “Works Contract” service has a clause that the person should opt for the same before the starting of the project. The dispute was raised whether the industry can opt for ongoing project on the date of introduction of service tax on works contract. The argument in favour of the same given by many leading consultants was that there was no option when the project was started. The first available opportunity to exercise the option is only on 01.06.2007. But the department did not agree with the same and they have issued the circular no. 98/1/2008-ST cited above. They said that the single contract can not be divided into parts for this purpose.

But the Andhara High Court has given the stay in the matter. This is relief to the industry. But the legal battle is on and outcome will come on a future date.

[2008-TIOL-252-HC-AP-ST]

2. M/s Bellary Steel and Alloys Ltd. availed Capital Goods Credit on PVC pipes used for drawing water from a distance of two Km from the plant when use of such water was necessary for their manufacturing process and where such a pipe line was connected to the factory from an outside water source as a conveyor mechanism for delivery of water.

The adjudicating authority denied the credit on the ground that pipes were used outside the factory and hence there was no entitlement for capital goods credit.

The Commissioner (Appeals) set aside the order in original and allowed the Credit to the assessee. The Revenue filed an appeal against the order of the Commissioner (Appeals) to CESTAT.

The CESTAT disposed off the appeal of the Revenue and allowed the Credit to the assessee on the ground that the water used by the assessee is an essential ingredient for manufacturing of final products and as such pipes are used in relation to the manufacture of final products.

[2008-TIOL-662-CESTAT-BANG]

3. The appellant M/s Cummins India Ltd. reversed CENVAT Credit on account of shortages of inputs noticed by them on physical verification of stock.

However, they were issued a show cause notice for reversing the credit and also required them to pay interest and penalty. On appeal by the assessee the penalty was set aside but the demand for interest was continued. The assessee approached CESTAT wherein the appeal was allowed in favour of assessee on the ground that they had already the Credit.

[2008-TIOL-556-CESTAT-MUM]

4. The appellant M/s EMCURE PHARMACEUTICALS LTD. is a 100 % EOU. The issue involved in this case was whether Credit of entire education Cess paid by a supplier who is 100% EOU is admissible or not.

The revenue was of the contention that the credit of Education Cess will not be allowed as there is no formula fixed for availing the Credit of the Education Cess paid on the clearance made by an 100% EOU.

The CESTAT allowed the appeal in favour of assessee seeking the merits of circumstances and relying on facts of decided cases.

[2008-TIOL-625-CESTAT-MUM ]

5. The appellant M/s BIOPAC INDIA CORPN. LTD. are engaged in the manufacture of plastic raw materials and petrochemicals. The fire took place in the factory of the appellant and the goods lying in the factory premises were totally damaged.

Thereafter the Commissioner of Central Excise passed an order to the assessee demanding the payment of MODVAT credit availed by them in respect of capital goods destroyed in the fire. In addition to it the payment of MODVAT on semi finished goods and finished goods destroyed in fire were also demanded. Moreover the appellant was ordered to reverse the MODVAT taken on inputs destroyed ‘as such’ in fire.

The Tribunal partly allowed the appeal and partly disposed it off on the following grounds: -

1. In respect of Inputs the Reversal of MODVAT was allowed as because under CENVAT Credit Rules MODVAT is allowed only when input goods are used in or in relation to manufacture of final products.

2. In respect of order demanding Reversal of MODVAT relating to Capital goods was denied on the ground that the provisions of the MODVAT Rules seek reversal of Credit only in a situation where the capital goods are removed as such or sold and in the present case no such circumstance exists.

3. In respect of duty involved on semi finished goods and finished goods the Tribunal set aside the order demanding the duty on the ground of application by the appellant for remission of duty.

[2008 (224) ELT 548 (TRI. AHMED.)]

6. The issue involved in this case relates to the admissibility of CENVAT Credit on Plastic Crates used for storing of raw material.

The appellant M/s GKN Sinter Metals Ltd. had purchased plastic crates, and used them in transporting and storing raw material and finished goods within their premises. A show cause notice was issued to the appellant for availment of Cenvat Credit on plastic crates which is inadmissible since the crates are not used in or in relation to manufacture of the final products.

On the other hand the appellant contended on the issue that the crates were used in the factory for storing and transporting raw material and finished goods, and proper storage is very essential for manufacturing process.

The Tribunal allowed the appeal in favour of the assessee on the ground that the use of crates indirectly supports the manufacturing process and hence the CENVAT Credit is rightly availed by the assessee.

[2008 (224) ELT 560 (TRI. MUMBAI)]

7. M/s Birla Corporation Ltd. removed the goods on payment of duty but bought back the same for remaking, refining etc. The process involved by them does amounted to manufacture as per the provisions of the law. Hence the Credit taken by the appellant was required to be reversed.

Later on a show cause notice was issued to the assessee for the reversal of the Credit taken and for invoking the provisions of Rule 57-I and Rule 57-U of Central Excise Rules, 1944. However the MODVAT provisions of the Central Excise Rules, 1944 were not in existence at that time, having been substituted by the Notification No. 27/2000-CE (N.T.), dated 31-2-2000.

The Tribunal set aside the order in original demanding the reversal of Credit taken on the ground on non existence of the provisions invoked at the time of issue of show cause notice.

[2008 (224) E.L.T. 567 (Tri. Mumbai)]

8. M/s International Testing Centre availed the credit of the service tax paid on telephone charges. The telephone was installed at the residential address of the proprietor. The show cause notice was issue to the assessee for wrong availment of CENVAT Credit as Service tax Credit is admissible on telephone installed at business premises and not at residence. The Tribunal set aside the appeal by M/s International Testing Centre on the merits of the ground proposed by the Revenue. Hence the Credit availed was not admissible.

[2008 (10) S.T.R. 253 (Tri. Delhi)]

9. The appellant M/s Keltech Energies Ltd. had availed the Service Tax Credit on Telephone services (mobile phones and landline phones installed outside the factory i.e. in the residence of the Directors and Officers of the Company).

The Revenue contended the availment of such Credit as wrong since the Credit in respect of the mobile phones and landline phones installed outside the factory, they do not qualify as input service and hence, the credit is not allowed.

The appellant responded that the availment of the Credit should be allowed as the mobile phones and landline phones installed outside the factory i.e. in the residence of the Directors and Officers of the Company have been paid by the company and that to the telephones are being used for business purpose only.

The Tribunal allowed the appeal in favour of the assessee and set aside the order in original seeking the merits of the contention proposed by the appellant.

[2008 (10) S.T.R. 280 (Tri. Banglore)]

10. The appellants M/s Hindustan Engineering and Industries Ltd. Manufactured railway wagons which are fully exempted from duty. They received the duty paid inputs from outside and without taking credit of the duty; they removed the same on job work. After processing the job worker returned the goods to the appellants for use in the manufacture of exempted railway wagons.

The appellant was issued a show cause notice for contravention of Notification No. 214/86-CE, dated 25-3-86 and a huge amount of duty liability was raised on them.

The appellants contended on the issue that the Notification No.214/86-CE is not applicable in this case as the said Notification applies only when the finished goods are leviable to duty either in whole or in part.

The CESTAT allowed the appeal in the favour of the assessee on the grounds raised by them.

[2008 (85) RLT 841 (CESTAT-Kol.)]

BY: -

F.C.A. Pradeep Jain

Siddharth Rutiya

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