Pradeep Jain - Chartered Accountant

Case: - Singh Brothers v/s CC & CE, Indore

Citation: - 2009 (92) RLT 570 (CESTAT-Del.)

Issue: - Whether unloading of coal from rail wagons on to conveyor belt and breaking and pushing of big coal lumps onto track Hopper in power station would constitute cargo handling service and therefore liable to service tax?

Brief Facts: -

Appellants had contract with a thermal power station for handing work relating to unloading of coal from rail wagons and discharging them to conveyor belt through track hopper. This also included breaking and pushing of coal lumps of bigger size into track Hopper. Appellant hired labour for the same. Work was being done within the premises of power house. Department issued show cause notice. The Commissioner held that the work handled by the appellants falls under the category of “Cargo Handling Service” and demanded service tax and imposed penalties. The appellant have filed appeal before CESTAT against the said order.

Appellant’s Contention:

Appellant contended that when the doors are opened, substantial quantity of coal automatically moves to hoppers and then discharged to conveyor belt. The labour opens the gates and doors breaking lumps of coal and shoveling the quantities of coal which do not automatically fall into the hopper for further being carried automatically by conveyor system. Also no motor vehicle is used for transporting the coal.

Appellant have relied upon the case of S.B. Construction Company v/s Union of India [2006 (4) STR 545 (Raj.) in which it was held that the activity of handling of coal done through wagon tipping system or conveyor system would be out of the purview of service tax.

Appellant have relied upon clarification given by Board in F.No. B11/1/2002-TRU dated 01.0809 [2002 (51) RLT M135] to submit that service tax is not attracted in every case of cargo handling agents. It is submitted that appellants are only contractors and cannot be held to be cargo handling agents.

Respondent’s Contention:

The respondents have contended that the appellant are providing the service of cargo handling and relied upon the judgment given in Gajanand Agarwal & Ors. v/s Commissioner of Central Excise & Customs, BBSR, [2009 (90) RLT 566 (CESTAT-Kol.)] wherein in similar situation of loading of coal, the said activity has been held to fall under the cargo handling services.

Reasoning of Judgment:-

The Tribunal held that the definition of cargo handling service makes it clear that main thing is loading, unloading, packing or unpacking of cargo. And it is not disputed by the Appellants that they are unloading cargo and using labourers to do so. The Tribunal has relied upon Gajanand Agarwal & Ors. in which it was held that cargo handling services provided in respect of domestic cargo only are liable to tax under service tax. Only two exceptions do not fall in the said service:- 1. handling of export cargo or passenger baggage and 2. mere transportation of goods. The event of levy arises when service relating to or in relation to handling of cargo is provided by a cargo handling agency irrespective of mode of transport used for movement of such cargo. In the said judgment a list of activities was held to fall under cargo handling service. The Tribunal further held that the case of S.B. Construction Company dealt with handling of cargo which was completely done by mechanical devices. The Tribunal held that the facts of the present case were substantially the same as that of the case of Gajanand Agarwal & Ors. The decision of Commissioner cannot be faulted with.

It was further held that as the appellant had bona fidely believed that they did not fall under the service tax net during the relevant period therefore, demand for part of the period is held to be substantially time-barred. Also as question of interpretation of law was involved and there was no suppression of facts, there was no justification to invoke extended period of limitation and no penalty is imposable. The demand requires to be recalculated for restricted normal period of limitation. The benefit of cum-tax should also be extended. Direction accordingly given to original authority.

Decision: - Appeal disposed off in the above terms.

Case: - Union of India v/s Triveni Conductors Ltd.

Citation: - 2009 (92) RLT 460 (MP)

Issue: - Whether the Department can withhold pre-deposit amount in an appeal passed in favour of assessee on the pre-text that the appeal of appellant against such withholding was time barred?

Brief Facts: -

Assessee deposited pre-deposit amount under protest for filing of appeal. The appellate authority set aside the impugned order passed against the assessee and he had already deposited the amount on account of grant of appeal. Thereafter the assessee applied for refund of amount deposited under protest before the Deputy Commissioner. The application was allowed but the said amount was appropriated towards demand made in view of two other recovery orders. Assessee filed appeal against the appropriation of said amount. The appeal was rejected as being time barred but the Commissioner (Appeals) made observation that as the assessee had complied with the demand raised in the two recovery orders, the Department may still consider the matter and issue a cheque of the amount asked for in refund.

The Department was not happy with the observation made by the Commissioner (Appeals) and challenged them in appeal. The Vice President rejected the appeal by observing that it would not be open to the Authority to challenge the observations and that the Commissioner was justified in making such observations.

The Department still aggrieved by this order filed appeal before the High Court. The substantial questions of law raised before the High Court were as under:-

1. Whether the Commissioner (Appeals) was correct in giving the observations which were contrary to the decision taken by him of time bar based on merit of the case?

2. Whether the Commissioner (Appeals) has traveled beyond his legitimate jurisdiction which was otherwise not available to him?

Appellant’s Contention:

It was contended that if the appeal was dismissed by Commissioner (Appeals) then he had no jurisdiction to issue such directions. It was submitted that the Commissioner travelled beyond his legitimate jurisdiction in making observations because he had no powers to make such observations.

Respondent’s Contention:

Assessee contended that the Government Departments were supposed to be honest and they cannot take undue advantage on technicalities. The Department would be entitled to appropriate the amount provided that the liability still existed. The assessee has discharged the liability by depositing the amount then the Department cannot be permitted to appropriate the amount which was to be refunded to the assessee and the department cannot retain the amount deposited which was deposited in compliance with the two recovery orders.

Reasoning of Judgment:-

When the Department is considering the case of refund he can retain/appropriate the amount deposited by the assessee only if he comes to a finding that recovery is still pending against an assessee. However, if the Department finds that the liability on an assessee has been discharged by him and there is no liability, then he cannot appropriate the amount asked to be refunded only because there is some order directing appropriation. If the department had received a deposit then it could either receive the amount or it could appropriate the amount but it could not do both.

The observations made by the Commissioner (Appeals) required the Department to pass appropriate orders to show the assessee that the department was not acting dishonestly but is recovering or retaining money which under law they are entitled to.

Questions on which appeal was admitted do not arise for consideration. The Department to consider the observations made by the Commissioner (Appeals) and pass final order in the matter within 3 months after giving opportunity of hearing to the petitioner enabling him to show to the Authority that the said amount could not be misappropriated.

Decision: - Petition dismissed.

Case: - CCE & C, Cochin v/s Excel Corrugated Boxes (P) Ltd.

Citation: - 2009 (92) RLT 462 (Ker.)

Issue: - Whether duty can be demanded from the jobworker for doing jobwork as per procedure of Rule 57F of Central Excise Rules, 1944 because the principal manufacturer belatedly filed declaration under Notification 214/85-CE.

Brief Facts: -

Respondent was manufacturing and supplying corrugated carriers to M/s Pepsi on jobwork basis. M/s Pepsi was sending raw materials along with challan prescribed under Rule 57F (3). M/s Pepsi was filing declaration under Notification No. 214/86-CE. However, the declarations filed by M/s Pepsi were belated. Demand for duty was raised against the respondent-jobworker. The Tribunal held that the duty was being claimed from the respondent only because of belated filing of declaration under Notification No. 214/86-CE by the awardees i.e. M/s Pepsi. It was held that the respondent could not be penalized through levy of duty for belated submission of declaration. Against the order of the Tribunal, department has filed appeal in the High Court.

Reasoning of Judgment:-

There is no dispute that the awardees i.e. M/s Pepsi are liable to pay duty for the goods cleared to them. Therefore, there is no grievance caused because if duty is charged, M/s Pepsi are entitled to get Cenvat credit and when duty is not charged credit is not taken by them. Therefore, the awardees i.e. M/s Pepsi will be paying full duty on the products sold to them. Thus, no grievance is caused to the department from the order of the Tribunal.

Decision: - Appeals dismissed.

Case: - Henkel India Ltd. v/s CCE, Chennai-II

Citation: - 2009 (92) RLT 467 (CESTAT-Che.)

Issue: - When the assessee who has wound its operations and surrendered the central excise registration and has leased out the factory premises to someone else, then is he required returning the credit availed on inputs/capital goods lying in the premises but which were not cleared?

Brief Facts: -

Assessee-manufacturer had wound up its operations at the premises and surrendered its central excise registration certificate in 2004. He leased out his factory to another party (HSIC). Thereafter, during inspection of records it was found that assessee had removed stock of credit availed inputs when the factory was leased to HSIC without remitting the credit relatable to the stock of inputs to the Government. Department issued show cause notice in 2006 and invoked larger period of limitation on the ground that the assessee had suppressed the fact of removal of inputs to the lessee of the factory, HSIL. The Commissioner found that appellants had removed inputs without paying back the credit availed to the exchequer when factory was leased out. The Commissioner passed the order demanding amount equivalent to the credit availed on inputs with interest and also imposed penalty.

Appellant’s Contention:

It was contended that there was no credit availed inputs in stock at the time of leasing the factory to HSIC except for goods received by them from HSIC for manufacture of final products on job work basis. The assessee had not removed any credit availed inputs from the factory. There were no provisions in the statute which required payment of credit on inputs available in the factory when leased out to some other party. Reliance has been placed on two judgments passed in the case of CCE, Chennai-IV v/s Soft Caps Pvt. Ltd. [2007 (81) RLT 510 (CESTAT-Che.) and Bilt Industrial Packaging Co. Ltd. v/s CCE, Salem [2008 (84) RLT 276 (CESTAT-Che.). In the first case by relying on Jamuna Auto Industries Ltd v/s Commissioner [2000 (41) RLT 826 (CEGAT)] it was held that no duty was required to be paid on inputs and capital goods lying in the factory as the ownership of the factory had changed since there had been no removal of inputs/capital goods as contemplated under Rule 9 and 49 of the CER.

In the second case it was held that input duty credit or capital goods credit already availed and utilised was not recoverable from a manufacturer of final products alienating his factory by way of sale and surrendering his central excise registration to the department.

Respondent’s Contention:

Counsel for respondent reiterated the reasoning and finding contained in the impugned order.

Reasoning of Judgment:-

The Tribunal held that the common ratio of the judicial decisions cited by the appellant-assessee was that credit availed on inputs and capital goods is not recoverable as long as they are not removed from the factory and are used in or in relation to manufacture the final products. The Tribunal held that this ratio will apply even in cases, where the factory is transferred on lease like in the subject case. Impugned order is not sustainable in view of the ratio laid down in the said judgments.

Decision: - Impugned order set aside. Appeal allowed with consequential relief.

Case: - Genus Electrotech Ltd v/s CCE, Rajkot

Citation: - 2009 (92) RLT 465 (CESTAT-Ahmd.)

Issue: - Whether an assessee can be compelled to avail credit of duty paid on capital goods on which they have claimed Depreciation under Section 32 of the Income Tax Act, 1961?

Brief Facts: -

Appellants are a unit located in Kutch District of Gujarat. Initially when they were set up they took Cenvat credit on capital goods purchased by them from time to time in the year 2004. Commercial production started on 14.01.2005. Appellants decided to forego the capital goods credit as they wanted to avail depreciation on the value of capital goods which represented the excise duty under Section 32 of the Income Tax Act, 1961. The appellants accordingly reversed the Cenvat credit on 31.01.2005. As being a unit in Kutch District of Gujarat they were availing the exemption under Notification No. 39/2001-CE dated 31.07.2001. Accordingly they were granted refund of excise duty and/or the additional duty of excise for the period November 2005 to March 2006. Department initiated proceedings against the appellants for recovery of refund by contending that the appellants should have utilised the Cenvat credit on capital goods (which was reversed by them) first for payment of duty on finished goods and as they have not done so, they have claimed excess refund in cash from the department.

Appellant’s Contention:

It was contended that once the appellants have opted to claim depreciation under Section 32 of the Income Tax Act, 1961 there is no option available to the appellants under Cenvat Credit Rules, to avail credit as Rule 4 (4) specifically bars taking of credit in such circumstances. The excise authorities cannot stop appellants from taking benefit which is otherwise admissible to them under any law as under Income Tax. Therefore, the contention of the Department that the appellants have no option of not availing credit is incorrect. The choice to take credit or not is at the discretion of the appellants. The Department cannot force appellants to take credit which otherwise is not admissible to them under law.

It was also contended that the demands were time barred as the department was aware about all these facts.

Respondent’s Contention:

The Department has contended that the Cenvat credit balance available to the appellants on last day of December 2004 should have been utilised for payment if duty on clearances made from December onwards. When it was pointed out that the clearances started only in November 2005 even though commercial production started in January 2005, the appellants also fairly agreed that during the month when first clearances took place and during the period for which refund was sanctioned is proposed to be recovered, the Cenvat credit on capital goods was not in existence. It was pointed out that the appellants had fairly agreed that reversal in January 2005 would serve the purpose of the notification.

Reasoning of Judgment:-

The appellants had reversed the Cenvat credit upto December 2004 in January 2005 to opt for claiming depreciation under Section 32 of the Income Tax Act, 1961. When the first clearances were made there was no Cenvat credit available in their account. Moreover there was nothing wrong in the unit taking decision to claim depreciation instead of Cenvat credit and reversing the same before they started clearance of goods from their factory. The credit was taken and reversed in the same financial year. Under the circumstances, the refund has been correctly sanctioned to the appellants.

Decision: - Appeal allowed with consequential relief.

Case: - Nemson Processors v/s CCE, Surat

Citation: - 2009 (92) RLT 477 (CESTAT-Ahmd.)

Issue: - Whether assessee is required to pay duty as per APC including portion of galleries which is not challenged by them eventhough the Judgment of Apex Court has held that portion of galleries is not to be included in APC.

Brief Facts: -

Appellants are engaged in the processing of fabrics. They were required to discharge duty liability in terms of Annual Production Capacity (APC) fixed under the Compounded Levy Scheme. Appellants paid duty by excluding the portion of galleries. They followed the judgment given in CCE, Jaipur v/s M/s Sangam Processors Bhilwara Ltd. [2001 (42) RLT 429 (SC)] which was later confirmed by the Apex Court as reported in [2002 (53) RLT 644 (SC). It was held that the galleries were not to be considered as part of chambers for determining APC.

But the Demand was confirmed against appellants on the ground that they did not challenge the APC fixed by the Commissioner and as such they were bound by it. Appellant has filed appeal against the said decision.

Reasoning of Judgment:-

It was held that the law is no longer res integra. The Bombay High Court in the case of M/s Om Textiles Pvt. Ltd. v/s CCE, Belapur [2006 (74) RLT 233 (Bom.) has held that even if the APC fixed by the Commissioner has not been challenged, benefit of law declared by the Apex Court is required to be extended to them.

Decision: - Impugned order set aside. Matter remanded to Original Authority for fresh adjudication in view of judgment of Bombay High Court.

Case: - Aar Kay Processors v/s CCE, Jalandhar

Citation: - 2009 (92) RLT 742 (CESTAT-Del.)

Issue: - Whether Department can demand duty on the basis of Rules which have been held to be ultra –vires by the High Court?

Brief Facts: -

Commissioner of Central Excise has held that w.e.f. 01.01.99 appellants were not covered under the definition of Independent processors; hence they are not liable to pay duty under the Compound Levy Scheme. Demand of duty and penalty as well as interest was confirmed. Appellants challenged the impugned order on preliminary objections as well as on merit.

Appellant’s Contention:

Main contention raised is that duty was demanded on the basis of determination of annual capacity under the Hot Air Stenter Independent Processors Annual Capacity Determination Rules, 1998 issued under erstwhile Section 3A of the Central Excise Act, 1944. The Madras High Court in the case of Beuty Dyers v/s Union of India [2002 (52) RLT 636 (Mad.)] held that the said Rules prior to Notification No. 42/98, are ultra vires of erstwhile Section 3A of the Central Excise Act, 1944. The Tribunal in the case of Raji Thangam Textiles Ltd. v/s CCE, Coimbatore [2006 (205) ELT 631 (Tri.-Chen.)] had followed the decision of Madras High Court and set aside the order.

Respondent’s Contention:

Department has placed reliance upon decision of the Apex Court in the case of CCE, Gujarat v/s Roop Textiles Mills Ltd. [2007(213) ELT 486 (SC)] wherein the decision of Gujarat High Court on identical issue was set aside and matter remanded back to the High Court for decision. It is further submitted that the said issue was not taken by appellants before lower authorities.

Reasoning of Judgment:-

It was held that the High Court of Gujarat had dismissed the appeal of revenue in case of CCE, Gujarat v/s Roop Textiles Mills Ltd. without answering the question and merely stated that no question of law arose for determination. The Apex Court by taking into consideration decision of Madras High Court in Beauty Dyers case held that a question of law existed in the appeal and remanded the matter to Gujarat High Court. No observations were made by the Apex Court. The submission of department that the said issue was not taken by appellants before lower authorities is not sustainable as the issue is related to question of law and can be taken up before appellate authority. By following the decision of Madras High Court in Beauty Dyers, impugned order set aside. Order is passed without going into the merits of the matter.

Decision: - Appeal allowed with consequential relief.

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