Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/010

Case Laws

Central Excise Section

Case: - CC & CE, Tirupati v/s Lanco Industries Ltd.

Citation: - 2009 (93) RLT 713 (CESTAT-Ban.)

Issue: - The concept of unjust enrichment is rebuttable i.e. that is if it is proved that the burden of duty has not been passed then refund can be granted.

Brief Facts: - Respondent-assessee cleared goods to its buyers and thereafter issued credit notes in their favour. Thereafter he filed for claim of refund of excise duty as their supplies to the project was exempted from excise duty. The claim was rejected on the ground of unjust enrichment. However, the Commissioner (A) in appeal held that the incidence of duty has been borne by the respondent and he has produced sufficient to that effect and therefore, the clause of unjust enrichment is not applicable. Revenue has come in appeal against the said order.

Appellant’s Contentions: - Revenue contended that from the records it is clear that the respondents had collected duty from their buyers and that is the reason the buyers have insisted upon credit notes. The burden of duty had passed on to the buyers. The claim was hit by bar of unjust enrichment. Revenue has relied upon the judgments in the cases of Ballarpur Industries Limited v/s CCE [2005 (184) ELT 67 (Tri.-Del)] and S. Kumar Ltd. v/s CCE, Indore [2003 (55) RLT 399 (CEGAT-LB)].

Respondent’s Contentions: - Respondent contended that they have issued the credit notes to the purchasers, which in itself is an indicator that they have not passed on the incidence of duty to their customers.

Reasoning of Judgment: - The Tribunal has relied upon the judgment of the High Court of Rajasthan in the case of UOI v/s M/s AK Spintex Ltd and Anr [2009-TIOL-12-HC-Raj-CX] in which it was held that “….after issuance of debit note and credit note, the price of goods charged by the seller, from the purchaser, is the price, initially billed, minus the amount of the debit note, and credit note, and therefore, when the debit notes and credit notes are issued and effected, which are not disputed, it cannot be assumed, that incidence of burden of excise duty has been passed on to the purchaser.”

It was further held that Section 12-B only placed burden of proof on assessee, by presumption, against him, and nothing else. The said burden is rebuttable one and assessee can discharge the same by leading evidence. If the facts in this regard are shown and proved, then the burden shifts to revenue. Then the revenue is required to prove, either that the theory projected by the assessee is fake and false or the burden has been actually passed on. Once the assessee leads reliable evidence, about his having not passed burden on the purchaser, and revenue fails to rebut that evidence, the presumption enacted by Sec. 12-B, stands sufficiently rebutted, and cannot survive as-infinitum.

It was further held therein that “Passing on the burden of excise duty to the nest purchaser, cannot be left in the realm of presumption. In cases, where the assessee is able to show, that the burden is not passed on, or it has been reversed, the claim of refund cannot be denied.”

Accordingly, the Tribunal held that the issue stands decided in favour of the assessee. There is no merit in Revenue’s appeal.

Decision: - Appeal rejected.

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Case: - K.K. Kadri Paper Mills P. Ltd v/s CCE, Vapi

Citation: - 2009 (93) RLT 732 (CESTAT-Ahmd.)

Issue: - Duty can be recovered from the successor of the unit even though he has purchased the unit in auction.

Brief Facts: - M/s P failed to pay excise duty on time and paid the duty subsequently in installments. Show cause notice was issued and the adjudicating authority confirmed demand of duty with interest and imposed penalty. In the meantime, M/s P closed down. Its immovable property was auctioned by Gujarat Industrial Corporation Development (GIDC) and was purchased by the appellant. Department required that the interest and penalty is to be paid by the appellant. Appellant filed appeal against the letter of the superintendent requiring them to pay the said dues. The Commissioner (A) held that the appellant were liable to pay the dues in view of the undertaking given by them. Appellant has come in appeal before the Tribunal.

Appellant’s Contentions: - It was contended that the said undertaking was given at the time of taking over of the unit as the department had refused to grant registration unless such undertaking was given. The liability of the successor under Section 11 would arise only in case of transfer of business by the previous assessee. Reliance was placed on judgments in case of Macson Marbles Pvt Ltd [2003 (59) RLT 502 (SC)] and argued that as they had not participated in adjudicating proceedings, penalty could not be imposed on them. For interest liability, reliance is placed on Elastolan Engineers Pvt Ltd [2007 (83) RLT 833 (CESTAT-Kol.)] and was contended that calculation has been made on the basis of Notification issued under Rule 8 (3), but the rate of interest was to be calculated as per the Notification under Section 11AB.

Respondent’s Contentions: - Revenue contended that having given undertaking the appellants cannot turn around now and say that they are not liable. As per law, the department cannot compel a person to give an undertaking since once application was made for registration is deemed to have been granted. Reliance has been placed on Macson Marbles Pvt Ltd wherein it was held that even though a person takes over the business as a result of auction conducted by the State Financial Institution, he would be liable to pay excise dues as per Rule 230 (2) of erstwhile Central Excise Rules, 1944.

Reasoning of Judgment: - The Tribunal has placed reliance on the case of Macson Marbles Pvt Ltd in which it was held that on transfer of industrial unit by the State Financial Institution, liability to pay excise dues of the previous owner gets transferred to the purchaser. Once the assessee has given undertaking, he cannot go back and say that the undertaking was not binding on them. Thus, in terms of Section 11 and said undertaking, appellant is liable for the dues against M/s P.

As regards interest, the issue is covered by Elastolan Engineers Pvt Ltd and accordingly, interest is to be re-calculated as per law and as per above cited judgment.

For penalty, it was held that as per judgment of Macson Marbles Pvt Ltd, penalty was not recoverable from the successor since he did not get an opportunity to contest the same.

Decision: - Appeal decided accordingly.

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Case: - CCE, Vadodara-II v/s Manibhai & Brothers

Citation: - 2009 (93) RLT 718 (CESTAT-Ahmd.)

Issue: - Filing of appeal is essential for recovery of erroneous refund and it cannot be decided on the basis of show cause notice.

Brief Facts: - Refund granted erroneously to the respondent-assessee on 22.06.06. Department issued show cause notice on 06.11.06 for recovery of the amount sanctioned as refund. Lower authorities dropped the proceedings on the ground that the original order sanctioning refund had attained finality since no appeal was filed against that order. Revenue has come in appeal.

Appellant’s Contentions: - It was contended that impugned order was not correct in view of provision under Section 11A of the Central Excise Act, 1944 which gave the department a right to issue a show cause notice in a case where an erroneous refund has been granted to an assessee.

Respondent’s Contention: - It was contended that the Commissioner (A) had come to the correct conclusion and had relied upon the decisions of the Tribunal on the same issue wherein it was held that if no appeal has been filed against the order of refund sanctioned, show cause notice under Section 11A cannot be issued.

Reasoning of Judgment: - The Tribunal has found that the Commissioner (A) had placed reliance on judgments in cases of M/s Overseas Engineers v/s CCE, Rajkot [2007 (82) RLT 838 (CESTAT-Ahmd)] and M/s Voltas Limited v/s CCE, Hyderabad [2006 (76) RLT 798 (CESTAT-Ban.)] in reaching there conclusion. The Tribunal agrees with the view of the Commissioner (A) as regards the merit of the refund claim also, but the same are not discussed herein as the matter can be decided on the basis of cited cases.

Decision: - Appeal rejected.

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Case: - CCE, Pondicherry & Ors v/s G. Jijith Kumar & Ors

Citation: - 2009-TIOL-592-CESTAT-MAD

Issue: - Whether the time limit for refund is procedural requirement?

Brief Facts: - The Respondents in this case are NGOs engaged in construction of house in tsunami affected areas. The Government granted exemption to cement and steel purchased for construction of houses for tsunami victims from excise duty subject to evidence of payment. The exemption granting notifications are Notification No. 32/05-CE, dated 17.08.05 and Notification No. 35/05-CE, dated 29.11.05. Accordingly, respondents filed refund claims which were rejected on the ground that appellants had not filed the refund claims within the prescribed time-limit. In one of the cases in appeal, the issue was regarding applicability of unjust enrichment. The Commissioner (A) has remanded the matters to the original authority by holding that the claims had been filed in time. Revenue has come in appeal against the orders of the Commissioner (A).

Appellant’s Contentions: - Revenue contended that the Commissioner (A) wrongly held the claims to be within time as the Notification after amendment provided that the refund claim is to be filed at the end of each quarter. The refund claim was filed beyond this prescribed limit.

Respondent’s Contentions: - Respondents contended that refund claim was in time if the relevant date provided in Section 11B of the Central Excise Act, 1944 was considered. The delay was attributed to non familiarity with the rules and procedures as they were NGOs. They have relied upon the judgment in the case of CCE v/s Ashok Arc [2005 (179) ELT 513 (SC)] in which it was held that rules could not override the provisions of the Section. Reliance has also been placed on Automative India v/s CCE [2006 (203) ELT 402 (Tri.-Del)], Lucid Colloids Ltd v/s UOI, Mangalore Chemicals & Fertilizers Ltd v/s DC [1991 (155) ELT 437 (SC)].

Reasoning of Judgment: - The Tribunal held on the facts and circumstances of the cases that withholding the benefit on technicalities would frustrate the legislative intent embodied in the Notification. Reliance has been placed on Mangalore Chemicals & Fertilizers Ltd v/s DC in which it was held that “The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.”

It was held that by enforcing the subject limitation to claim refund, the policy of the government will be defeated. The notification was introduced to effectuate the Government’s Policy. The authorities are expected to take implemental action which sub serves the policy and object of the notification. The appeals of the Revenue are imagined lis. The limitation prescribed in the notification cannot be enforced to deny the benefit of the notification.

Decision: - Appeal allowed by way of remand.

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Case: - Shakti Wire Products v/s CCE, Mumbai-V

Citation: - 2009 (93) RLT 739 (CESTAT-Mum)

Issue: - Whether scrap generated in the factory is a finished product and cannot be sent on job work basis?

Brief Facts: - Appellants are manufacturers of copper flats, rods, wires and strips etc. In the manufacturing process, remnants of copper are generated. The appellant was sending the said remnants to their jobworker for conversion into copper bar in terms of provision of Rule 4 (5) (a) of the Cenvat Credit Rules, 2004 under jobwork challan and returned. The Department contended that the scrap being final product is not entitled to be cleared under Rule 4 (5) (a) but was required to be cleared on payment of duty. Accordingly, show cause notice was issued. The Adjudicating Authority confirmed the demand and imposed penalty. The said order was confirmed by the Commissioner (A). Hence, the appellant have come before the Tribunal.

Reasoning of the Judgment: - The Tribunal held that the said scrap after being converted to ingot by jobworker was sent back to appellant’s factory and was further captively consumed for manufacturing their excisable final product. Merely, because the waste and scrap so generated has been made dutiable when sold, it cannot be said that new excisable product has been manufactured. They do not come out as a new excisable product but the same emerges only out of the manufacturing process. As the clearance is made not as a sale but for the purpose of conversion, they are eligible for the provision of Rule 4(5) (a). The Tribunal has relied upon the judgments in the cases of Wyeth Laboratories Ltd. v/s Collector of Central Excise, Bombay [2000 (39) RLT 745 (CEGAT-LB)], Narmada Plastics (P) Ltd v/s Commissioner of Central Excise, Bhopal [2005 (66) RLT 146 (CESTA-Del)], Jain Metal Components Pvt Ltd v/s CCE, Jaipur II [2006 (206) ELT 842 (Tri-Del)]. It was held that there was no question of holding scrap as final product and disallowing the benefit of clearance of scrap for converting into ingots under Rule 4(5) (a). Duty can be demanded if the generated scrap is diverted for any other purpose than re-conversion.

The Tribunal has further held that the judgment cited by the Revenue in the case of Khandelwal Metal Industries [1985 (20) ELT 222 (SC)] and M/s Elphinstone Metal Rolling Industries [2004 (62) RLT 486 (SC)] had no relevance in this case and was distinguishable from the facts of the instant case. The issue therein was regarding classification of imported scrap as waste and scrap, and not as master alloy as claimed by the appellant and the case of Elphinstone Metal Rolling Industries was regarding the applicability of the exemption Notification No. 74/65-CE, 119/66-CE for clearance of final goods without payment of duty and manufactured from duty paid scrap. Moreover, the appellants herein have not contested that when the scrap is cleared on sale, no duty is payable. Impugned order is set aside.

Decision: - Appeal allowed.

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Case: - CCE & ST, LTU, Chennai v/s Ashok Leyland Ltd

Citation: - 2009 (93) RLT 712 (CESTAT-Che.)

Issue: - Whether interest is payable when the credit is not utilized?

Brief Facts: - Respondent-assessee had availed credit of service tax paid on input services incurred by the assessee unit as well as its R&D Centre. As the service tax paid towards input service by the R&D unit was not related to the manufacturing operation of the respondents and could not be quantified, the assessee reversed the entire service tax alongwith interest on the irregularly availed of service tax credit on being pointed out by the Department. As the credit taken had been unutilised, respondents sought refund of interest paid. The Original Authority denied refund on the ground that Rule 14 of the Cenvat Credit Rules, 2004 provided for recovery of irregular credit taken alongwith interest. In appeal, the Commissioner (A) by relying upon the judgment given in the case of CCE, Delhi III v/s Northern Minerals Limited [2007 (82) RLT 694 (P&H)] set aside the order of the Original Authority and allowed refund of interest claimed by the respondents. Aggrieved by the said order, the Revenue has filed this appeal before the Tribunal.

Reasoning of Judgment: - The Tribunal held that the High Court in the judgment of Northern Minerals Limited held that interest was not payable when only entry of credit was made in the Modvat account and was not in fact utilised. The said judgment was upheld by the Apex Court in Commissioner v/s Maruti Udyog Ltd [2007 (81) RLT F7 (SC)]. There is no reason to interfere with the order of the Commissioner (A).

Decision: - Appeal dismissed.

Comment: - The controversy has once again arisen by the recent Board circular wherein the Board has said that the decision of Maruti Udyog was related to old Rules and not to new Rules and as such the interest is payable. When the analogy is clear that no harm has been done to Revenue unless and until the department has utilized the same then the interest should not be demanded. But the Board takes it decision in its own way. Whether this decision of tribunal relating to new Rules is not binding on the department? But one thing is very much clear. The new round of litigation will start.

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Service Tax Section

Case: - Global Telecom v/s CST, Mumbai

Citation: - 2009 (93) RLT 816 (CESTAT-Mum.)

Issue: - Whether the revision application can be filed when the appeal on the same issue is pending with appellate authorities? Whether the benefit of Amnesty scheme is available only when the assessee was registered with the department? Whether the waiver from penalty can be granted when the service tax and interest paid before the issuance of show cause notice?

Brief Facts: - Assessee was registered with the Service Tax Department for Business Auxiliary Service in January, 2004. They started paying Service Tax in October, 2004. They paid the entire amount with interest on 03.11.04. Show cause notice was issued for imposing penalties on 06.06.06. The Adjudicating Authority imposed penalty under Section 78 of the Finance Act, 1994. Appeal of the assessee was rejected by the Commissioner (A). In further appeal, the Tribunal remanded the matter to Commissioner (A) for considering the issue that “whether any penalty was liable to be imposed on the assessee under Section 78. The matter was pending before the Commissioner (A). Meanwhile, Commissioner acting as Revisional Authority passed OIO imposing penalty under Section 76 and 77 and also enhanced the penalty under Section 78. Appellant has filed this appeal against this order before the Tribunal.

Appellant’s Contentions: - Assessee contended that as appeal was pending on the same issue before the Commissioner (A), the Commissioner ought not to have revised the amount of penalty under Section 78.

With regard to penalty under Section 76 and 77, assessee contended that no penalty was imposable as they have paid the entire service tax alongwith interest before the issue of show cause notice. The appellant have also contended that they should be extended the benefit of amnesty scheme announced by the Government on 29.09.04. Appellant have relied upon the judgment in the case of Union of India v/s Amit Kumar Maheshwari [2009 (90) RLT 761 (Raj.)] in which the amnesty was also extended to those registered service providers who strictly complied with the requirements of the said scheme before cut-off date announced by the Government. The assessee has also claimed the benefit of Section 80. They have submitted that levy of service tax on their activity was a new levy which came into force from 01.07.03, there was confusion regarding liability to pay service tax. It was contended that there was no intent to evade duty. The assessee has also pleaded ignorance of law. They contended that they could not pay service tax by due date on account of not having collected such amounts from their clients.

Respondent’s Contentions: - Revenue has reiterated the relevant findings of the Commissioner.

Reasoning of Judgment: - The Tribunal held as under: -

- With regard to order passed in revision by the Commissioner (A), it was held that the order-in-revision with regard to penalty under Section 78 was hit by the provisions of Section 84 (4) of the Finance Act, 1994. When appeal on the same issue was pending before the Commissioner (A), the order-in-revision was without jurisdiction. Accordingly, part of the order relating to penalty under Section 78 is set aside. However, with regard to penalties under Section 76 and 77 there was no appeal pending anywhere, therefore the relevant part is to be examined on merits of the case.

- With regard to extending the benefit of Amnesty scheme floated by the Government, it was held that the said scheme was introduced for the benefit of those service providers who were yet to get registered with the Department. But the appellant had already registered with the Department on the date of announcing the scheme. The appellant have not been able to establish that they had strictly complied with the requirements of the scheme. The benefit thereof cannot be claimed by the appellant.

- On the question that whether penalties under Section 76 and 77 could be avoided in terms of Section 80, the Tribunal held that the assessee’s plea that penalties under Section 76 and 77 were not imposable as service tax with interest was paid before issuance of show cause notice; is not sustainable. The Tribunal agrees with the Commissioner when he says that neither ignorance of law nor ‘confusion’ is a reasonable cause for extending benefit of Section 80 to the assessee. Non-recovery of tax from clients is also not a valid excuse for not paying service tax. The fact that the assessee had no intent to evade duty is not relevant to Section 76 and 77. The Revisional authority was right in imposing penalties under Section 76 and 77.

Decision: - Appeal partly allowed.

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Case: - Commissioner of Central Excise, Nagpur v/s Noble Grains India Pvt Ltd

Citation: - 2009-TIOL-1410-CESTAT-MUM

Issue: - Whether the refund of service tax can be claimed by manufacturer exporter when the burden of service tax has been borne by merchant exporter?

Brief Facts: - Respondent was manufacturer of certain goods. He took over the liability of the exporter to pay service tax on certain port services which were received by the exporter, who is a third party. There was an agreement between them. After export of goods, respondent filed refund claim of service tax paid on port services under Notification No. 41/2007-ST, dated 06.10.07. The Original Authority rejected the said claims on the ground that the said claims were filed by the manufacturer and not by the exporter, which was breach of the conditions of the exemption Notification. In appeal, the Commissioner (A) held in favour of the respondent. Accordingly, the respondent became eligible to claim refund. Revenue has come in appeal before the Tribunal against the said order.

Appellant’s Contentions: - Revenue is praying for stay of the order of the Commissioner in this stay application. In appeal, they have prayed for restoration of order-in-original and for setting aside the order of the Commissioner (A).

Respondent’s Contentions: - Respondent contended that if the notification is construed strictly in favour of the exporter, it would be unworkable.

Reasoning of Judgment: - The Tribunal held that prima facie the respondent-manufacturer cannot claim refund of service tax paid on port services received by another party for export of goods. The notification was rendered unworkable by the conduct of the respondent. The Rule of strict interpretation is to be applied to the exemption notifications. The purpose of Notification No. 41/97-ST is to confer a benefit on exporters, who are, in law, liable to assume burden of service tax liability in respect of port services availed for the purpose of export. Such benefit cannot be claimed by third parties. The Notification does not envisage placing the manufacturer in the shoes of the exporter.

Decision: - Stay granted till disposal of appeals.

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Case: - CCE, Aurangabad v/s Endurance System India Ltd

Citation: - 2009 (93) RLT 814 (CESTAT-Mum)

Issue: - Whether the Cenvat credit of service tax paid on outward freight is available even for the period prior to Board circular?

Brief Facts: - Respondent availed Cenvat credit on service tax paid on GTA (outward freight). Revenue contended that a perusal of the records of the Respondent showed that they have cleared the final product on the factory gate only. No goods were sold through depot or warehouse of the respondent. As the place of removal was the factory gate, the respondent was not eligible to take Cenvat credit of service tax paid on GTA (outward freight). The Adjudicating Authority held that in view of the instructions issued by the CBEC Circular No. 97/6/2007 dated 23.08.07, the documentary evidence showed that the transaction value at which the final products were cleared included transportation charges on which excise duty was the integral part of the price. The ownership of the goods as well as the risk vested with the assessee till the place of removal. Accordingly, show cause notice was withdrawn. The said order was confirmed by the Commissioner (A) in appeal.

Appellant’s Contentions: - Appellant contended that the period involved was from April 2005 to September 2006 and the show cause notice was dropped on the basis of the Board’s Circular dated 23.08.07, was questionable.

Respondent’s Contentions: - Reliance was placed on Ambuja Cement Ltd v/s UOI [2009 (91) RLT 627 (P & H)] wherein it was held that the CBEC Circular clarifying the impugned issue were binding on the department.

Reasoning of Judgment: - The Tribunal held that in the case of Ambuja Cement Ltd v/s UOI the period involved was January 2005 to March 2007, which was prior to the Board’s Circular dated 23.08.07 and the Hon’ble High Court has held that although the period involved was prior to the said Circular, the claim of Cenvat credit on service tax on GTA service, the assessee has fulfilled the parameters laid down in the said Circular.

In the instant case, the Tribunal held that the assessee had fulfilled the requirements of the said Circular. Accordingly, assessee was entitled for Cenvat credit.

Decision: - Appeal dismissed.

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Customs Section

Case: - Neptune Trade Links Pvt Ltd v/s CC, Cochin

Citation: - 2009 (93) RLT 796 (CESTAT-Ban.)

Issue: - Whether the duty is payable on the exporter when he has cleared the goods against forged DEPB? Whether the penalty is also imposable when exporter did not know anything about fake DEPB?

Brief Facts: - Appellants filed Bills of entry for clearance under the DEPB Scheme seeking duty exemption vide Notification No. 45/2002-Cus, dated 22.04.02. The appellant availed the duty exemption on the strength of Telegraphic Release Advice (TRA) issued by Nhava Sheva Custom House. The TRA was purchased by the appellant from a person against payment through bank at market rate. While assessing the bill of entry, it was found that the said TRAs were not issued from the NS Custom House. Thus, it was found that the TRAs were fake. Accordingly, duty was demanded through show cause notice. The Commissioner confirmed the demand of duty to the extent of DEPB credit availed on the basis of fake TRA. Penalty was also levied on the appellant under Section 114A of the Customs Act. Appellant has filed this appeal against the said order.

Appellant’s Contentions: - Appellant contended that they are liable to pay the duty demand but the penalty is not imposable on them. The appellant has purchased the DEPB/TRA after payment through banking channel under bona fide belief. Also, when the DEPB with TRA was submitted before the Customs Authority, Cochin and before accepting the same, the Customs Authority had consulted authorities at Nhava Sheva Custom house and no doubt was raised by anyone of them and the said DEPB was accepted and the goods were released. Under such facts and circumstances, Section 114A was not operational. The said provision could be invoked for levy of penalty where the alleged short levy or non-levy is due to mis-declaration or suppression of facts. And in the appellant’s case, there was no mis-declaration or suppression. Appellant was a victim herein and had no knowledge about the fake TRA.

Reasoning of Judgment: - The Tribunal held that as it was found that the DEPB itself was forged, the demand of duty and interest under Section 28 (2) and 28AB of the Customs Act, was in order. The Appellant had not followed the correct procedure for transfer of DEPB and finding the genuineness of TRA. Even the Custom Officer at Cochin had not verified the genuineness of TRA before releasing the goods. The appellant themselves are victims of circumstances. Accordingly, the imposition of penalty on appellant was not justified. Penalty set aside.

Decision: - Appeal partly allowed.

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