Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/11

Case Laws

Central Excise Section

Case: - Mecgale Pneumatics Pvt Ltd v/s Commissioner of C. Ex., Nagpur

Citation: - 2009 (241) ELT 235 (Tri-Mumbai)

Issue: - Whether the value of bought-out items should have been included in the assessable value of the system. Whether the claim of non-excisability of the system was a new plea?

Brief Facts: - Appellant assembled a Pneumatic Conveying System at the customer’s site. Some of its components were manufactured in appellant’s factory and brought to the site and other components were bought out and brought to the site. Duty was paid on all the components, whether manufactured or bought out. The said system was handed over to customer on payment of duty on the said system. The Commissioner demanded duty in respect of the Pneumatic Conveying System.

Appellant’s Contentions: - It was contended that the said system by its very nature could hardly be considered to be anything other than an immovable structure as it was erected on a civil foundation, bit by bit. Therefore, no demand of duty could be raised as the system was not marketable and hence not excisable. Appellant relied upon the Board’s Circular No. 58/1/2002-CX, dated 15.01.02. Appellant also relied upon the judgment of Apex Court in CCE, Indore v/s Virdi Brothers [2007 (207) ELT 321 (SC)].

Respondent’s Contentions: - Revenue has tried to distinguish the appellant’s case from the case of Virdi Brothers. It was submitted that erection of a plant by assembling components at site has been recognized as constituting ‘manufacture’ under Section 2 (f) of the Central Excise Act, 1944 in the case of MIL India Ltd v/s CCE, Noida [2007 (210) ELT 188 (SC)]. It was further contended that the appellant is liable to pay duty on the goods as described in their statutory invoices. It was submitted that the question involved is whether the quantum of duty so paid was excisable or not. It was pointed out that the question whether value of bought out items are to be included in assessable value of the system can well be decided in the light of the Apex Court’s decision in the cases of MIL India Ltd and CCE, Delhi v/s Frick India Ltd [2007 (216) ELT 497 (SC)].

Reasoning of Judgment: - The Tribunal held that the decision of the Virdi Brother’s case was delivered in 2006 and the decision relied upon by the Revenue was delivered in 2007. The Board’s Circular on which the judgment of Virdi Brothers had been passed, was not relied upon by the appellant before the lower authorities.

Further, the Tribunal held that in any case, where both the decisions of the Apex Court are applicable to the facts of the case, the one rendered later in point of time has to be followed for the present purpose.

Accordingly, it was held that the Tribunal has to proceed on the premise that the erection of Pneumatic Conveying System at the customer’s site amounted to ‘manufacture’. If this is the case, then the question remaining would be whether the value of the bought-out components should be included in the assessable value of the system. It is held that as such appellant has not been able to make out a clear case for waiver of pre-deposit and stay of recovery. In the absence of any evidence of financial hardship, appellant directed to pre-deposit Rs. 25 lakhs.

Decision: - Stay application disposed of accordingly.

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Case: - Sayaji Sethness Ltd v/s Commissioner of C. Ex., Ahmedabad-II

Citation: - 2009 (241) ELT 269 (Tri-Ahmd.)

Issue: - Whether the full credit is to be allowed on short receipt of small quantity of material?

Brief Facts: - Appellants are engaged in the manufacture of Caramel colors and one of their inputs is Glutrose. Show cause notice was issued denying Modvat credit to the appellants on the ground that there was difference in the quantity of Glutrose cargo as reflected in the invoice and as reflected in RG 23 A Part-I register. Demand of duty was confirmed. In appeal before the Commissioner (A) relied upon several precedent decisions of the Tribunal in support of their contention.

Appellant’s Contentions: - Appellant explained that the difference in quantity for the last 5 years was to the extent of less than 1% and had occurred on account of difference in weighing scales at the input supplier’s end and at the appellant’s end. The appellant were noting the said raw material in their record after weighing them in their factory, the quantity was some times differing and lesser quantity being received was recorded. The appellant were otherwise paying for the entire quantity to the supplier. The cenvat credit availed by them was on the duty paid on the entire quantity. Reliance has been placed on judgments given in the cases of Ganges Valley Foods (P) Ltd v/s CCE, Kolkata [2007 (217) ELT 147 (Tri-Kolkata)], CCE, Rajkot v/s Bombay Dyeing & Mfg. Co. Ltd [1998 (97) ELT 101 (Tribunal)] and Praxair India Ltd [2005 (191) ELT 680 (Tri-Kolkata)].

Reasoning of Judgment: - The Tribunal has relied upon the judgment given in the case of CCE, Nagpur v/s Associated Cement Companies Ltd. [2006 (197) ELT 215 (Tri.-LB)] in which it was held that the assessee would be entitled to the credit of full duty paid at the supplier’s end.

The Tribunal applied the ratio of all the cited cases and found that the quantity alleged to be short received being less than 1% of the entire quantity during the period of last 5 years, the appellant’s explanation is accepted. No justifiable reasons exist to deny Modvat credit to appellants.

Decision: - Appeal allowed with consequential relief.

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Case: - Commissioner of C. Ex., Surat v/s Lohia Polyester Pvt Ltd

Citation: - 2009 (241) ELT 291 (Tri-Ahmd)

Issue: - The time limit of sanctioning of refund claim does not apply to refund of pre-deposit.

Brief Facts: - Respondent had made a pre-deposit during the course of investigation. The, the Commissioner (A) passed an order favouring the respondent. Respondent filed for refund of pre-deposit. The Original Adjudicating Authority granted the refund. Revenue has come in appeal against the said order.

Appellant’s Contentions: - Appellant contended that the refund application was filed after a period of 1 year from the date of payment of duty and the provisions of Rule 233-B were not followed.

Reasoning of Judgment: - The Tribunal held that the refund had become due to the respondent on passing of the order by the Commissioner (A), holding in their favour. As such, the assessee could not have asked for refund within a period of one year from the date of payment of duty, especially when the same was confirmed by the original Adjudicating Authority. It is well settled law that the limitation as provided in Section 11BB is not applicable to the refund of pre-deposit made by the assessee.

Decision: - Appeal rejected.

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Case: - Shree Sidhbali Sugar Ltd v/s Dy. Commissioner of C. Ex., Dehradun

Citation: - 2009 (15) S.T.R. 737 (S.C.)

Issue: - Whether the Excise dues of earlier owner can be recovered from bonafide buyer of land and building?

Brief Facts: - M/s D was a borrower of the State Financial Corporation (SFC). He had also defaulted in payment of excise duty under the Central Excise Act, 1944. His properties were auctioned by SFC. The land and building were purchased by M/s P who in turn alienated the property to appellant. Department proceeded against the property purchased by the appellant for recovery of central excise duty dues payable by M/s D. The matter reached High Court. The question raised before the High Court was whether the Excise Department was entitled to proceed against the property purchased by appellant in respect of non-payment of excise duty by M/s D. The question of interpretation of Section 11 read with the proviso of the Central Excise Act and Rule 230 of erstwhile Central Excise Rules, 1944 arose before the High Court. However, the High Court dismissed the writ petition only on the ground that the appellant herein was not the owner as sale deed was not filed. The appellant has filed this appeal before the Apex Court.

Reasoning of Judgment: - The Apex Court held that the question of ownership was not in dispute. The main question of law was whether the Department was entitled to proceed against the land and building purchased by appellant from the auction purchaser M/s P in respect of dues by M/s D. Other issue to be decided is whether excise duty would be a charge on the property. The said question was not raised before the High Court. Liberty granted to the Department to raise the said questions before the High Court. Matter remitted to High Court for decision on merits. The petition is to be decided within 6 months. No coercive action to recover dues from appellant is to be taken by the Department till disposal of writ petition.

Decision: - Appeal disposed off accordingly.

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Case: - CCE, Pondicherry v/s CESTAT

Citation: - 2009 (93) RLT 828 (Mad.)

Issue: - Whether the Cenvat credit is allowed on the transfer of unit from one place to another? Whether the inputs should be available on the date of transfer of unit?

Brief Facts: - Assessee is a manufacturer of plastic multi layer tubes and closers. They were availing cenvat credit of duty paid on inputs and capital goods. Assessee was shifting their factory to another place and they applied for transfer of the unutilised Cenvat credit lying in there books of account at the time of transfer. The request was not accepted. Department issued show cause notice for disallowing transfer of credit under Rule 10 of Cenvat Credit Rules, 2004. The reason for this was that input as such or in process was not available on the date of transfer. The Adjudicating Authority passed an order disallowing transfer of credit. The said order was upheld by the Commissioner (A) in appeal. In further appeal of the assessee, was allowed by the Tribunal. The Revenue has filed appeal before the High Court on the question: - “Whether the Tribunal order is correct in allowing the credit contrary to the provisions of Rule 10 of Cenvat Credit Rules, 2004?”

Reasoning of Judgment: - High Court relied upon the judgment given in an identical issue in C.M.A. No. 1808/2008 in which it was held that the requirement of the provision is that if the stock of inputs as such or in process or the capital goods is also transferred along with the factory or business premises to the new site or ownership and the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise.

High Court held that in the present case as input as such and in process was not available as the same had already been put to use. The said fact was verified and the genuineness of the same was satisfied by the Deputy Commissioner of Central Excise. In such circumstances, the finding arrived at by the Tribunal was in accordance with the requirement of the statute and the interpretation of the provision by the Department that there must be transfer of input even if it is not available is extraneous to the statutory provision.

Decision: - Appeal dismissed.

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Customs Section

Case: - Commissioner of Customs (Export) v/s Metallic Bellows (I) Pvt Ltd

Citation: - 2009 (241) ELT 181 (Bom)

Issue: - Whether the CESTAT was right in law in allowing conversion of free shipping bill into Advance License shipping bill?

Brief Facts: - The exporter had imported raw materials duty free under the Advance Licence Scheme. The goods were processed into their final products and were exported to fulfill the export obligation. But due to ignorance, the exporter failed to mention the advance licence number on the shipping bill. The Tribunal allowed the conversion of free shipping bill to Advance License Shipping Bill. Revenue has filed this appeal against the order of the Tribunal.

Appellant’s Contentions: - It was pointed out that in case of advance licence shipping bill certain norms are required which are not required in the case of free shipping bill.

Respondent’s Contentions: - Attention has been drawn to the communication addressed by the Commissioner of Customs (Export) to the Joint Secretary (Drawback) pointing out about the genuine mistake made by the assessee in not mentioning the Advance license number on shipping bill.

Reasoning of Judgment: - The High Court held that considering the facts of the case and the language of Section 149 of the Customs Act, no question of law arises.

Decision: - Appeal dismissed.

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Case: - M/s Ravi Woolen Mills v/s CC, Amritsar

Citation: - 2009-TIOL-1406-CESTAT-DEL

Issue: - Whether the refund can be sanctioned without satisfying the concept of unjust enrichment? Whether the CA certificate is sufficient to show that the incidence of duty is not passed on to the buyers?

Brief Facts: - Appellant imported certain machine. It was held to be undervalued, for which value addition was made by Customs Authority. Appellant filed appeal to the Commissioner (A) which was allowed in their favour vide order dated 28.09.07. Resultantly, refund was sanctioned by the Adjudicating Authority on the basis of CA certificate certifying no unjust enrichment by the appellant. Revenue filed appeal before the Commissioner (A) and order was passed resulting in withdrawal of refund granted to appellant. Hence, the appellant has come in appeal before the Tribunal.

Appellant’s Contentions: - Appellants have relied upon the judgment in the case of CC v/s Virudhnagar Textile Mills Ltd [2008 (230) ELT 411 (Mad.)] to press their claim.

Revenue’s Contentions: - Revenue has contended that the test of unjust enrichment was to be applied to the refund granted. That the Commissioner (A) in its order dated 28.09.07 had not proposed the test of unjust enrichment.

Reasoning of Judgment: - The Tribunal held that a perusal of the order passed by the Ld. Commissioner revealed that the Assistant Commissioner had not adduced any other evidence to show that the appellant had been unjustly enriched. Accordingly, following the decision in Virudhnagar Textile Mills Ltd case, appeal is allowed.

Decision: - Appeal allowed.

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Service Tax Section

Case: - Commissioner of Central Excise, Surat v/s Colour Synth Inustries (P) Ltd.

Citation: - [2009] 22 STT 88 (AHD-CESTAT)

Issue: - Whether the credit of service tax paid on freight from factory to port is admissible to exporter? Whether the “place of removal” can be taken as port where the goods are to be delivered as per contract?

Brief Facts: - Respondent-assessee availed Cenvat credit of service tax paid on goods transport services upto the port of export. Department issued show cause notice for disallowing the same. The Original Adjudicating Authority disallowed it. However, the Commissioner (A) allowed the credit by holding that in terms of the Board’s Circular as well as on facts; the place of removal had to be treated as Mumbai, the place of export. Since the goods were to be sold and delivered at place of export, the respondents were eligible for service tax credit. Hence revenue has filed appeal to the Tribunal.

Appellant’s Contentions: - Revenue had taken the stand that the place of removal is factory gate and credit of service tax is available only upto the place of removal.

Respondent’s Contentions: - Respondent contended that they have entered into contract for supply of goods for Mumbai i.e. the city of export. Therefore, the respondent was bound to deliver the goods upto the city from where the export was to take place. Therefore, it was the place of removal. They have relied upon the judgment given in case of CCE v/s Rolax Rings (P) Ltd [2008 (230) ELT 569].

Reasoning of Judgment: - The Tribunal held that the place of removal was the place of export as per contract and service tax credit has been availed in respect of service tax paid on outward goods transport upto the place of removal only and as per the rules the same is admissible. The judgment of Rolax Rings (P) Ltd cited by respondents was relevant and applicable.

Decision: - Appeal rejected.

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Case: - South Paw Security and Mantech Services v/s Commissioner of Central Excise, Cochin

Citation: - [2009] 22 STT 79 (BANG.- CESTAT)

Issue: - Whether the penalty can be imposed for the delay in payment of service tax when such delay has taken place due to inordinate delay in payment by public sector undertaking?

Brief Facts: - Appellants are engaged in providing ‘security agency service’ and providing the said service to M/s BSNL. It was noticed that for the period from April 2005 to July 2005 appellants had not paid the service tax on or before the due dates and had not paid interest for the delayed payment of service tax. Show cause notice was issued. Appellants paid service tax alongwith interest after issuance of show cause notice. The amount deposited was adjusted towards the demand and penalty of Rs. 100 per day for each day of failure in payment of service tax from April 2005 to September 2005 was imposed. Appellants filed appeal against the imposition of penalty to the Commissioner (A). The Commissioner (A) confirmed the penalty. The appellants have filed appeal before the Tribunal.

Appellant’s Contentions: - It was contended that the delay in payment of service tax was due to inordinate delay on part of service recipient, M/s BSNL in disbursing the amounts charged by the appellants towards the value of taxable services provided. The appellants had promptly paid the service tax due as soon as the payments were received. The appellants have contended that there was reasonable cause for failure to pay service tax in time as envisaged under Section 80 of the Finance Act, 1994. Reliance has been placed on various decisions. It was also contended that M/s BSNL being a Public Sector Enterprise itself was indefinitely delaying payments due on one hand and extracting a huge exorbitant amount as penalty for any contravention solely occasioned by such delay in disbursing payments.

Reasoning of Judgment: - The Tribunal held that on careful perusal of the records it was seen that M/s BSNL had withheld payment from 2nd half months to 3 and half months, over a sustained period of 4 and half years. On account of BSNL’s delay, the appellant also had to pay a huge amount of interest. Also, the appellant’s company is being run by a retired defence officer. The penalty could have been waived in exercise of powers conferred under Section 80 of the Finance Act. There is sufficient merit in appeal. Penalty imposed on appellants is set aside.

Decision: - Appeal allowed.

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Case: - Toyota Kirloskar Motors Pvt Ltd, Bangalore v/s Commissioner of Central Excise (LTU), Bangalore

Citation: - 2009-TIOL-1437-CESTAT-BANG

Issue: - Whether the service recipient paying service tax can pay the same from Cenvat credit? Whether it can be referred as “output services”?

Brief Facts: - Appellants received Intellectual Property service, Commissioning & Installation service, GTA service and Maintenance & Repair service from outside India during the period April 2006 to August 2006. The appellants utilised cenvat credit for payment of service tax on the said services. For GTA service, the appellants were required to discharge their service tax liability by virtue of Section 68(2). For other services, the liability was to be discharged under Section 66 (A) by virtue of reverse charge mechanism. Department took objection that the said services could not be considered as ‘output services’ and service tax could not be paid from Cenvat credit account.

Appellant’s Contentions: - It was contended that as far as GTA services are concerned, only w.e.f. 01.03.08 by virtue of an exemption to Rule 2 (p) of the Cenvat Credit Rules by Notification No. 10/2008-CE (NT) dated 01.03.08, the GTA services had been excluded from the scope of the definition of “output services”. However, the period concerned herein is prior to 01.03.08. For the other 3 services, there was absolutely no specific exclusion from the scope of ‘output services’ in terms of Rule 2 (p) of the Cenvat Credit Rules, 2004. The appellants have cited the order in ITC Ltd v/s CCE, Guntur in Stay order No. 924/2008 dated 09.09.08.

Respondent’s Contentions: - It was contended that the said services could not be treated as “output services” and consequently the Service tax liability cannot be discharged through availing the Cenvat credit.

Reasoning of Judgment: - The Tribunal held that only GTA services had been excluded from the scope of output services w.e.f. 01.03.08. As far as the other services are covered by Section 66(A) are concerned, there is no exclusion. Prima facie, the appellants have a strong case on merits. Moreover, there is no revenue loss as the liability has been discharged only through the credit accumulated.

Decision: - Full waiver of pre-deposit and stay granted.

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