Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/15

Case Laws

Central Excise Section:

Case: - CCE, Bangalore-III v/s Himalaya Drug Company

Citation: - 2009 (94) RLT 14 (CESTAT-Ban.)

Issue: - Whether One product supplied free with another product will attract MRP based Valuation under Section 4A?

Brief Facts: - Respondent-assessee were clearing anti-dandruff shampoo alongwith free face wash gel. Revenue contended that such activity amounted to manufacture as per Chapter Note 4 of Chapter 33 and Standards and Weights of Measures Act was applicable to combination packages and cost of goods given free was required to be included in the total MRP. Adjudicating Authority confirmed the demand raised against the respondent. In appeal, the Commissioner (A) set aside the order-in-original by holding that the said products were covered under Section 4A and also Standards and Weights of Measures Act and there will not be any liability on gel supplied free. The Commissioner (A) had relied upon the Final Order No. 1774/2005 dated 07.10.05 passed by the CESTAT, Bangalore on the same issue but for earlier period in which appellant’s contention were accepted that this process amounts to manufacture as per Chapter 33 and both products were covered under Section 4A. Revenue has filed appeal against the order of the Commissioner (A).

Appellant’s Contentions: - Appellant contended that Circular No. 673/644/2002-CX was not applicable here as the same clarified regarding valuation of multi-piece packages but here the combination of anti-dandruff shampoo with face wash gel did not amount to a multi-piece package as goods were not of same kind. The judgments of Surya Food and Agro Ltd v/s CCE and M/s Vinayak Mosquito Coils [2005 (68) RLT 189 (CESTAT-Ban.)] were not applicable as the question to be decided was not of extending quantity discount but deciding the levy of central excise duty on independent excisable goods manufactures and cleared with another product. The decision in the case of M/s Oswal Fats and Oils v/s CCE, Chandigarh [2003 (55) RLT 780 (CEGAT-Del.)] was also not applicable as the facts were different. Further, the fact that respondents have availed credit on inputs used in manufacture of face gel and credit could only be taken if the final product was dutiable. The Standards and Weights of Measures Act was not applicable as the face wash gel was offered free and was not intended for sale. Recourse is to be taken to Section 4 of the Central Excise Act.

Respondent’s Contentions: - Before the Commissioner (A), Respondent had contended that they had received shampoo and face gel in bulk and the same were labeled together and packed in retails is manufacture. The product was sold as a combination package and therefore, provisions of Section 4A of Central Excise Act and Standards and Weights of Measures Act was applicable. For every sale of 120 ml of shampoo, a discount of 50 gms of face wash gel and for every sale of 200 ml of shampoo, a discount of 50 gms face wash gel was given as discount. Reliance was placed on Surya Food and Agro Ltd v/s CCE [2003 (156) ELT 488 (CESTAT-Delhi)] in which it was held that sale of dissimilar products in a combination will also be covered by Circular No. 673/644/2002-CX. The said activities had been intimated to the Department by a letter and so question of levying the penalty and interest does not arise. Reliance has also been placed on the Final Order No. 1774/2005 dated 07.10.05 passed by the CESTAT, Bangalore. Before the Tribunal, no one appeared from their side.

Reasoning of Judgment: - The Tribunal have placed reliance on the order of the Commissioner (A) wherein it has been categorically stated that in the Final Order No. 1774/2005 dated 07.10.05 the same issue was covered. It was held therein that the process of combining anti-dandruff shampoo and face wash gel would amount to manufacture as per Chapter Note 5 of Chapter 33. Since it is undisputed that the face wash gel was supplied free and the product anti-dandruff shampoo was covered under Section 4A, the Standards and Weights of Measures Act was applicable and there will not be any duty liability on face wash gel supplied free, as the respondent had combined these two and cleared the same under one retail sale price. No merits in Revenue’s appeal.

Decision: - Appeal rejected.

Comment: - It is free for the customer but not for the department.

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Case: - CCE, Indore v/s Grasim Industries Ltd

Citation: - 2009 (94) RLT 1 (SC)

Issue: - Whether the cost recovered from customer towards the value of containers, wherein the gas is supplied, is includible in transaction value?

Brief Facts: - Respondent-assessee are manufacturers of dissolved and compressed industrial gases etc. post mix concentrates (POM) and some other products. These gases are transported and supplied to the customers in tonners, cylinders, carboys, paper cones and HDPE bags, BIBs, pipelines and canisters. Tonners, cylinders and pipelines etc are specially designed as per the given specifications. Canisters are specially designed containers to be used in the vending machines. The cylinders etc, are either provided by the assessees or the customers bring their own cylinders etc., at the factory gates of the assessees. For providing cylinders, gas lines etc. the assessees collect certain amounts from their customers under different heads, viz, packing charges, wear and tear charges, facility charges, service charges, delivery and collection charges, rental charges, repair and testing charges. These amounts are not shown in the sale invoices for the purpose of computing the assessable value. The assessees treat the said amounts are received as their income from ancillary or allied ventures. When the matter reached the Tribunal, the Tribunal held that despite insertion of amended Section 4 of the Act w.e.f. 1^st July, 2000 introducing the concept of transaction value in Section 4 (1) (a) of the Act, the ratio of the decision of the Apex Court in the case of Collector of Central Excise, Madras v/s M/s Indian Oxygen Ltd. [(1988) 4 SCC 139] still held the field. Accordingly, it was held that the charges recovered by the assessees from their customers for providing them containers and or/canisters etc. for supply of gases or other items etc. manufactures by them are not to be added to the price of the goods etc. for the purpose of determination of the assessable value under Section 4 of the Act, as substituted by Section 94 of the Finance Act of 2000. Revenue has filed these appeals against the order of the Tribunal.

Reasoning of Judgment: - The Apex Court referred to the judgment of Union of India & Ors v/s Bombay Tyre International Ltd & Ors [(1984) 1 SCC 467] in which a Three Judge Bench of the Apex Court has considered the scope and purport of Section 4 prior to its substitution. The judgment of the Three Judge Bench of the Apex Court in the case of Commissioner of Central Excise v/s Acer Ltd [(2004) 8 SCC 173] in which the new Section 4 substituted w.e.f. 01.07.2000 came up for consideration and in which it was held that Section 4 is a machinery provision and that the said machinery provision as well as the definition of “Transaction value” contained therein would be subject to the charging provision of Section 3.

Apex Court felt that interpretation of Section 3 and 4 of the Act after substitution of Section 4 is not in conformity with the scheme of the Act prima facie, for the reasons that

(i) Section 3 is a charging section providing for levy of excise duty on excisable goods, whereas Section 4 provide for the measure for valuation of excisable goods with reference to which the charge of excise duty is to be levied,

(ii) both operate in their independent fields even though there may be a link between the two and

(iii) in the case of Bombay Tyre, the assessee’s contention that “measure was to be found by reading Section 3 with Section 4, thus drawing the ingredients of Section 3 into the exercise” was specifically rejected.

The Apex Court also had reservation with the observation in Acer’s case that the definition of “transaction value” must be read in the text and context of Section 3 of the Act. Prima Facie, this would amount to diluting the width of “transaction value” as defined in the substituted provision.

Apex Court held that the since the issues involved are of seminal importance and are likely to have serious ramifications on the question of determination of assessable value of the excisable goods for the purpose of levy of duty of excise, the following issues require consideration by a Larger Bench: -

1. Whether Section 4 of the Central Excise Act, 1944 w.e.f. 01.07.2000 and the definition of “Transaction value” in clause (d) of sub-section (3) of Section 4 are subject to Section 3 of the Act?

2. Whether Sections 3 and 4 of the Central Excise Act, despite being interlinked, operate in different fields and what is their real scope and ambit?

3. Whether the concept of “Transaction Value” makes any material departure from the deemed normal price concept of the erstwhile Section 4 (1) (a) of the Act?

Decision: - Matter referred to Larger Bench.

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Case: - Eastern Medikit Ltd. v/s CCE, Gurgaon

Citation: - 2009 (94) RLT 31 (CESTAT-Del.)

Issue: - Whether the provisions of Section 11AC are applicable for non-payment of the amount due under Rule 6 (3) (b) of the Cenvat Credit Rules.

Brief Facts: - Appellants are manufacturers of Medical Disposables, some of which are fully exempted from duty under Notification No. 7/2000-CE, dated 01.03.2000. The manufacturers were procuring inputs OVC resin which was first converted into PVC compound, then into extruded Tubing in running length, which in turn was used for manufacture of medical disposables like Nebulizer Kit, Endotracheal Tube etc. Appellants were taking cenvat credit of duty paid on PVC resin and other inputs. During checking of their factory, Central Excise Officers objected that since some of the PVC tubing was being used in manufacture of exempted finished goods, the same was not eligible for captive consumption under Notification No. 67/95-CE and duty was chargeable in respect of such clearances of PVC tubing for captive consumption in manufacturing exempted finished goods. Another objection raised was that the appellant had taken credit on common inputs and they have not paid the amount equal to 8% value of exempted goods as per provisions of Rule 6 (3) (b) of Cenvat Credit Rules. Show cause notice was issued on this basis. Adjudicating Authority dropped the demand of duty in respect of clearances of PVC tubing for captive consumption but for non-payment of amount equivalent to 8% of value of exempted goods as per Rule 6 (3) (b), confirmed the demand with interest and imposed penalty of equal amount under Section 11AC of Central Excise Act. In appeal, the Commissioner (A) upheld the adjudication order. However, the Tribunal, in further appeal, reduced the penalty to 25% by invoking proviso to Section 11AC. The Tribunal held that the amount payable under Rule 6 (3) (b) was paid with interest even prior to issuance of SCN. Against this decision, Department filed reference in the High Court. High Court held that mere deposit of amount was not enough to reduce the penalty by applying the proviso to Section 11AC. The High Court remanded the matter to the Tribunal for consideration of the question of reduction of the penalty in light of judgment in CCE, Faridabad v/d Illpea Paramount Pvt Ltd [2006 (77) RLT 118 (P & H)].

Appellant’s Contentions: - It was contended that they were not taking credit on inputs used in manufacture of exempted goods. There was no intention to evade duty. No amount was payable as per provisions of Rule 6 (3) (b). No penalty is imposable on the Appellant under Section 11AC as the provisions of Section 11AC were not applicable in respect of non-payment of the amount due as per the provisions of Rule 6(3)(b). Reliance was placed on judgment in CCE v/s Sangrur Agro Ltd [2006 (202) ELT 835].

Respondent’s Contentions: - Revenue contended that the appellants had taken cenvat credit on common inputs. They had not maintained separate account and inventory of inputs intended for use in manufacture of exempted goods, therefore they were liable to pay amount equal to 8% of value of exempted goods. Since there was suppression of facts, penalty under Section 11AC was rightly imposed. Mere payment of amount demanded before issuance of SCN does not save the appellants from the provisions of Section 11AC.

Reasoning of Judgment: - The Tribunal held that appellants have not produced any evidence to support their claim that no cenvat credit was taken in respect of common inputs. They have neither disputed that they had not maintained separate records. They have also not disputed their liability to pay amount equal to 8% of value of exempted goods. Reliance was placed on judgment in Sangrur Agro Ltd in which it was held that provisions of Section 11AC were not applicable in respect of short payment or non-payment of the amount due under Rule 6 (3) (b) of Cenvat Credit Rules as there is no reference to Rule 13 for imposition of penalty but refer to Rule 12. Accordingly, it is held that no penalty is imposable on the appellant under Section 11AC and as such impugned order upholding penalty on the Appellant under Section 11AC was not sustainable. Impugned order set aside.

Decision: - Appeal allowed.

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Case: - Srimati Plastics (P) Ltd v/s Commr. of C. Ex., Cus & S.T., BBSR-II

Citation: - 2009 (242) ELT 159 (Tri-Kolkata)

Issue: - The cost audit report can not lead to clandestine removal of inputs without any evidence?

Brief Facts: - Applicants are manufacturers of HDPE bags and their inputs are HDPE Granules. Revenue ordered a special cost audit. On the basis of the report of Auditor, demand was raised. Demand was confirmed on the ground that applicant had availed excess credit in respect of inputs. Auditor also opined that the applicant was showing excess use of inputs in their final production. Applicant has therefore come before the Tribunal. This is application for stay and waiver of pre-deposit

Appellant’s Contentions: - Preliminary objection has been raised in respect of ordering of special audit. It was contended that as per provision of Section 14AA of the Central Excise Act, in case the Commissioner of Central Excise has reasons to believe that the credit of duty availed of was utilized under the Rule by manufacture of any excisable goods, is not within the normal limits having regard to the nature of goods produced or manufactured as may be deemed appropriate and the assessee has availed or utilised by reasons of fraud, collusion or any willful misstatement or suppression of facts, a special audit can be ordered. But in their case, the Commissioner of Central Excise has not complied with the conditions of the Section while ordering special audit on merits. It is contended that there was no evidence to show that inputs regarding which credit was denied were not received in the factory or not utilised in the manufacture of final product. There is no evidence to show clearance of inputs as such or their use in manufacture of final products which were cleared without payment of duty. It is further contended that in its first report, the cost accountant has opined that excess inputs were used in the manufacture of goods which were cleared without payment of duty. But in its second report he had opined that inputs regarding which excess credit was availed were removed as such. The average weight of bag as fixed by the cost accountant is also disputed by the appellant. Therefore, it is not a case for pre-deposit.

Respondent’s Contentions: - Revenue has contended that as per modus operandi Circular No. 20/2003-2004, the applicants have shown excess raw material in the production than actual consumption. Appellants were showing more wastage generated during the manufacture of their final product. Accordingly, special audit was ordered. It is further contended that the appellants were showing more weight to cover the use of inputs on which credit has been availed.

Reasoning of Judgment: - The Tribunal found that as per audit report, the generation of waste at each stage was separately accounted for. In the absence of any evidence that the applicant had not received the inputs as shown in statutory report or in absence of evidence that the same were cleared as such or have been used for the production of the final product which was cleared on payment of duty, prima facie, it is a fit case for waiver of pre-deposit of duty and penalty.

Decision: - Stay petition is allowed unconditionally.

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Service Tax Section:

Case: - Auto World v/s CCE, Allahabad

Citation: - 2009 (94) RLT 95 (CESTAT-Del)

Issue: - Whether the penalty can be waived when the service tax is paid as soon as pointed out by the department?

Brief Facts: - Appellants were engaged in arranging loans on behalf of financial institutions to buyers of automobiles and receiving commission from bank. Such activity was made taxable from July 2003 by introduction of Business Auxiliary Service. B As soon as appellants came to know about there liability they partly paid tax in December, 2004 for the period July 2003 to December, 2004. Show cause notice dated 30.02.06 was issued demanding service tax as well as proposing penalty under Section 75A, 76, 77, and 78 of the Finance Act, 1994. Balance amount was paid before passing of adjudication order. Both the Lower Authorities confirmed the demand as well as imposed penalty. Appellant has come before the Tribunal, against the orders of the lower authorities.

Appellant’s Contentions: - Appellant contended that they have discharged their liability as soon as they became aware of the same. There was a doubt about the taxability of the activity undertaken by them and the Board had issued a clarification vide Circular No. 87/05/2006-ST dated 06.11.06 clearing the doubt about taxability of such activity. Therefore, no penalty was imposable on them. Reliance has been placed on judgments delivered in Modern Machinery Store v/s CCE, Jaipur-I [2008 (88) RLT 120 (CESTAT-Del)] and Vipul Motors (P) Ltd v/s CCE, Jaipur-I [2008 (84) RLT 329 (CESTAT-Del)].

Respondent’s Contentions: - Department has re-iterated the findings of the Commissioner (A) wand it is submitted that tax was levied in July, 2003 and the appellant have not taken registration during the relevant period. It was contended that the fact of rendering taxable service by the appellant was not disclosed and the Central Excise officers during inquiry had detected the non payment of tax.

Reasoning of Judgment: - The Tribunal held that there was doubt about the taxability of the activity undertaken by the appellants which was clarified vide Circular No. 87/05/2006-ST. There was no mala fide on the part of appellants, therefore penalty under Section 78 was not warranted. The dispute related to new levy and appellant had partly paid tax in December, 2004 and partly before issue of adjudication order. Payment of tax was not disputed by them. It is a fit case to invoke Section 80. Penalty imposed on appellants are set aside. Demand of tax upheld.

Decision: - Appeal allowed with consequential relief.

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Case: - Pharma Lab Process Equipments Pvt Ltd v/s Commr of C. Ex., Ahmedabad

Citation: - 2009 (16) STR 94 (Tri-Ahmd)

Issue: - Whether the debit note having all the details of Service tax Rules can be treated as valid duty paying document?

Brief Facts: - Appellants were receiving the service of commission agent falling under Business Auxiliary service. The service provider had issued debit notes and the appellant had taken credit of service tax paid on the said service. Credit was denied on the ground that debit note was not a proper document under the Rules. Lower adjudicating Authorities denied the credit. Appellant has therefore filed appeal before the Tribunal.

Appellant’s Contentions: - It was contended that there was omission on the part of service provider in not issuing proper invoice but in issuing debit note. Eventhough the documents i.e. debit notes were issued they contained all the details which were required as per proviso to Rule 9 (2) of the Cenvat Credit Rules.

Respondent’s Contentions: - The debit notes were not prescribed documents.

Reasoning of Judgment: - The Tribunal examined the copies of debit notes and found that they contained the details of service tax payable, description of taxable service, value of taxable service, registration no. of the service provider, name and address of the service provider. These are the details which are required as per Rule 9 (2). As the observations of the Adjudicating Authority are contrary to the findings of the Tribunal and there is confusion as to the documents produced before the Tribunal and before the Adjudicating Authority, for verification matter is remanded for fresh adjudication.

Decision: - Matter remanded.

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Case: - Pudumjee Pulp & Paper Mills Ltd v/s Commissioner of C. Ex., Pune-I

Citation: - 2009 (16) ELT 91 (Tri-Mumbai)

Issue: - Whether the order of the tribunal are binding on the Commissioner (Appeal)?

Brief Facts: - Appellant were receiving out-door catering service in their factory-canteen. Revenue denied cenvat credit on such service by contending that the said services were not in the nature of input services in terms of Rule 2 (l) of the Cenvat Credit Rules. Assessee relied upon the judgment of larger bench in Commissioner of Central Excise, Mumbai-V v/s GTC Industries Ltd [2008 (12) STR 468 (Tri-LB)]. However, the Lower Authorities did not follow the decision of the Larger Bench. The Commissioner (A) referred to the decision of larger Bench as its “opinion” and observed that some points raised by him in his order were not agitated before the Larger Bench. Appellant has, therefore come before the Tribunal.

Reasoning of Judgment: - The Tribunal held that the cost of food paid by the manufacturer formed the part of cost of production of final goods as certified by the cost accountant. Therefore, the outdoor catering service received by the appellants was input service for them. The facts were similar to the case of GTC industries Ltd. Decision of the Commissioner (A) smacked of judicial discipline. Judicial discipline and propriety obligated the Commissioner (A) to follow the Tribunal’s decision in letter and spirit especially when there was no order of stay against the said judgment. Impugned order was passed mindlessly which calls for depreciation. Lower authorities in the Department are required to follow the binding judicial pronouncements scrupulously for the sake of administering justice. Impugned orders set aside.

Decision: - Appeals allowed.

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Case: - Commissioner of Central Excise, Ludhiana v/s J.R. Industries

Citation: - 2009 (16) STR 51 (Tri-Del)

Issue: - Whether the service tax can be charged on advance received from the customer?

Brief Facts: - Respondent received advance payment for providing service of Erection, commissioning and installation in the future. Department issued SCN demanding service tax on the said amount received by treating the same as gross value of service. Demand was confirmed by the Adjudicating Authority. The Commissioner (A) held that the contract executed by the respondents was indivisible and that being composite one, was covered by the decision of the Tribunal in Daelim Industrial Co. v/s Commissioner [2006 (3) STR 124 (Tribunal)] and set aside the impugned order passed by the Adjudicating Authority. Hence this appeal by the Revenue.

Appellant’s Contentions: - Revenue contended that the whole contract was composed of various activities. And in support of this contention has submitted the copy of the work order.

Respondent’s Contentions: - It was submitted that the amount received was an advance paid for service to be rendered in future. And they were asked to pay tax before providing the service. The adjudication was pre-mature.

Reasoning of Judgment: - The Tribunal held that the levy was premature without service being provided. The Authorities below had proceeded on the conception that 33% of the advance received shall be the value of taxable service. When the work order did not demonstrate that the receipt was the consideration for service provided, this did not provide a basis to appreciate that taxable event had arisen and levy was made properly. The SCN was treating the amount as advance receipt as measure of taxation. Reasoning given in the impugned order regarding non-liability of composite contract not acceptable.

Decision: - Appeal dismissed.

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Case: - Peeci Associates v/s Asst Commr of C. Ex., ST & EOU Div, Mangalore

Citation: - 2009 (16) STR 37 (Tri-Bang)

Issue: - Whether the service tax is payable on contract entered prior to imposition of service tax?

Brief Facts: - Appellant received amounts in respect of contracts entered prior to 15.06.2005. Service tax was levied on the construction activity w.e.f 15.06.2005. Department raised demand on the said receipts. Demand was confirmed with interest and penalties under Section 77 and 78 were imposed.

Appellant’s Contentions: - Appellant contended that the receipts were for the period when service tax was not yet levied on the construction activity. Reliance was placed on decision of M/s Art Leasing Ltd v/s CCE, Cochin [2007 (8) STR 162 (Tri-Bang)] wherein similar issue was examined and it was held that the rate prevailing on the day of contract was entered was relevant date.

Reasoning of Judgment: - The Tribunal held that prima facie, appellants had a strong case on merits. They had already deposited Rs 2 lakhs. The deposited amount is sufficient pre-deposit for hearing appeal. Pre-deposit of balance amount of Service Tax and penalties waived.

Decision: - Stay granted.

Comment: - This is stay order only but this is very important decision as

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Customs Section:

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

Citation: - 2009 (94) RLT 387 (Bom)

Issue: - Whether the free shipping bill can be converted by tribunal into advance lience shipping bill? Whether any question of law arises out of it?

Brief Facts: - Exporter had imported raw materials duty free under the Advance Licence Scheme and after processing them, had exported the resultant products under free shipping bill. Thereafter, the exporter applied for conversion of free shipping bill to advance licence shipping bill. The Tribunal allowed the conversion. Revenue has approached the High Court against the decision of the Tribunal by raising the substantial question of law that “whether the CESTAT is right in law in allowing conversion of free shipping bill to advance licence shipping bill.

Appellant’s Contentions: - Revenue contended that in case of advance licence shipping bill, certain norms were required which were not required in case of free shipping bill.

Respondent’s Contentions: - Exporter has produced a communication addressed by the Commissioner of Customs (Export) to the Joint Secretary (Drawback) pointing out that the raw material was procured under the Advance License scheme and was used to produce export goods but due to ignorance, the appellants had failed to mention the advance licence number on the shipping bill and it was a genuine mistake.

Reasoning of Judgment: - The High Court held that considering the facts and the language of Section 149, the question of law does not arise.

Decision: - Appeal dismissed.

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