Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/16

Case Laws

Central Excise Section:

Case: - Titawi Sugar Complex v/s CCE, Meerut-I

Citation: - 2009 (94) RLT 28 (CESTAT-Del.)

Issue: - Whether taking of suo-motto credit of amount reversed is allowed? Whether non filing of declaration will lead disallowance of Cenvat credit?

Brief Facts: - Appellant, a sugar mill, had procured capital goods on which credit was taken and they had also received components, spares and accessories meant for capital goods. They had also received several inputs. The Department contended that the credit taken by the appellant was not available to them. It was contended that the Chem Ash on which credit was taken, was used to clean the boiler tubes by de-scaling and was not used in the manufacture of final products. No declaration was filed for Defoamers on which credit was taken. Certain components, spares and accessories meant for conveyors and other machinery did not fall under the category (a), (b), (c) under Rule 57-Q. Goods for which mandatory declaration was required to be filed under Rule 57-G(5), was not filed. In the year 1996, credit was reversed on the direction of the Superintendent of Central Excise which had pointed that credit was not available on certain materials. Thereafter, they have suo moto taken credit of the reversed amount in January, 1999. It was also contended that credit taken on invoices not having relevant details was also not admissible. Demand was confirmed and penalty imposed by the Original Authority and upheld in appeal before the Commissioner (A). Appellant has come up in appeal before the Tribunal.

Appellant’s Contentions: - Appellant contended that Chem Ash was used in relation to manufacture and therefore, they were eligible for the benefit of credit in terms of the judgment given in CCE, Jaipur v/s J.K. Synthetics Ltd [1988 (98) ELT 507]. No declaration was filed in respect of defoamers. It was further contended for the parts of conveyors that though there was restriction in respect of capital goods in terms of classification, there was no restriction that the components, spares and accessories which go into these specified capital goods should fall under any particular tariff item. Reliance was placed on Jubilant Organosys Ltd v/s CCE, Pune-III [2007 (80) RLT 172 (CESTAT-Del.)]. It was further contended that different parts, components and accessories of various goods on which credit is denied were not individually listed in the declaration to the Department but broad description was given. There was no clarification sought for details of those items. Copies of RG-23 Part-I & Part-II were being submitted to the Department alongwith returns indicating the description and actual credit taken on monthly basis. On the point of taking credit of amount reversed in 1996, it was contended that the amount reversed under protest was not in proper format and was not addressed to the Assistant Collector as required by the Rules. Since no show cause notice was issued, they have taken back the credit and utilised the same. The demand once on the ground that credit has been wrongly taken and then again on the ground that the same credit has been utilized, has led to duplication of the demand. Further, appellant are contesting the demand raised for taking credit on invoices not containing relevant details.

Respondent’s Contentions: - Revenue has contended that chem. Ash was not directly used in manufacture. Description of various items was not given as required under Section 57-G (5). Appellant was not entitled to take sou moto credit of the debit amount as held by the Larger Bench in BDH Industries Ltd v/s CCE (Appeals), Mumbai-I [2008 (87) RLT 566 (CESTAT-LB)].

Reasoning of Judgment: - The Tribunal held that with regard to suo-moto taking of credit of reversed amount in 1996, the appellant had not followed the procedure for filing protest by writing a communication to the Asstt. Collector. Debiting the cenvat account means payment of duty and the amount stands transferred to Government account. The question of appellant taking suo moto credit does not arise. As per the judgment of the Larger Bench in BDH Industries Ltd case, they were not eligible to take such credit. However, it was not proper to demand once on the ground that credit has been wrongly taken and then again on the ground that the same credit has been utilized. Only the amount of credit taken was payable by the appellant. Also, penalty on this account is warranted as suo moto credit could not be taken and utilisation of the same has resulted in clearance without payment of duty. However, penalty is reduced in view of the facts and circumstances of the case.

Further, demand on the credit taken on invoices not having relevant details is confirmed as the same is not contested.

The Tribunal further held that the chem. Ash was used only in relation to the manufacture of final products as held in the case of J.K. Synthetics Ltd. With regard to credit taken on parts of conveyor, it is held that there was no need for the said parts to fall under the classification mentioned under Section 57-Q (a) (b) & (c) as held in the case of J.K. Synthetics Ltd.

The Tribunal further held on the issue of non-filing of description of the items that mere non-listing of the same could not be held to be against the mandatory provision as they were undisputedly maintaining the RG 23 Part-I & II on a day-to-day basis and submitting returns to the Department. Therefore, denial of credit is not justified when broad description of these capital goods was declared to the department.

Decision: - Appeal disposed of accordingly.

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Case: - Saraya Sugar Mills Ltd v/s CCE, Allahabad

Citation: - 2009 (94) RLT 23 (CESTAT-Del.)

Issue: - Whether the personal hearing should be granted before deciding any matter? Whether show cause notice should be issued before deciding any case?

Brief Facts: - In the first round of litigation, the Tribunal had remanded the matter back to the Adjudicating Authority for deciding the application for remission of duty alongwith proceeding in relation to demand of duty. This was done as the impugned orders were passed by ignoring the application of remission of duty filed by the appellant. In the second round, the order was passed by one authority demanding the duty under Section 11A(2) of the Central Excise Act, 1944 with interest under Section 11AB and penalty under Section 11AC r/w Rule 25 of the Central Excise Rules. Another order was passed by another authority dismissing the application for remission filed by appellant under Rule 21 of the Central Excise Rules, 2002. The impugned orders were confirmed by the Commissioner (Appeals) in appeal. The appellant has challenged both the orders in appeals before the Tribunal.

Appellant’s Contentions: - It was contended that the said orders were required to be passed by the lower authorities in one proceeding. Another grievance raised was that no hearing was granted in the matter of remission application before passing the impugned order. Section 33A of the Act of 1944 was referred. It was further contended that no proceedings before the Revenue Authorities could be concluded without issuing show cause notice. Reliance in this regard was placed on Sahara India (Firm) v/s Commissioner of Income Tax [2008 (226) ELT 22], Johnson & Johnson Ltd v/s Dy. Chief Controller of Imports and Exports [2003 (154) ELT 370] and Jeet Ram Enterprises v/s CCE, Delhi [2006 (72) RLT 406 (CESTAT-Del.)].

Respondent’s Contentions: - Revenue contended that the jurisdiction to deal with the adjudication proceedings vested with the Additional Commissioner whereas the proceedings in relation to application for remission vests with the Commissioner and accordingly orders were passed bearing in mind the jurisdiction of each of the authorities. It was candidly admitted that the Commissioner could have called for the records from the Additional Commissioner in relation to adjudication proceedings and could have disposed of both the matters by himself.

Reasoning of Judgment: - The Tribunal held that in the facts of the case, it was absolutely necessary for the Revenue Authority to consider the appellant’s defence in response to the SHN issued for demand of duty alongwith the claim of the appellant for remission of duty. Both the matters were required to be decided together after hearing the appellant.

With regard to non grant of hearing in the matter of remission application, it was held that principles of natural justice were required to be complied with. In quasi-judicial proceedings, the application seeking relief was required to be disposed only after giving opportunity of personal hearing to the applicant. In the instant case, as no hearing was granted, the impugned order on remission application was not sustainable.

On the matter of issuance of show cause notice, the Tribunal held that issuance of show cause notice in each and every case was not required. The rule of natural justice merely states that party should not be condemned unheard. But the form of hearing would depend upon the facts and circumstances of each case. The statutory Rules also nowhere prescribe that SCN is to be issued in the application for remission.

The Tribunal further held that the judgment of Sahara India was not on the point which is sought to be raised on behalf of the applicant. In the decision, the Apex Court has ruled that principles of natural justice are applicable not only in judicial and quasi judicial matters but also in administrative matters which involve civil consequences. It was held that the decision in Johnson & Johnson Ltd nowhere speaks of need of show cause notice in each and every matter. It was further held that the decision in Jeet Ram Enterprises it was held that issuance of SCN to a person is not a mere formality and the SCN should intimate the recipient about the allegations.

The Tribunal held that the proceedings were initiated at the instance of the applicant which is an added factor to justify non-requirement of issuance of SCN. No question of issuing SCN arose in regard to the application for remission.

Decision: - Impugned orders set aside and matter remanded to deal both the matters simultaneously. Appeals disposed of accordingly.

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Case: - U.P. State Sugar Corporation Ltd v/s CCE, Meerut-I

Citation: - 2009 (94) RLT 42 (CESTAT-Del.)

Issue: -Whether duty is payable on scrap of plant and machinery when there is no provision during the relevant period?

Brief Facts: - The appellant cleared capital goods/parts/components/accessories which became scrap due to wear and tear on replacement of the parts and accessories etc. during the period 2000-2001 and 2001-2002. Demand of duty was raised on such clearances of waste and scrap by holding that duty was payable under Rule 3 (3) of the Cenvat Credit Rules, 2001. Demand was confirmed by the Original Authority and the same was upheld by the Commissioner (A). Appellant has filed appeal against the said order.

Appellant’s Contentions: - Appellant contended that during the period under question, there was no provision for payment of duty on the clearances of waste and scrap of capital goods. Reliance was placed on decisions given in Triveni Engg and Industries Ltd [2007 (216) ELT 39 (Tribunal-Delhi)], Triveni Engg Industries [2008 (84) RLT 78 (CESTAT-Del) and Cummins India Ltd v/s CCE [2007 (81) RLT 857 (CESTAT-Mum)].

Respondent’s Contentions: - Revenue reiterates findings of the Commissioner (A) and submitted that appellants had cleared waste and scrap classifiable under the Central Excise Tariff and therefore liable to pay duty.

Reasoning of Judgment: - The Tribunal has relied upon the judgment in the case of Rajasthan Spg. & Wvg Mills Ltd v/s CCE, Jaipur [2006 (193) ELT 601 (Tribunal-Delhi)] in which it was held that removal of scrap of capital goods, demand of duty was not sustainable as there was no provisions under the Act and Rules, during the relevant period. Reliance was also placed on Triveni Engg and Industries Ltd in which it was held that the provisions of payment of duty on waste and scrap of capital goods were introduced only in 2005. Since there was no provisions to raise the demand on clearance of waste and scrap of capital goods, during the relevant period, and therefore demand of duty was not sustainable. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

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Case: - M/s SBJ-Von Compounders Pvt Ltd v/s CCE, Ahmedabad-II

Citation: - 2009-TOIL-1649-CESTAT-AHM

Issue: - Whether it is required to prove that the goods cleared to 100% EOU should be exported by them to take the refund under Rule 5 of Cenvat credit Rules?

Brief Facts: - Appellants had cleared goods to 100% EOU under AR3-A against CT-3 certificates and re-warehousing certificates. The said goods have been ultimately exported by the said 100% EOU. They applied for refund of Modvat credit in terms of Rule 5 of the Cenvat Credit Rules, 2004. Refund claim was denied on the ground that the final product was cleared by them to 100% EOU and the same were not exported by then. Hence this appeal.

Appellant’s Contentions: - Appellant have produced the documents showing that the goods in question were cleared by the appellant have been ultimately exported by the said 100% EOU. But the Revenue has considered this aspect and rejected the refund claim, when evidence produced by the shows that goods were exported. It was contended that Rule 5 does not require that the goods cleared for export must be exported from the appellant’s factory and in the same form only. The only requirement was that the goods cleared for export should have been exported or used in the intermediate product cleared for export. Reliance has been placed on the decisions of M/s S. V. Business P. Ltd v/s CCE, Thane [2006 (198) ELT 408 (Tri-Mumbai)] and CCE, Surat v/s M/s Shilpa Copper Wire Industries [2008 (226) ELT 228 (Tri-Ahmd)]. It is further contended that they have supplied about 85% of their production to 100% EOU and they are unable to utilise the Cenvat credit claimed under Rule 5.

Reasoning of Judgment: - The Tribunal held that the lower authorities have not considered the judgments cited by the appellants. The fact that the 100% EOU has actually exported the goods is also required to be verified. Matter remanded to the Original Authority. Impugned order set aside.

Decision: - Appeal allowed by way of remand.

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Case: - Commissioner of Central Excise, Vadodara v/s Steelco Gujarat Ltd.

Citation: - 2009 (242) ELT 229 (Tri-Ahmd)

Issue: - Can credit be taken on the basis of Xerox copy of invoice duly attested by Range superintendent when the original has been lost?

Brief Facts: - Appellant took cenvat credit on the basis of attested Xerox copy of the triplicate copy of the invoice which contained all the details. The original invoice was lost in transit. So the appellants have gotten the Xerox copy of the triplicate copy of invoice attested by the Jurisdictional Range Superintendent at the supplier’s end. Credit taken on such invoice was denied by the Original Authority. However, the Commissioner (A) has allowed taking of credit in appeal. Revenue has filed appeal against the said order.

Appellant’s Contentions: - Revenue has contended that credit cannot be taken on Xerox copy of the triplicate copy of invoice.

Reasoning of Judgment: - The Tribunal held that there was no doubt about the receipt and use of the inputs in the factory premises of the appellant. And the finished goods produced by using them were cleared on payment of duty. For the loss of original invoice, the same would not mean denial of the substantive benefit of Modvat credit to the assessee, which is otherwise available. To pay such high price for loss of documents is not in accordance with the principles of justice and good conscious. Although credit is not available on Xerox copy but the appellants have established the genuineness of the Xerox copy by getting the document attested. Denial of credit on procedural irregularity was not justified. The Commissioner (A) has rightfully relied upon the decision of M/s Kothari General Foods Corporation Ltd v/s CCE, Bhopal [2002 (144) ELT 338 (Tri-Bang)] and M/s Bhaskar Industries Ltd v/s CCE, Bhopal [2004 (178) ELT 679 (Tri-Del)].

Decision: - Appeal rejected.

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Service Tax Section:

Case: - M/s Eagleton the Golf Resort, Bangalore v/s Commissioner of Service Tax, Bangalore

Citation: - 2009-TIOL-1646-CESTAT-BANG

Issue: - Whether room rent falls under the category of convention charges for clubs?

Brief Facts: - Appellants are running a golf resort. Various companies and organisations send their employees there during weekends for the purposes of recreation and business. The appellant has a good infrastructure offering various facilities for the inmates during their stay. They also have a convention hall which is given for holding meetings. Service tax is being paid on the amounts received. Demand was raised for service tax on the convention services under Section 72. The demand was confirmed with interest under Section 75, penalties under section 78, 76 & 77 were imposed. The said order was confirmed by the Commissioner (A) in appeal. Hence, this appeal.

Appellant’s Contentions: - It was contended that the resort is to be considered as hotel in the light of definitions given in terms of the Hotel Recipients Tax Act, 1980; Expenditure Tax Act, 1987; and Karnataka Tax on luxuries Act, 1979. The definition of renting of immovable property as per Section 65 (105) (zzzz) of the Finance Act, 1994 was referred and contended that the hotels were specifically excluded from the scope of service tax under the category of renting of immovable property. It was argued that the hotels for taxation purpose fell under jurisdiction of the state government and not the central government. Entry 62 of the Schedule VII of the Constitution of India was also referred. It was further contended that the appellants were separately discharging service tax under the category of club service and were also paying service tax under the convention service.

Respondent’s Contentions: - Revenue contended that the charges collected by the appellants from various organizations represent the receipts towards the provision of convention services and the allegation that in the guise of room rent the appellant had been hoodwinking the department for evading payment of service tax under the convention services.

Reasoning of Judgment: - The Tribunal observed that the facts have not been properly appreciated by the Adjudicating Authority. Evidence was shown by the appellants that service tax was paid by them under convention service wherever amounts were collected for provision of the said service. It is held that the demand of service tax was not properly justified by the appellants. The entire amount collected has been taken into account for calculating service tax under the category of “convention services”. The charges collected on availing of various other services like room, liquor, food etc by the occupants/inmates did not fall under the category of “convention services”. Accordingly, pre-deposit is waived.

Decision: - Stay application allowed.

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Case: - BPL Mobile Cellular Ltd v/s State of Kerala

Citation: - 2009-TIOL-555-HC-KERALA-VAT

Issue: - When there is service tax on sale of SIM cards and recharge coupons then the sales tax can not be charged on the same.

Brief Facts: - Mobile operators were selling SIM cards and recharge coupons. Some of the mobile operators offered service tax on the value of SIM cards and recharge coupons such as BSNL, BPL Cellular Ltd and contested sales tax liability, some other companies like ESCOTEL/IDEA paid sales tax and contested service tax liability. In the case of BSNL, matter reached the Apex Court and was remanded to the Assessing Officer vide judgment in BSNL & Anr v/s UOI & Ors [(2006) 145 STC 91]. The department had in that case had accepted the contention of BSNL.

Reasoning of Judgment: - Reliance was placed on the judgment of the Division Bench of the High Court in ST Rev. No. 292/2004 and W.P. (C) No. 29642/2004 dated 08.01.09 in which it was held that there is no sale of goods involved and it is part of the taxable service rendered by the service provider. Only the Central Government can collect service charges on the taxable service covering the value of SIM cards, activation charges etc. And no sales tax could be levied. Accordingly, direction given to Assessing Officer to exclude value of SIM Cards and recharge coupons from taxable turnover.

Decision: - Writ petitions allowed.

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Case: - Infinity Credit v/s Commissioner of C. Ex., Jaipur

Citation: - 2009 (16) S.T.R. 61 (Tri-Del)

Issue: - When there is confusion on the service tax liability then the penalty can not be imposed on the assessee.

Brief Facts: - Appellant is a proprietor concern and were acting as sourcing agents for M/s ICICI Home Finance Ltd and had entered in an agreement for provision of service for the period 01.07.03 to 29.02.04. The appellant were receiving commission for the services rendered. The Original Authority held that the applicants were providing the service under category of Business Auxiliary Service and confirmed the demand of service tax with interest and imposed penalties under Section 76, 77 and 78. The Commissioner (A) upheld the orders of the Original Authority. Hence, appellant filed appeal before the Tribunal.

Appellant’s Contentions: - Appellant contended that they are not contesting the demand of service tax in view of the judgment passed in CCE, Jaipur v/s R.S. Financial Services [2008 (9) S.T.R. 231 (Tri-Del)]. However, they are contesting the imposition of penalties. It is submitted that they being a proprietor firm, they were not aware with the law and there was misunderstanding prevailing in the filed regarding whether proprietor firm can be considered as a commercial concern for the purpose of BAS. Reliance has been placed on Board Circular No. 62/11/2003-ST dated 21.08.03 which was issued in the context of commissioning or installation services wherein it was clarified that the individual cannot be treated as a commercial concern.

Respondent’s Contentions: - Respondents re-iterated the findings of the Commissioner (A).

Reasoning of Judgment: - The Tribunal confirmed the demand of service tax as uncontested. However, on the issue of imposition of penalty, The Tribunal held that considering the entire facts and circumstances, there was sufficient cause for the appellant in entertaining doubt that they were not liable to pay service tax especially in the light of Board’s Circular. The provisions of Section 80 are invoked and penalties set aside.

Decision: - Appeals disposed of accordingly.

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Customs Section:

Case: - Lotus Chocolate Company Ltd & Anr v/s CC (Exports), Chennai

Citation: - 2009 (94) RLT 390 (CESTAT-Che.)

Issue: - When the order is not served on proper new address of appellant then whether it is non communication of order? When the prime authority DGFT has accepted that export obligation has been discharged against licence then whether the matter should be decided afresh? Whether Non fulfillment of export obligation against licence can invoke penal action against MD under Section 112(a)?

Brief Facts: - Appellant-company was importing Cocoa Beans and FPK oil duty-free against the advance licenses. Revenue contended that the appellant-company had diverted some of these imported inputs when only their export obligation was partly fulfilled. The adjudicating authority passed the impugned order on 31.10.06 which was sent to the old address of the appellant and it was also displayed on the notice board in 2007. Appellants actually received the order on 09.02.09 and appeal was filed on 15.04.09. For being on safer side, appellants also filed condonation of delay applications. Vide the impugned order, the Managing director of the appellant-company was penalized under Section 112 (a).

Appellant’s Contentions: - Appellant contended that the new address of the appellant-company was very well available with the Revenue department and have produced correspondence with the department to sustain their contention. It is further submitted that as they have received the order on 09.02.09 and appeal was filed in April, 2009 there was no delay on their part in filing appeal. On merits, it was contended that the JDGFT has confirmed that the export obligation against the various licences issued to the appellant under which the said items were imported, had been discharged. A communication from the office of JDGFT has been submitted which covers all the licences issued to the appellant.

Foe imposition of penalty on the managing director of the appellant-company it was contended that penalty imposed on him was not sustainable as he was not fulfilling the conditions of Section 112 (a) under which the penalty was imposed.

Reasoning of Judgment: - The Tribunal held that the new address was available with the Revenue department. It couldn’t be said that the order was tendered to the appropriate address. Display of the order on the notice board in terms of Section 153 (b) was not sufficient as the department had not attempted to serve or served the order upon the last known address of the company. The appellant’s contention is accepted that there was no delay in preferring appeals. Applications for condonation of delay are dismissed a s they are not required.

Further, the Tribunal held that the appellant had not produced the endorsement on their advance licences before the adjudicating authority that export obligation had been fulfilled. Therefore, the interest of justice requires that the matter be freshly decided in view of the communications received from JDGFT in Dec’08 and Jan’09. Impugned order set aside and matter remitted for de-novo adjudication.

On the issue of imposition of penalty on the managing director, the Tribunal agreed with the appellant’s contentions that ingredients of Section 112 (a) were not made out against him as no goods either have been confiscated nor have been held to be liable to confiscation and question of abetment does not arise for the reason that the main offender i.e. the appellant-company was not penalized. When the main person is not penalized then a person cannot be penalized for abetted commission or omission of an offence so as to hold him liable to penalty. Therefore, penalty is set aside on the managing director.

Decision: - Appeal allowed by way of remand.

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Case: - Natwar Steel Pvt Ltd v/s Commissioner of Customs, New Delhi

Citation: - 2009 (242) ELT 227 (Tri-Del)

Issue: - When the goods were not as per declaration of importer then value can be enhanced on the basis of value of similar goods.

Brief Facts: - Appellants imported goods which were declared to be heavy melting scrap. However, on examination, it was found that the goods were new prime quality varnished and rust free nails. Show cause notice was issued to the appellants for confiscation of goods on the ground of mis-declaration and for enhancement of value. The Adjudicating Authority held that the goods be reassessed to duty @ Rs. 31.11 per Kg and also ordered confiscation of goods. Penalty was imposed.

Appellant’s Contentions: - Appellant contended that goods were only for melting purpose. The nails were not upto prescribed standards, therefore, the manufacturer has cleared them as scrap. For valuation, it was contended that transaction value was wrongly rejected. The goods were melting scrap and the value was wrongly enhanced by treating them as nails.

Respondent’s Contentions: - Revenue contended that the goods were examined and found to be in prime quality nails which could not be considered as heavy melting scrap. For valuation, it was contended that the import of wire nails were considered and for assessment purposes the lowest price of import of nails was considered. Value of steel wire and bars which is the raw material for manufacture of such nails and after taking into consideration the same, the value of nails was worked out.

Reasoning of Judgment: - The Tribunal held that goods were not found as per the declaration and therefore the transaction value was rightly rejected. The Commissioner while determining the value of goods has taken into consideration the value of similar goods imported into India and the value of imported raw material for the manufacture of nails for arriving at the assessable value. The assessable value in both the cases was same. No merit in appellant’s contentions.

Decision: - Appeals dismissed.

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