Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/17

Case Laws

Central Excise Section:

Case: - Hindalco Industries Ltd v/s CCE, Belapur

Citation: - 2009 (94) RLT 375 (CESTAT-Mum.)

Issue: - Whether the credit note/ Debit note issued after the sale can establish that the incidence of duty is not passed to the buyer?

Brief Facts: - Assessee sold their excisable goods under 4 invoices to M/s TTK-LIG Ltd on 16.07.06. Excise duty was shown in the invoices. Later on, assessee filed refund claim on 03.10.06 for the excise duty. The supporting documents to the claim included credit note. Revenue issued SCN for denying the claim on the ground of unjust enrichment by contending that the latter had passed on the incidence of duty to their buyer. Adjudicating Authority rejected the refund claim on the ground of unjust enrichment by relying on Larger Bench decision in S. Kumar’s Ltd v/s CCE, Indore [2002 (53) RLT 775 (CEGAT-LB)] wherein it was held that credit notes issued by seller to buyer subsequent to clearance of goods had no relevance to the refund claim filed by the former. Further appeal was rejected by the Commissioner (A). Hence, appellant has filed this appeal.

Reasoning of Judgment: - The Tribunal placed reliance on UOI Vs. A.K. Spintex Ltd. [2009 (234) ELT 41 (Raj)] to hold that refund claim of the appellant is required to be allowed. It was held therein that after issuance of debit note by the buyer and corresponding credit note by the seller, the price of the goods stood reduced to the extent of debit/ credit and, in such circumstances, the incidence of duty could not be assumed to have been passed on to the buyer. It was observed that the burden placed on the assessee (Seller of excisable goods) by Section 12 B was a rebuttable one and that he might lead evidence in rebuttal, by proving issuance of debit note and credit note. It was also observed that, where goods were sold on credit, the purchaser might pay a lesser amount to the seller than what was borne on the relevant invoice, while making payment of the price of the goods. At this stage, the burden would shift to the Revenue to prove that the claim of the assessee was not correct or that the burden of duty had actually been passed on by him to the buyer

In the instant case, on 30.07.2006, the buyer sent a letter to the assessee, declining to accept the burden of duty on the above goods. This was done well within the period of credit covered by the purchase order and invoices. On 29.08.2006, the assessee issued a credit note to the buyer, crediting the aforesaid amount of duty to the latter’s account.

On facts, it was held that the burden shifted to the Revenue but the same was not even attempted to be discharged. The assessee succeeded in rebutting the burden of proof cast on them under Section 12 B of the Central Excise Act. Consequently, the bar of unjust enrichment was obviated. Refund claim is liable to be allowed without bar of unjust enrichment. Impugned order is set aside.

Decision: - Appeal allowed.

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Case: - Commissioner of Central Excise, Vapi v/s Schwabe Incoats

Citation: - 2009 (242) ELT 247 (Tri-Ahmd)

Issue: - Whether the credit is to be reversed on writing off them in books of accounts although they are lying in the factory premises?

Brief Facts: - Inputs were lying in the factory premises of the respondent-assessee but were not used in the manufacture of final product. They were written off in the appellant’s records. Revenue contended that the modvat involved on such inputs was required to be reversed. The Commissioner (A) held that such inputs could not be called upon to pay back the modvat credit involved on the same. Revenue filed appeal before the Tribunal against the said decision.

Reasoning of Judgment: - The Tribunal agrees with the Commissioner (A) that inputs are still within the factory premises and have not been cleared from their factory so as to reverse the credit taken. As long as inputs are lying in the factory premises, even though they were written off in their records, the duty demand could not be made against them. No merits in Revenue’s appeal.

Decision: - Appeal rejected.

Comment: - The decision is very good which is going against the Board circular.

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Case: - Navbharat Metallic Oxide Indus. Pvt. Ltd v/s Commr. of C. Ex., Daman

Citation: - 2009 (242) ELT 249 (Tri-Ahmd)

Issue: - Whether the Zinc ash is marketable in view of Apex court decision?

Brief Facts: - Zinc ash was generated during the manufacture of Zinc Oxide. The Lower Authorities held that the duty was leviable on zinc ash as the same was classified under heading 28170010 and was being sold by the appellant. In this appeal, stay application was filed against demand of duty on Zinc Ash.

Reasoning of Judgment: - The Tribunal held that relied upon reasoning of the judgment in the case of Commissioner of Central Excise v/s Indian Aluminium Co. Ltd [2006 (203) ELT 0003 (SC)] and held that the appellants have strong case in their favour. Unconditional stay was granted.

Decision: - Stay granted.

Comment: - But the board has amended the definition of “Goods” under Central Excise Act and said that any goods which are sold for a consideration is marketable. As such, zinc ash is chargeable to duty in view of aforesaid definition. Even the Board has issued a recent circular clarifying the position that all goods are chargeable to duty from 01.04.2008. An article was also prepared on the same subject and can be viewed in our article section.

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Case: - Gujarat Glass Ltd v/s Commissioner of C. Ex., Surat-II

Citation: - 2009 (242) ELT 254 (Tri-Ahmd)

Issue: - Whether the duty is payable on costing method when cleared to sister concern when the sister concern also taking Cenvat credit? Since the whole transaction is revenue neutral, demand was dropped.

Brief Facts: - Appellant are manufacturers of glass bottles and glass vials. They had manufactured casting moulds and cleared them to their own unit situated at Jambusar District. They approached the Range Superintendent by way of letter dated 16.03.2000 about the excisability of the said CI moulds. On being informed by the Revenue that they were required to pay duty at the clearance of CI moulds, the appellants immediately on 23.03.2000 paid the duty. Credit of such duty paid was taken by the Sister Unit. Thereafter, Department issued SCN on 08.10.02 alleging that the value of moulds adopted by the appellants for payment of duty was not correct and the correct assessable value was on the higher side. Accordingly, proceedings were initiated for recovery of differential duty. Demand was confirmed and penalty was imposed by the authorities below. Appellant filed this appeal before the Tribunal.

Reasoning of Judgment: - The Tribunal held that the appellant had itself approached the Excise Authorities seeking their opinion on the point of excisability of moulds. As such, duty paid was available as credit which was actually availed by sister unit. In such circumstances, if the appellant would have paid the higher duty now being demanded from them, their sister unit was admittedly entitled to avail higher modvat credit to that extent. The entire situation is revenue neutral and confirmation of demand against the appellant was not called for.

Further, the Tribunal held that the entire facts were within the knowledge of the Department and if there was any dispute about the correct assessable value, same could have been raised within the normal period of limitation. Thus, the demand was barred by limitation. Impugned order set aside.

Decision: - Appeal allowed.

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Case: - Mukand Ltd v/s The Commissioner of Central Excise, Belapur

Citation: - 2009-TIOL-1685-CESTAT-MUM

Issue: - Whether the amount reversed under Rule 6 is to be on total sale price or the reversal amount can be recovered from the client? Whether the amount recovered by separate commercial invoice amounts to suppression of facts?

Brief Facts: - Appellants were engaged in manufacturing EOT cranes and clearing them in knock-down condition to M/s Satish Dhawan Space Centre and Defence Research Development Organisation at Nil rate of duty under Notification No. 10/1997 dated 01.03.97. Appellants debited an amount equal to 10% of the price shown in the invoices in terms of Rule 6 (3) (b) of the Cenvat Credit Rule, 2004. They recovered the amount so reversed from their customers by way of raising commercial invoices in the form R-1 Series. Revenue contended that the appellants had suppressed the value of the product on the invoice at clearance time and have recovered additional amount at a later date by way of Commercial Invoice in form R-1 series. The period involved was from 28.03.05 to 06.09.05. Revenue contended that appellants had contravened the provisions of Rule 6 (3) (b). Revenue also relied upon para 2 (b) of the Circular No. 599/36/2001-CX dated 12.11.01 in which it is provided that the amount of 10% (reversal of cenvat credit) would have to be calculated on the total price charged from the buyer. Demand was confirmed u/section 11A of the Central Excise Act, 1944 r/w Rule 14 of Cenvat Credit Rules, 2004 r/w Rule 15 with interest. Penalty was imposed also imposed. Hence, appellant has come before the Tribunal.

Appellant’s Contentions: - The Appellants contended that Section 11A could be invoked to recover excise duty not paid or short paid and the amount demanded from them is not excised duty and therefore the said amount could not be demanded under Section 11A. It was further contended that recovery under Rule 14 could be made only if cenvat credit was wrongly taken and/or has been erroneously refunded. But in appellant’s case cenvat credit was not wrongly taken and/or has been erroneously refunded and therefore no amount could be recovered under Rule 14.

It was contended that the Commissioner (A) had placed reliance on Section 2 (10) of the Sales of Goods Act, 1930 which said that “price means the money consideration for a sale of goods”. In this regard, the appellant contended that reimbursement by the customers to the seller of the sums paid to the Government by way of taxes or otherwise did not form a part of the money consideration for sale of goods as the said amounts were paid to the Government and there was no retention of the same by the sellers. It was further contended that the amount paid in terms of Rule 6(3) (a) was an adjustment of Cenvat as the appellant were liable to pay equivalent to the duty paid on the inputs used in the manufacture of final products, which were exempted final goods.

Reliance was placed on Mahindra & Mahindra Vs. CCE, Mumbai [2007 (211) ELT 481(Tri-Mumbai)] and was contended that in terms of Rule 6(3) (b), the appellants were liable to pay an amount equal to the Cenvat Credit of the duty paid on the inputs used in the manufacture of final goods, which were exempted. It was clear that then amount equal to 10% of the price of the final goods exempted may not be equal to the Cenvat Credit of the duty paid on the inputs used in their manufacture. It could be less than, equal to or more than the Cenvat credit of the duty paid on the inputs used in the manufacture of exempted final products.

It was further contended that the amount collected from them was a “tax” collected by the Government, which tax has been collected form the customers and that cannot be termed as the price of the goods.

It was further contended that the extended period cannot be invoked as there is no evidence on record to show that there is fraud, collusion, suppression of facts, willful mis-statement, contravention of any of the provision of the Act or the Rules made thereunder with intent to evade payment of duty. It was contended that department had full knowledge about the facts.

Reliance was placed on CCE Vs. Sangrur Agro Ltd.[ 2006(202) ELT 835 (Tri. Del)] and was contended that they have neither taken not utilized the credit in respect of inputs and/ or capital goods wrongly on account of fraud, collusion, suppression of facts, willful mis-statement, contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty. Hence, penalty cannot be imposed upon them under rule 15 of the Cenvat credit Rules and/or section 11AC of the Central Excise Act, 1944. he further submit that in the case of amount required to be paid under the rule 6 (3) (b) of the Cenvat Credit Rules, Penalty cannot be imposed under section 11AC of the Central Excise Act. Also, interest is not liable to be recovered as there is no amount was recoverable.

Respondent’s Contentions: - Revenue contended that the appellants had recovered the 10% of the cenvat credit reversed on the exempted goods from their customers through commercial invoice, which forms the part of the consideration and on that 10% the appellants were liable to pay duty. The findings of the impugned order were re-iterated.

Reasoning of Judgment: - The Tribunal found that the appellants had recovered the amount reversed under Rule 6 (3) (b) from the buyers through commercial invoices in addition to the amount recovered by the appellant earlier. Appellant was liable to reverse the Cenvat credit @ 10% of the total sale proceeds inclusive of the amount recovered through commercial invoices from buyers. Further, it was held that the demand which had been raised earlier, it could not be presumed that the department would be aware that in subsequent period also the appellants would be recovering additional amount by separate commercial invoice of the different series. From record, it is clear that if the appellants did not want to suppress the facts, there was no reason to recover the said amount by a separate commercial invoice of a different series rather than the invoice under which the goods were purportedly sold. Therefore, the appellants were liable to pay duty on the amount recovered subsequently through commercial invoices. No infirmity in the impugned order found and is upheld.

Decision: - Appeal dismissed.

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Case: - Finolex Cables Ltd v/s The Commissioner of Central Excise, Pune

Citation: - 2009-TIOL-1691-CESTAT-MUM

Issue: - Whether Cenvat inputs as such are allowed to be exported from factory under Bond/LUT or they must be necessarily be exported only after reversal of pro-rata credit under Rule 3 (5) of Cenvat Credit Rules, 2004?

Brief Facts: - The appellant has filed appeal in which the above-mentioned question is raised and stay application is filed against the order confirming the duty amount and equivalent penalty imposed on the appellant.

Appellant’s Contentions: - It is contended that as per CBEC manual, there is no bar for a manufacturer to remove the inputs or capital goods as such for export under bond.

Reasoning of Judgment: - The Tribunal held that a strong prima facie case has been made out in applicants favour and accordingly, waiver of pre-deposit of duty, interest and penalty is granted. Stay is granted during the pendency of appeal.

Decision: - Stay granted.

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Service Tax Section:

Case: - M/s The Salem Cooperative Sugar Mills Ltd v/s Commissioner of Central Excise (Service Tax), Salem

Citation: - 2009-TIOL-1677-CESTAT-MAD

Issue: - Whether the individual consignment transported in a good carriage is exempt upto Rs. 750 or it can be exempted upto Rs. 1500/-?

Brief Facts: - Appellants were availing the service of Goods Transport Agency. The gross amount charged for an individual consignment transported in goods carriage exceeded Rs. 750. They were availing the benefit of exemption granted under Notification No. 34/2004-ST, dated 03.12.04. The demand was raised for service tax. The demand was confirmed by holding that the benefit of the said Notification was not available to them as the gross amount charged for an individual consignment transported exceeded Rs 750/-. The appellant is now before the Tribunal and application for waiver of pre-deposit and grant of stay is filed.

Appellant’s Contentions: - It is contended that the appellant’s were covered by clause (1) of the Notification as the gross amount charged on a consignment transported in a goods carriage ranged between Rs. 750/- and Rs. 1500/- and did not exceed Rs. 1,500/-. The demand was barred by limitation. Plea of financial hardship is pleaded.

Reasoning of Judgment: - The Tribunal held that prima facie the appellant’s contention that they are covered under clause (1) of the said Notification is not tenable in view of the clear language of clause (2) of the Notification. Prima facie the demand is also not barred by limitation because the appellant never disclosed the fact of availing exemption for the consignment transported in goods carriage where the amount charged exceeded Rs. 750/-. No documentary evidence has been produced to substantiate the plea of financial hardship.

Thus, it was held that pre-deposit of Rs. 3, 50, 000 is to be made by reversal of credit as pleaded by the appellant subject to verification by Range.

Decision: - Pre-deposit ordered. Upon deposition of amount stay will be granted.

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Case: - Uttam (Bharat) Electricals (P) Ltd v/s CCE, Jaipur-I

Citation: - 2009 (94) RLT 321 (CESTAT-Del)

Issue: - Whether the balance of input service credit lying on 10.09.04 can be utilized for payment of excise duty as the utilization of input service credit for payment of excise duty was allowed from 10.09.04 only?

Brief Facts: - Appellants are engaged in the manufacture of Power Distribution Transformers, HV/LV Coils. They were also providing the services of ‘maintenance & repair services’, Commissioning and Installation Service and Technical Testing Service. There was unutilised credit on input services availed during the period 01.07.03 to 10.09.04 with the appellants. Appellants utilised the said credit on 10.09.04 for payment of central excise duty. SCN was issued on 10.02.06 disallowing the credit so utilised on the ground that the same could be utilised only for payment of service tax and not for central excise duty as provided under Rule 11 of the Cenvat Credit Rules, 2004. The Lower Authorities confirmed the demand with interest for wrong utilisation of credit balance lying as on 10.09.04 and for irregular availment of credit and imposed penalty. Hence, this appeal.

Appellant’s Contentions: - It was contended that in terms of Rule 4, there was no bar for utilisation of credit on excise duty. For irregular availment of credit it was submitted that the demand was barred by limitation. Demand for irregular availment was not challenged.

Respondent’s Contentions: - It was contended that Rule 3 (1) of the Service Tax Credit Rules provided that the appellant was eligible to take credit on the input service falls in the same category of taxable service. The appellants had not disclosed these facts to the Revenue and therefore, extended period was invokable.

Reasoning of Judgment: - The Tribunal held that as per transitional provision under Rule 11 credit can be utilised in accordance with Rule 3 (4) for payment of any duty of excise on any final product. Therefore, allegation made in the SCN was not correct. Therefore, credit of service tax lying in balance on 10.09.2004 could be utilised for paying excise duty. Further, penalty set aside on irregular availment of credit as the issue involved interpretation of legal provisions. Demand for irregular availment of credit upheld.

Decision: - Appeal disposed of accordingly.

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Case: - Banswara Syntex v/s Commissioner of Central Excise, Jaipur

Citation: - [2009] 22 STT 539 (NEW DELHI-CESTAT)

Issue: - Whether the leasing of land, building and machinery falls under financial services when the person is not engaged in banking or financial business?

Brief Facts: - Appellants had leased their land, building as well as machinery to M/s Banswara Fabrics Ltd for specific rent for a period of 3 years. The authorities below held that the appellant fell under the category of Body Corporate and since body corporate fell under Section 65 (12) of the Finance Act, 1944, the appellant is said to have provided financial services through leasing. It was held that the plant and machinery including the factory building leased out to the appellant was a financial leasing under the definition of financial services under section 65(12) of the Finance Act, 1994. Therefore, appellants were liable to pay service tax for providing financial leasing services. Hence, this appeal.

Appellant’s Contentions: - It was submitted that leasing of factory and plant and machinery by the appellants were not financial leasing services. Reliance was placed on CCE v/s G.E. India Industries (P) ltd {[2009] 19 STT 254 (Ahd.-CESTAT)}.

Respondent’s Contentions: - Reliance has been placed on Board clarification in letter F. No. B.II/I/2000-TRU, dated 9-7-2001 in which it was clarified that not only Banking and Financial institutions providing leasing services are brought to the tax ambit, but equally body corporate carrying out such activities are also brought to the purview of law. According to the meaning of body corporate, a public limited company shall also be falling under the defined category providing leasing service shall be liable to service tax. Appellant is therefore, liable to pay service tax on the activity of other financial services which is leasing.

Reasoning of Judgment: - The Tribunal held that what was required to be examined is whether such a limited company has provided financial services. From records, it was clear that appellant were not engaged in leasing business to be called a corporate body providing financial service. Levying service tax on them was unwarranted. The judgment given in GE India Industries (P.) Ltd and letter dated 9-7-2001 issued by the TRU of the CBEC vide No. BII/I/2000-TRU, have made it clear that a company falling under the definition of ‘body corporate’ should either be a banking company or a financial institution or a non-banking financial company which came under the purview of law. In appellant’s case, this ingredient was missing.

It was also held that the Legislature intended to broaden the tax base bringing transfer of right to use tangible goods to the fold of law. This is appearing in section 65(105)(zzzzj) of the Finance Act, 1994 which came into force with effect from 16-5-2008. Finding that there was no law to tax the transfer of right to use movables before 16-5-2008, even on such count also, the appellant is excluded from the purview of law. Accordingly, impugned order set aside.

Decision: - Appeals allowed.

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Customs Section:

Case: - Hero Cycles Ltd v/s Union of India

Citation: - 2009 (94) RLT 301 (Bom.)

Issue: - Whether the duty paid under mistake by assessee then the assessment order is to be challenged or the refund claim can be filed? Whether the assessing officer should grant benefit of exemption notification if not claimed by assessee by mistake?

Brief Facts: - The Petitioners had imported bicycle parts by availing benefit of full exemption from excise duty under Notification No. 10/2003-CE dated 01.02.03. Consequently, no additional duty of customs under Section 3 of the Customs Tariff Act, 1975 was payable on the imported goods. However, the petitioners inadvertently and under a bona-fide mistake did not claim exemption under the above-mentioned Notification for certain bill of entries. The Revenue authority assessed all the Bill of entries without extending the benefit of the said notification. Petitioners cleared the imported goods on payment of additional duty @ 14% under Section 3. Realizing their mistake, petitioners filed refund claims. It was contended by them that they had not taken cenvat credit of additional duty paid and had not passed on the incidence of duty to their customers. Refund claim was rejected on the ground that they had not challenged the final assessment order. Petitioners filed appeal which was dismissed by holding that the final assessment order was not challenged by the petitioner within the time prescribed and instead had filed for refund. Hence, the petitioners have approached the High Court.

Petitioner’s Contentions: - The petitioners have sought relief by way of writ of mandamus to direct authorities below to rectify the assessments made in the said Bill of entries to the extent it purports to make assessment on the imported goods to additional duty under Section 3 and sanction and grant them refund claims with applicable interests.

Respondent’s Contentions: - Main objection raised is that the petitioners have not challenged the order of assessment and therefore, refund application was not maintainable. Reliance placed on Priya Blue Industries Limited v/s Commissioner of Customs (Preventive) [2004 (64) RLT 321 (SC)], Collector of Central Excise v/s Flock (India) Pvt Ltd [2000 (40) RLT 131 (SC)] and Steel City Beverages Pvt Ltd v/s U.O.I [2003 (159) ELT 14 (Del.)]. As the petitioners had not claimed the benefit of said Notifications, Section 154 was not attracted.

Reasoning of Judgment: - The High Court held that the first question to be considered by them was “whether in the absence of impugning the original assessment order by preferring a statutory appeal which was available, should the High Court, ought to exercise its extra ordinary jurisdiction”?

The High Court relied upon judgments given in State of UP v/s Mohammad Nooh [AIR 1958 SC 86], WASP Pump Private Limited v/s UOI [2008 (230) ELT 405 (Bom)] and other unreported judgments on alternative remedy. High Court held that the law was well settled that mere existence of alternative remedy by itself is no bar for this court exercising its extra ordinary jurisdiction. It will depend upon the circumstance of the case.

The Second question for consideration was whether the instant case was a fit case for the High Court to exercise its extra ordinary jurisdiction?

The High Court held that although this was not a case of violation of principles of natural justice or fair play and or violation of any fundamental rights but the petitioner was seeking refund of money on the ground that additional duty was not chargeable in view of the exemption notification.

The High Court held that nonetheless the record showed that a statutory notification was in existence and which ordinarily the Assessing officer ought to have noted.

The High Court held that the Supreme Court had held that a Statutory Notification issued under Section 5A of the Central Excise Act has statutory force, as if it were contained in the Act itself. Reliance was placed on judgment in Parle Exports (Private) Ltd [1988 (38) ELT 741].

On the facts it was held that the benefit of the said Notification was being granted previous to the imports in issue and also subsequent to the imports in question. Thus, both the parties were aware of the said notifications. If the petitioner had on account of an inadvertent error chose not to apply for the benefit, then it would result in denial of the benefit. But a duty was also cast upon the assessing officer to assess the goods and impose duty according to law which includes a statutory notification, if duty demanded otherwise was not payable. Once there is power to assess there is a corresponding duty to assess according to law. The petitioner had paid duty by oversight and therefore cannot be assessed to duty which was otherwise not payable. Therefore, it is a case of manifest injustice and on the face of it erroneous. It is a fit case for exercise of extra ordinary jurisdiction.

Customs directed to modify the assessment and thereafter appellants to file refund claim as refund cannot be claimed without modification of assessment order.

Decision: - Petition allowed accordingly.

Comment: - This is a very good decision by High Court. Earlier all the decisions by tribunal was disallowed on the basis that assessee has filed refund and not challenged the assessment order. This was as per Apex Court decision in Flocks India cited supra. But this decision has given relief to assessee and cast a responsibility on the assessing officer to pass on the benefit of notification to the assessee if he has not claimed the same by error. Whether the department will leave its pro-revenue approach and extend the benefit to assessee following this decision? Doubts exist.

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