Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/21

Case Laws

Central Excise Section:

Case: - CCE, Vadodara/Supreme Petroleum & Ors v/s Swati Chemical Indus Ltd/ CCE, Vadodara & Ors

Citation: - 2009 (94) RLT 684 (CESTAT-Ahmd)

Issue: - No discretion can be exercised in imposing penalty under Section 11AC which is mandatory in nature. However, opportunity should be given to the assessee to deposit the entire amount of duty, penalty and interest demanded, so that benefit of proviso to Section 11AC is available to him.

Brief Facts: - In all the appeals, the penalty was imposed under Section 11AC of the Central Excise Act, 1944. When the matter reached the High Court, appeals were remanded back with the direction to decide the issue afresh in the light of judgment passed by the Apex Court in UOI v/s M/s Dharmendra Textile Processors [2008 (89) RLT 103 (SC-LB). Thus, the matter is before the Tribunal.

Reasoning of Judgment: - The Tribunal considered the facts of each and every appeal. It was held that the law stands declared in M/s Dharmendra Textile Processors’ case. Where the provisions of Section 11AC are invoked, authorities have no discretion to impose lesser penalty. Accordingly, penalty in all appeals was increased to 100% of the duties involved in each case by the Tribunal.

However, it was noted that the first and second proviso to Section 11AC were not the subject matter of the judgment of the Apex Court. These provisos were subject matter of consideration before the High Court in Commissioner of Central Excise, Rohtan v/s JR Fabrics Pvt Ltd [2009 (92) RLT 818 (P&H)]. It was held therein that option is required to be given to the assessee to pay the dues and penalty of 25% within 30 days. The orders not giving such an option to the assessees are illegal and have to be set aside.

Accordingly, the Tribunal held that matters need to be remanded back to the Adjudicating Authority for adjudging penal liabilities in terms of Apex Court’s judgment in M/s Dharmendra Textile Processors’ case alongwith extending option in terms of 1^st and 2^nd provisos to Section 11AC. The Authorities below to give option to assessee of reduced penalty equal to 25% of duty demanded if duty, interest and penalty@ 25% are paid within 30 days of communication of appellate or adjudicating order.

Decision: - Appeals disposed off in above terms.

Comments:- Although the benefit has been extended but the Board has issued a circular that the benefit of 25% penalty can be availed at adjudication stage only and not on appellate stage. But the tribunal has extended the benefit following the High Court decisions. Let us see another round of litigation. It is truly said “Litigation never ends.”

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Case: - CCE, Raipur v/s Ashok Ispat

Citation: - 2009 (94) RLT 689 (CESTAT-Del)

Issue: - When it remains undisputed that Beams, Columns and Plates are used in capital goods like crane operating system and induction furnace, they are part of the said capital goods and are eligible for cenvat credit by treating them as capital goods.

Brief Facts: - The respondent-assessee were using Beams, Columns and Plates falling under Chapter 73 in their crane operating system and induction furnace. They treated the same as capital goods and availed cenvat credit. The Department contended that these items were not capital goods. The Assistant Commissioner in his order dropped the demand for cenvat credit availed on the said items by holding that these items were used in the factory as parts of crane operating system and components of induction furnace and were capital goods. The Commissioner (A) also upheld the adjudicating order. Revenue has come in appeal before the Tribunal.

Appellant’s Contentions: - Revenue contended that the said items were not capital goods as they were used for structural support of the crane/induction furnace and could not be treated as parts of the crane/furnace. Reliance was placed on judgment in Tata Engineering & Locomotive Ltd v/s UOI [1997 (89) ELT 463 (Bom)] wherein it was held that columns, beams, tresses and purlins are sections and portions of a structure, coming into existence when affixed or fabricated and becoming part of structure and thus, becoming immovable in character, that these could not be separately known as commodities bought and sold hence none of these items satisfy the test of marketability and are not goods, exigible for excise duty.

Respondent’s Contentions: - The respondent-assessee contended that in the impugned orders a clear finding was given that these items have been used as part of crane and induction furnace and this fact has not been denied by the Revenue. As both crane and furnace fall under Chapter 84 and hence are capital goods, the said items being part of the said machinery are capital goods and covered by the definition of capital goods. It was further contended that parts and accessories of capital goods falling under any chapter heading are covered by the definition of capital goods.

Reasoning of Judgment: - The Tribunal found that though the SCN alleged that the said items were used for building civil structures but the respondent’s contention during hearing that these items were part of crane and induction furnace was accepted by the Adjudicating Authority and later by the Commissioner (A) in appellate order. The Revenue have not disputed the said fact anywhere. The said goods are parts of induction furnace and crane operating system falling under Chapter 84 and are capital goods. The said items are eligible for cenvat credit. No infirmity in the impugned order.

Decision: - Appeals dismissed.

Comments:- The recent amendment has excluded these items specifically from the definition of “ inputs”. But credit has been allowed as “capital goods”. We have also wrote an article on this subject and said that even if the definition of “inputs” has been changed but the credit can be allowed under “Capital goods”. The same thing happened in this decision. Still the credit will be allowed.

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Case: - Cement Corp. of India Ltd v/s Commissioner of C. Ex., Rohtak

Citation: - 2009 (15) STR 122 (Tri-Del)

Issue: - Unjust enrichment was applicable to state undertakings engaged in Commercial activities. It is necessary to show that burden of duty has not been passed on to the customers.

Brief Facts: - The appellant is a state undertaking engaged in the manufacture and sale of cement. They filed for refund of amount paid as excess duty. The refund claim was rejected on the ground of unjust enrichment. The appellants are challenging the rejection of their claim.

Appellant’s Contentions: - Appellants contended that there was no passing on of excise duty was they were selling its produce below cost of production. They produced a certificate from Chartered Accountant to confirm that during the relevant period (1991-92) the appellant had sold cement below the cost price. The certificate also showed the loss incurred by the appellants in the relevant period. The appellants have also produced a certificate of Chartered Accountant certifying that during the financial year 1991-92, they had not passed on the burden of excise duty to their buyers and the same has been absorbed by M/s CCI Ltd. Reliance was placed on judgment in CCE, Bangalore v/s Karnataka State Agro Corn Products Ltd [2006 (202) ELT 47] and it was contended that unjust enrichment was inapplicable to State undertakings. Reliance was also placed on Jaipur Syntex Ltd v/s CCE, Jaipur [2002 (143) ELT 605 and it was contended that when the balance sheet shows the amount in question as disputed amount, unjust enrichment would be attracted.

Respondent’s Contentions: - Revenue contended that the question involved was purely a question of fact and, if, as a matter of fact, tax has been passed on to the buyer, provisions of unjust enrichment are attracted. They placed reliance on Sahakari Khand Udyog Mandal Ltd v/s CCE [2006 (181) ELT 328] to support their contention that the doctrine of unjust enrichment is based on equity and applies even irrespective of Section 11B of the Central Excise Act.

Reasoning of Judgment: - The Tribunal examined the findings of the Commissioner (Appeals) and found that the appellant’s sale price was inclusive of excise duty. The mention of gate passes on the invoices of the appellants indicate that at the time of clearance of the goods from the factory, excise duty was being charged and it is to be expected, in the absence of the contrary, that the unit price was the gate pass amount which included duty. Thus, the finding of lower authority that excise duty was being passed on to the buyers was factually sound.

It was further held that selling of goods at a loss is not conclusive on the question of passing on of excise duty. For refund purposes, the only relevant fact is whether the tax paid was being collected from the buyers. Whether a sale price is a profitable price or a loss making price is altogether irrelevant for the purpose of refund. From this perspective, the certificate of Chartered Accountant does not satisfy the requirement.

The Tribunal further held that Section 11B does not make any distinction in relation to refund, between a private enterprise and a Govt enterprise. Therefore, it is not acceptable argument that a State undertaking does not come within the scheme of unjust enrichment. The Judgment cited in this regard was in the context of the State Govt unit producing items and supplying them to State Govt. authorities for free distribution. The situation of the appellant’s case is different. The appellant is a commercial enterprise selling its produce to buyers for money.

Decision: - Appeal rejected.

Comments:- It is clear that it is impossible to get the refund from the department once it has been paid. It is very difficult to prove that the duty incidence has not been passed.

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Case: - Ambuja Cements Ltd v/s Commissioner of Central Excise, Raipur

Citation: - 2009 (242) ELT 579 (Tri-Del)

Issue: - Whether credit is available on steel materials used for construction of capital goods as well as for civil structure when the assessee is unable to show separate utilisation of the same for different constructions.

Brief Facts: - The appellants purchased steel materials and used them in manufacture of capital goods. The said material was also used for repair and maintenance of machinery. The appellants availed cenvat credit on the said material. The Commissioner (Appeals) in its order denied the cenvat credit availed by them and demanded the same back with interest and also imposed penalty. The appellant has approached the Tribunal challenging the impugned order. An application for waiver of pre-deposit and stay of impugned order is also filed.

Appellant’s Contentions: - Appellant contended that cenvat credit is denied solely on the ground that the materials have not been utilised in the manufacture of capital goods and even the cenvat credit availed on the items used for repairs and maintenance of machinery has been denied. It is also contended that considering the order passed in Vandana Global Ltd v/s CCE, Raipur [2008 (230) ELT 169] certain issues have been referred to the Larger Bench and similar issue is also involved in the appellant’s case. Therefore, the same may be placed before the Larger Bench alongwith Vandana Global Ltd. Reliance was placed on the judgments delivered in Union of India v/s Hindustan Zinc Ltd [2007 (214) ELT 510], M/s Bellary Steel & Alloys Ltd v/s CCE, Belgaum [2005 (180) ELT 92], Vandana Global Ltd’s case, CCE, Jalandhar v/s Pioneer Agro Extraxts Ltd [2008 (230) ELT 597], CCE, Jalandhar v/s Pioneer Agro Extraxts Ltd [2008 (224) ELT 431] and Mahindar & Mahindra Ltd v/s CCE, Aurangabad, Chandigarh, Kanpur, Chennai [2005 (190) ELT 301].

Respondent’s Contentions: - Revenue contended that the Commissioner had rejected the claim of Cenvat credit not only on the grounds which have been sought to be argued by the appellant, but also on account of failure on appellant’s part to place necessary materials on record for disclosing as to how much thereof was utilised in the manufacture of capital goods or repairs and how much thereof was utilised for other purposes, such as, construction of sheds etc. Reliance was placed on the judgment in M/s Quality Steel Tubes Pvt Ltd v/s CCE, Pune [1995 (75) ELT 17 (SC)].

Reasoning of Judgment: - The Tribunal held that the Commissioner has considered the aspect as to whether steel materials have been used for manufacture of the capital goods or not, and has also considered the matter from the point of view of failure on appellant’s part to satisfy the adjudicating authority as to how much of the quantity of steel was utilised for manufacture of the capital goods and how much was utilised elsewhere. The reply to show cause notice and other documents submitted nowhere disclose any details as regards the quantity of steel used for manufacture of capital goods and used otherwise. The purchase orders also do not disclose, nor they can disclose nor can be said to be conclusive evidence in respect of utilisation of said material for manufacture of capital goods.

The Tribunal held that prima facie no case is made out for waiver of pre-deposit of duty and penalty. No case of hardship was made out. The Tribunal exercised its discretion and directed that pre-deposit of amount of penalty is not required. However, amount of duty and interest is required to be pre-deposit.

Decision: - Stay application disposed of.

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Case: - Jain Vanguard Polybutylene Ltd v/s Commissioner of Central Excise, Nashik

Citation: - 2009-TIOL-1528-CESTAT-MUM

Issue: - Whether refund claim of unutilised Cenvat Credit availed by the assessee under Rule 5 is liable to be allowed on the ground of closure of their factory?

Brief Facts: - The appellants filed claim for refund of unutilised cenvat credit, availed by them, under Rule 5 of the Cenvat Credit Rules, 2004. The refund claim was rejected on the ground that the factory of appellants was closing.

Reasoning of Judgment: - The Tribunal held that identical issue was dealt by the High Court of Karnataka in the case of Union of India v/s Slovak India Trading Co. Pvt Ltd [2006 (201) ELT 559 (Kar)] wherein it was held that refund granted was justified particularly in the light of closure of the factory and in the light of assessee coming out of Modvat Scheme. Accordingly, impugned order of the Commissioner is set aside.

Decision: - Appeal allowed.

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Service Tax Section:

Case: - Fifth Avenue & Anr v/s CST, Chennai

Citation: - 2009 (94) RLT 751 (CESTAT-Che)

Issue: - Whether the service provided to foreign companies by the assessee fell under Business Auxiliary Service or under Support Services of Business or Commerce?

Brief Facts: - The Appellants were processing purchase orders by foreign companies with local vendors of ready made garments and coordinated their exports and payments by companies towards exports to vendors. They liaised with local vendors and facilitated export of ready made garments as desired by the foreign companies. They received amounts @ 10% of FOB value from vendors in case of appellant ‘Fifth Avenue’ (FA) and @ 5% in case of Appellant ‘Fifth Avenue Windmill Pvt Ltd’ (FAWPL), which vendors had accounted in some cases as commission or professional fee in their accounts. FAWPL entered into an MOU with a foreign company M/s Benetton Asia Pacific Ltd and was receiving commission at different rates for the services. Both appellants were also receiving BAS services for foreign agents who attended trade fairs etc abroad and furnished information that promoted the business of the appellants. The Commissioner of Service Tax held that the services provided by the appellant fell under the category of BAS and accordingly, they were liable to pay service tax for the same. Appellant have filed appeal against the order demanding service tax with interest and imposing penalty.

Appellant’s Contentions: - Appellants contended that the services rendered to the companies and vendors were classifiable under the head of “Support Services of Business or Commerce” (SSBC). SSBC was brought under the tax net w.e.f. 01.05.06. Therefore, demands which are relating to period prior to 01.05.06 under BAS are not sustainable. It was also contended that moreover the services rendered to the companies were exported i.e. the services were received by companies located outside India. Reliance was placed on CBEC Circular No. 111/5/2009-ST, dated 24.02.09 wherein it was provided that such services were export and exempt from levy of service tax. As per the Circular, when the receiver was located outside India and the benefits accrued outside India, the services provided were to be treated as export.

As regards BAS received by the Appellants from its respective agents based abroad, the statute authorised collection of tax on services rendered by persons based abroad treating the recipients of such service in India as providers of the service from 18.04.2006 with the enactment of Sec. 66A. Reliance was placed on judgments delivered in Indian National Shipowners Association v/s Union of India [2009 (90) RLT 739 (Bom)] and Ishikawajama-Harima Heavy Industries Ltd v/s Director of Income Tax, Mumbai [2007 (6) STR 3 (SC)].

Reasoning of Judgment: - The Tribunal found that the services rendered by the Appellants to the vendors without a contract with them were incidental to services rendered to the foreign company. The Commissioner had rightly treated the services rendered to Benetton and DSI were correctly treated as not exempt as exports during the material period. Only on 01.03.07, such services when delivered and used outside India by a recipient located outside India were extended the exemption.

The Tribunal further held that the services rendered by appellants to vendors and the companies fall under the category of SSBC as they conform to the statutory definition of SSBC. They did not fall under BAS. Since levy on SSBC was introduced w.e.f. 01.05.06, demands raised for period prior to 01.05.06 were not sustainable.

As regards BAS received by the Appellants from its respective agents based abroad, the Tribunal held that the BAS received was mostly prior to 18.04.06 when Section 66A was enacted and the liability to pay service tax for services provided abroad was imposed on the service provider. Therefore, demands on this account for the period prior to 18.04.06 is not sustainable.

Decision: - Appeals disposed off accordingly.

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Case: - In Re: G.R. Constructions

Citation: - 2009 (15) STR 133 (Commr. Appl)

Issue: - Whether repair of roads is exigible to service tax under the Maintenance and repair service or are exempted under Commercial or Industrial Construction?

Brief Facts: - The appellants are contractors engaged in the activity of construction and laying of roads. During investigation conducted by anti-evasion party, it was found that the appellants had indulged in rendering construction service to M/s HPCL and management, maintenance or repair service to various clients. The appellants paid the amount of service tax with regard to commercial construction carried out. The department took the view that activity carried out by him in respect of roads fall under management, maintenance or repair of immovable property and therefore were liable to pay service tax under the said head. The appellants did not agree to the said view. The Adjudicating Authority passed the order demanding service tax and also imposed penalties under various sections of the Finance Act, 1994 by holding that the activities carried out did not amount to construction of road and did not fall under the commercial construction or industrial construction service.

Appellant’s Contentions: - It was contended that they were laying roads. Appellants produced the letters issued by the Authorities who had awarded contracts to them and contended that the activities undertaken by them was exempted from tax vide Section 65 (25b) of the Finance Act, 1994. It was contended that when the main activity of laying road is not liable to tax the activity of repair to roads did not attract tax and that non payment of tax in their part was due to bona fide error of interpretation of statute.

Reasoning of Judgment: - The Tribunal held that the activities carried out by the appellant could not be termed as construction of road but only repairs. The Tribunal further held that the definition of “commercial or construction service” specifically excluded not only construction of roads but also the repair of roads from its purview. It was further held that though the said activity may fall under “management, maintenance or repair service” but specific exclusion under the “commercial or construction service” will prevail. Accordingly, it was held that road repair was not liable to Service Tax. Reliance was also placed on Board’s Letter B1/6/2005-TRU, dated 27.07.05 which fortified the view of the Tribunal.

The Tribunal further held that there was no intention to evade duty as the Contract provided for reimbursement of Cenvatable service tax. A standard format of contract generally contains the sharing of liability of taxes and that does not mean that the appellants were aware of tax liability. The appellants were under bona fide belief that they were not liable to pay service tax on the activity undertaken by them. In accordance with the provisions of Section 80 of the Finance Act, 1994, the appellant is not liable for penalties under Sections 76, 77 and 78 of the Finance Act, 1994. Accordingly, demand and penalties set aside.

Decision: - Appeal disposed of.

Comments:- The board has come up with a circular and said that the service tax is not levialbe on new roads but the repairing of old roads are liable to tax. It has also defined both the situations and clarified them. Even the Hon’ble Finance Minister has exempted even the repairing of Roads. But this order has cleared all the doubts.

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Case: - Commissioner of Central Excise, Meerut-I v/s Surender Kumar

Citation: - [2009] 23 STT 323 (New Delhi-CESTAT)

Issue:- The material on record is required to be examined to ascertain that the assessee falls under a particular category of service.

Brief Facts: - The Commissioner (Appeals) in its impugned order had held that the respondent-assessee had not provided the services of cargo handling. The Revenue has filed appeal against this order.

Appellant’s Contentions: - Revenue contended that the issue to be decided first was that whether the respondent is a cargo handling agency or not. Thereafter, the assessment of all other services provided by the respondent were to be assessed and the exemption limit be invoked if that is permissible under law for grant of relief to the respondent. They have prayed for remand of matter so that thorough examination could be done to ascertain liability declaration therefore on examination of the services provided and thereafter to come to the conclusion whether threshold limit is invokable.

Reasoning of Judgment: - The Tribunal held that the finding of the Commissioner (A) that “the appellant has not provided cargo handling service”, did not flow from the material on record as the agreement or the letter of appointment which gave rise to the consequence of the service were not examined. Therefore, it is necessity of the law that the Commissioner should first come to the conclusion on the basis of the material evidence and law that whether the facts and circumstances of the case, on analysis, brings the appellant to “cargo handling service”. Thereafter, he has to examine the other service provided by the respondent. Then he is to make an overall assessment of the services and on declaration of the liability, threshold limit, if any, shall be applicable is to be examined. Matter remanded back to the Commissioner.

Decision: - Appeal allowed by way of remand.

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Case: - Kamani Oil Industries v/s The Commissioner of Central Excise, Mumbai

Citation: - 2009-TIOL-1546-CESTAT-MUM

Issue: - Whether Cenvat credit is available on mobile telephone services?

Brief Facts: - The appellants availed credit of service tax availed on input services of mobile telephone services. The Department issued show cause notice alleging that credit was wrongly availed and is not available in terms of CBEC Circular No. 59/8/2003-ST dated 20.06.03 wherein in para 2.3 it is mentioned that credit will be allowed only on telephone sets installed in the business premises and that mobile telephone services are not covered. The demand of duty was confirmed and in appeal, was upheld by the Commissioner (Appeals). The appellant has come before the Tribunal against the said order.

Appellant’s Contentions: - Appellants placed reliance on Indian Rayon & Industries ltd [2006 (4) STR 79 (Tri-Mumbai) wherein it was held that “service tax paid on mobile phone is available as credit to eligible service providers of output service and manufacturers in absence of any express prohibition under Cenvat Credit Rules, 2004 . It was further held that CBEC Circular No. 59/8/2003-ST could not be pressed into service against the appellant”. Reliance was placed on several case laws wherein it was held that Cenvat credit on services of mobile phones was available when mobile phones and landline phones installed by company for business purpose and bills are paid by company.

Respondent’s Contentions: - Revenue contended that these mobile phones were not used in or in relation to the manufacture of output product and the mobile phones cannot be treated as inputs and the appellants are not entitled for cenvat credit on the same. Reliance was placed on Vikram Ispat v/s CCE, Raigad [2009-TIOL-997-CESTAT-MUM].

Reasoning of Judgment: - The Tribunal held that the use of mobile phones was not in dispute. The only reason for denying credit by the lower authorities was in terms of CBEC Circular No. 59/8/2003-ST. The Tribunal accordingly held that appellant were entitled for credit on mobile phone services availed by them.

Decision: - Appeal allowed with consequential relief.

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Customs Section:

Case: - CC (Imports), Mumbai v/s Kulkarni Powder Metallurgical Industries

Citation: - 2009 (242) ELT 534 (Tri-Mumbai)

Issue: - Whether the Commissioner (Appeals) has power to remand the matter to the Adjudicating Authority for re-adjudication?

Brief Facts: - At the appellate stage, the Commissioner (Appeals) set aside the order passed by the Assistant Commissioner and remanded the matter for re-adjudication by the Assistant Commissioner. Revenue has come in appeal before the Tribunal challenging the impugned order of remand on the ground that the Commissioner (Appeals) has no power to remand the matter.

Reasoning of Judgment: - The Tribunal held that impugned order was not maintainable. The Commissioner (Appeals) himself has to re-adjudicate the matter after hearing the parties. The appellants were justified in relying upon the decision given in Commissioner of Customs, Amritsar v/s Enkay (India) Rubber Co. Pvt Ltd [2008 (224) ELT 393 (P&H). In this judgment it was clearly held that pursuant to amendment brought out in Section 128 of the Customs Act, 1962 in the year 2001 vide Finance Act, 2001 effective from 11.05.01, the power of remand which was earlier available to the Commissioner (Appeals) has been specifically deleted from the statute book. The Apex Court in the case of MIL India Ltd v/s CCE, Noida [2007 (210) ELT 188 (SC)] has also held the same view but for the powers of Commissioner (Appeals) under the Central Excise Act, 1944. Thus, the law is clear that Commissioner (Appeals) does not have the power to remand the matter. Impugned order set aside. Direction given that the matter be remanded to the Commissioner (Appeals), to decide the appeal afresh after hearing the parties.

Decision: - Appeal disposed of accordingly.

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PJ/Case Laws/09-10/21

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