Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/25

Case Laws

Prepared by: - CA. Pradeep Jain

Sukhvinder Kaur, LLB(FYIC)

Megha Jain

Central Excise Section:

Case: - Shiva Steels v/s Commissioner of Central Excise, Jaipur

Citation: - 2008 (228) ELT 0157 (Tri. - Delhi)

Issue: - Whether debit of duty from cenvat account for discharging the liability on exempted goods, would attract Section 11D?

Brief Facts: - Appellants were engaged in the manufacture of dutiable final products ‘Stainless Steel, Cold-rolled Patta’ as well as exempted goods ‘Stainless Steel scrap’ and availed Cenvat credit on the inputs mainly SS Flats and other inputs used in the manufacture of dutiable and exempted products. Show cause notice was issued for reversal of amount under Rule 6 of the Central Excise Rules, 2002 on the ground that the duty paid inputs were used in the manufacture of exempted goods namely SS scrap. It has also been proposed to recover the amount collected from their customers in the guise of Central Excise duty in terms of Section 11D. The Adjudicating Authority confirmed the demand of duty on both scores and also imposed penalty. The Commissioner (Appeals) set aside the recovery of amount under Rule 6(3) of Central Excise Rules, 2002. However, the Commissioner (Appeals) upheld the confirmation of demand under Section 11D and also reduced the penalty.

Appellant’s Contentions: - Appellants placed a copy of the invoice showing that the goods were cleared on payment of 8% of the amount of value. He submits that they paid the duty on fortnightly/monthly basis and debited the duty from Cenvat account and therefore, Section 11D cannot be attracted. He relied upon the decision of the Tribunal in the case of Inductotherm (India) Pvt. Ltd v. CCE, Ahmedabad [2007 (216) ELT 40].

Respondent’s Contentions: - Revenue submitted that the SS scrap was chargeable to nil duty and the appellant had realised the duty from the customers and therefore, Section 11D is applicable. He also submits that Section 11D payment is liable to be made through PLA and not from the Cenvat account.

Reasoning of Judgment: - The Tribunal found that the appellants have cleared SS scrap on payment of duty @ 8% as evident from the invoice. It is seen that the duty was discharged as fortnightly/monthly basis from PLA/Cenvat account.

The case of Inductotherm (India) Pvt. Ltd. (Supra) has been relied upon wherein it was held that “when the assessee proved the fact that during the relevant period, they deposited the amount by making debit entry in the Cenvat account and discharged the duty liability, then demand under Section 11D was not sustainable.”

In view of the above decision of the Tribunal, it was found that in the present case, the appellants cleared the SS scrap on payment of duty as is evident from the invoice and debited duty from PLA/Cenvat account. Accordingly, impugned order relating to recovery of the amount under Section 11D of the Central Excise Act, 1944 and penalty are set aside.

Decision: - Appeal allowed.

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Case: - SLR Steels Ltd v/s CCE, Bangalore-II

Citation: - 2009 (95) RLT 284 (CESTAT-Ban)

Issue: - Whether Cenvat credit is admissible on steel and cement used for constructing storage tanks and pollution control equipments?

Brief Facts: - Appellants have availed credit of duty paid on items like steel and cement which were used by them for construction of storage tanks and pollution control equipments. Revenue issued show cause notice contending that the said items were used in the construction of civil structures and factory buildings. The Adjudicating Authority dropped the proceedings. Aggrieved by this, Revenue filed appeal before the Commissioner (A). The Commissioner (A) held that the said items were nothing but construction materials and are not included in the definition of capital goods. Appellant have come in appeal before the Tribunal.

Appellant’s Contentions: - It was contended that steel and cement were used for construction of storage tanks wherein intermediate products or raw materials/items used for the manufacture of final products were stored and for construction of pollution control equipment. It is contended that no evidence has been adduced by the Revenue against the factual finding of the Adjudicating Authority in this regard. Reliance has been placed on the judgment in CCE, Coimbatore v/s Jawahar Mills Ltd [2001 (45) RLT 739 (SC)] and contended that the language used in the erstwhile Rule 57Q was very liberal and the definition of capital goods in this case need not be used for producing the final product or used in the process of any goods for the manufacture of final product and the only requirement is that the same should be used in the factory of the manufacturer.

Respondent’s Contentions: - Revenue reiterates the findings of the Commissioner (A).

Reasoning of Judgment: - The Tribunal held that the order of the Commissioner (A) only discussed the case laws and nothing on the factual findings. The Revenue has not produced any evidence against the order of the Adjudicating Authority. There are clear factual finding that the said goods were used in constructing the storage tanks and pollution control equipment. It was also noticed that there was an actual visit by the Assistant Commissioner to appellant’s premises. And in his letter he had confirmed that the said items were used for constructing storage tanks and pollution control equipment. The impugned order is incorrect and totally not in consonance with law laid down in Jawahar Mills Ltd case. Reliance was also placed on judgments given in Lloyds Steel Industries Ltd v/s CCE, Nagpur [2007 (81) RLT 495 (CESTAT-Mum)], Divi’s Laboratories Ltd v/s CCE, Vishakhapatnam [2006 (73) RLT 255 (CESTAT-Ban)]. Impugned order set aside.

Decision: - Appeal allowed with consequential relief, if any.

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Case: - Shivam Metals versus Commissioner of Central Excise, Jaipur - II

Citation: - 2009(235) ELT 0081 (Tri. - Del.)

Issue: - Whether payment of duty from cenvat credit account towards exempted goods is permissible?

Brief Facts: - Appellants were engaged in the manufacture of dutiable goods ‘Standard Cold Rolled Patta/Patti’ and exempted goods ‘Standard Steel Scrap’. It has been alleged that Appellant wrongly utilised Cenvat credit for payment of central excise duty on exempted goods i.e. Standard Steel Scrap in order to pass the Cenvat credit benefit to the consignees. It has further been alleged that the amount so collected as central excise duty is required to be deposited in Government Account under Section 11D with interest under the Central Excise Act, 1944. The Adjudicating Authority confirmed the demand of amount collected from appellant’s customers in the guise of central excise duty in terms of Section 11D of the Act along with interest and imposed penalty under Rule 25 of the Central Excise Rules, 2002, which has been upheld by the Commissioner (Appeals).

Appellant’s Contentions: - It was contended that appellants had availed Cenvat credit on the clearance of Stainless Steel Scrap and paid duty @ 16% Adv. as revealed from the invoices. They had not retained any amount and, therefore, Section 11D couldn’t be invoked. Further, Section 11D was amended by the Finance Act, 2008, which is deemed to have come into force on the first date of April 2008. They also submitted that in terms of the said amendment, if any person has collected, any amount on any excisable goods, which are wholly exempt or are chargeable to nil rate of duty from any person, in any manner, shall pay the amount so collected to the credit of the Central Government. Moreover, that in this case, the Appellant paid duty, which was collected from their customers and, therefore, Section 11D was not warranted.

Respondent’s Contentions: - Revenue contended that Aluminium Scrap attracted nil rate of duty and, therefore, the amount paid by the Appellant is invalid deposit to the Government Account. In other words, the Appellant collected the amount in their invoice as duty is liable to be deposited in Government Account under Section 11D.

Reasoning of Judgment: - The Tribunal found that Stainless Steel Scrap is exempted goods. The Appellant paid duty 16% Adv. duty at the time of clearance of the goods and also availed Cenvat credit. It is seen that the Appellant did not retain the amount collected from the customers.

Reliance was placed on the case of Sterlite Industries (India) Ltd. v. CCE, Vapi [2008 (225) ELT 0397 (Tribunal-Ahmd.)] and on Larger Bench of the Tribunal in the case of Unison Metals Ltd. v. Commissioner of Central Excise, Ahmedabad-I [2006 (204) ELT 0323 (Tribunal-LB)].

The Tribunal held that the Appellant paid duty on the exempted goods and collected the amount from their customers as evident from the invoice. It is noted that the Appellant had not retained any amount and paid the same to the Government and, therefore, Section 11D couldn’t be invoked. Impugned order being un-sustainable is set aside.

Decision: - Appeal allowed with consequential relief.

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Case: - Viral Control Pvt. Ltd. v/s CCE, Ahmedabad–III

Citation: - 2009 (235) ELT 0681 (Tri.-Ahmd)

Issue: - Whether the 8% of value recovered by the appellant from their customers and actually debited in RG-23 Part II, requires further duty confirmation under Section 11D or not ?

Brief Facts: - The demand of duty was confirmed against the Appellant in terms of provisions of Section 11D on the ground that they had recovered 8% of the value of the exempted goods from their customers, but the same was not paid to the Revenue though there is no dispute that the same was the amount debited in modvat account at the time of clearance of the exempted goods.

Appellant’s Contention: - The appellant, before the Commissioner (Appeals), relied upon the Larger Bench decision of the Tribunal in case of Unison Metals Ltd. - 2006 (204) ELT 0323 (Tri.-LB) . Their plea is that the reversal of 8% amount from the Cenvat credit account amounts to payment of the duty to the Revenue and as such, the demand cannot be again confirmed under Section 11D. The individual debit entry in the invoices was not shown as the duty was required to be paid at the end of the month.

Respondent’s Contentions: - The respondent distinguishes the order from the judgment given in Unison Metals Ltd case on the ground that the appellant had collected an amount of 8% of invoice value as duty showing in the column of excise duty in invoices as well as the invoices do not bear the debit entry of Part II.

Reasoning of Judgment: - The Tribunal held that the distinction made by the respondents was not required. The Larger Bench decision in Unison Metals Ltd case was not depending upon the position as to whether the duty was shown under Column of excise duty or not.

The legal issue given in this case stand decided in favour of the appellant by Larger Bench of the Tribunal in the Unison Metals Ltd case. Accordingly, the impugned order was set aside.

Decision: - Appeals allowed.

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Service Tax Section:

Case: - CCE (ST), Pondicherry v/s Aurore Trust

Citation: - 2009-TIOL-2130-CESTAT-MAD

Issue: - Whether Rule 6(3) is applicable to adjustment of service tax collected for non-taxable service?

Brief Facts: - The respondent were providing the service of commissioning and installation and collected amount representing the service tax for provided by them during the period May to June 2003 during which the said service was not a taxable service. Subsequently, they refunded the amount to the service receiver by way of issue of credit notes and then adjusted the amount towards service tax admittedly payable for the month of July 2003. Revenue objected to adjustment of the said amount on the ground that it was contrary to the provisions of Rule 6 (3) of the Service Tax Rules, 1994 which provides for adjustment only if the value of taxable service and service tax has been refunded to the person from whom it was received. The Adjudicating Authority confirmed the demand. In appeal, the Commissioner (a) set aside the impugned order on the basis of Tribunal’s decision in Hexacom (I) Ltd v/s CCE [2003 (156) ELT 357]. Hence, Revenue has come in appeal.

Reasoning of Judgment: - The Tribunal held that prior to July 2003; the commissioning and installation service was not a taxable service. The applicability of Rule 6(3) arises only when any service rendered is a taxable service. Since, commissioning and installation service was not a taxable service during the period when the amount was collected and refunded to the service recipients, the question of denial of adjustment on the ground that the assessee refunded only the service tax amount and not the value of taxable service, together with service tax, does not arise. Impugned order is upheld.

Decision: - Appeal rejected.

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Case: - M/s Ultra Tech Cement Limited v/s Commissioner of Central Excise, Nagpur

Citation: - 2009-TIOL-2131-CESTAT-MUM

Issue: - Admissibility of credit of service tax paid on scientific & consultancy service received on account of certification of pollution level at the factory premises.

Brief Facts: - Applicant is the manufacturer of cement. They availed services for environmental monitoring at their cement plant, mines and captive power plant and were paying service tax on the same. The supplier of service issued invoice under the definition of Scientific and Technical Consultancy Service. They availed credit of the service tax paid on account of Certification of Pollution level. The Adjudicating Authority held that the supplier is not covered under that service and the appellant was not required to pay service tax to their supplier. Accordingly, appellant are not entitled to cenvat credit on service tax paid on this service to their supplier and the demand alongwith interest was conformed and penalty imposed.

Appellant’s Contentions: - Applicant-assessee submitted that they have paid service tax on the services availed by them under proper invoice and as per Cenvat Credit Rules. And therefore, they are entitled to take credit on the service tax paid by them. Reliance has been placed on the judgment in CCE, Mumbai v/s Anand Arc Electrodes Pvt. Ltd [2009-TIOL-1560-CESTAT-MUM] wherein it was held that buyer has no responsibility in regard to ensuring that duty has been correctly paid by consignor. Once original assessment has not been varied, credit taken cannot be denied.

Reasoning of Judgment: - The Tribunal held that the applicant has made out a strong prima facie case in their favour. Waiver of pre-deposit of duty, interest and penalty as well as stay granted.

Decision: - Stay granted.

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Case: - CCE, Vadodara v/s Sameer Linkages Pvt Ltd

Citation: - 2009 (95) RLT 311 (CESTAT-Ahmd)

Issue: - Whether Revenue can raise a new point of law which was not taken in the show cause notice?

Whether the input service credit earned by the respondents on various services like agency services, commission agent services, CHA services, packing and forwarding services used after clearance of goods from factory are covered under the definition of input services as given in CCR, 2004?

Brief Facts: - Respondent-assessee is a 100% EOU. They claims refund in respect of accumulated and unutilised cenvat credit of service tax paid on commission disbursed for the sales activities of the finished goods. The Assistant Commissioner rejected the claim on the ground that in terms of Rule 5 of the Cenvat Credit Rules, 2004 r/w Notification No. 05/06-CE (NT) dated 14.03.06, the credit of input services should be in respect of those services used for the final product. Inasmuch as the said service is for sale of final product, the benefit of the credit in terms of Rule 5 would not be admissible. In appeal, the Commissioner (A) held in favour of assessee, by holding that the place of removal gets extended to Port area, and any services connected with the business would not get covered by the input services. Accordingly, it was held that respondent was entitled to refund. The Commissioner (A) also held that the ground taken by the Revenue at appellate stage was not an issue at the original stage and therefore, the same is not legally tenable.

Revenue has challenged the said order before the Tribunal.

Reasoning of Judgment: - The Tribunal held that an issue of law can always be raised even at appellate stage, even if it was not raised at the adjudication stage. The issue involved is purely a question of law and is to be determined on facts already available on records. In the instant case, the plea raised by Revenue at the appellate stage did not call for adducing any additional evidence nor does it require examination of factual position other than those already examined at the adjudicating stage and therefore, the same can be raised at appellate stage. In this regard, reliance was placed on Extrusion Processes Ltd v/s Collr. of CE, Bombay II [1994 (69) ELT 144 (Tribunal)].

It was also held that impugned order is not sustainable because if the logic given therein is accepted the very purpose of provisions for review of orders of lower authorities will be defeated. The whole idea behind examining the legality and propriety of the orders at the time of review is to check whether the order is as per the law and has been taken into consideration all facts and circumstances and evidences available on record.

The Tribunal further held that a reading of Notification No. 5/2006-CE (NT), dated 14.03.06 and Rule 3 of the CCR, 2004 it is clear that credit of input service paid is allowed under Rule 3, only if inter alia the inputs service tax paid qualifies as input services. It was held that the impugned service in the instant case have been used somewhere else in or in around the port area after clearance of the goods from the factory and not used within the factory in the manufacture of final product, the place of removal. Thus, the said services were not used by the respondents upto place of removal but after the place of removal which the Commissioner (A) should have taken into consideration.

The Tribunal further referred to Rule 5 and held that the input or input services, refund of which is sought, must have been utilised in the manufacture of final product exported impliedly excluding such input or input service which are used for any other purpose or even in relation to the manufacture of final product exported under bond etc. In the instant case, the services were utilised outside the factory of manufacture, they can by no stretch of imagination be categorized as having been utilised in the manufacture of final product. The refund claim would be outside the scope of Rule 5 and therefore, inadmissible.

The Tribunal remanded the matter to the Commissioner (A) by agreeing with the Revenue that the matter has not been examined by the Commissioner (A) from the above angle. No opinion is expressed.

Decision: - Matter remanded back.

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Case: - Louis Berger International Inc v/s Commissioner of Central Excise, Hyderabad

Citation: - [2009] 23 STT 448 (BANG. - CESTAT)

Issue: - Whether the reimbursable expenditure incurred on behalf of the client while providing the consulting engineering service are to be charged to service tax?

Brief Facts: - Appellant were rendering the service of consulting engineer. They were recovering reimbursement expenses from their clients for various expenses incurred by them on behalf of the client for the period covering from January 1 to January 2007. Show cause notice was issued alleging that the appellant is not discharging the service tax liability on the reimbursement expenses they have collected from their clients. Appellant contended that they are contesting the service tax liability on the remuneration received by them as salary in respect of personnel deputed by the appellant in terms of the contract but are claiming the deduction of the reimbursement of various expenses incurred by them on behalf of the client. The Adjudicating Authority confirmed the demand. In appeal, the Commissioner (A) held that the amounts claimed as reimbursable expenses are not eligible for the purpose of deduction. Hence, this appeal is filed before the Tribunal.

Appellant’s Contentions: - Appellant submitted that the issue is now squarely settled in their favour by the decision of this Bench in the case of Scott Wilson Kirkpatrick (I) (P.) Ltd. v. CST [Final Order No. 1775 (Bang.) of 2006, dated 18-10-2006] and Bax Global India Ltd. v. CST {[2008] 12 STT 108 (Bang. - CESTAT)}. It was submitted that this decision was followed in various other cases and in the case of Reliance Industries Ltd. v. CCE {[2009] 20 STT 362 (Ahd. - CESTAT)}, the Ahmedabad Bench has also held that reimbursement of expenses cannot be included for arriving at the service tax liability.

Respondent’s Contentions: - Revenue submitted that the reimbursement of expenses in respect of consulting engineer is excludible from the gross amount only if they are rendering manpower recruitment services as a part of consulting engineer services. It is submitted that there is nothing on record to show that the reimbursable expenditure as claimed is pertaining to manpower recruitment.

Reasoning of Judgment: - The Tribunal perused the returns of the appellant and held that they had indicated the said amount against the column marked as “amount billed for exempted services other than export”. The appellant has been taking this stand before the lower authorities also. The appellants claimed that they had received reimbursement charges during the course of rendering taxable services under the consulting engineer services. As such the said expenses are liable to be deducted from the gross value of the taxable service.

The Tribunal relied upon the judgment in Scott Wilson Kirkpatrick (I) (P.) Ltd case wherein it was held that the reimbursable expenses were not to be included in the gross value of the service provided. The appellant’s case was squarely covered by this judgment. Impugned order set aside.

Decision: - Appeal allowed with consequential relief, if any.

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Customs Section:

Case: - ITW India Ltd v/s CCE, Vapi

Citation: - 2009 (95) RLT 299 (CESTAT-Ahmd)

Issue: - Principle of unjust enrichment are not applicable to amounts deposited during investigation as well as fine and penalty deposited at the time of passing of adjudication order, which was set aside at appellate stage.

Brief Facts: - An investigation was conducted by the anti-evasion party of the appellant’s premises. Appellants deposited an amount at that time. The Adjudicating Authority passed an order confirming the demand and imposed fine and penalty. The penalty and fine were deposited by the appellant. In appeal before the Tribunal, the impugned orders were set aside and the dispute was decided in appellant’s favour. Thereafter, the appellant filed refund claim for the amounts deposited by him. The original authority rejected the claim on the issue of time bar and on unjust enrichment. In appeal, the Commissioner (A) held in favour of the appellant on the ground of time bar by holding that the said amount was not duty and was in the nature of deposit. However, by relying upon the judgment given in M/s Sahakari Khand Udyog Mandal Ltd v/s CCE [2005 (181) ELT 328 (SC)], the Commissioner (A) rejected the refund of deposit of duty, fine and penalty on the ground of unjust enrichment. Hence, appellant has filed this appeal before the Tribunal.

Appellant’s Contentions: - Appellant contended that the Appellant authority itself had held that the said payment as deposit, while passing orders on the time bar aspect, provision of unjust enrichment are not applicable to the deposit. Reliance was placed on the judgments given in M/s Morarjee Goculdas Spg & Wvg. Mills Co. Ltd v/s CCE, Mumbai-IV [2008 (11) STR 444 (Tri-Mumbai), CCE, Chandigarh-I v/s M/s Modi Oil & General Mills [2007 (210) ELT 342 (P&H)], M/s Suvidhe Ltd v/s UOI [1996 (82) ELT 177 (Bom)], M/s Godrej Industries Ltd v/s CCE, Mumbai [2007 (80) RLT 905 (CESTAT-Mum)] and M/s Kalvert Food India Ltd v/s CCE, Mumbai [2007 (83) RLT 194 (CESTAT-Mum)]. It was held in these cases, that pre-deposit do not attract unjust provision.

Respondent’s Contentions: - Revenue relied upon the judgment given in United Spirit Ltd v/s CC(Import), Nhava Sheva [2008 (87) RLT 55 (CESTAT-Mum)] wherein it has been laid down that deposits made prior to clearance of the goods from the Customs have to meet the challenge of unjust enrichment on the ultimate success of the appeal.

Reasoning of Judgment: - The Tribunal found that in the order passed in United Spirit’s Case, the facts were entirely different. The deposit was made as a condition of clearance of goods from Customs and these goods were further used captively for manufacture of their final product. In these circumstances, the Tribunal had held that deposits made prior to provisional relief of the goods have to pass the test of unjust enrichment. On the other hand the judgments relied upon by the appellant are clearly to the effect that any deposit made either through investigation or subsequent to confirmation of demand do not attract the provisions of unjust enrichment, on the success of the appeal at the appellate level. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

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Case: - SY Ranade v/s CC, Pune

Citation: - 2009 (95) RLT 309 (CESTAT-Mum)

Issue: - CHA cannot be penalized for mis-declaration of facts in the bill of entry by the importer.

Brief Facts: - In the relevant bill of entry it was found that the description and value of the goods had been mis-declared. Penalty was imposed on the importer as well as on its CHA. In the case of importer, the matter was settled by the Settlement Commission. But show cause notice was issued against CHA. The Commissioner of Customs imposed penalty on the CHA under Section 112 of the Customs Act, 1962. Aggrieved by this, the CHA has filed appeal before the Tribunal.

Appellant’s Contentions: - Appellant-CHA objects to the rule of vicarious liability being applied to him. He is also questioning the manner in which the provisions of Section 147 were interpreted by the Commissioner. Reference has been made to the judgment given in the case of Aspinwall & Co. v/s CCE, Trichy [2001 (132) ELT 644 (Tri-Chennai)].

Reasoning of Judgment: - The Tribunal relied upon the judgment given in Aspinwall & Co. v/s CCE, Trichy, wherein it was held that Section 147 was not applicable. The Tribunal held that in the absence of any binding precedent to the contrary, the judgment given in the said case by the Division Bench was binding on it.

The Tribunal further observed that according to the Customs House Agents Licensing Regulations, 2004, a CHA shall carry out the instructions of his client who has authorised him to clear goods for home consumption/warehousing or for export, as the case may be. The department cannot frame a case of mis-declaration against the CHA where he carries out the instructions given by the Importer. The case of CHA would not fall within the parameters of Section 147. Penalty imposed on appellant set aside.

Decision: - Appeal allowed.

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