Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/31

Case Laws

Prepared by:

CA Pradeep Jain

Sukhvinder Kaur

And Deepak Mohnot

Central Excise Section:

Case: - Aquamall Water Solutions Ltd v/s CCE, Hyderabad

Citation: - 2009 (95) RLT 371 (CESTAT-Bang)

Issue: - Whether Rule 8 of the Central Excise Valuation Rules, 2000 can be invoked for the purpose of determination of assessable value of spares cleared to their holding company and holding company using the same for AMC?

Brief Facts: - Appellant is manufacturers of water purifying equipment and parts thereof. Appellant is a wholly owned subsidiary of M/s Eureka Forbes Ltd (EFL). Entire production of appellant was sold to EFL and a negligent quantity was cleared to other buyers. EPL effected sale of water purifiers and parts thereof to customers on retail basis. The appellants are selling their entire production of spare parts to their holding company. EFL further sold the said parts at much higher prices to customers. After introduction of Central Excise Valuation (Determination of Price of Excisable Goods) Rule, 2000 on 01.07.200, appellants adopted the valuation on the basis of costing method given in Rule 8. Revenue issued show cause notice demanding the differential duty and also sought to impose penalties. The Adjudicating Authority confirmed the demand and imposed equal amount of penalty. Appellants have challenged the same.

Appellant’s Contentions: - Appellant contended that the same issue had been raised in their earlier appeal before the Tribunal which were allowed in their favour vide Final Order No. 1211/2007 dated 26.10.2007. In this order, it was mentioned that the goods are not sold in the market but are used for annual maintenance. Thus, Rule 11 will apply. By recourse to Rule 11, one has to go to Rule 8 which is the only Rule available when the goods are not sold.

Respondent’s Contentions: - Revenue contended that they have not accepted the final order passed by the Tribunal in appellant’s earlier appeal and have filed an appeal against the same. It is also contended that Rule 8 was applicable only where spare parts were used for consumption in the production or in manufacture of another final product.

Reasoning of Judgment: - The Tribunal followed the findings given in the Final Order No. 1211/2007 dated 26.10.2007 passed in earlier appeal of the appellant. In the said order it was held that when there was no sale, Rule 8 will be applicable.

Accordingly the Tribunal set aside the impugned order.

Decision: - Appeal allowed with consequential relief.

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Case: - Union of India v/s Triveni Conductors Ltd.

Citation: - 2009 (92) RLT 460 (MP)

Issue: - Whether the Department can withhold pre-deposit amount in an appeal passed in favour of assessee on the pre-text that the appeal of appellant against such withholding was time barred?

Brief Facts: - Assessee deposited pre-deposit amount under protest for filing of appeal. The appellate authority set aside the impugned order. He had already deposited the amount on account of grant of appeal. Thereafter the assessee applied for refund of amount deposited under protest before the Deputy Commissioner. The application was allowed but the said amount was appropriated towards demand made in view of two other recovery orders. Assessee filed appeal against the appropriation of said amount. The appeal was rejected as being time barred but the Commissioner (Appeals) made observation that as the assessee had complied with the demand raised in the two recovery orders, the Department may still consider the matter and issue a cheque of the amount asked for in refund.

The Department was not happy with the observation made by the Commissioner (Appeals) and challenged them in appeal. The tribunal rejected the appeal by observing that it would not be open to the Authority to challenge the observations and that the Commissioner was justified in making such observations.

The Department still aggrieved by this order filed appeal before the High Court. The substantial questions of law raised before the High Court were as under:-

1. Whether the Commissioner (Appeals) was correct in giving the observations which were contrary to the decision taken by him of time bar based on merit of the case?

2. Whether the Commissioner (Appeals) has traveled beyond his legitimate jurisdiction which was otherwise not available to him?

Appellant’s Contentions: - It was contended that if the appeal was dismissed by Commissioner (Appeals) then he had no jurisdiction to issue such directions. It was submitted that the Commissioner travelled beyond his legitimate jurisdiction in making observations because he had no powers to make such observations.

Respondent’s Contentions: - Assessee contended that the Government Departments were supposed to be honest and they cannot take undue advantage on technicalities. The Department would be entitled to appropriate the amount provided that the liability still existed. The assessee has discharged the liability by depositing the amount then the Department cannot be permitted to appropriate the amount which was to be refunded to the assessee and the department cannot retain the amount deposited which was deposited in compliance with the two recovery orders.

Reasoning of Judgment: - When the Department is considering the case of refund he can retain/appropriate the amount deposited by the assessee only if he comes to a finding that recovery is still pending against an assessee. However, if the Department finds that the liability on an assessee has been discharged by him and there is no liability, then he cannot appropriate the amount asked to be refunded only because there is some order directing appropriation. If the department had received a deposit then it could either receive the amount or it could appropriate the amount but it could not do both.

The observations made by the Commissioner (Appeals) required the Department to pass appropriate orders to show the assessee that the department was not acting dishonestly but is recovering or retaining money which under law they are entitled to.

Questions on which appeal was admitted do not arise for consideration. The Department to consider the observations made by the Commissioner (Appeals) and pass final order in the matter within 3 months after giving opportunity of hearing to the petitioner enabling him to show to the Authority that the said amount could not be misappropriated.

Decision: - Petition dismissed.

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Case: - Doaba Alco Chemicals v/s Commr of C. Ex., Jalandhar

Citation: - 2010 (250) E.L.T. 81 (Tri-Del.)

Issue: - Whether cash refund is allowed after closure of factory?

Brief Facts: - The Adjudicating Authority granted refund claim by way of re-credit in Cenvat Credit Account. Appellants had closed his factory but had not yet surrendered his registration certificate as he has not gotten the refund of the credit unutilized and balance left in PLA.

Appellant’s Contentions: - The appellant argued that earlier they had received the show cause notice from the department which was confirmed by the Original Authority and upheld by the Commissioner (Appeal). Therefore they deposited the whole amount from Cenvat Account but afterwards the Hon’ble Tribunal set aside the order and allowed the appeal and accordingly the appellants have filed the refund claim. He also submits that factory is closed down but they are unable to surrender the Registration Certificate for the reason that there was unutilized balance lying in their PLA, which has been refunded by cash is present proceeding. So, they were now able to surrender the Registration Certificate. They relied on the Slovak India Trading Co. Pvt Ltd V/s CCE, Bangalore [2006 (205) ELT 956 (T-B)] which was upheld by the Karnataka High Court and the Apex Court in 2008 (223) ELT A170 (SC). Reliance was also placed on M/s Rama Industries Ltd v/s CCE, Chandigarh [2009-TIOL-100-HC-P&H-CX].

Respondent’s Contentions: - Revenue argued that in Nahar Industries Enterprises V/s Union of India Hon’ble Punjab & Haryana [2009 (235) ELT 22 (P&H)], the High Court had disallowed the same refund. It is submitted that the Registration certificate was not surrendered and the factory was not closed yet.

Reasoning of Judgment: - The Tribunal considered the submission of the appellant that due to unutilized balance lying in PLA, they were unable to surrender the Registration Certificate. But now they are able to surrender the same. It is clear from the cases cited by the appellant that he is eligible for refund. Further The Tribunal held that the refund is eligible under these circumstances under Rule 5 of Cenvat Credit Rules.

Moreover the cases cited by the Revenue are not applicable in the present case. In this case the assessee paid lesser duty on domestic product and higher duty on Export products, which was not payable. In the present case refund is arising due to the closure of Factory.

Hence it is a fit case to remand the matter to the Original authority with direction to refund the amount in cash as and when Registration Certificate is surrendered. Impugned orders set aside.

Decision: - Matter Remanded.

Comments: - Very good decision.

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Case: - Prem Fabricators v/s Commissioner of C. Ex. Ahmedabad-II

Citation: - 2010 (250) E.L.T. 260 (Tri-Ahmd.)

Issue: - Whether the description given in invoice is relevant for deciding the “manufacture” of goods? Whether the cum-duty benefit is available if goods are held dutiable later on? Whether the benefit of Cenvat credit is available if the goods held chargeable to duty afterwards? Whether the penalty under Section 11AC is leviable if the point of interpretation is involved?

Brief Facts: - Appellant is engaged in manufacture and clearances of structure of iron and steel from his premises. During the period December, 2006 to February, 2007 they manufactured and cleared structures of Iron and Steel to Central Warehousing Corporation, Mundra without payment of duty claiming benefit of Notification No. 58/03-C.E. dt 22.07.03 as amended. This notification provided the exemption if the goods are supplied to SEZ. The Revenue disallowed the benefit of exemption on the ground that conditions of the said notification were not fulfilled. Demand of duty with the interest and penalty under Section 11AC were proposed to be imposed. The Commissioner in the impugned order also negated the claim of the assessee on the fact that there was no manufacture of the goods in the factory and the goods manufactured by them were not excisable. Therefore no exemption is available to them under the said notification.

Appellant’s Contentions: - Appellant argued that he has bona fide belief that goods sent to CWC were exempted under Notification no 58/03 and accordingly they had supplied the same. As soon as they were advised by the department that we were not eligible for exemption, they had surrender all the original ARE-1 forms used for clearance and also intimated to department that they had not manufactured any excisable goods and therefore they do not intend to utilize the benefit of ARE-1. Further they submitted that the description of the goods in ARE-1 “structure”. They also said that the column and other parts required for building CWC shed came into existence at the site only. Moreover they submit that the Commissioner only relied on the ARE-1 form and commercial Invoice. There was no manufacture in their factory.

Further they contended that the electricity consumption at site was much higher than the electricity consumption in the factory. It is clearly provided that high electricity consumption, compared to that in the factory, shows that the manufacturing activity actually took place in the warehouse under construction and not in the factory. Moreover he also submits that they are entitled to benefit Cenvat Credit of duty paid on the Raw material as well as benefit of cum-duty-price if the contention that their goods are not excisable is not accepted.

Respondent’s Contentions: - Respondent argued that the learned Commissioner in the order had relied on the ARE-1 forms and the invoices provided by the appellant and nowhere has it been mentioned that the goods were parts of the columns, portals, canopy. Further he argued that the department took up this issue when the appellant failed to submit that they have fulfilled all the condition of the Notification no 58/03. The clearance of the goods was completed by that time and all of the same had reached CWC premises.

Reasoning of Judgment: - The Tribunal held that the Commissioner had given finding that in ARE-1 as well as in invoices, the description of the goods given was ‘columns, portal, canopy, truss’. The explanation given by the appellant that they have provided only structures is not convincing. The invoices covered the goods while being transported from the factory to the CWC. Therefore, the Tribunal held that it is normal to assume that the correct description of goods would be given in the invoices. It is to be noted that the activity at the site and at the factory were undertaken by the same company. The work orders and the certificate issued by CWC prove this finding.

The Tribunal further held that the judgment given in CCE, Hyderabad v/s M/s Deepak Galvanising Engg. Indus. P. Ltd [2008 (228) ELT 40 (Tri-Bang)] as relied upon by the appellants is not applicable in their case as it is not the case of the appellant that they had purchased angles, rods, channels plates etc and drilled holes in them. Facts are different. Decision in CCE, Pune v/s M/s TELCO Ltd [2006 (202) ELT 812 (Tri-Mumbai)] is also not relevant in view of the facts which are different in both cases.

The Tribunal further held that the judgments in the cases of CCE, Jaipur v/s M/s Man Structurals Ltd [2001 (130) RI-LB)], M/s Aarti Steels Ltd v/s Collr. of CE, Chandigarh [2002 (144) ELT 360 (Tri-Del)] and in Mahindra & Mahindra Ltd v/s CCE [2005 (190) ELT 301 (Tri-LB)] are relevant to the case and are applicable.

In the end the Tribunal held that there is no reason to set aside the impugned order and the decision of the Commissioner regarding clarification and excisability are upheld. However, the Tribunal found that the appellant had a bona fide belief that they have tried to claim that the goods were not excisable. The dispute basically involved interpretation of law and applicability of exemption notification and therefore, imposition of penalty under Section 11AC was not justified.

The Tribunal further held that claim of the appellant for cenvat credit should have been considered by the Commissioner and therefore, the Tribunal directed that the appellants may be given the benefit of Cenvat credit admissible subject to production of necessary documents. The Tribunal also allowed the claim for treatment of price charged by the appellant as cum-duty-price.

Decision: - Appeal Partially Allowed.

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Case: - Jindal Texofab Ltd. v/s Commissioner of C. Ex., Ahmedabad

Citation: - 2009 (233) E.L.T. 241 (Tri.-Ahmedabad)

Issue: - Shortage of goods admitted by Director without admitting clandestine removal does not amount to clandestine removal.

Brief Facts: - Appellant is engaged in the processing of cotton and man-made fabric. Their factory was visited by the officers of Directorate General of Central Excise Intelligence on 10.08.01, who conducted various checks and verifications. A quantity of 14,077 LMs. of processed cotton and manmade fabric valued at Rs. 3, 33,722/- was found to be short than the recorded balance. The shortages were admitted by the appellant’s representative as also by their Director in their statement recorded at the time of visit as also subsequently by the appellant’s representative and Director. Duty was demanded on allegation of clandestine removal. Demand was confirmed by the Additional Commissioner and penalty was also imposed on the Director. In appeal, the Commissioner (A) upheld the order of the Additional Commissioner. The appellant therefore has approached the Tribunal.

Respondent’s Contentions: - Respondent argued that the shortage of processed cotton and man-made fabric was admitted by the Director of the Company therefore, there was clandestine removal of goods. The demand and penalty is required to be imposed.

Reasoning of Judgment: - The Tribunal found that the entire demand was confirmed against the appellant on the findings of clandestine removal which in turn are based upon shortages found during the time of visit of officers. Though, the Director of the Company admitted such shortages, but there is nothing on record to show that he admitted that such shortages were on account clandestine removal. There is also no other evidence on record to show clearance of processed fabric. It is settled that fact of shortages by itself established when the appellant has contended that the verification was not done properly, cannot lead to inevitable conclusion of Clandestine Removal. Benefit of doubt was extended to appellant. Impugned order set aside.

Decision: - Appeal allowed with consequential relief to the appellant.

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Case: - Bajpur Cooperative Sugar Factory Ltd v/s CCE, Meerut-II

Citation: - 2009 (95) RLT 378 (CESTAT-Del.)

Issue: - Whether Reversal of Modvat is required if exempted good is evaporated?

Brief Facts: - Appellant are engaged in the manufacture of sugar and molasses in Sugar plant and rectified spirit and denatured spirit in Distillery plant. They were using duty paid inputs in the manufacture of rectified spirit attracting nil rate of duty and denatured spirit which is dutiable. The Commissioner (Appeal) gave the finding that the assessee had not reversed the proportionate credit used in the Rectified Spirit, which had evaporated during the storage. Demand of duty and imposition of penalty of equal amount was ordered by the Lower Authorities.

Appellant’s Contentions: - Appellant argued that the Rule prescribed for reversal of the credit at the time of the clearance of the exempted goods. Further he submitted that the exempted goods viz rectified spirit had evaporated during storage i.e. before clearance. It was submitted that the State Excise Authority has allowed losses to the extent of 0.4% per month in the case of Rectified Spirit and in their case loss is upto 0.4%. They relied upon the judgments given in Commissioner of Central Excise v/s Shree Siddheshwar SSK Limited [2007 (79) RLT 529 (CESTAT-Mum)], Commissioner of Central Excise v/s Ajinkyatara SSK Ltd [2007 (79) RLT 421 (CESTAT-Mum)] and in Bajpur Cooperative Sugar Factory Ltd v/s CCE, Meerut [2008 (86) RLT 579 (CESTAT-Del)].

Respondent’s Contentions: - Respondent argued that the appellants used the duty paid inputs in the exempted goods and therefore they were liable to reverse the amount as per Rule 6 of the Cenvat Credit Rules. Further it is submitted that the use of duty paid inputs in the manufacturing of exempted goods in the relevant factor and it has no relevancy to the clearance of the exempted goods.

Reasoning of Judgment: - The Tribunal held that there is no dispute that the duty paid inputs were used in the manufacture of exempted goods viz. Rectified spirit. It is also fact that the Rectified Spirit had evaporated during storage at the appellant’s premises. The observation of the Commissioner (Appeal) that the basic principle of the Cenvat Credit is admissibility of the credit on inputs for manufacturing of goods, which are dutiable and not for the clearance of goods. The contention of the appellant is that the loss is 0.4% which is within the permissible limit as settled by the Sate Excise Authority. The Tribunal relied upon the appellant’s earlier appeal which was allowed. The cases cited by the Revenue were decided on the different factual background and the decision.

The Tribunal in the earlier case had consistently observed that the losses of Rectified Spirit in storage are natural losses and credit cannot be denied within the permissible limit of 0.5% as settled by the State Excise Department. In appellant’s instant case, credit was denied on the 0.4%. Hence, the demand of duty and penalty is not sustainable. Accordingly, impugned order is set aside.

Decision: - Appeal Allowed with consequential relief.

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Service Tax Section:

Case: - GHCL Ltd. v/s Commissioner of C. Ex., Bhavnagar

Citation: - 2009 (16) S.T.R. 588 (Tri-Ahmd)

Issue: - Whether credit can be availed on the security services which are used in relation to residential colony of the assessee?

Brief Facts: - The assessee has availed the service tax credit on the security service which were used in the residential colony of the assessee. Revenue disallowed the same on the ground that they were not utilized directly or indirectly in relation to manufacturing. In the stay order it was observed that the invoice clearly showed that the service provided for plant area, residential and mining areas.

Respondent’s Contentions: - Revenue have relied upon the judgment given in Collector of Central Excise v/s Solaris Chemtech Limited [2007 (214) ELT 481 (SC)].

Reasoning of Judgment: - The Tribunal held that issue has already been decided in appellants favour in their case by earlier order no. A/815/WZB/AHD/2009 dated 22-4-09 [2009 (16) S.T.R. 89 (Tri.-Ahmd.)]. The judgment of Collector of Central Excise v. Solaris Chemtech Limited relied upon by the Revenue being not related to the Central Excise Law, is not applicable on the definition of the input services as defined in Rule 2(l) of the Cenvat Credit Rules. The Tribunal relied upon the judgment given in Manikgarh Cement v/s Commissioner of C. Ex. & Customs, Nagpur [2008 (9) STR 554 (Tri-Mumbai)].

The Tribunal held that the appellants are entitled to avail credit of duty paid on the security services utilized for residential purposes.

Decision: - Appeal allowed with consequential relief.

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Case: - Chemfab Alkalis Ltd v/s Commissioner of Central Excise, Pondy

Citation: - 2008 (10) S.T.R. 214 (Tri-Chennai)

Issue: - Whether the reversal is to be done under Rule 6 on exempted goods when the credit is taken on input services listed in Rule 6(5)? Whether the reversal is required when the input services are exclusively used in relation to dutiable final product?

Brief Facts: - Appellants were clearing there final product caustic soda lye/crystals to M/s Vikram Sarabhai Space Centre during the period April to October 2005. There product was dutiable but when supplied to M/s VSSC the same was exempted from duty. Demand was raised for 10% of the sale price of the exempted final product under Rule 6 (3) (b) on the ground that the appellants had not maintained separate accounts in respect of their input services used in the manufacture of dutiable and exempted products.

Appellant’s Contentions: - Appellant contended that out of the 4 specified services in question, two viz. maintenance and repair service and security service were specified under Rule 6 (5) of the Cenvat Credit Rules, 2004 for the benefit of cenvat credit, notwithstanding the provisions of sub-rules (1), (2) and (3) of Rule 6. The remaining 2 services are business auxiliary service (sales commission agent’s service) and telephone service. The appellants submit that they have reversed the service credit taken on telephone service after finding that the service to the extent utilised for the manufacture of dutiable final product was not eligible for credit. For sales commission, appellant submitted that the same had no relation to clearance of final product to M/s VSSC. The sales agents were employed only in relation to clearance of final product to other customers.

Respondent’s Contentions: - Revenue reiterated the findings of the impugned order.

Reasoning of Judgment: - The Tribunal considered the sub-rule (5) of Rule 6 and found that it contained a non obstante clause containing mention of sub-rules (1), (2) and (3). In other words, the provisions of sub-rule (5) override those of sub-rules (1), (2) and (3). Sub-rule (5) states that the credit of the whole service tax paid on the taxable service specified therein shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted service. It is not in dispute that maintenance and repair service and security service are among the specified services, specified under Rule 6(5). The credit taken on telephone service was reversed, a fact not in dispute. Apparently, the business auxiliary service of commission agents was not employed in relation to clearance of caustic soda to M/s. VSSC. Appellant have established prima facie case, hence, pre-deposit waived.

Decision: - Stay granted.

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Case: - Jewel Hotel (P) Ltd. v/s Commissioner of C. Ex., Mumbai-I

Citation: - 2007 (6) S.T.R. 240 (Tri-Mumbai)

Issue: - Whether penalty can be imposed for late registration, late deposition of duty and late filing of periodical returns, when service tax with interest is paid later on and there is no willful suppression?

Brief Facts: - Appellant-assessee were providing the service of Mandap Keeper. They had taken late registration under service tax. They did not pay the service tax on time and also had not filed periodical returns. After wards they paid the whole amount of service tax with interest with their own pocket and filed returns. The Lower Authorities imposed penalties on the appellant under the provisions of Section 76, 77 & 78 of the Finance Act, 1994. Appellant are challenging the imposition of penalties on them.

Reasoning of Judgment: - The Tribunal accepted the appellant’s explanation that due to ignorance of law they had failed to deposit the service tax. When they became aware of their liability, the appellants have paid the whole amount of service tax along with interest from their own pocket. As there was no willful suppression, penalty was not called for. The Authorities below have not given any finding as to why penalty is required to be imposed upon them. Only because penalty can be imposed, it is not necessary that in all cases penalty is required to be imposed. Penalty set aside.

Decision: - Appeal allowed.

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Case: - Sanghi Industries Ltd v/s CCE, Rajkot

Citation: - 2009 (95) RLT 429 (CESTAT-Ahmd)

Issue: - Whether the penalty under Section 76 or 77 can be imposed when there is no suppression of facts?

Brief Facts: - Appellants got themselves registered under Service Tax on 30.01.05 for GTA service. They availed the GTA service for the period January 2005 to September 2005 but did not pay the service tax on GTA. Penalties were imposed on them under section 76, 77 and 78. Appellant challenged the same before the Commissioner (A). The Commissioner (A) set aside the penalty under Section 78 by holding that there was no suppression of facts with the intent to evade payment of service tax on the appellant’s part. However, the penalties under Section 76 and 77 were upheld on the ground that there could be no justifiable or reasonable cause for failure to pay the tax. Appellant has challenged the said order before the Tribunal.

Appellant’s Contentions: - Appellant contended that they had not paid the service tax because it was not clear to them as to who will pay the service tax, the service provider or the service recipient. They have relied upon the Board Circular No. 341/18/2004-TRU dated 17.12.04 wherein it was provided that in case of omission of payment of service tax, the consequences should be limited to recovery of tax with interest payable thereon. The penal provisions are to be invoked only in case of deliberate fraud, collusion, and suppression of facts with intent to evade payment of service tax. Reliance was also placed on the judgment in Alstom Projects India Ltd v/s CCE, Coimbatore [2008 (87) RLT 777 (CESTAT-Che)].

Respondent’s Contentions: - Revenue contended that the fact that the appellants had got themselves registered with the department under GTA service indicates that the appellants were aware about there liability to pay service tax. Non-discharge of their liability reflects upon their mala fide intention requiring invocation of penalty under Section 76, 77 and 78.

Reasoning of Judgment: - The Tribunal perused the Order of the Commissioner (A) and held that when in case of levy of penalty under Section 78, it was held that there was no suppression of facts with intent to evade payment of duty, then for penalties imposed under Section 76 and 77, the Commissioner (A) could not have held contrary finding was not justified. Penalties set aside under Section 76 and 77.

Decision: - Appeals allowed accordingly.

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