Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/33

Case Laws

Prepared By:

CA Pradeep Jain,

Ghanshyam Chaudhary

And Megha Jain

CENTRAL EXCISE SECTIONS:

Case: Elforge Ltd. vs. Commissioner of Central Excise, Chennai

Citation: 2010 (250) ELT 397 (Tri. - Chennai)

Issue: - Whether the credit is admissible on return of material under Rule 16 which is not subjected to any process and converted into scrap?

Brief Facts: - Appellant are manufacturers of rough steel forgings. They were availing Cenvat credit on inputs and capital goods used in the manufacture of their final products. During the period from July, 2001 to June 2005, the appellant received back some forgings rejected by their buyer on payment of duty and they took cenvat credit under Rule 16 of the Central Excise Rules, 2002. In some cases, appellant’s quality control department found that some defects could not be rectified and such forgings were removed as scrap on payment of duty on scrap value, instead of reversal of credit originally taken on the returned goods. Department raised the demand with interest in show cause notice. The Adjudicating Authority confirmed the demand with interest and imposed equal penalty. In appeal, the Commissioner (A) upheld the Adjudicating Order by relying upon the judgment given in the case of Menon Pistom Rings Pvt Ltd v/s CCE, Pune [2007 (211) ELT 394]. So the appellant had filed this appeal before the Tribunal.

Appellant’s Contentions: - Appellant has relied upon the judgment given in the case of CCE vs. Tata SSL Ltd. [2005 (191) ELT 799] which has been followed in Sundaram Industries Ltd. [2006 (202) ELT 538].

Reasoning of the Judgment: - The Tribunal held that in the decisions relied upon by the appellant, the rejected goods were subject to further processing and it is the scrap resulting out of such further processing which was cleared and it is on this basis it was held that reversal of credit taken at the time of return by the rejected goods was not required. The Tribunal further held that in the judgment of RFH Metal Castings Pvt. Ltd.–[2005 (184) ELT 194] which was followed in the case of Menon Piston Pvt. Ltd the finished goods were only reduced to scrap without undergoing any reprocessing. The said facts are the same as the facts of the appellant’s case. Therefore, relying upon the judgment in Menon Piston Pvt. Ltd., the Tribunal upheld the findings of the lower authority that credit is required to be reversed.

As regards the plea of time bar raised by the assessees, Tribunal noted that the Commissioner (A) had not recorded any findings thereon. Therefore the impugned order is set aside and the matter remitted for the fresh decision on the limitation aspect.

Decision: - Appeal disposed of accordingly.

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Case: Durga Industries Pvt. Ltd. vs. Union of India

Citation: 2010 (250) ELT 173 (M.P.)

Issue: - Whether the Tribunal has committed an error in dismissing the appeals filed by the appellants against the order passed by the Commissioner (Appeals) as barred by limitation without deciding the application under Section 5 of the Limitation Act?

Brief Facts: - Appellants have preferred appeal against the order dated 29.08.2002 passed by the Commissioner (A), who dismissed the appeals of the appellants on the ground that they were barred by limitation.

Appellant’s Contentions: -Appellant contended that the appeals were filed within 90 days. According to them, the order dated 29.08.2002 was served to them on 05.09.2002. The limitation of filling the appeals is 60 days and delay in filling the appeals can be condoned for a period of 30 days. Thus, if an appeal is filled within 90 days, the Commissioner (A) had a jurisdiction to condone the delay, which he refused to do. The appellants dispatched the appeals by Registered post on 03.12.2002, which were received by the department on 09.12.2002, i.e. after the delay of 6 days. It is also submitted that after the 6 days, 6^th, 7^th, and 8^th December 2002 were holidays.

Reasoning of the Judgment: - The High Court found that the appellants had dispatched the appeals on 3.12.2002 and as per the instructions of the Postal Department, it should have been served within 48 hours, which expires on 5.12.2002. Thus, the limitation of 90 days expired on 5.12.2002.

The High Court relied upon the judgment of the Apex Court in the case of CIT, Bihar & Orissa vs. M/s Patney and Co. [AIR 1959 SC 1070] and F. N. Poy v/s Collector of Customs Calcutta & Ors [1983 (13) ELT 1296 (SC) wherein it has been held that the Post office is the agent of the Tribunal. So in the present case it should be presumed that the appeals were preferred before the Tribunal on 5.12.2002, i.e. on 90^th day, which is last day of the limitation. The Tribunal has committed the jurisdictional error in disposing the appeal as barred by limitation. Impugned order set aside.

Decision: - Appeal is allowed. Matter remand back to the Appellate authority to consider the appeals on merit subject to payment of cost of Rs. 5000/- by the appellants payable to the respondents.

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Case: Raj Rayon v/s CCE, Vapi

Citation: 2009 (95) RLT 470 (CESTAT – Ahmd.)

Issue: - Whether the credit is admissible when the invoice is in name of other unit of manufacturer?

Brief Facts: - Appellant is engaged in the manufacture of Polyester filament yarn/Polyester texturised yarn from the duty paid POY received from various suppliers. The appellant has four units all situated at Silvassa. During the period 36.06.03 to 26.01.04, four duty paying invoices were issued by the concerned manufacturer of POY in favour of unit 3 of the company. However, as the said material was proposed to be used in the present appellant’s unit i.e. Unit 2, the said raw material was diverted in the appellant’s factory under the cover of invoices with the remark by the unit 3 that entire consignment stand transferred to the appellant’s Unit. The said goods were re–directed to the appellant’s unit without receiving them in unit 3. The appellant took the credit of the same in their record based on the said invoices.

Appellant’s Contentions: - All the units are belonging to the same appellant and it is not a case of sale of input requiring any endorsement etc. The appellant have relied upon the case of CCE, Coimbatore Murugan Mills [2003 (56) RLT 84 (CEGAT–Che.)].

Respondent’s Contentions: - The invoices were in the name of Unit 3, who could not have endorsed the same.

Reasoning of the Judgment: - The Tribunal found that there is no dispute about the factual position. The inputs were actually received by the appellant and utilised by them in manufacture of final product. Admittedly, the inputs were duty paid and covered by the invoices, which were in the name of M/s Raj Rayon only. There was difference in the address of the recipient inasmuch as the address of Unit 3 was shown instead of Unit 2. As per the remarks on the invoices, Unit 3 diverted the entire consignment to the present appellant who actually received in their factory. As such, it cannot be said to be a case of endorsement of invoices. Reliance was placed on the judgments given in the cases of Zenith Weaves Pvt. Ltd. versus CCE, Surat [2004 (178) ELT 1029 (Tri.–Del.)] and CCE, Noida versus Flex Ind. Ltd. [2004 (178) ELT 1029 (Tri.-Del.)].

The Tribunal held that there was no justification for denial of Modvat credit to the appellant. Impugned order is set aside.

Decision: - Appeal allowed with consequential relief.

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Case: CCE, Chandigarh vs. Triveni Castings Pvt. Ltd.

Citation: 2010 (250) ELT 247 (Tri. - Del)

Issue: - When the goods are not supplied by manufacturer to dealer then the credit is not admissible to another unit of dealer as goods do not accompany the goods.

Brief Facts: - Respondent is a private limited company, who is at their Mandi Gobingarh address has registered themselves with the Excise Authorities as a dealer of excisable goods for the purpose of passing on the Cenvat Credit. They have shown receipt of the goods and also have shown supply to their own factory at Parwanoo in Himachal Pradesh. During investigation it came to the light that the respondent in the capacity as registered dealer, have shown receipt of duty paid goods from one M/s Ambica Steel Industries. The said M/s Ambica Steel Industries was found to have no manufacturing facility, no power connection, no stock of finished goods and no raw material used in the manufacture of items claimed to have been manufactured by them. M/s Ambica Steel Industries have also shown the purchase of raw materials at the rate of Rs. 20 to Rs. 30 per Kg and shown the sale of their finished goods at the rate lower than the raw material cost. Proceedings were initiated against M/s Ambica Steel Industries which was confirmed and upheld in the appeals. Accordingly SCN was issued to the respondents and the Original Authority held that the credit taken on the basis of the invoices received from M/s Ambica through their own premises as registered dealer was irregular and accordingly confirmed the demand of duty along with interest and imposed penalty. On appeal, the Commissioner (A) set aside the order of the Original Authority.

Appellant’s Contentions: - Revenue contended that the supplier namely, M/s Ambica Steel Industries did not have any manufacturing facilities. Therefore, the question of their generating scrap and paying duty on the said scrap and supplying the same to the respondents at Mandi and the respondent as dealer transporting the same to the respondent’s factory at Parwanoo did not arise. The credit availed was therefore, irregular.

Respondent’s Contentions: - Respondents contended that the decision taken against M/s Ambica Steel Industries about lack of manufacturing facility may not be sufficient reason to deny the credit taken by them. It is contended that the Department has not denied the manufacture and clearance of final products, namely, steel ingots from their Parwanoo factory and that they have indeed received the material from the registered dealer and based on the invoices furnished by the registered dealer have rightly taken the credit.

Reasoning of the Judgment: - The Tribunal held that the so-called registered dealer who is said to be between the manufacturer M/s Ambica Steel Industries and the respondent factory M/s Triveni Castings Pvt Ltd is none other than the respondent themselves. The claim of the respondent that M/s Ambica Steel Industries, who did not have any manufacturing facility, supplied scrap arising out of manufacture in the factory is not acceptable. Respondent’s claim on the veracity of the invoices issued by their own office at Mandi Gobindgarh, therefore, has to be taken with caution. When the allegations have been made that they have taken the credit irregularly inasmuch as the supplier was not capable of manufacturing the goods said to have been supplied by them, the respondents have taken shelter stating that they have received the goods from the registered dealer along with the invoices. As they have played dual roles, first as registered dealer and then as a recipient-manufacturer, they were required to prove the receipt of duty paid materials in their dealer’s premises and the premises of the manufacturing unit. They have not adduced any evidence regarding the actual receipt of the material by their Mandi Gobindgarh office or for transport of the same to Parwanoo factory and on the duty paid nature of the scrap received by them. The order of the Adjudicating Authority should not have been interfered with. Orders of the Commissioner (A) set aside and order of the Original Authority restored.

Decision: - Appeal allowed.

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Case: SICGIL India Ltd. vs. CCE, Chennai

Citation: 2010 (250) ELT 400 (Tri. - Chennai)

Issue: - Whether the credit is admissible on the invoices of supplier who has paid duty after detection of case by Central Excise Authorities. When the supplier is held not liable to penal action as there was no intention to evade payment of duty pertaining to these invoices, the credit is admissible.

Brief Facts: - Appellants are manufacturers of carbon–dioxide gas. Cenvat Credit was disallowed to the appellants on the ground that they were not entitled to the credit as the payment of duty was made by M/s Pure Industrial Gases and on the strength of whose invoices the appellant took credit, was only after detection of the case by the Excise Authorities and therefore M/s Pure Industrial Gases were guilty of suppression of the facts, and penalty of Rs. 10000/- has been imposed under Rule 13 of the Cenvat Credit Rules, 2002 by the Lower Authority. The said order is challenged in this appeal.

Reasoning of the Judgment: - The Tribunal held that the appellant had rightly pointed out that on issue of SCN to M/s Pure Industrial Gases filed an application before the Settlement Commission which vide its order had granted immunity to them from payment of penalty under the Central Excise Act, considering the totality of the facts and circumstances of the case and having regard to the fact that the question of brand name was not a settled matter during the time of dispute. In other words, it was accepted by the Settlement Commission that there was no intention on the part of M/s Pure Industrial Gases to evade payment of duty. This being so, taking of credit of duty paid by M/s Pure Industrial Gases cannot be objected to as M/s Pure Industrial Gases cannot be said to be guilty of any suppression etc. so as to disallow credit to the assessee. Impugned order set aside.

Decision: - Appeal allowed.

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Case: Commissioner of C. Ex., Bangalore–I v/s Raja Magnetics Ltd.

Citation: 2010 (250) E.L.T. 352 (Kar.)

Issue: - Whether the credit can be disallowed on mere fact that the supplier is not registered with the department when in fact the duty has been paid on the goods?

Brief Facts: - The respondent-assessee had originally claimed Cenvat Credit on the basis of 4 invoices totaling an amount of Rs. 86607/-. The Adjudicating Authority found that the assessee had availed of excess credit the extent of Rs. 14399/-. As on verification it was found that the supplier of the inputs to the assessee had, in fact, paid duty only for a sum of Rs. 72222/- in respect of the goods received by the assessee. However, the Adjudicating Authority disallowed the sum of Rs. 68052/- from out of a sum of Rs. 72222/- for the reason that the supplier did not have registration in terms of Rule 9 of CER, 2002 and in terms of sub–rule (2) of Rule 9 of CER, 2004. A credit availed of as duty paid by an unregistered dealer is not allowed as Cenvat Credit and therefore a sum of Rs. 68052/- was disallowed. In appeal, the Commissioner (Appeals) found that while the duty, in fact had been paid by the manufacturer who otherwise was availing the benefit of a Circular deferring payment of duty to the clearance at a bonded warehouse which facility had been discounted w.e.f. 06.09.2004. The clearance being subsequent to 06.09.2004, the manufacturer could have cleared only on payment of duty. Therefore the assessee was entitled to claim Cenvat Credit. Thus allowed the appeal and also scaled down the penalty proportionately restricting the penalty proportionate to the sum of Rs. 14399/- excess credit which had been availed of by the assessee.

Revenue filed appeal before the Tribunal. The Tribunal purporting to follow the Division Bench decision of Gujarat High Court in the case of Vimal Enterprise v/s UOI [2006 (195) E.L.T. 267 (Guj.)] dismissed the appeal being of the view that the transaction going through a reputed public sector undertaking like the IOCL. Goods supplied by them would have necessarily suffered duty and in this view of the matter did not find occasion interfere with the order passed by the Appellate Authority. Thus, revenue is before the High Court.

Appellant’s Contentions: - Revenue contended that the Tribunal has committed an error in overlooking the requirement of sub–rule (2) of Rule 9 of the rules. The manufacturer did not have the registration under Rule 9 of the CER, 2002 for the supply of certain goods. An assessee has purchased such inputs. He claims Cenvat credit is not entitled to such credit. The Tribunal as well as the Appellate Commissioner could not have overlooked the requirement of Rule 9 (2) of the Rules.

Reasoning of the Judgment: - The High Court held that the Revenue has correctly submitted that requirement of Rule 9 (1) of CER, 2002 should be necessarily complied and an embargo occurs under 9 (2) of the rules for claiming such Cenvat Credit who has not complied with the requirement of 9 (1) of the said rules. However, in the present case and as indicated by the Appellate Authority and by the Tribunal, it has been found as a matter of fact that in respect of the value of the goods amounting to Rs. 68052/- the duty, in fact, had been paid at one point or the other and such duty paid goods constitute an input in respect of which assessee had availed of Cenvat Credit. Thus, this amounted to substantial compliance of the requirement and does not involve a question of law of general importance either for the assessee or for other assesses and for different periods, as in the peculiar circumstances of particular facts of the assessee for the relevant period, the question is answered by the Appellate Commissioner and affirmed by the Tribunal. Therefore the High Court did not find this appeal to be admitted for examination within the scope of Section 35G of the Act.

Decision: - Appeal dismissed.

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Case: - Moser Baer India Ltd v/s Commr. of C. Ex. & Customs, Noida

Citation: - 2010 (250) E.L.T. 79(Tri.-Del.)

Issue: - Whether it is necessary to reverse the Cenvat credit on depreciated value of old/used capital good for inter-unit transfer?

Brief Facts: - Appellant is employed in the production of recorded audio cassettes and blank audio cassette. It was found from the ER-1 that appellant had removed the old capital goods to new unit and had reversed the Cenvat credit at depreciable value. Show cause notice was issued to the appellants to pay the differential duty. It was alleged that they had availed the credit of Rs. 7, 68, 331/- on the capital goods and at the time of clearing the goods to their new unit the appellants had paid duty of Rs. 1, 52, 865/- on the depreciated value. The Adjudicating Authority confirmed the demand and imposed penalty alongwith interest. The Commissioner (A) upheld the order of the Adjudicating Authority. Hence, the appellant is before the Tribunal.

Appellant’s Contention: - Appellant contented that such capital goods was received in factory prior to 01-04-2001. Appellant further contented that it is merely transfer between two units. They shut down a unit and started the production from another unit, ultimately the goods is used for manufacture of their finished goods. Appellant relied upon the decision of the Supreme Court in the case of Commissioner of Central Excise v/s Textile Corp. Marathwada Ltd [2008 (231) ELT 195 (SC)], Hindustan Zinc Ltd v/s Commissioner of Central Excise, Jaipur-II [2008 (232) ELT 687 (Tri-Del)] and New Chemi Industries Ltd v/s CCE, Daman [2008 (230) ELT 505 (Tri-Ahmd)].

Respondent’s Contention: - Revenue contented that the Larger Bench of Tribunal in the case of Modernova Plastyles Pvt. Ltd. v/s CCE [2008 (232) ELT 29 (Tri-LB)] has decided that the capital goods removed as such includes used and old capital goods. He also submitted that under Rule 3(5) the manufacturer of final product has to pay the equal amount of credit availed in respect to as such removal of capital goods, but the appellant violated the same. Also there is no provision for reversal of credit on depreciated value during the relevant time as the appellant has done.

Reasoning of Judgment: - The Tribunal held that there was inter unit transfer of capital goods and therefore it is to be ascertained that whether the transfer was revenue neutral The Tribunal considered the judgments cited by the Appellant and by the Revenue. The Tribunal held that the appellant had removed the capital goods to their new unit, where it was used in the manufacture of dutiable final product. Therefore, the appellant is eligible to avail the credit. On the basis of revenue neutrality, the penalty and demand of duty is not sustainable. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

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PJ/Case Laws/09-10/33

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