Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/34

Case Laws

Prepared By:

CA Pradeep Jain,

Sukhvinder Kaur, LLB

And Bharat Rathore

SERVICE TAX SECTION:

Case: Sri Rajalakshmi Finance v/s Commissioner of Central Excise, Salem

Citation: 2009(16) S.T.R. 593 (Tri-Chennai)

Issue: - Whether the show cause notice issued after 6 months from visit of officers or completion of investigations, is barred by limitation or whether the department is entitled to invoke the extended period of limitation?

Brief Facts: - Show cause notice was issued to the appellants after a period of 6 months had lapsed from the date of visit of the central excise officers in their factory premises. Impugned order was passed demanding service tax with interest and also imposed penalty. Appellant are challenging the said order.

Reasoning of the Judgment: - The Tribunal held that the said issue has been referred to the Larger bench in the case of Union Quality Plastic Ltd. v/s Commissioner of Central Excise, Vapi [2009(239) E.L.T. 341 (Tri-Ahmd)]. Accordingly, the application for waiver of pre-deposit of Service Tax with interest and penalty of equal amount under Section 76, 77 and penalty of equal amount under Section 78 of Chapter V of the Finance Act, 1994; is allowed. Recovery stayed.

Decision: - Waiver of pre-deposit and stay granted.

Comment: - This is very good decision. If the department does not issue show cause notice within six months of completion of investigation then it will be termed as time barred.

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Case: Sakthi Sugars Ltd v/s Commissioner of Central Excise, Salem

Citation: 2009 (16) STR 641 (Tri-Chennai)

Issue: - Whether credit is admissible on the basis of freight memo, debit note, credit note, delivery note and cash memo which are not proper invoices prescribed by the law? Whether credit is admissible on the invoices which are in the name of head office?

Brief Facts: - Appellant had availed cenvat credit of service tax on the basis of freight memo, debit note, credit note, delivery note and cash memo. Credit was also taken on the invoices which were in the name of the head office. Credit was also availed on lubricants, chemicals, mill house equipments, structures, MS Channels, welding rods and electrodes. Credit was also used in the co-generation plant which was exempted from duty. The lower Authorities disallowed cenvat credit so taken. Appellant has filed appeal against the impugned order. Application for waiver of pre-deposit is filed.

Reasoning of the Judgment: - The Tribunal held that with regard to taking of credit on the items like lubricants, chemicals etc, prima facie case for waiver of pre-deposit is made out in the light of the fact that the issue as to admissibility of credit has been referred to larger bench in Vandana Global Ltd v/s CCE, Raipur [2008 (230) ELT 169 (Tri-Del)].

With regard to utilisation of credit in the co-generation plant, the Tribunal held that prima facie case is made out in the light of judgment of Apex Court in the case of CCE v/s Solaris Chemical Limited [2007 (214) ELT 481 (SC)] and EID Parry India Ltd vide Final order no. 1312/09 dated 13.02.2009. Pre-deposit waived and stay of recovery granted.

With regard to taking of credit on the basis of freight memo, debit note, credit note etc, the Tribunal held that the appellants had made out a strong pima facie case for waiver in the light of Tribunal’s order holding that in the absence of dispute as to duty paid nature of the inputs, credit of service tax cannot be claimed that the documents on the strength of which credit was taken were not specified duty paying documents for availing credit.

As regards credit taken on invoices addressed to the Head office, the Tribunal held that there is no correlation shown that the said services were carried out by the appellant-Unit 4. Prima facie case of waiver of pre-deposit not made out. Pre-deposit ordered.

Decision: - Pre-deposit waived partly.

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Case: Hindustan Aeronautics Limited v/s Commissioner of Service Tax, Bangalore

Citation: 2009 (16) STR 622 (Tri-Bang)

Issue: - Whether service tax will be leviable on the cost of materials used in the repair and maintenance of aircrafts?

Brief Facts: - Revenue had raised demand against the appellants to include the cost of the materials used in the Repair and Maintenance of the aircrafts. Demand was confirmed. Appellant is before the Tribunal in appeal and has also filed applications for waiver of pre-deposit.

Appellant’s Contentions: - Appellant contended that on an identical issue for a previous period, the Department had given the benefit and the adjudication order had been passed. They have also produced various copies of the invoices issued which indicate the value of the materials used in the course of providing the service.

Respondent’s Contentions: - Department contended that in the absence to show that there had been sale of materials to the service receiver, they have proceeded against the applicants.

Reasoning of the Judgment: - The Tribunal held that prima facie, the applicants had a strong case on merits. Total waiver of pre-deposit of dues demanded is granted. Impugned order stayed.

Decision: - Stay application allowed.

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Case: Sobha Developers Ltd v/s Commissioner of Service Tax, Bangalore

Citation: 2009 (16) STR 650 (Tri-Bang)

Issue: - Whether service tax will be leviable on the value of goods and materials involved in the construction on which VAT is paid?

Brief Facts: - Appellant are engaged in the construction activity. They paid service tax on 30% of the contract value. They paid VAT on the remaining 70% which represented the value of goods and materials involved in the construction. The lower Authorities demanded the service tax along with interest on the balance 70% of the contract value. Penalty @ Rs. 200/- for every day during which default continued or 2% of such tax per month whichever was higher under Section 76 of the Finance Act, 1994 was imposed. Appellant are challenging the impugned order. Stay petition for waiver of pre-deposit has been filed.

Appellant’s Contentions: - Appellants have placed reliance on the judgments of the Tribunal in the case of M/s LSG Sky Chefs (India) Pvt Ltd [2009 (15) STR 545 (Tri-Bang)] and in M/s Wipro GE Medical Systems Pvt Ltd [2009 (14) STR 43 (Tri-Bang)] wherein the very issue was considered and it was held that for the material used in rendering services, the sales tax is paid, then no service tax would be leviable. It was also pointed out that the period involved was prior to 01.06.2007 and for the activities falling under “works contract” prior to the period, no service tax is leviable. Recent Board Circular was also relied upon wherein it was provided to the effect that the appellant is not liable to pay service tax under the category of “Construction of Residential Complex”.

Reasoning of the Judgment: - The Tribunal held that prima facie, in view of the submissions, the appellants have a strong case on merits. Waiver of pre-deposit of the balance amount of service tax with interest thereof and penalty ordered till disposal of appeal. No recovery to be effected even after expiry of 180 days from this order.

Decision: - Pre-deposit waived partly.

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CENTRAL EXCISE SECTION:

Case: Anutone Accoustics Ltd v/s Commissioner of C. Ex., Bangalore-I

Citation: 2010 (250) ELT 590 (Tri-Bang)

Issue: - Whether the permission for storing inputs outside factory can be granted under exceptional circumstances only?

Brief Facts: - Appellant had applied for permission to store non-duty paid goods outside the factory under the provisions of Rule 4 (4) of the Central Excise Rules, 2002 vide letter dated 21.08.2008 and 09.09.2008. The ground taken was that the space in the current manufacturing activity premises was not sufficient, due to shortage of space. The Lower Authorities denied the application on the ground that the appellant had not shown exceptional circumstances to invoke the said rule. Hence appellant is before the Tribunal.

Appellant’s Contentions: - Appellant submitted that the reasoning given by the Adjudicating Authority for rejecting their request was not proper. Only reason given is that exceptional circumstances are not shown.

Respondent’s Contentions: - Revenue contended that it is for the appellant to show that exceptional circumstances exist for storing of goods outside the factory. It is submitted that interest of the Revenue has to be secured while sanctioning the permission to store the non-duty paid goods outside the factory.

Reasoning of the Judgment: - The Tribunal perused the order passed by the Commissioner (A) and held that reasoning adopted by the Commissioner (a) was misplaced as the shortage of space is a fact which is not denied both by the appellant and the Revenue. Though the provisions of Rule 4 (4) covers situation where shortage of space is caused under exceptional circumstances which are unforeseen and are of temporary nature, the Commissioner (a) could have referred to the Board’s Circular No. 206/40/96-CE, dated 01.05.96 which talks about permission to store the goods outside the factory premises and such permission should be considered as extension of factory premises. Thus, the issue needs re-consideration by the learned Commissioner. The shortage of space is one of the reasons which may be a guiding factor for seeking permission to store the goods outside the factory under Rule 4 (4). It is also noted that no assessee would like to store his goods outside the factory premises as such storing is open to many vagaries of nature including theft, pilferage etc. If the assessee is applying for storage outside factory, he must be doing so under compelling reasons. Impugned order set aside. Matter remanded back to the Commissioner for fresh consideration.

Decision: - Appeal allowed by way of remand.

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Case: Bansal Alloys & Metals Ltd v/s Commissioner of C. Ex., Chandigarh

Citation: 2010 (250) ELT 529 (Tri-Del)

Issue: - In case of removal as such of inputs, whether credit availed on the input service of GTA is also required to be reversed?

Brief Facts: - Appellant are engaged in the manufacture of Iron & Steel Ingots falling under Chapter 72. They were availing cenvat credit benefit on final products. They were also paying service tax for GTA service received by them. Appellant removed certain inputs as such from their factory for the period January 2005 to October 2005. Removal as such was done after reversal of cenvat credit availed on the inputs under Rule 3 (5) of the Cenvat Credit Rules, 2004. Department contended that the alongwith the reversal of credit on inputs, the appellants were also required to reverse the credit availed on the input service of GTA. The Original Authority confirmed the demand and also imposed penalty alongwith interest. In appeal, the Commissioner (A) upheld the said order. Hence, appellant assessee is in appeal before the Tribunal.

Appellant’s Contentions: - Appellant contended that Rule 3 (5) provided for payment of an amount equal to the credit availed in respect of such inputs. There is no provision for reversal of input services credit. It is submitted that Rule 3 (1) provides that the manufacturer shall be allowed to take credit of the duty paid on inputs or capital goods and any input service. Thus, input credit cannot include input service credit. Reliance has been placed on the decision given in Chitrakoot Steel & Power Pvt Ltd v/s CCE, Chennai [2008 (10) STR 118 (Tri-Chennai)].

Respondent’s Contentions: - Department submitted that from the reading of Rule 3 (5) read with Rule 3 (1), it is very clear that the manufacturer of the final product shall pay an amount equal to the credit availed in respect of input and input services. Rule 3 (5) indicates reversal of credit of duty paid under sub-rule (1) of Rule 3. Rule 3 (5) includes credit on input or capital goods and input service.

Reasoning of the Judgment: - The Tribunal held that Rule 3 (5) does not indicate for payment of equal amount in respect of credit of input service. It is well settled that while interpreting the statute no addition or subtraction can be made and the words used therein must be given their plain meaning. So, the appellants are required to reverse equal amount of input credit on removal of the inputs as such under Rule 3 (5). There is no provision for payment of credit on input service. So, the reversal of credit on input service in respect of GTA is not justified. The Tribunal also relied upon the judgment given in Chitrakoot Steel & Power Pvt Ltd v/s CCE, Chennai. Impugned order set aside as they are not sustainable.

Decision: - Appeal allowed with consequential relief.

Comment: - This is very important decision as we have also come across the instances where the audit party has also raised such type of objections. But the tribunal has cleared held that there is no need of reversal of input services.

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Case: - Commissioner of C. Ex., Vishakhapatnam v/s Sri Sarvarya Sugars Ltd

Citation: - 2010 (250) ELT 542 (Tri-Bang)

Issue: - Whether the reversal of cenvat credit is to be done clearance of unmarketable waste product treating it as exempted goods?

Brief Facts: - Respondent-assessee were manufacturing sugar, molasses and denatured spirit. During the process, a product “Press mud” was emerging. Revenue contended that the respondent were manufacturing dutiable as well as non-dutiable goods i.e. press mud using common inputs and, therefore, in view of Rule 6 of the Cenvat Credit Rules, 2004 were required to reverse 10% of the value of press mud. The Adjudicating Authority confirmed the demand and also imposed penalty and asked for interest and also ordered confiscation of the inputs. In appeal, the Commissioner (A) set aside the impugned order by considering the various judgments of the Tribunal and of the Apex Court. Revenue has filed appeal against the said decision.

Reasoning of Judgment: - The Tribunal considered the findings of the Commissioner (A) that “the Department has not considered the explanation given by the respondent in their letter that press mud was unmarketable waste and the same was mixed with spent wash of the Distillery and converted into Bio-Composed enriched press mud cake to avoid pollution.” It was further found by the Commissioner (A) that the show cause notice was issued without even knowing the nature of goods alleged to have been cleared by the respondent. It is further found that the lower Adjudicating Authority has not considered the fact that press mud and bio-composed press mud are different commodities which are prepared by different processes even when these facts were pointed out by the respondent. The Commissioner (A) has set aside the impugned order by relying upon the judgment given in CCE, Tirunelveli v/s Dharani Sugars & Chemicals Ltd [2008 (232) ELT 633 (Tri-Chennai)].

The Tribunal held that the findings of the learned Commissioner (A) are in consonance with law as has been settled by the Tribunal in the case of CCE, Tirunelveli v/s Dharani Sugars & Chemicals Ltd. which was followed by the Commissioner (A). No contrary decision cited by Revenue. The dutiability of the product “Press Mud” already been settled by the Apex Court in Titawi Sugar Complex [2003 (152) ELT 21 (SC)]. No merits in appeals of the Revenue.

Decision: - Appeals and Stay petition rejected.

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Case: - Resil Chemicals Pvt Ltd v/s Commissioner of C. Ex., Bangalore

Citation: - 2010 (250) ELT 528 (Tri-Bang)

Issue: - Whether penalty can be imposed on technical breach when there is no deliberate or wilful suppression on the part of an assessee?

Brief Facts: - On the allegation that the appellant had committed breach of warehousing provisions under Rule 20 of the Central Excise Rules, 2002 penalty under Rule 27 of the Rules was sought to be imposed. Revenue as well as Appellant-assessee are in appeal against the impugned order.

Appellant’s Contention: - Appellant contended that they had complied with the requirement of submitting the re-warehousing certificate. Thus, no penalty could be imposed on them.

Respondent’s Contention: - Revenue contended that a breach cannot be loosely spared without being punishable in view of the mandatory provisions of Rule 27 of the Central Excise Rules.

Reasoning of Judgment: - Tribunal noted that the learned Commissioner (A) had given a finding that the appellant had received the re-warehousing certificate beyond the period of 90 days. But the reason for delay was not dealt by the appellate order. The Tribunal held that as the provisions for mandatory penalty are absent and the fact that the delay was not being found attributable to any reason contrary to law or mala fide, the appellant should be exonerated from penalty prescribed by Rule 27 which does not appear to be mandatory in view of the language employed by the said Rules.

The Tribunal stated that knowable breach is punishable if that is deliberate or willful and resulting in defiance of law. But in appellant’s case no such circumstance is pointed out. Mere technical breach shall not ipso facto call for imposition of penalty when there is no mandate in statute under Rule 27 that every breach should necessarily be punished. Tribunal relied upon the judgment given in the case of State of Madhya Pradesh v/s Bharat Heavy Electricals [1998 (99) ELT 33 (SC)]. Impugned order set aside.

Decision: - Appeal allowed.

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Case: - Sarvotham Care Ltd v/s Commissioner of C. Ex., Hyderabad

Citation: - 2010 (250) ELT 588 (Tri-Bang)

Issue: - Whether SSI exemption will be available to an assessee having 2 units?

Brief Facts: - Appellant has two units. One is situated in Himachal Pradesh and the other is in Andhra Pradesh. Appellants were claiming SSI exemption under Notification No. 8/2003-CE dated 01.03.2003. Demand was raised against the appellant on the ground that they do not fall under the exemption notification as they have two factories. The demand was confirmed against the appellants. Appellant is in appeal and has filed the stay application for waiver of pre-deposit of duty and equal penalty imposed on them.

Appellant’s Contention: - Appellant submitted that the unit in Himachal Pradesh was manufacturing exempted goods which were covered by a Notification and the value of such goods should not be included in the value of the goods manufactured in the unit at Andhra Pradesh.

Reasoning of Judgment: - The Tribunal held that the provisions of clause (vii) of Para 2 of the Notification No. 8/2003-CE clearly attracted in appellant’s case. Prima facie, no case has been made out by the appellant for complete waiver of pre-deposit of the amounts involved. Direction given to deposit the entire amount demanded.

Decision: - Stay application rejected.

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CUSTOMS SECTION:

Case: - Videocon International Ltd v/s Commr. of Cus. (Import), Mumbai

Citation: - 2010 (250) ELT 553 (Tri-Mumbai)

Issue: - Department is required to give all the documents on which their case is based to the assessee. Opportunity of cross-examination of witnesses, experts etc relied upon by the Department is also required to be given.

Brief Facts: - The DRI officers searched the office premises of the appellant-importer and seized certain documents. They also recorded the statements of the concerned persons. The search was conducted on receipt of information that the appellants had imported 2 consignments of machinery which was declared as automatic electronic parts, vertical coils and flattening machine. It was also informed that on assessment by Customs House it was found that the cargo contained excess quantity as well as mis-declared items and the appellant was not coming forward for examination of the cargo. Show cause notice was issued demanding that the value of excess goods should be included in the Bill of Entry and assessed to duty on merits, proposing confiscation of impugned goods and for imposing penalties under Section 112 (a) of the Customs Act, 1962.

In their reply, the appellant raised preliminary objection that despite direction to DRI officials by the learned Commissioner of Customs (Adjudication), the officers have not granted inspection and did not provide copies of documents to the applicants even when requested in their numerous letters. It is submitted that the DRI vide its letter dated 07.05.03 have wrongly contended that the appellant had not come to collect the documents. The said goods were sent to the 100% EOU by the appellants. Appellants had also requested for cross examination of the panel experts, on whose reports the DRI had relied upon, but their request was not considered. Their request for cross examination of panchas who had drawn the panchnama on which the Department had relied was also not considered.

However, the Commissioner (Adjudication) has passed the impugned order confirming the demand without granting the request to the appellants. Penalties were imposed and the goods were ordered to be confiscated. Aggrieved by the same, the appellants have filed appeal. This is the hearing of the stay petition.

Appellant’s Contentions: - Appellant has contended that the impugned order was passed after a period of 5 and half month after the completion of the proceedings without any reasons for delay. Reliance was placed on the judgment given in Shivsagar Veg. Restaurant v/s Asstt. Commissioner of Income Tax, Mumbai [2008 (232) ELT 780 (Bom)] wherein the impugned order was set aside by holding that delay of 4 months between hearing and pronouncement of judgment without any reasons is itself a ground to set aside the order of the adjudicating authority. Contentions were also raised on the merits of the case.

Reasoning of Judgment: - The Tribunal held that there is substance in the appellant’s contention that the impugned order was passed in clear breach of the principles of natural justice. The appellants were not allowed to inspect the documents relied upon by the Department nor they were given copies of the said documents. The request of appellants for cross objection was recorded but the same was neither confirmed nor denied the same nor any findings has been recorded for refusal of the request.

The Tribunal held that the entire case of DRI officers was based on the Panel report of the experts, various panchnamas and the statements of the persons recorded, it was imperative for the Commissioner to have considered the request of the applicants for cross examination of Experts, Panchnamas and other concerned persons and should have given the findings in this regard. The Commissioner failed to carry out his quasi-judicial duties by not considering the request to cross examination of the appellant for which they have given reasons and justification. All allegations have been reproduced verbatim in the impugned order. The Commissioner has failed to apply his mind independently and has failed to pass a reasoned order. Moreover the order is passed after 5 and half months have passed after completion of proceedings. Impugned order set aside. Matter remanded back for fresh adjudication after proper hearing the appellant.

Decision: - Appeals allowed by way of remand. Stay petition disposed of.

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