Pradeep Jain - Chartered Accountant

PJ/Case Laws/2009-10/35

Case Laws

Prepared By:

CA Pradeep Jain,

Sukhvinder Kaur, LLB

And Bharat Rathore

SERVICE TAX SECTION:

Case: Rubicon Formulations Pvt Ltd v/s Commr. of C. Ex., Aurangabad

Citation: 2009 (16) STR 599 (Tri-Mumbai)

Issue: - Whether the bottling of alcoholic beverages falls on job work basis falls under BAS and whether such activity amounts to manufacture?

Brief Facts: - Applicants are engaged in the production of alcoholic beverages on jobwork basis. They do not manufacture the product under any contract of bottling arrangement. The activity of manufacturing of the product was for and on behalf of their clients as per the contract entered between them. The lower authority held that the activity carried out by the applicant falls under Business Auxiliary service. Demand of service tax with interest was raised and penalty was imposed. Applicant has filed appeal before the Tribunal and has filed application for waiver of pre-deposit and stay of the impugned order.

Appellant’s Contentions: - Appellant relied upon the Board Circular dated 27.10.2008 and contended that their activity did not fall under BAS. In the said Circular, Board has clarified that the activity, which produced excisable goods as well as which amounts to manufacture, though may not result in production of excisable goods, would be out of scope of the definition of BAS. It is submitted that based on the said Circular, the Commissioner (A) as well as another jurisdictional Commissioner had dropped the proceedings and demand of service tax against them.

Reasoning of the Judgment: - The Tribunal held that prima facie the finding of the lower authority is not in contravention of the said Circular. The applicant has not been able to point out the activity of the applicant is in consonance with the description of the activity given in the said circular so as to claim exemption from being classified as BAS. Prima facie, it is found that no case is made out for grant of stay of the impugned order demanding service tax. However, as the Authorities themselves has, subsequent to the Circular, taken a different view in applicants case, prima facie case for grant of waiver of demand in relation to penalty amount is made out. Accordingly, waiver of pre-deposit of amount of penalty granted.

Decision: - Stay applications partly allowed.

Comments: - This is an interesting issue. In last year budget, there was an amendment in the definition of BAS. Earlier to this product, there was provision that job work resulting in the manufacture of goods does not fall under BAS. Only those job works which does not amount to manufacture will be chargeable to service tax. The real aim behind the same was that if the process undertaken by job worker amounts to manufacture then the excise duty will be payable otherwise the service tax will be payable. But by the amendment in budget, it was provided that only excisable goods manufactured from such job work will be excluded. This implied that non excisable goods will be chargeable to service tax although process amounted to manufacture. This amendment was done with a view to levy tax on alcoholic beverages as there are non excisable goods. The state excise duty is being charged on the same. But later on separate exemption was given to alcoholic beverages. We have written an article “Drunken exemption to alcoholic beverages” on the subject. The same can be seen in our article section.

**********

Case: Kamani Oil Industries v/s Commissioner of C. Ex., Mumbai-II

Citation: 2009 (16) STR 562 (Tri-Mumbai)

Issue: - Whether the reversal of Cenvat credit amounts to not taking of credit. Whether the reversal under rule 6 is not required if the entire credit has been reversed?

Brief Facts: - Appellant are engaged in the manufacture of dutiable goods vanaspati oil and acid oil and exempted goods i.e. refined edible oil. Appellants availed cenvat credit on input service of GTA in respect of both exempted and dutiable goods. Department issued show cause notice that the appellants were liable to pay duty @ 10% in respect of exempted products cleared by them as they were not maintaining separate accounts. The appellant had taken credit of service tax in December 2005 and reversed the entire amount in March, 2006. Lower Authorities confirmed the demand of duty with interest and penalty was also imposed. The Commissioner (A) upheld the impugned order. Hence, appellant have filed before the Tribunal.

Appellant’s Contentions: - Appellant contended that the exempted goods were cleared by them in February, 2005 whereas credit was taken in December, 2005. Therefore, the question of payment of duty on exempted products does not arise as credit was taken 9 or 10 months after the clearance of exempted goods. This was first instance where they have availed the credit and earlier they have not taken credit against GTA services. The credit was taken by mistake and on detection, the same was reversed in March 2006. Therefore, once they have reversed the credit, the question of payment of duty and penalty does not arise at all. Reliance was placed on the judgment given in Ruchi Infrastructure Ltd v/s CCE, Vishakhapatnam [2008 (224) ELT 123 (Tri-Bang)], Magtech Mobilespares Pvt Ltd v/s CCE, Belapur [2006 (205) ELT 481 (Tri-Mumbai)], Habib Agro Industries v/s CCE, Mysore [2007 (219) ELT 489 (Tri-Chennai)] and Satyakala Agro Oil Products Ltd v/s CCE, Guntur [2008 (223) ELT 441 (Tri-Bang)] and on Ballarpur Industries Ltd v/s CCE, Nagpur [2006 (201) ELT 146 (Tri-Mumbai)].

Respondent’s Contentions: - Revenue relied upon the judgment given in the case of Kamra Bottling Co. v/s CCE, Jaipur [2006 (160) ELT 487 (Tri-Del)] in support of their case.

Reasoning of the Judgment: - The Tribunal held that the appellants had paid the service tax in February 2005 but they have wrongly taken credit in December 2005 and the entire amount was revered in March 2006. Therefore, the question of payment of 10% of duty on the exempted goods does not arise. However, by availing credit the appellant had committed an error and therefore they are liable to pay penalty. Penalty of Rs. 10, 000 imposed.

Decision: - Appeal partly allowed.

Comments: - The issue involved in this case is also very important. We have across many cases where the duty demand @ 8% has been demanded when small amount of credit has been taken. The reversal of entire amount will be beneficial to assessee. This will resolve the issue.

**********

Case: Commissioner of C. Ex., Ghaziabad v/s Majestic Auto Ltd

Citation: 2009 (16) STR 685 (Tri-Del)

Issue: - Whether the name and address of manufacturer is necessary for taking the credit?

Brief Facts: - Respondent availed credit on inputs/capital goods on the basis of invoices wherein the supplier had mentioned the brand name “Hero Puch” or “Hero Motors” of the respondent’s company and their address. The Adjudicating Authority denied credit on the ground that the invoices did not bear the name of respondent. The Commissioner (A) set aside the impugned order and allowed the credit to the respondent. Aggrieved by this, Revenue has filed appeal before the Tribunal.

Appellant’s Contentions: - Revenue contended that mere mention of brand name known in the Trade Parlance does not make them eligible for taking the credit.

Respondent’s Contentions: - Respondents placed a copy of the invoice before the Tribunal. It is seen that the invoices were issued with full address of the respondent.

Reasoning of the Judgment: - The Tribunal held that there is no dispute that the impugned goods were received by the respondent and were used in the manufacture of the final product and recorded in the register. Board’s Circular no. 441/7/99-CX, dated 23.02.99 was relied upon where it is clarified that in terms of sub-rule (11) in Rule 57G and sub-rule (13) of Rule 57T of the erstwhile Central Excise Rules, 1944, the Assistant Commissioner may allow the credit of duty paid on inputs/capital goods in minor procedural lapses in filing the declaration or in the invoices/documents, based on which credit is to be taken. However, the AC has to ensure inputs/capital goods have suffered duty and are being used/are to be used in the process of manufacture. In the present case, there is no dispute that the inputs/capital goods have suffered duty and were used in the manufacture of final goods. In any event, brand name of the respondent with their address instead of company’s name in the invoice establishes the ownership of the goods. The Commissioner (A) rightly allowed the credit. No reason to interfere with the said order.

Decision: - Appeal rejected.

**********

Case: Vista Infotech v/s Commr. of Service Tax, Bangalore

Citation: 2009 (16) STR 634 (Tri-Bang)

Issue: - Whether the penalty can be imposed when the entire service tax is deposited along with interest before issue of show cause notice?

Brief Facts: - Appellants collected the amount of service tax from their clients but did not deposit the same with the Government exchequer due to financial hardship. Revenue proceeded against the appellant with penal action. Before the issue of show cause notice, the appellant discharged their full service tax liability with interest on 05.07.2007 to 19.07.2007. The lower authorities imposed penalties under Section 76, 77 and 78 of the Financial Act, 1994.

Appellant’s Contentions: - Appellant contended that non-payment of service tax to the Government was due to financial hardship caused by one client who had not paid them an amount of Rs. 1.4 Crores. There was no intention to evade payment of service tax. Therefore, the issued should be examined in the light of Section 73 (3) which provide that when service tax has been paid by assessee voluntarily, no show cause notice is contemplated.

Respondent’s Contentions: - Revenue contended that it is not a case which can be covered under Section 73 (3). The appellants had admitted that they had collected the service tax from their clients but had not deposited the same with the Government. The non-deposit of service tax was found upon the scrutiny of the department officers. Otherwise there would have been escapement of service tax.

Reasoning of the Judgment: - The Tribunal held that at this stage it would be better to waive a pre-deposit of the entire amount of penalties imposed in view of the fact that the service tax alongwith interest had been discharged much before the issue of show cause notice. Full waiver of pre-deposit ordered till decision of appeal.

Decision: - Pre-deposit waived.

**********

Case: M. Ramakrishnan v/s Commissioner of Central Excise, Salem

Citation: 2010 (17) STR 567 (Tri-Chennai)

Issue: - Whether construction of tower base for BSNL will fall under Commercial construction activity? Whether the contention can be raised before appellate authority?

Brief Facts: - Demand was confirmed on the ground that the applicants were rendering commercial and industrial construction service as they were construction foundation bases for towers and buildings of BSNL. Now, the tribunal has taken up the application for stay.

Appellant’s Contentions: - They are not rendering commercial or industrial construction service for the reason that they are building bases for towers and buildings for BSNL, which is a Govt. of India undertaking, which does not carry out any commercial activity and therefore in the light of the CBEC letter in F. No. B2/8/2004-TRU, Dated: 10.09.2004, clarifying that commercial and industrial building or civil structure used for residential or office purposes or construction services rendered to a government organization is exempt from payment of Service Tax, they are not liable to service tax, since BSNL is neither using the buildings and towers constructed by the assessee for the residential purpose and not providing commercial activity. However, this plea which was not raised before the authority below and it is being raised in the appeal for the first time. No prima facie case for unconditional waiver can therefore be said to have been made out by the applicant.

Reasoning of the Judgment: - The Tribunal held that there was no prima facie case for unconditional waiver made out. Therefore direction given to the assessee to deposit a sum of Rs One Lakh towards the tax amount within a period of four weeks from today and on such deposit, the pre-deposit of the balance tax, interest and penalties shall stand waived and recovery thereof stayed pending the appeal.

Decision: - Application for stay partly granted.

**********

CENTRAL EXCISE SECTION:

Case: Vetcare Organics Pvt Ltd v/s Commr. of Cus. (Sea port), Chennai

Citation: 2010 (251) ELT 101 (Tri-Bang)

Issue: - Whether the evidence is required for showing that the incidence of duty has not been passed on?

Brief Facts: - Appellants filed refund claim against the excess duty paid where the Notification benefit was denied. Claim was rejected. In appeal, the Commissioner (A) allowed the appeal and remanded the matter back to re-consider the claim to the extent of quantity already consumed, after verifying all the aspects. The Adjudicating Authority passed an order sanctioning the refund claim, but credited the same to the Consumer Welfare fund. Aggrieved by this, appellant has preferred further appeal. The Commissioner (A) held that the order passed by the lower authority was correct and required no interference. Appellant has therefore filed appeal before the Tribunal.

Appellant’s Contentions: - Appellant submitted that this was a case of refund of duty. The sales invoices of the goods imported indicated that the pre-import and post-import, the prices of the goods were the same and there was no change in the sale price before and after importation. The Chartered Accountant’s certificate also indicated the same. Reliance was placed on decision given in CCE v/s Metero Tyres Ltd [1995 (80) ELT 410] which was affirmed by the Supreme Court reported in 2002 (143) ELT A75 and in ITC Bhadrachalan Paper boards Ltd v/s CCE [2002 (146) ELT 582].

Respondent’s Contentions: - Revenue contended that appellant have not produced any evidence to show that the amount of refund claimed by them has not been passed on to their customers.

Reasoning of the Judgment: - The Tribunal considered the findings of the Commissioner (A) wherein it was held that the date mentioned against “before import of the item” was 31.08.00 (C. Ex. Invoice) and 4.09.2000 (Commercial Invoice) which were well after the B. E. dated 03.07.2000. All the invoice copies produced were post-clearance sales and no pre-clearance sale invoices had been produced. The CA certificate only showed quantity lying in stock as on 16.03.2001 and no amount had been indicated as “receivable from customs”. The copy of the balance sheet as on 31.03.01 produced by the appellant also reveals that the refund amount was not shown as receivables. Thus, the Commissioner (A) had concluded that in the absence of any concreter documentary proof, it was not possible to conclude that the incidence of duty had not been passed on.

The Tribunal held that no evidence was produced by the appellants before them to refute the findings of the Commissioner (A). Thus, the impugned order of the Commissioner (A) is correct and does not require interference.

Decision: - Appeal rejected.

**********

Case: - DCM Engineering Products v/s Commissioner of C. Ex., Jalandhar

Citation: - 2010 (251) ELT 91 (Tri-Del)

Issue: - Whether the duty is payable without physical removal of goods?

Brief Facts: - Appellant purchased pattern toolings from its sister concern which were meant for use on behalf of the Maruti Udyog Ltd for manufacture of automobile components for that concern. Appellant raised invoice to Maruti Udyog Ltd for pattern tools but the said goods were not removed from the factory premises. Appellant took cenvat credit on the said invoices. Department demanded duty on the basis of invoice issued for the pattern tools to Maruti Udyog Ltd under Rule 57U read with Rule 9 (2) of Central Excise Rules, 1944. Order confirming duty was passed and upheld by the Commissioner (A). Appellant is therefore filed appeal before the Tribunal.

Appellant’s Contention: - Appellant contended that as there was no real removal of such goods in real sense and the same value was only billed to Maruti Udyog Ltd by way of invoice under Rule 52A and 173G of the Central Excise Rules, 1944. The invoice was a mere intimation and not document to make delivery of the pattern tool to serve the purpose of Rule 52A for which no duty was realizable. There was no intention to remove the said goods and at no point of time there was physical delivery of the said goods made through any invoice by the appellant to Maruti Udyog Ltd. Intimation was given to the department of the said fact. Reliance was placed on Mutual Mecaplast Ltd v/s CCE, Daman [2007 (220) ELT 888] and J. K. Cotton Spinning & Weaving Mills Ltd v/s UOI [1987 (32) ELT 234 (SC)].

Respondent’s Contention: - Revenue contended that once invoice issued by appellant indicating that the same was under Rule 52A and Rules 173G, duty becomes payable. When no duty was paid, the Cenvat credit enjoyed in respect of the pattern tools is reversible.

Reasoning of Judgment: - Tribunal held that the invoice was issued in fulfillment of the contractual obligation of the parties. The factual position has not been disputed by the Revenue. The appellant had proved its fairness indicating that it is prepared to pay excise duty on physical removal of the pattern tools. There was no case to invoke Rule 52A in absence of evidence of delivery without satisfying the twin conditions of the Rule that there should be delivery of excisable goods and no such delivery shall be without invoice signed by owner of the factory or his authorised agents. Therefore, to invoke Rule 52A, not only physical delivery of the excisable goods is necessary but such delivery should also be accompanied by an invoice under that Rule. Such essential ingredients were not present in the appellant’s case. The factual finding is given that there was no removal of goods, therefore Mutual Mecaplast Ltd v/s CCE [2007 (220) ELT 888)] was applicable. Revenue’s contention is not acceptable in view of the Apex Court in the case of J. K. Cotton Spinning & Weaving Mills. Impugned order set aside.

Decision: - Appeal allowed.

**********

Case: - Cosmo Films Ltd v/s Commissioner of Central Excise, Aurangabad

Citation: - 2010 (251) ELT 130 (Tri-Mumbai)

Issue: - Whether the penalty can be imposed when the situation is revenue neutral? Whether the penalty can be imposed under Rule 15 of Rule 25 or Section 11AC for improper reversal of Cenvat credit cleared as such?

Brief Facts: - Appellant are manufacturers of BOPP film and working under the Cenvat credit scheme. On the imported goods, the appellant was taking credit of excise duty, education cess, SHE cess as well as Additional duty of 4%. The appellant had cleared the imported inputs to its sister unit and was reversing the cenvat credit of excise duty, education cess, SHE cess taken on the said inputs. However, they were not reversing the credit of Additional duty of 4% (Spl. CVD). This fact was noticed during investigation. Statement of Manager (Materials) of appellant-factory was recorded wherein he had stated that it was due to oversight/ignorance that they had not reversed the additional duty of 4%. On being pointed out, the appellant immediately reversed the credit on the additional duty. Revenue issued show cause notice proposing penalty under Section 11AC read with Rule 25 of Central Excise Rules, 2002 and Rule 15 of Cenvat Credit Rules, 2004. In reply the appellant submitted that non-reversal was a bona fide clerical mistake and contended that the situation was revenue neutral as the said goods were cleared to sister concern and the said duty was available as credit to the sister unit. The Adjudicating Authority held that although there is force in the appellant’s contention, the fact of non-reversal of credit remained unchanged. It was held that cenvat credit was wrongly availed even though there was no intent to evade duty. Penalty of Rs. 50, 000/- was imposed under Rule 15 of the Central Excise Rules. Aggrieved by the same, appellant has filed appeal against the said order. Revenue has filed appeal for enhancement of penalty amount.

Appellant’s Contention: - Appellant contended that no penalty could be imposed under Rule 15 as the said Rule dealt with “Special Procedure for payment of duty”. The penalty at the most could be imposed under Rule 25 wherein confiscation and penalty provisions were provided but in this case goods were not held liable for confiscation and therefore, no penalty was imposable. Reliance was placed on the judgments given in Avdel (India) Pvt Ltd v/s CCE, Mumbai [2004 (171) ELT 201 (Tri-Mumbai)], Monica Electronics Ltd v/s CCE, New Delhi [2001 (134) ELT 454 (Tri-Del)] and Amrit Foods v/s CCE, UP [2005 (190) ELT 433 (SC)]. It is further contended that for imposition under Section 11AC mens rea is essential ingredient for imposition of penalty. This is a revenue neutral situation and non-reversal was inadvertent as most of their inputs were indigenously procured. There was no intention to evade duty. They have relied upon Hindalco Industries Ltd [2007 (220) ELT 477 (Tri-Kolkata)] and CCEx & Customs, Nasik v/s Jyoti Structures Ltd [2009 (247) ELT 555 (Tri-Mumbai)].

Respondent’s Contention: - Revenue contended that it is a case of suppression of facts and hence, equivalent amount of penalty was to be imposed. It was contended that appellants had suppressed the fact of non-reversal of credit at the time of removal of inputs as such. Reversal was done only when the same was pointed out hence penal provisions were imposable on appellant. Under Section 11AC, penalty equivalent to duty is imposable. Reliance placed on Century Tiles Ltd v/s CCEx, Ahmedabad [2008 (6) ECX 367], Dharmendra Textile Processors [2008 (231) ELT 3 (SC)] and on CCE v/s Medicore Lab. Pvt. Ltd. in order no. A/177-178/2009/SMB/C-IV dated 07.05.2009.

Reasoning of Judgment: - The Tribunal held that penalty under Rule 15 was not imposable as there was no such provision, under Rule 25 for contravention of provision of the Central Excise Rules, penalty can be imposed where the goods are liable of confiscation. The penalty can be imposed under Rule 15 for wrongly availment of cenvat credit on the inputs, with intention to evade payment of duty in terms of provisions of Section 11AC. In present case, the situation is revenue neutral and there was no intention of the appellants to evade the duty, provisions of Section 11AC were not attractable. Penalty under Rule 25 cannot be imposed as the goods were liable for confiscation. Penalty under Rule 15 read with Section 11AC was also not imposable as there was no intention to evade payment of duty in the facts and circumstances of the case. No penalty imposable on appellant.

Decision: - Appeal filed by assessee allowed. Appeal by Revenue rejected.

**********

CUSTOMS SECTION:

Case: - Changzhou Yonega Corduroy Co. Ltd v/s Commr. of Cus., Bangalore

Citation: - 2010 (251) ELT 95 (Tri-Bang)

Issue: - Whether the penalty is imposable when the improper description has been declared to get the benefit of DFRC? Whether the turning down of request of re-export is proper when the fraud is committed by exporter and importer to evade custom duty?

Brief Facts: - M/s Vimalachal Fashion had filed 4 bill of entries seeking clearance of ‘textile pieces of goods dyed cotton processed fabrics’ claiming benefit of duty free import under Duty Free Replacement Certificate (DFRC) scheme. Upon examination, it was found that the said consignment was ‘cotton corduroy processed’ and the description of the goods was mis-declared by M/s Vimalachal Fashion for claiming the benefit under DFRC scheme. In further investigation, it was found that the importer was not operating from the premises mentioned in the bill of entries. That the said address was given for obtaining the IEC number. Further, the appellant herein sent a communication addressed to the Commissioner of Customs intimating that their staff had sent the wrong consignment and sought permission for re-export of the impugned goods. Permission was refused and an appeal against the same was also rejected by the Tribunal. The Commissioner gave finding that the M/s Vimalachal Fashion had mis-declared the description of goods, under-declared quantity imported and contravened prohibition on import. The goods imported vide the disputed bill of entries and other 6 bill of entries were confiscated under Section 111 (d), (l) & (m) of the Customs Act, 1962. It was also held that the appellant supplier had entered wrong particulars in the bills of lading, packing list etc to facilitate mis-declaration of the description of the goods by the importer. It was also found that the importer had similarly mis-declared description of a few consignments imported in the past and had availed ineligible duty exemption. The value had also been under-declared. Demand with interest and penalty was confirmed. Duty due on excess quantity imported was also demanded. As the exporter had not received consideration for the goods under import, the Commissioner warned the appellant-exporter. The appellant-exporter has filed this appeal before the Tribunal for allowing re-export of confiscated goods.

Appellant’s Contentions: - Appellant contended that after they had exported the goods, it was noticed that wrong consignment has been sent and accordingly, they have given intimation to the Indian Customs Authorities and had asked permission for re-export of the said goods. However, its request was not considered. They had also made an offer to M/s Vimalachal Fashion to buy it at discount price. The said request was rejected by the Commissioner. It is contended that the impugned order was passed by relying upon the judgment in Commissioner of Customs, Kolkata v/s Grand Prime Ltd [2003 (155) ELT 417 (SC)]. The reliance placed was misplaced as in that case importer had appeared before the authorities and he had appeared after issuance of show cause notice and the suspicion that the importer and exporter had acted in collusion. But in the present case, no collusion between the appellant and M/s Vimalachal Fashion has been contended in the show cause notice. It is alleged that the show cause notice was issued on the premises that the importer M/s Vimalachal Fashion was aware about the description of the goods. However, it has been submitted that it was not the appellant who had sent the wrong consignment. Reliance has been placed on the decision given in the case of Al-Futtaim Engineering v/s Commissioner of Customs, Chennai [2007 (219) ELT 490 (Tri-Bang)].

Reasoning of Judgment: - The Tribunal considered the findings given by the Commissioner and held that the impugned goods were liable for confiscation under Section 111 (m) due to mis-declaration of the description. The order of confiscation was in accordance with law. The Tribunal further held that in the judgment in the case of M/s Grand Prime Ltd, the Apex Court had held that import of consignment in question being contrary to law, the goods were liable for confiscation under Section 111 of the Act. Order of confiscation was in accordance with law.

The Tribunal found that in present case, the goods under import were liable for confiscation under Section 111 (m) on account of mis-declaration. In view of the judgment given in the case of M/s Grand Prime Ltd, the foreign exporter (appellant) cannot be permitted to re-export the subject goods. In the case of Al-Futtaim Engineering, the Tribunal had observed that the exporter therein has shipped the goods in the normal course of business but the importer could not clear the goods on account of financial problems. The appellant therein had genuinely transacted the business. The goods imported were not liable to confiscation for any contravention and it was held that the appellants were entitled to re-export of the goods.

The Tribunal held that where the goods were confiscated under Section 111 of the Act, the same could not be allowed for re-export as held in the M/s Grand Prime Ltd’s case. Bona fide of the exporter were not material. In the M/s Grand Prime Ltd’s case, collusion between importer and exporter was not the reason for denying re-export could not be legally permitted. In this case, it was found that the appellant had colluded with the importer in facilitating evasion of customs duty. Thus, the request for re-export of consignment was rightly turned down by the Commissioner.

Decision: - Appeal rejected.

**********

Comments

PJ/Case Laws/09-10/35

Post a Comment

Query