Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/04

CASE LAWS

Prepared By: -

CA Ridhi Anchalia,

CA Rajani Thanvi and

Sukhvinder Kaur LLB

Excise Section:

Case: Sanghi Industries Ltd. v/s Commissioner of C. Ex, Rajkot

Citation: 2008(230) E.L.T. 257 (Tri.-Ahmd.)

Issue: - Whether Asian Development Bank can be said to be an International organisation falling under Notification No. 108/95-CE? Whether payment of 10% of clearance value of the exempted goods at the time of clearing from the factory is mandatory when goods supplied to United Nations or an international organisation for their official use or supplied to projects funded by them?

Brief Facts: - Appellants was engaged in the manufacture of coated M.S. pipes which are exempted goods. During the relevant period, they cleared the said goods to projects, which were funded by Asian Development Bank. Proceedings for payment of 10% of the clearance of exempted goods were initiated against the appellant. Revenue conceded that Asian Development Bank, which has financed the project, cannot be considered as an international organization under Notification No. 108/95-CE. Accordingly, Revenue confirmed the demand of duty in terms of sub-rule (3) of Rule 6 of the Cenvat Credit Rules, 2004 read with Section 11A of the Act along with interest. Penalty of identical amount in terms of Rule 15 was also imposed. Hence, appellant is in appeal before the Tribunal.

Reasoning of the Judgment: - The Tribunal noted that preamble of Notification No. 108/95-CE is to the effect that the Central Government exempts all goods supplied to the United Nations or an international organization for their official use or supplied to the projects financed by the said United Nations or an international organization and approved by the Govt. of India, from the whole of duty specified therein. Proviso to the said Notification as contained in provisos (a), (b) and (c), are merely in the nature of procedures required to be adopted when the goods are supplied to different international organizations listed in the said provisos. The combined reading of Section 8 of Article-II of the Schedule to the United Nations (Privileges and Immunities) Act, 1947 and Notification dated 25-8-1994, issued by the Min. of External Affairs is becomes clear that Asian Development Bank which is mentioned against the Sl. No. 21 below Section 3 of the Act is an international organization in terms of Notification No. 108/95-CE.

The Adjudicating Authority should not have relied upon the official website, which according to the assessee, is not updated, is not appropriate. In case of any doubt, the Adjudicating Authority could have sought more clarification from the Min. of External Affairs instead of rejecting the appellants’ claim. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

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Case: Krishna Filaments Ltd.

Citation: 2001(131) E.L.T. 726 (G.O.I.)

Issue: - Whether procedural lapses are condonable if they are not substantive in nature by the Commissioner (Appeals)?

Brief Facts: - The rebate claims of the applicants were rejected on the ground that the claims were time barred as were filed after 6 months from the date of exports. Part of the claim was rejected on the ground that procedure prescribed by Notification issued under Rule 12 (1) (b) of the Central Excise Rules, 1944. In appeal, the Commissioner (A) remanded the matter for fresh examination and to seek specific direction from the Commissioner in terms of the proviso to Rule 12 (1) in respect of those claims rejected for procedural lapses. The applicants have filed revision applications that when substantive provisions of the Notification No. 42/94 had been complied with then the Commissioner (A) could have condoned the delay vide proviso to Rule 12. Applicants have relied upon the decision of the Government given in the case of GTC exports [1994 (74) ELT 468 (GOI). It was contended that the appeal could have been allowed instead of remanding the same back to the original authority.

Applicant’s Contention: - Applicants contended that when substantive conditions were fulfilled and there is no dispute about the export of goods, procedural lapses could have been condoned by the Commissioner (A) himself instead of remanding the same back to the original authority. It was contended that the Commissioner (A) had concurrent power of condonation under Rule 12 (1) (b). In this regard, they have relied upon the judgments passed in the cases of Collector of Central Excise, Bombay v/s M/s. T.I. Cycles of India [1993(66) E.L.T. 497 (Tribunal)] and Collector of Central Excise, Guntur v/s Binny Ltd., Madras [1987 (31) E.L.T. 722 (Tribunal)]. The crux of these orders was that where there is merit in a case, even the Collector (Appeals) could exercise the powers of condonation given in Rule 12 of the Central Excise Rules, 1944.

The applicants have pleaded that they were new to the field hence its unawareness about the all the formalities is condonable since the substantive provision of the Notification No. 42/94 issued under Rule T2 12(1)(b) of the Central Excise Rules, 1944 have been compiled with. In this regard they have placed reliance on the GOI decision in the case of G.T.C. Exports Ltd. reported in [1994 (74) E.L.T. 468 (GOI)].

Further, on the contention that Commissioner (Appeals) could not exercise the powers of a central excise officers in terms of Section 12E other than those under Section 14 and those under Chapter VIA, the applicants contended as under: -

(a) That the power under an Act and under Rules framed under that Act are different. To substantiate his view he cited the Constitution Bench of S.C.’s judgment in Kolhapur Cane Sugar Works Ltd v/s UOI [2000 (119) E.L.T. 257] wherein it was clearly held that the powers under the Act the Rules are not same.

(b) That there has to be consistency in interpretation. The Tribunal in more than one case and the GOI in GTC case having given the interpretation on the point, it should not be reopened again.

(c) The powers of the Commissioner under Rule 5 have been delegated concerning different Rules & Rule 12(1) powers is one such. Since the A.C. has not exercised that power while considering the rebate claim, hence the appeal.

Reasoning of the Judgment: - The Government observed that Commissioner (Appeals) could not have condoned the procedural lapses in view of sub-section (2) of Section 12E of the Central Excise Act, 1944. Therefore, the Commissioner (Appeals) had rightly not condoned the lapses himself, as such an order would not have been legal. With regard to judgments cited by the applicant, it was observed that the said judgments were passed upon the earlier interpretation of the provisions which had been changed since then. The Government further held that the conditions of Nos. 3, 7, 9, 11 and 17 of Notification No. 42/94 which had not been followed by the applicant were procedural in nature and not of substantive nature. Therefore, lapse of the same could be condoned.

Decision: - Revision Applications allowed subject to verification of relevant documents regarding duty paid nature of the inputs used in the goods exported and their actual export before sanctioning the rebates.

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Case: Union of India v/s Food Specialties Ltd.

Citation: 1998 (97) ELT 402 (SC)

Issue: - Whether against any appeal regarding the classification already finalized in the Tribunal can be challenged further?

Brief Facts: - There are two separate orders which have been challenged in this set of appeal. In one appeal the issue related to classification of the product ‘New Sapan Dairy Special’. The order was passed in favour of the assessee. A consequential order was made pursuant to the decision reported in Dalmia Industries Ltd. v/s Collector of Central Excise [1992 (61)ELT 295] pertaining to classification. Taking the consequential order in consideration the Revenue has filed an appeal. In the other appeal is related to the classification of ‘partially skimmed milk powder’.

Appellant’s Contentions: - The department contended that partially skimmed milk is to be classified under skimmed milk and so the skimmed milk powder should be classified under the heading no. 0401.19 whereas the Tribunal has held that the same is classified it under the heading no. 0401.13.

Respondent’s Contentions: - The decision in the Tribunal regarding to the classification of the Tribunal was final so now the department cannot file an appeal against the consequential order related to the quantum. The respondent’s contention was that this much is only enough that the product is classified under `New Sapan Dairy Special’ and there is no door open to further challenge it.

Reasoning of the Judgment: - The Supreme Court held that it was not shown that the Department has challenged the Tribunal’s decision on the question of classification reported in Dalmia Industries case (supra), this appeal must fail for this reason alone.

In the other appeal, the Apex Court held that partially skimmed milk powder was held to be a separate commodity than skimmed milk product in the judgment for which detailed reasons were given. Also, partially or completely skimmed milk are mentioned as separate products in the main heading itself, it has been pointed out with reference to ISI specification as well as Prevention of Food Adulteration Rules and the International Standard that `partially skimmed milk powder’ is different from `skimmed milk powder’ and is so recognized therein.

Decision: - Appeals dismissed accordingly.

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Case: Idol Textile Ltd. v/s Commissioner of C. Ex., Thane-I

Citation: 2007 (217) ELT 299 (Tri. –Mumbai)

Issue: - Whether the unutilized cenvat credit of the exports could be claimed as refund even though if the assessee is engaged in home clearance?

Brief Facts: - The appellant are manufacturers engaged in the processing of cotton fabrics and clear the goods for home consumption and for export also. The appellant had unutilized balance of Cenvat credit and they filed a refund claim under Rule 5 of the unutilized credit which was disallowed by the lower authority. The ground taken was that they could not utilise the amount of cenvat credit accumulate in their account. Hence appellant are in appeal.

Appellant’s Contentions: - Appellants contended that the issue was squarely covered in the judgment given in the case of Navbharat Industries v/s Commissioner of Central Excise, Thane-I [2006 (199) ELT 148 (Tri–Mumbai)]. It was contended that there is no dispute as to eligibility of the cenvat credit to the appellant, that there is also no dispute as to the fact that appellant had exported the goods manufactured out of duty paid inputs, on which credit was availed. The Tribunal was always holding that the view that unutilised credit is eligible as refund, even in the earlier situation under Rule 57F of the Central Excise Rules, 1944 as reported in the cases of Om Prakash Jayaprakash & Co. v/s C.C.E., Surat [2004 (178) ELT. 429 (Tri.-Del.)] and in Gillete India Ltd. v. C.C.E., Delhi-III [2004 (175) E.L.T. 339 (Tri.-Del.)].

Respondent’s Contention: - Revenue contented that the assessee was a running unit and could even utilise the Cenvat credit accumulated with them on such final products manufactured and cleared by them for home consumption. They further said that the case should be remanded back as the conditions of the Notification No.11/02-C.E (NT) dated 1.3.2002 were not fulfilled.

Reasoning of the Judgment: - The Tribunal considered the findings of the Commissioner (A) and held that the said findings were contrary to the findings of the Division Bench of the Tribunal given in the judgment in the case of Navbharat Industries. In the said judgment, the Division Bench had held that the refund under Rule 5 of unutilised credit accumulated with the assessee cannot be denied as the same was substantive right of the assessee. Thus, the Tribunal held that the judgment given in Navbharat Industries’s case was applicable to the appellant’s case. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

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Case: Commissioner of Central Excise v/s Arsh Casting Pvt. Ltd.

Citation: 2010 (252) ELT 191 (H.P.)

Issue: - Whether the private records can solely be used as an evidence for claiming that the assessee was producing more than what he was showing in the statutory records?

Brief Facts: - Respondent-assessee was engaged in the manufacture of M.S. Ingots. The Revenue checked the records of the assessee and found that some records were also maintained by their Chemist regarding dispatch of ingots. In the record of the chemist, the production of ingots was reflected much higher than that reflected by the assessee. Relying upon the statement of the chemist, and one manager, Revenue initiated proceedings for clandestine removal against the assessee. It was contended that the number of ingots prepared and dispatched from the factory was much more than the number reflected in the assessee’s books. The Commissioner and the Tribunal considered the record of the chemist as well as his oral statement that he had made certain entries where the number of ingots was mentioned but these ingots were never actually dispatched. Revenue is before the High Court.

Reasoning of the Judgment: - The High Court held that the Commissioner and the Tribunal have relied on the records and oral statement of the chemist and a manager. A finding of fact was given by them that there was no discrepancy in the recorded balance and the actual balance found in the factory. They have reached the conclusion that the revenue failed to prove that there was excess quantity of finished goods than recorded by the assessee. The High Court held that the Tribunal has rightly held that the burden was on the department to prove that excess goods had been manufactured. The records of the chemist was only a piece of evidence but cannot be used for holding that the production was more than what was recorded. This is a pure finding of fact and no question of law much less a substantial question of law was involved.

Decision: - Appeal rejected.

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Case: Commissioner of C. Ex., Indore v/s Hotline Glass Ltd.

Citation: 2007 (210) E.L.T. 69(Tri. –Del.)

Issue: - Whether Cenvat credit is allowable on input viz. Steel, Cement, Bars and angles used for the manufacture of capital goods which in turn are used in the manufacture of final product?

Brief Facts: - The respondent availed Modvat credit on the various capital goods received by the respondent during the setting up of their factory for manufacture of panels and picture tubes. The revenue disputed the availment of the credit and issued a show cause notice for the denial of the Modvat credit on such capital goods. Adjudicating Authority denied Modvat credit and also imposed penalty. On appeal, the Commissioner (Appeals) set aside the order-in-original after considering the detailed chart that indicated the usage of the capital goods by the respondent in their factory. The Revenue is in appeal before the Tribunal only challenging the taking of credit on the Tor steel, cement and bars and angles.

Appellant’s Contention: - Appellants contention was that the credit on Tor steel, cement, bars and angles is not available to respondent-assessee as these items are used for the construction purposes. They relied upon the decision of the Division Bench of Tribunal in the case of Indo Rama Synthetics (I) Ltd. v. CCE, Nagpur [1996(86) E.L.T.277].

Respondent’s Contention: - The contention of the respondent was that credit on Tor steel and cement is allowable as they were used to construct the furnace. They relied upon the judgment given in the case of CCE, Trichy v. India Cements [2004 (175) E.L.T. 476].

Reasoning of the Judgment: - The Tribunal held that the Commissioner (A) had reached a finding that the input credit was utilized for the manufacture of capital goods, which were used in or in relation to the manufacture of the final products. The Revenue was not able to show from records that the disputed inputs were utilized for construction of sheds or office building etc. In the absence of any contrary evidence, findings of the Commissioner (Appeals) are upheld. The detailed chart indicated the usage of the disputed inputs was also produced before the lower authorities and was accepted. The Tribunal further held that in the case Indo Rama Synthetics (I) Ltd. v. CCE, Nagpur, the Tribunal had held at the time of hearing of stay application that steel and cement cannot be held inputs. The Tribunal’s decision in the case of India Cements is directly on the point.

The Tribunal further noticed that Modvat credit on cement and tor steel used for construction of silos for storing raw materials was allowed.

Decision: - Appeal disposed off.

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Case: Commissioner of Central Excise, Ludhiana v/s Shiv Shakti Steel Tubes

Citation: 2010 (252) E.L.T. 248 (Tri. –Del.)

Issue: - Whether forfeiture of monthly payment facility is mandatory if the substantial amount of duty liability has been discharged.

Brief Facts: - The respondent failed to discharge the duty liability by due date under Rule 8(4) of Central Excise Rules, 2001. The Adjudicating Authority ordered for forfeiture of facility of duty on monthly basis under Rule 8(1) of the said rules for a period of two months starting from the date of communication of order. In appeal, the Commissioner (Appeals) modified the order and revised it to one and half months from the date of communication of order. Revenue is therefore before the Tribunal against the reduction of period of forfeiture. No one appeared from respondent-assessees side.

Appellant’s Contention: - Revenue contended that the Commissioner (A) had passed the order by relying on the decision given in the case of Calcom Vision Ltd. v/s CCE, Meerut I [2002(142) E.L.T. 383(Tri.-Del.)] wherein the Tribunal had followed the decision given in the case of Escorts JCB Ltd. v/s CCE, New Delhi [2000(118) E.L.T. 650(Tri.)]. Revenue contended that the case of Escorts JCB Ltd related to Section 11AC of the Central Excise Act which is not applicable to the present case.

Reasoning of the Judgment: - The Tribunal relied upon the order of Commissioner (Appeals) who had passed the impugned order after considering all the facts of the case. The Commissioner (A) had held that “since the respondent has already discharged the duty liability of Rs. 3,19,894/- whereas the total duty liability was Rs. 3,41,894/-. It means the substantial amount of duty liability had been discharged and the balance Rs. 22,000/- was paid along with interest beyond 30 days from the due date. So the forfeiture of facility of paying duty on monthly basis for a period of two months was become harsh to the respondent and it should be modified and reduced.” The Tribunal also considered the decision given in Calcom Vision Ltd’ case wherein it was held that forfeiture of facility for maximum period of two months was not mandatory. The Commissioner (A) had reduced the period to one and a half month after considering the said decision.

The Tribunal further held that since the respondent had discharged the substantial amount of duty liability by due date and therefore, the Commissioner (A) had rightly reduced the forfeiture facility. No reason to interfere with the impugned order.

Decision: - Appeals rejected.

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Service Tax Section:

Case: - Commissioner of C. Ex., Ahmedabad v/s Fine Care Biosystems

Citation: 2009 (244) E.L.T. 372 (Tri. - Ahmd.)

Issue: - Admissibility of credit of service tax paid on outward transportation and air travel.

Brief Facts: - The respondent has taken credit of service tax paid for outward freight for the export of goods and air ticket charges. The Revenue contended that credit of Service tax paid for these services are not admissible. Demand was confirmed against the respondent. The respondent filed appeal against the order-in-original before the Commissioner (Appeal). The Commissioner (Appeals) has allowed the appeal in favour of respondent. Thus, revenue filed appeal against order of Comm. (Appeals) before the Tribunal.

Reasoning of Judgment: - The Tribunal has held that the decision of Larger Bench of the Tribunal in [2009-TIOL-830-CESTAT-BANG-LB] covers the issue of availability of credit on outward freight. The Tribunal held that even before the Larger Bench decision, in many cases the place of removal was treated a port from where the goods were loaded when the export has been made on FOB basis.

With regard to issue of admissibility of credit on air ticket service, The Tribunal held that the Commissioner (A) had relied upon the decision given by another Commissioner (A). It was observed by the Commissioner that the term in or in relation to manufacture used for extension of benefit of service tax paid on input services is a very wide definition and covers all services used directly and indirectly in manufacturing process. The inclusive definition is very wide ranging and the air ticket service charges would be definitely admissible. Revenue has not shown that such charges were paid in respect of air travels by the company officers for personal purposes only and not for the company business. As the air travel was performed for the purpose of company business, the credit is admissible.

Decision: - Revenue’s appeal rejected.

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Customs Section:

Case: Dipankar Roy v/s Commissioner of Customs (Prev.), West Bengal

Citation: 2010 (252) ELT 225 (Tri. - Kolkata)

Issue: - Whether the custom department can seize the goods where there is no evidence relating to its crossing the border relying on the statement of any person?

Brief Facts: - The Revenue officials intercepted a bus and detected that a person was carrying 216 rolls of plastic net. On investigation the said person told that he had purchased the nets at the instance of Shri Dipankar Roy (appellant) and was carrying them to Tior on the instructions of the appellant. The passenger further stated that it was done so on receipt of an order from a Bangladesh customer. Revenue confiscated the goods under Section 113B of the Customs Act assuming them to be smuggled to Bangladesh. Penalty of Rs. 500 was imposed on appellant. Hence, appellant is in appeal.

Appellant’s Contentions: - The appellant contended that the goods were seized on the point that was almost 50 Kms away from Bangladesh border. The goods were purchased legally and challan was produced in front of the custom officers. The officers have no proof to say the goods were being smuggled to Bangladesh. The bus on which the goods were seized was going to Tior so the confiscation was not sustainable.

Respondent’s Contention: - Revenue contended that the passenger from whom the goods were seized had clearly said that the goods were brought to be sent to Bangladesh and he had never changed his statement.

Reasoning of the Judgment: - The Tribunal held that the goods were seized on the point that was almost 50 Kms away from Bangladesh border. The appellant had claimed that the goods were locally purchased and the person who was carrying the nets had purchased them at the instance of the appellant. There was no evidence that the goods were moving to the Bangladesh border. So the goods couldn’t have been seized u/Section 113B of the Customs Act and also consequential penalty cannot be imposed. Impugned order set aside.

Decision: - Appeal allowed.

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Case: Om Suchi Shipping & Logistics P. Ltd v/s CC (Export), Nhava Sheva

Citation: 2010 (252) ELT 240 (Tri.-Mumbai)

Issue: - Whether the assessee is responsible if they have directed the shipping line to not load the container without the proper documents and the shipping line did so?

Brief Facts: - Appellants were engaged in the job of shipping brokers/forwarders and they arranged to give delivery order to the shipper, which they obtained from the shipping line. The shipper use to arrange for lifting the container and would give them the container number and weight of the cargo. The advance list of loading for the particular vessel use to be forwarded to the shipping line by the appellant. The respective clearing agent of the shipper used to keep the appellants updated about the position of the container and documents. M/s Zenith Rubber and Plastic Works filed shipping bill through their CHA on 8.9.2006 for export and the container was planned and loaded on the vessel. And the said vessel sailed on 10.9.2006 without LET EXPORT ORDER. The Adjudicating Authority levied penalty of Rs. 2 lacs under Section 114 (iii) of the Customs Act, 1962 on the appellant. Thus, the aggrieved appellant is before the Tribunal.

Appellant’s Contentions: - The appellant contended that they were just a shipping brokers/ forwarders and their only work was to give delivery order to the shipper. The arrangement of lifting the container was the work of the shipper and the appellant was just provided with the container no. and weight of the cargo. Advance loading list was forwarded by them to the shipping line for the particular vessel. The respective clearing agent of the shipper updates them about the position of the container and documents. Once customs clearance documents were received, the shipper/CHA would hand over the copies of shipping bill. After the receipt of the documents, the appellants would dispatch the Bill of Lading from the respective shipping line. In the present instance, on 9.9.2006 through mail the appellants had inquired about container’s position and their shipping documents. They were answered through return mail that the container was gated in and was planned to be loaded in the respective vessel but the shipping bills were not received. As and no clear cut information was available, shipping line was verbally informed by the appellants that they should load the container on acceptance of ship documents as it was end of the business hours on Saturday i.e. 9.9.2006. The appellant also argued that the Adjudicating Authority had failed to explain the role of the appellant and has given an incorrect finding that the appellant had directed the shipping line to load the containers without LEO. Whereas the appellant had clearly instructed that the shipping line should load the container on acceptance of the shipping documents.

Reasoning of the Judgment: - The Tribunal held that the appellant were due diligent in discharging their duties regarding their work assigned and they have clearly informed the shipping line not to load the container without a proper document i.e. LEO. It was further held that the Adjudicating Authority had erred in giving the finding that appellants instructed the shipping line to load the consignment without receiving any export document against the appellants. It was held that there was no fault of the appellant and so no penalty can be imposed on him. Impugned order relating to the appellant set aside

Decision: - Appeal allowed with consequential relief.

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