Pradeep Jain - Chartered Accountant

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PJ/Case Laws/2010-11/06

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CASE LAWS

Prepared By: -

CA Pradeep Jain

Parag Ghate

Megha Jain and

Mayank Palgauta

Case: General Motors India Pvt. Ltd Vs Commissioner of C.EX. & Cus., Vadodara

Citation: 2010 (253) E.L.T. 301 (Tri. Ahmedabad)

Issue: Whether interest u/s 11AB of Central Excise Act, 1944 is liable to be paid from first month succeeding the month in which duty ought to be paid and for procedural lapse, imposition of heavy penalty is also correct?

Brief Facts: Appellant is engaged in the manufacture of motor vehicles and availed Cenvat credit on various inputs received by them. They had sent several capital goods to the job workers without reversing the Cenvat credit. These capital goods were Moulds, Jacks and Fixtures and in respect of which there is no time limit for return. Other capital goods have not been received back within 180 days only required to apply the Cenvat credit Rule 4(5) (a). Show cause notice was issued and the impugned order has been passed after completion of adjudication process, whereby Cenvat credit of Rs. 39,35,599/- has been demanded and interest on the same has also been demanded. The penalty of Rs. Five Lakhs has also been imposed.

Applicant’s Contention: Learned advocate on behalf of the appellants submits that in this case, appellant presumed that they could send tools also under Rule 4(5) (b) of Cenvat Credit Rules and the limit of 180 days is not applicable. There is no dispute about the duty liability and full amount of duty demanded and moreover interest has also been paid. Learned advocate submits that, according to him the interest is liable to be paid from the date from which the liability arises and in this case the liability arises only after the period of 180 days, which is over. He drew our attention to Section 11AB in this connection. Further, he also submits that in this case, if they were to pay duty, the same was available as credit to the job worker since he was also paying duty. Therefore, it was only the case of bonafide belief that the tools are also covered under Rule 4(5) (b) of Cenvat Credit Rules and this mistake had happened. On the other hand, Learned DR submits that interest is payable from the date of clearances of capital goods to the job workers and therefore, it has been correctly demanded from the appellants. Further, for the procedural lapse also, a penalty has to be imposed and therefore penalty has also been imposed correctly.

Reasoning of the Judgment: Section 11AB is the provision under which interest has been demanded. Section 11AB clearly provides that interest is liable from the first date of month succeeding the month in which the duty ought to have been paid under this act.

Decision: The contention of learned advocate is that the duty is liable to be paid only after the period of 180 days are over from the date of issue of capital goods to the job worker. As regard for penalty, tribunal agrees that imposed penalty is also correct. Appeal is allowed.

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Citation: 2010 (253) E.L.T. 351 (Tri. Del.)

Issue: If any case falls under proviso to Section 11A (1) of Central Excise Act, 1944 once, whether it is also attract to Section 11AC for levy of penalty thereon?

Brief Facts: Against waiver of penalty made by both the lower authorities Revenue came in appeal. Revenue’s contention is that once there is stock discrepancy found and particularly shortage of raw material resulting in duty loss of Rs 1,27,224/-, the case was covered by Section 11A of the Central Excise Act, 1944. Once it is so covered, Section 11AC shall also apply. Therefore revenue, Ld. DR appearing for Revenue submits that both the authorities below committed error for not imposing penalty.

Applicant’s Contention: Ld. Counsel Assessee appearing on behalf of the respondent submits that concurrent finding of both the authorities suggests that the case was not being made as a case causing prejudice to the interest of Revenue in absence of the element of Section 11A being found out. Mala fide of the assessee has not been brought to record. Merely because the assessee cooperated with Revenue to discharge the duty liability to reduce the litigation, penalty cannot propose to be levied. Neither the show cause notice nor the adjudication has made a finding to bring a case of any fraud, collusion, mis-statement or suppression of the fact. The authorities below have found that there was no corroborative evidence to establish that the goods were clandestinely removed. In absence of mala fide, provision of Section 11A (2B) shall apply when the appellant has discharged the duty liability on ascertainment of such liability at the instance of Revenue. In such circumstance, even show cause notice should not have been issued because duty demand has been discharged before issuance of show cause notice. Assessee also submits that discharge of duty liability was informed to the investigating authorities.

Reasoning of the Judgment: Ld. Adjudicating Authority has made a finding that there was no evidence to show that the goods were clandestinely removed. Such a finding was agreed by LD. In this respect, ld. Counsel’s argument has force to the extent of applicability of Section 11A (2B) of Central Excise Act, 1944. The case that has been adjudicated by the authorities below indicates that there was cooperation by the assessee to discharge duty liability upon ascertainment by Revenue. While such was the fact, the authorities have not brought out whether the case still falls under proviso to Section 11A (1) of the Central Excise Act, 1944. It appears that the authorities were satisfied that the assessee may only be covered by Section 11A (1) of the Central Excise Act, 1944 without being covered by its proviso to get protection under Section 11A (B) of the Act for non penalty. In absence of ingredients of proviso to Section 11A of the Act and the notice issued does not establish the case to fall under that part of the law, it appears that the assessee was not exposed to penalty by both authorities below. Therefore the case may not be ruled out to attract Section 11A (2B) of the Act. When none of the authorities found that the shortage was relatable to mala fide intention of the absence of such a finding, the order passed by the authorities below waiving the penalty does not require any disturbance.

Decision: Revenue’s appeal is dismissed.

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Citation: 2010-TIOL-332-HC-KAR-ST

Case: CST, Bangalore versus M/s Atria Convergence Technologies Pvt. Ltd.

Issue: Does Revenue Appeal contain merit of any examination u/s 35G when original and appellate authorities come up with categorical finding that there is no suppression of facts?

Brief Facts: The revenue is in the appeal against the order of the Cestat where the tribunal rejected the appeal of CCE (Appeals - I), Bangalore against the order of CCE, (Appeals) where under the commissioner had set aside certain penalties that had been levied by the assessee, on the premise that there was no suppression and non payment of duty on the part of the assessee in not paying commensurate the service tax for the period from 1.4.2002 to 31.3.2004. A SCN was issued to the assessee – a cable operator providing internet services proposing a total levy of 25,79,591/- by way of service tax for the period in question in view of the different nature of services provided by the assessee, namely, as a cable operator w.e.f. 16.8.2002 and as internet and advertisement provider from the year 2003 – 04 to 31.3.2004.

Appellant’s Contention: When the assessee had not specifically pleaded as to under what circumstances service tax had not specifically pleaded as to under what circumstances service tax had not been paid within permitted time and particularly as tax liability was required to be determined by invoking the extended period of limitation, it was inevitable for the adjudicating authority to levy penalty was warranted u/s 78 of the Finance Act, 1994, that with the invoking of extended period, levy of penalty will be automatic. However, in terms of the order, the adjudicating authority has levied service tax with further demand in respect of related services and while duty to this extent was demanded, the adjudicating authority thought it proper to levy penalty u/s 76 of the Finance Act, 1994 deserves to be waived in exercise of the powers u/s 80 of the Finance Act, 1994. As against the order levying penalty alone, the assessee appealed to the CCE, [Appeals - I]. The CCE, [Appeals - I] in terms of his order dated 31.3.2006 [Copy at Annexure - D] while thought it proper to set aside the penalty levied u/s 78 of the Finance Act, 1994. It is aggrieved by this order of the Appellate Commissioner setting aside the order of penalty; the revenue had chosen to file the appeal before the CESTAT. The Cestat having dismissed the appeal in terms of its order dated: 18.6.2009 agreeing with the view taken by the CCE, [Appeals] the present appeal u/s 35G of the Act.

Respondent’s Liability: Assessee responded denying the liability.

Reasoning of Judgment: The finding of fact by the adjudicating authority and as affirmed by the appellate authority is that there was no suppression in meeting any service tax liability. In the wake of such clear and categorical finding of fact, this appeal does not merit examination u/s 65G of the Act, as there is absolutely no scope for interference, in this appeal with the order of the tribunal.

Judgment: High Court does not find any error or illegality in the orders passed by the tribunal as well as the commissioner. Accordingly, the appeal is dismissed.

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Citation: 2010 – TIOL – 672 – Cestat – MAD

Case: M/s Puissance De Dpk versus CCE, Chennai

Issue: Whether Cenvat Credit of goods returned from buyer is allowed to be taken to assessee on his original invoice?

Brief Facts: The assessee has taken Cenvat Credit of returned goods namely “diesel generator” on his original invoice. The buyer has returned the same goods due to its damaged condition and also certified that he has not taken credit on the impugned goods. The department has in view that the appellant cannot take credit on the basis of his own invoice.

Reasoning of Judgment: The impugned diesel generator was sent to M/s B Durga Ready & Co. on the payment of duty. As per the certificate issued by the said buyer, the impugned goods were returned as it was rejected by the Director General, Naval Projects, Vishakhapatnam. The buyer has also certified that the impugned goods were in damaged conditions and thus require return back to supplier. The buyer has not given any fresh invoice but the goods were returned on the basis of original invoice. The department has taken the stand that the appellants own invoice is not a valid document for taking the credit. However, the tribunal finds that the Circular No. 267144/2009 – CX8 has clarified that credit can be taken in respect of goods brought back into the factory on assessee’s own invoice. The buyer has also certified that he has not taken credit on the impugned goods and further he is not even an excise assessee. Under the circumstances, the objection raised by the department for grant of credit to the appellants in respect of the returned goods does not appear to be suitable. In any case, the demand notice issued to the appellants appears to be time – barred because the fact of the goods and taking of credit was reflected by the appellants in their regular return.

Judgment: The impugned order set aside and the appeal is allowed.

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Citation: 2010-TIOL-677-CESTAT-MAD

Case: M/s PARRY ENTERPRISES INDIA LIMITED Vs CCE, PONDICHERRY

Issue: Without issuing a demand notice under section 11A, can Department legally recover the refund earlier granted to the appellant?

Appellant’s Contention: The appellant-company's name has been changed from Parry Engineering & Exports Limited to Parry Enterprises India Limited after following due procedure of law.

Respondent’s Contention: The learned SDR has no objection to such a change being made and accordingly revenue order that the cause title be changed incorporating the new name of the appellant-company. The appellant had filed a refund application pursuant to which the original authority had allowed the refund. The subsequent proceedings have started for review of the said refund order but no demand notice under Section 11A has been issued for recovering the refunded amount said to have been erroneously granted. He states that as per the settled law, the Department was required to issue a demand notice under Section 11A in addition to review of the order vide Tribunal's decision in the case of Re-Rolling Mills Vs. CCE - 1989 (43) ELT 115 which has been upheld by the Hon'ble Supreme Court vide CCE Vs. Re-Rolling Mills - 1997 (94) ELT 8 (SC). As such, according to the learned counsel, the impugned amount cannot be recovered from the appellants.

Reasoning of Judgment: The requirement of issuing demand notice under Section 11A of the Central Excise Act, 1944 in respect of erroneous refund granted has been upheld by the Hon'ble Supreme Court in the case of Re-Rolling Mills cited supra. Hence, for recovering the amount erroneously refunded, the Department should have issued a demand notice under Section 11A in addition to the action taken to review the order of the original authority and file an appeal pursuant thereto. Having not done so, the Department cannot legally recover the impugned amount in question from the appellants.

Judgment: The impugned order is set aside and the appeal is allowed.

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Citation: 2010 (253) E.L.T. 350 (Tri. – Del.)

Case: CCE, Jalandhar versus Dhillon Kool Drinks & Beverages Ltd.

Issue: Whether the limit of Rs. 10,000/- as prescribed under Rule 15 of the Cenvat Credit Rules, 2004 is the minimum penalty limit?

Brief Facts: This is a appeal by the department against the order of Commissioner (A), Dated: 1.11.2007 by which the Comm. (A) rejected the department’s Appeal for enhancement of the penalty from Rs. 1000/- in a case involving order for recovery of a sum of Rs. 1790/- of irregular credit along with interest.

Appellant’s Contention: As per Rule 15 of the CCR, prescribes a minimum penalty of Rs. 10,000/-.

Reasoning of the Judgment: The Rule 15 of the Cenvat Credit Rules, 2004 prescribes only upper limit on the quantum of penalty. There is no reason to hold that there is a minimum of Rs. 10,000/- as penalty stipulated under the said Rule. The rule nowhere mentions about Rs. 10,000/- as minimum penalty. This issue also stands settled holding that there is no minimum penalty prescribed under Rule 25(1) of the Central Excise rules is similarly worded as Rule 15 of the Cenvat Credit Rules, 2004.

Judgment: The appeal has no merit whatsoever and is accordingly rejected.

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Citation: 2010 (253) E.L.T. 257 (Tri. - Chennai)

Case: Data Tech Systems versus CCE, Coimbatore

Issue: Whether assessee who used their own brand name is not entitled to take the benefit of SSI exemption?

Brief Facts: The authorities below have denied the benefit of small scale exemption to the assessees herein during the period 1996 – 97 upto 1999 – 2000 on online UPS and invertors manufactured by them. The goods bore the brand name “CANSOFT” which belonged to M/s Cansoft Systems Pvt. Ltd. The duty demand has been confirmed as a result of such denial and a penalty of equal amount has been imposed.

Appellant’s Contention: The name “CANSOFT” belongs to one R. Anantha Krishnan, who is not only the proprietor of the appellants herein but also a director in CPS and therefore the assessee did not clear goods bearing somebody else’s brand name but used their own brand name on the goods. The brand name “CANSOFT” is not owned by assessee. Further, Shri Mohandas Kamath MD of CSP has deposed that “CANSOFT” was the brand name of CPS.

Reasoning of Judgment: Tribunal see no merit in the submission that brand name “CANSOFT” did not belong to CPS. However, tribunal finds force in the submission that the extended period of limitations is not available to the department against the assessees for the reason that during the period in dispute, the law as it stood was to the effect that the use of the brand name from the benefit of the SSI exemption and it was only during the period subsequent to the period in dispute that it was held by the Apex Court in several decisions that the use of a brand name of another person on any goods would disentitle the user to the benefit of SSI notification. In these Circumstances, it can not be said that assessees were guilty of any suppression or mis statement with intention to evade payment of duty so as to apply the extended period of limitation against them. Tribunal finds that part of the demand is within the normal period of limitation. Tribunal upholds the demand within the normal period of limitation and set aside the demand for the period beyond the normal period. The duty demand within the normal period is to be recalculated and the question of imposition of penalty is also to be considered afresh.

Judgment: Tribunal remerits the case to the adjudicating authority that shall pass orders after extending a reasonable opportunity to the assessees of being heard in person.

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Citation: 2010 (18) STR 273 (Tri. - Mumbai)

Case: Sidel India Pvt. Ltd. Versus CCE, Pune – I

Issue: The order is issued by the revenue for the denial of Cenvat Credit on Mobile Phone Service.

Brief Facts: During the course of an audit, it was observed by the officer that the appellant has availed Cenvat Credit on Mobile phone Services, the credit of service tax paid on mobile phones services shall not be allowed as inputs service credit. Accordingly a SCN was issued for contravention of Rule 2(1) of the Cenvat Credit Rules, 2004. The revenue denied the Cenvat credit holding that on verification of mobile bills produced by the appellants along with the letter because revenue finds that the mobile phones have been used for the purpose of both for personal and business purpose and the company does not have any control over the use of such mobile phones when given to the employees. No case has been made out by the appellant providing that all calls made from the mobiles of the executive of the company were only for the purpose of their business activity and related to manufacturing of the final product. Therefore, in absence of such documentary evidence, it cannot be accepted that the mobile phones were used in or in relation to manufacture.

On an appeal made to the lower authority, the lower authority confirmed the denial of Cenvat credit holding that the mobile phones have been given to the employee as a perquisite.

Appellant’s Contention: The mobile phones are in the name of the appellant company and all the bills are to be paid by the appellant company and these are used for the official purpose and not for the personal use.

Respondent’s Contention: The appellant failed to prove that these mobile phones are used only for official purpose. Accordingly the Cenvat Credit for the same is not available to them. He relies on the Tribunal’s Decision in the case of the Vikram Ispat.

Reasoning of Judgment: CESTAT finds that Cenvat Credit on Mobile Phone services was denied by the adjudicating authority after verification of bills it is proved that these are used for the official as well as personal use. CESTAT finds that the appellant has proved that the mobile phones are being given to the employee for business purpose only.

Judgment: CESTAT allowed the Cenvat credit availed by the assessee on Mobile Phone Services and set aside the impugned order. Accordingly appeal is allowed.

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Citation: 2010-TIOL-665-CESTAT-BANG

Case: M/s BILL FORGE PVT LTD Vs COMMISSIONER OF CENTRAL EXCISE, BANGALORE

Brief Facts: This appeal filed by M/s. Bill Forge (P) Ltd., seeks to vacate an order of the Commissioner which confirmed demand of interest to the tune of Rs.2,60,332/- under Section 11AB of the Central Excise Act 1944 (the Act) read with Rule 14 of Cenvat Credit Rules 2004 (CCR) and imposed penalty of Rs.98,77,446/- on them under Rule 15(2) of CCR read with Section 11 AC of the Act. The appellants do not challenge demand of Rs.98,73,446/- under Rule 14 of CCR read with Section 11A of the Act which was appropriated in the impugned order. The facts of the case are that the appellants had taken credit in their cenvat account to the tune of Rs.98,77,446/- as duty paid on capital goods in June 2007. This was not backed by any duty paying documents or receipt of capital goods. On the irregularly being pointed out the assessee reversed the credit in September 2007. Except the education cess to the tune of Rs.11,691/-, the excess credit taken was not utilized for payment of duty. After due process of law the Commissioner found that but for the departmental officers pointing out the irregularity, the assessee would have utilized the entire excess credit irregularly taken in their account just like in the case of Rs.11,691/- utilized towards payment of education cess. The assessee had left the availment of credit running to several lakhs of rupees to the discretion of its excise clerk dealing with such matters. Invoking provisions of Rule 14 of CCR which provided for recovery of credit wrongly taken or utilized along with applicable interest, the Commissioner confirmed the demand of interest on the excess credit taken by the assessee. As the assessee had failed to satisfactorily explain how they had taken irregular credit of Rs.98,73,446/-, the Commissioner concluded that the appellant had taken such credit by misstatement with an intent to evade payment of duty. Accordingly he imposed equal amount of penalty under Rule 15(2) of CCR read with Section 11AC of the Act.

Appellant’s Contention: In the appeal filed, the assessee has challenged the impugned order on various grounds. The demand of interest is assailed on the ground that the same is not sustainable in view of the judgment of the Hon'ble High Court of Punjab and Haryana in the case of CCE Delhi Vs Maruti Udyog Ltd., upheld by the Apex Court as reported in 2007 (214) ELT A 50. The penalty imposed under Rule 15 (2) of the CCR is challenged on the ground that the said provisions applied to cases where an assessee had taken irregular credit by suppression of facts, fraud etc. Learned counsel for the appellants reiterated the submission in the appeal that demand of interest was not sustainable in the light of the judgment of the Hon'ble High Court of Punjab & Haryana cited. He has also reiterated the challenge to the penalty in the light of the Apex court judgment in the case of UOI Vs Rajsthan Spinning & Weaving Mills.

Respondent’s Contention: Learned JCDR relied on a decision of the Hon'ble High Court of Orissa in the case of Raj Exports Vs National Aluminium Co, Ltd. [1996 (87) ELT 349 (Ori)] in support of the plea that the impugned demand of interest and penalty were in accordance with statutory provisions invoked by the Commissioner and were sustainable, in the judgment cited, the Hon'ble High Court had laid down that:“to interpret fiscal laws, each and every word expressed in statute has to be construed strictly, and there cannot be any liberal interpretation with greater flexibility”

Reasoning of Judgment: It is an admitted fact that the assessee had taken credit to the extent of Rs 98,73,446/- wrongly in their cenvat account without receipt of capital goods in June 2007 and that the same was reversed in September 2007. There is no dispute that the appellant had not utilized the said credit except to the extent of Rs 11,691/- towards education cess. The impugned order does not give any reliable finding that the assessee had taken the irregular credit with an intention to evade payment of duty. In the circumstances, tribunal finds that the penalty imposed on the appellant under Rule 15(2) of CCR read with Section 11AC is not sustainable. In the judgment of the Apex Court in the case of Rajasthan spinning and weaving Mills cited by the appellant, the Apex Court had observed that penalty provisions under Section 11AC would come into play only after an order was passed under Section 11 A (2) with a finding that the escaped duty was the result of any conscious and deliberate wrongdoing and there was a legally tenable finding to that effect. Tribunal find that these observations apply equally to availment of irregular credit provided under Rule 15(2) of CCR. In the absence of a finding of suppression of fact, fraud, etc., on the part of the appellant, with intention to evade payment of duty, Tribunal hold that the penalty was wrongly imposed.

Judgment: Tribunal vacates the penalty.

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Citation: 2010-TIOL-647-CESTAT-AHM

Case: CCE, AHMEDABAD Vs M/s AIA ENGINEERING LTD

Brief Facts: The Revenue is seeking stay of the impugned order whereby Commissioner (Appeals) has held that refund is admissible even though the services were not correctly classified by the service provider.

Appellant’s Contention: According to the Revenue the terminal handling charges and REPO charges were not liable to tax as port service whereas the service tax for which refund has been claimed was paid towards port services and in respect of transport of goods in containers, it was submitted that service tax was paid on transport by road which does not fall in the category under which service tax was paid. The learned DR reiterated the grounds of appeal in the memorandum of appeal.

Respondent’s Contention: The learned advocate for the respondents relies upon the clarification issued by the Board in Circular No.112/6/2009-ST dated 12.03.2009 wherein it has been clarified that in cases where the service provider was not registered or there were procedural omissions by the service provider, on that ground refund should not be denied. Further, the Board also has clarified that in such cases even verification of registration certificate need not be awaited.

Reasoning of Judgment: Taking note of the circular cited by the learned advocate for the respondent and also taking note of past Tribunal decisions wherein it was held that if there was any omission or commission in respect of assessment or classification, the rectification or steps for correcting the same should be undertaken by the jurisdictional officer in whose jurisdiction the service provider or the manufacturer is situated and not at the receiver's end. Under these circumstances Tribunal do not consider this to be a fit case for granting stay and accordingly the stay application is rejected. There is also application for condonation of delay.

Judgment: Taking note of the fact that the delay is only of five days and the same has been explained properly, the delay is condoned. Both COD application and the stay application are disposed of in the above manner.

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