Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/10

Case Laws

Prepared By:

CA Pradeep Jain,

Sukhvinder Kaur, LLB [FYIC],

Parag Ghate B. Com, and

Megha Jain

Case: Vallabh Vidhyanagar Concrete Factory v/s C. C. E. & C., Vadodara

Citation: 2010 (18) S.T.R. 271 (Tri - Ahmd)

Issue: - Credit of service tax paid on input services will be available to SSI unit availing benefit under Notification No. 8/2003 - CE.

Brief Facts: - Appellant were engaged in the manufacture of RCC Poles and were availing small scale industries exemption under Exemption Notification No. 8/2003-CE dated 10.03.2003. Department issued show cause notice denying cenvat credit of service tax paid on input services during the period of exemption. The Original Authority confirmed the demand with interest. The impugned order was upheld by the Appellate Authority. Hence, the appellant is before the Tribunal.

Appellant’s Contention: - Appellant submitted that the credit was denied on the ground that under Rule 6 of Cenvat Credit Rules, 2004, cenvat credit of service tax paid on input services cannot be allowed when the finished products are exempted products and attract nil rate of duty. It is contended that the said Notification specifically provide that cenvat credit on inputs used in the manufacture of exempted goods is not available but there is no mention of input services in the Notification.

Respondent’s Contention: - Respondent submitted that there is no clarity as to clarity as to whether Cenvat credit availed is on the inputs or input services. Reliance was placed on the order-in-original.

Reasoning of the Judgment: - The Tribunal held that Rule 6 (1) of the Cenvat Credit Rules could be applied only when the assessee is engaged in manufacture of dutiable and exempted goods or as provider of dutiable and exempted services. Further the said Notification specifically provided for denial of credit of duty paid on inputs, but does not provide for denial of cenvat credit on input service. It was also noted by the Tribunal that in respect of capital goods also, the credit is allowed even during the period of exemption of SSI Manufacturers. This is because Notification does not provide for denial of Cenvat credit on capital goods. Therefore, it is obvious that if the intention was to deny the benefit of Cenvat credit of service tax paid on input services to the assessee availing SSI exemption, input services would have been specifically excluded, as in the case of inputs. Since the Exemption Notification does not specifically excludes input services, the appellants are eligible for the Cenvat credit of service tax paid on input services.

Decision: - Appeal allowed with consequential relief.

Comment: - This is very good decision and cenvat credit of Service tax is available if the SSI exemption is opted by the department. But the department may contend that the credit will not available as finished goods is exempted from payment of excise duty under Rule 6(1) of Cenvat credit Rules. Let us wait for more litigation till the decision comes.

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Case: Commissioner of Central Excise, Hyderabad v/s M/s Santom Enterprises

Citation: 2010-TIOL-818-CESTAT-BANG

Issue: - Extended period of limitation cannot be invoked in case assessee acted under bona fide belief.

The plea of time bar can be raised for the first time before the Tribunal as it is a question of law.

Brief Facts: - Respondents were engaged in the manufacture of FRP/PP Storage tanks, FRP/PP lining pipes and FRP roofing sheets under Chapter 39. During the visit of Excise Officers it was found that there was another unit by name of Santom Industrial Liners (SIL) belonging to the same proprietor operating in the same premises. They have used same workers and exchanged orders from one firm to another. Funds were also transferred in similar manner. They were maintaining parallel set of invoices. Their turnover exceeded Rs.30 lakhs every year from 93-94 onwards. Respondent had transferred substantial funds of Rs.3,00,000/- to SIL on 27.11.97.

The proprietor in his statement inter alia stated that they have supplied goods worth Rs.30 lakhs every year from 93-94 onwards as he was under impression that FRP/PP Storage tanks, FRP/PP lining pipes and FRP roofing sheets are fully exempted as they were not availing modvat facilities; that as soon as they crossed Rs.30 lakhs excluding FRP/PP Tanks during 97-98, they voluntarily registered with Central Excise Department.

Show cause notice was issued alleging that the exercise of raising separate invoices in the name of respondent and SIL appeared to be a deliberate attempt to bifurcate the value of clearance in order to evade payment of duty. Question of classification of the said products was also raised therein.

With regard to classification, the Adjudicating Authority held that as manufactured items were intended to store liquids or chemicals and were made of plastics they are classifiable under specific sub-Heading No. 3925.10. Regarding value of clearances, the Adjudicating Authority held that decision in Kishan Chand & Co Vs CCE [1996 (82) ELT 210] was distinguishable because M/s. Kishan Chand was maintaining raw material register, RG-1 etc and the statement to Bank was not corroborative of fact whereas in the impugned case there was no evidence to disprove bank statement as the assessee had not maintained any of the statutory records. As SIL had no separate premises till December 97 and the work force and machinery was also used for producing goods under both the names, the Adjudicating Authority held that clubbing of clearances of respondent and SIL was in order. In appeal, the Commissioner relied upon the case of CCE v/s KWH Heliplastics Ltd. [(1998 (97) ELT 385 (SC)] and held that assesses' argument that their products are meant for industrial use and are not builders is of little significance. The Commissioner (Appeals) further held that impugned goods were classifiable under Chapter Sub-heading No.3926.90 and eligible for consequential relief. No penalty was imposed on the ground that the dispute involved interpretation of statutory provisions.

Department went in appeal before the Tribunal and the matter was remanded for denovo consideration. In denovo consideration, the Commissioner (Appeals) distinguished the ratio laid down in the case of CCE v/s KWH Heliplastics and set aside the impugned order. Hence, Revenue is again in appeal before the Tribunal.

Appellant’s Contention: - Revenue contended that the Commissioner (Appeals) had not properly discussed or distinguished the case of M/s. KWH Heliplastics. That the FRP Tanks manufactured by the assessee are for storage of liquid that and these tanks are used for special purposes like storing of chemicals. That tariff heading does not make any difference in this regard. It was further contended that it was not proper to classify the same in general and residual entry like 29 when there is a specific entry. Reliance was placed on the judgment given in KWH Heliplastics’s case. With regard to limitation issue, it was submitted that the point of limitation was never taken by the appellant before the lower authority and therefore could not be raised before the Tribunal for the first time.

Respondent’s Contention: - Respondent contended that the issue was time barred as the period involved was between 1993-94 to 1994-95 and again from 1996-1998 but show cause notice was issued on 11.1.1999. It was submitted that the issue of classification of FRP/PP storage tanks etc. was decided by various decisions during that period. They placed reliance on the case of CCE Bombay Vs. Chemical process Equipments Pvt. Ltd [1996 (88) ELT 157 (Tri-Del)] and Graphite Vicarb India Ltd. Vs. CCE, Aurangabad [1997 (94) ELT 154 (T)].

It was further submitted that when the decision of the Tribunal on an identical issue were in their favour there could not be any suppression or mis-declaration on their part. For this they relied upon the decisions in CCE Vs ITW Signode (I) Ltd. [2005 (179) ELT 120] and Sparr Engineering Vs CCE Bangalore [2007 (207) ELT 522 (Tri-Bang)].

It as further submitted that the respondent entertained bonafide belief that the goods manufactured by them were classifiable under Chapter Heading No.3926.90 and the change in the legal position on account of decision of the Supreme Court could not be a ground to invoke longer period of limitation. Reliance was placed on decisions given in CCE v/s Surat Textile Mills Ltd. [2004 (167) ELT 379 (SC)] and Mentha & Allied Products Ltd. v/s CCE [2004 (167) ELT 494 (SC)].

Reasoning of the Judgment: - The Tribunal held that the issue could be settled on the question of limitation itself. It was noticed that during the relevant period the decisions in the CCE Bombay Vs Chemical Process Equipments Pvt Ltd. and Graphite Vicarb India Ltd. Vs CCE Aurangabad were applicable. In these judgments it was held that special purpose tanks used in chemicals plants were classifiable under 3926.90 and were eligible for benefit of exemption under Notification No.132/86. Thus, it could be said that the respondent could have entertained a bonafide belief for classifying the product under 3926.90 in view of the law which has been settled by the Tribunal. It was noticed that the legal position was changed in the year 1998 by the Apex Court holding that the tanks which are made of plastic even though for specific purposes, could be classified under 3925.10, on the facts of the case KWH Heliplastics.

Accordingly, the Tribunal relied upon the judgments given in Surat Textile Mills Ltd. and in Mentha & Allied Products Ltd and concluded that when an assessee is entertaining a bonafide belief, in view of the law which has been settled at the relevant period, there cannot be any invocation of extended period. It was also held that the finding of lower courts that there were decisions of the Tribunal holding that the FRP/PP Storage Tanks etc., which are manufactured for specific purposes would get covered under Chapter 3926.90 and therefore, the show cause notice dated 11.01.1999 was blatantly time barred.

Further, the Tribunal held that since the issue of time bar is a question of law could be raised for the first time before the Tribunal.

Decision: - Appeal rejected on the point of time bar.

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Case: Continental Foundation Joint Venture (CFJV) Versus Commissioner of Central Excise, Chandigarh-I

Citation: 2007 (216) ELT 0177 (S.C.)

Issue: - When there is no willful suppression or mis-statement on the part of the assessee and there was confusion regarding the applicability of legal provisions, extended period of limitation cannot be invoked against the assessee.

Brief Facts: - The controversy relates to the financial year 1997-98. Post 1997-98 the tariff entry provided that the rate is nil. The appellant M/s. Nathpa Jhakri Power Corporation is a Joint venture between the Government of India and Govt. of Himachal Pradesh, set up for the purpose of construction of a power-project between the towns of Nathpa-Jhakri in Himachal Pradesh known an Nathpa Jhakri Power Corporation funded by the World Bank. The civil work relating to the project was allotted to three construction companies viz. M/s. Continental Foundation Joint Venture (CFJV), M/s. Nathpa Jhakri Joint Venture (NJJV) and M/s. Jai Prakash Hyundai Consortium (JPHC). M/s. NJPC and the construction companies had entered into agreement to provide inter alia 'mix concrete' for execution of various items of work under the contract.

Department issued show cause notice dated 20-1-1999 alleging that the construction companies employed by M/s. NJPC were manufacturing ‘Ready Mix Concrete’ on which they were not paying central excise duty as leviable on the same. All the three parties were adopting the same method of manufacture of RMC. Department alleged that the said companies were naming the manufactured RMC as mixed concrete to evade payment of excise duty.

The Department took the stand that there was difference between the process and method of manufacture of RMC provided in the Bureau of Indian Standards literature under IS: 4926/1976 and the Board's letter No. 368/1/98-CX, dated 6-1-1998. In this Circular, the process of manufacture of RMC is spelt out and it is clarified that RMC is a dutiable product. The matter was referred to the BIS who vide their letter dated 23-10-1998 reported that the process of manufacturing the concrete involved was similar to the process given in IS: 4926 specification for "Ready Mix Concrete”. The Commissioner confirmed the demand of duty and also imposed penalty in terms of Rule 209A of Central Excise Rules, 1944.

Appellants therefore filed appeals before the Tribunal wherein the plea relating to non-applicability of extended period of limitation was also made. However, the Tribunal did not accept the said plea and rejected their appeal. Hence, further appeal has been filed.

Appellant’s Contention: - Appellant contended that extended period of limitation under Section 11A of the Act was not available. There were various circulars operating at different points of time. There was no clarity or unanimity in the views expressed by the authorities themselves. In fact, correctness of the judgment by the Tribunal Continental Foundation Joint Venture's case was doubted and the matter was referred to the Larger bench. The Larger Bench in Chief Engineer Ranjit Sagar Dam v. Commissioner of C. Ex., Jalandhar [2006 (198) ELT 503 (Tri-LB)] held that the view expressed in Continental Foundation Joint Venture's case was not the correct view.

Respondent’s Contention: - Revenue contended that the Circulars dated 1-2-1996, 23-6-1997 and 6-1-1998 had no relevance and the judgment in Chief Engineer Ranjit's case did not reflect the correct position.

Reasoning of the Judgment: - The Apex Court held that the expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct.

As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word 'wilful', preceding the words "mis-statement or suppression of facts" which means with intent to evade duty. The next set of words 'contravention of any of the provisions of this Act or Rules' are again qualified by the immediately following words 'with intent to evade payment of duty.' Therefore, there cannot be suppression or mis-statement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11 A. Mis-statement of fact, must be wilful.

On the facts of the case, the Apex Court held that Revenue relied on Circular dated 23-5-1997 and dated 19-12-1997. And the appellant had relied upon the Circular dated 6-1-1998 Moreover, the Tribunal in Continental Foundation Joint Venture case was held to be not correct in a subsequent larger Bench judgment. It is, therefore, clear that there was scope for entertaining doubt about the view to be taken. The Tribunal apparently has not considered these aspects correctly. It was held that the Tribunal has also taken a view contrary to the factual position. The factual scenario clearly showed that there was scope for entertaining doubt, and taking a particular stand which ruled out application of Section 11A of the Act.

Accordingly, it was held that the Adjudicating Authorities were not justified in raising the demand and Tribunal was not justified in dismissing the appeals. Extended period of limitation could not be invoked.

Decision: - Appeals allowed.

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Case: Pyara Rexine (P) Ltd vs Commissioner of C. Ex., Chandigarh

Citation: 2010 (254) E.L.T. 471 (Tri. Del.)

Issue: - No penalty can be imposed if the issue involved is of interpreting the legal provisions and there is no suppression of facts by the assessee.

Brief Facts: - Appellant is a manufacture of PVC cotton fabrics and its unit was in Himachal Pradesh. They expanded their capacity by more than 25% and started availing the benefit of Notification No. 50/2003-C.E., dated 10-6-2003 with effect from 1-5-2004. Department contended that the appellant should have reversed the credit relating to inputs in stock, inputs contained in semi-finished goods and goods lying in stock as on 30-4-2004. Subsequent to the advice by the Department, the respondents paid the entire credit on 15-3-2005, 20-3-2005 and 24-3-2005. Show cause notice was issued on 26-4-2005 proposing penal action. The Original Authority dropped the proceedings. On appeal by the Department, the Commissioner (Appeals) imposed penalty on the appellant under Rule 13(2) of Cenvat Credit Rules read with Section 11AC of the Cenvat Excise Act, 1944. Hence, appellant are in appeal before the Tribunal.

Reasoning of the Judgment: - The Tribunal perused the order of the Commissioner (A) wherein it was held that the appellant had remained silent and had reversed the credit only after being pointed out by the Department and therefore, they were liable for penal action.

The Tribunal held that the fact that the appellant did not reverse the Cenvat credit and kept silent cannot be a reason for concluding that they have intentionally evaded any excise duty warranting penalty under Rule 13(2) read with Section 11AC. The obligation for reversing the credit itself has been in dispute in other cases. Merely because the appellant has not disputed the advice or direction to pay the amount equal to credit attributable to the inputs in stock and paid the amount and the same cannot be held against them and penalty imposed. It is clearly a case involving interpretation of legal provisions and no suppression of any relevant facts is attributable to the appellants. Accordingly, the order of the Commissioner (Appeals) was set aside and the order of the original authority is restored.

Decision: - Appeal allowed with consequential relief as per law.

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Case: Sher-e-Punjab Steel & Agro Industries v/s Commissioner of C. Ex., Chandigarh

Citation: 2010 (254) E.L.T. 436 (P & H)

Issue: - The judgment passed by the Higher Forum holding a contrary view will prevail over the judgment of lower forum.

Brief Facts: - Appellant had filed an appeal before the Tribunal. The Tribunal decided the issued by relying upon the judgment of the Larger Bench in the case of Digambar Foundary & Others v/s C.C.E., Allahabad & Others [2000 (118) E.L.T 85 (Tri.-LB)]. Thereafter, contrary judgment was passed by the Division Bench of Himachal Pradesh High Court in Sood steel Industrial (P) Ltd Vs Commissioner of Central Excise [2009 (241) E.L.T 186 (H.P)].

Appellant’s Contention: - Appellant submits that the view arrived at by the Tribunal has been differed by a Division Bench of High Court in Sood steel Industrial (P) Ltd Vs Commissioner of Central Excise. Therefore, their appeal should be freshly adjudicated by the Tribunal now that a contrary view has been expressed by the Himachal Pradesh High Court.

Respondent’s Contention: - Respondent does not dispute the findings arrived at in Sood Steel Industrial (P) Ltd.

Reasoning of the Judgment: - The High court, accordingly, set aside the impugned order of the Tribunal and remand the case to the Tribunal for a fresh decision.

Decision: - Appeal disposed off.

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Case: Commissioner of C. Ex., Chandigarh v/s Raghav Alloys Ltd

Citation: 2010 (254) E.L.T 435 (P & H)

Issue: - When common order is passed against two parties and Revenue files appeal only against one, then it is to be assumed that Revenue has accepted the common order passed against the other party and the further appeal filed will not be sustainable.

Brief Facts: - The Revenue had filed appeal in the Tribunal against two parties. The Tribunal by a common order disposed of the appeals and held that the party has received the material and has claimed modvat credit on the basis of the documents supplied by the suppliers. Revenue is now challenging the order of the Tribunal.

Respondent’s Contention: - Respondent raised preliminary objection that the Revenue has filed appeal only in respect of one party and no appeal is filed against the other party. This fact shows that Revenue has accepted the order passed by the Tribunal in respect of one party. Since the matters in both the cases were similar in nature it can be concluded that the Revenue has accepted the view of the Tribunal in respect of the other party.

Reasoning of the Judgment: - The High Court held that as the Tribunal has disposed of the matters relating to respondent and the other party by passing one single impugned order and the Revenue has chosen not to file an appeal in the case of the other party, therefore, there is no ground to interfere in the order which the Department has already accepted qua the other party. It was also directed that in case the statement of Respondent is found to be incorrect, and then the Department may file an application for recalling this order.

Decision: - Appeal dismissed.

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Case: Commissioner of C. Ex., Mangalore v/s Ramson Rigid PVC Pipes

Citation: 2010 (254) E.L.T 473 (Tri, - Bang.)

Issue: - When the default in payment of duty was without intent to evade payment of duty, the penalty equal penalty under Section 11 AC is not required to be imposed.

Brief Facts: - Respondents had cleared excisable goods during October, 2009 to December, 2006 by debiting the duty from Cenvat Account when they were required to make the payments from PLA. Thereafter, they paid the duty from PLA alongwith interest before issuance of show cause notice. Show cause notice was issued on the ground that the respondent had contravened the provisions of Rule 8 (3) of the Central Excise Rules, 2002. The Adjudicating Authority imposed penalty equal to the duty demanded under Section 11AC of the Central Excise Act. On appeal, the Commissioner (A) reduced the penalty to Rs. 25, 000/-. Hence, Revenue is in appeal for restoring the order of Adjudicating Authority imposing penalty equal to duty liability.

Appellant’s Contention: - Revenue contended that under Section 11AC, penalty equal to the duty has to be imposed. The Commissioner (A), therefore, had no discretion to reduced the penalty amount. They relied upon the judgment given in Dharmendra Textile Processors [2008 (231) ELT 3 (SC)].

Reasoning of the Judgment: - The Tribunal held that since the respondent had contravened the provisions of Rule 8 (3), they deserved to be saddled with penalty for the said contravention. Rule 25 provides for confiscation and penalty when assessee clears excisable goods contravening provisions of Central Excise Rules or notification. It was held that the present case was covered by Rule 25. In case of the infractions enumerated in Rule 25, an assessee shall be liable to penalty not exceeding the duty on the excisable goods in respect of which contravention mentioned in clause (a) has been committed or Rs. 2000/- whichever is lesser. In the present case, the Competent Authority could have imposed penalty not paid or a lower penalty not less than Rs. 2000/- as per Rule 25 (a). In the present case, there was only delay in payment of duty on the part of the respondent. It had no intention to evade payment of duty due. Also, Respondent had discharged the duty liability alongwith interest before issuance of show cause notice. In the circumstances, the penalty of Rs. 25, 000/- imposed by the Commissioner (A) was fair and appropriate.

Decision: - Appeal rejected.

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Case: Commr. of C. Ex., Ahmedabad v/s Kiri Dyes and Chemicals Ltd

Citation: 2010 (254) ELT 467 (Tri-Ahmd)

Issue: - Restriction on claiming refund of unutilised cenvat credit under Rule 5 is applicable only in respect of cenvat credit claimed as refund and is not applicable to terminal excise duty paid as drawback under FTP.

Brief Facts: - Respondents are 100% EOU engaged in the Manufacture of S. O. Dyes. They filed claims for refund of unutilised cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004. The claims were rejected by the Original Authority on various grounds. The Commissioner (A) allowed the appeal and directed the Original Authority to settle the refund claims after relevant documents in original are produced. Against this order, Revenue has come up in appeal.

Appellant’s Contention: - Revenue contended that the Commissioner (A) has failed to consider the fact that respondents are entitled to drawback in terms of para 8.3.6 of Chapter 8 of the Foreign Trade Policy. According to the said provision, the Customs and Central Excise Duty Drawback Rules, 1995 applied mutatis mutandis to deemed exports. It was contended that since proviso to Rule 5 of the Cenvat Credit Rules provided that refund of credit shall be allowed, if the manufacturer avails of drawback allowed under the Customs and Central Excise Duty Drawback Rules, 1995, the refund claims of respondent should have been rejected. It was also submitted that respondent had not furnished the original documents and the Commissioner had erred in allowing appeals on the basis of proof of export which establishes only exports and not the availment of cenvat credit DTA clearances etc. It was also submitted that the consumption statement of inputs was not certified by Chartered Accountant at the time of original adjudication and the Commissioner (A) should not have accepted the certificate produced in the appellate stage.

Respondent’s Contention: - Respondent contended that the proviso to Rule 5 was applicable only in respect of refund of cenvat credit claimed and not what is allowed under the Foreign Trade Policy. It was submitted that the CBEC Circular dated 23.09.2004 also makes this issue very clear. It was also pointed out that the Commissioner (A) had not ordered refund to be paid but had stated that they were entitled for refund subject to production of relevant documents in original. It was also submitted that after the order was passed by the Commissioner (A), the original authority had verified the original documents and had sanctioned refund correctly.

Reasoning of the Judgment: - The Tribunal held that there was no merit in Revenue’s appeal. The proviso to Rule 5 itself made it clear that the restriction is applicable only in respect of cenvat credit claimed as refund and is not applicable to terminal excise duty paid as drawback under FTP. Further, the CBEC Circular was also held to be supporting the case of the respondent. Thus, it was held that there cannot be any doubt that appellant were entitled for refund of cenvat credit which could not be utilised by them.

It was further held that the Chartered Accountant’s certificate was verified by the Original Authority before sanctioning the refund and therefore, the objection of Revenue was not relevant. The ground of non production of proof of export and availment of cenvat credit also were not relevant since the Original Authority was at liberty to verify these documents.

Decision: - Appeal rejected.

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Case: Gudwin Logistics v/s Commissioner of C. Ex., Vadodara

Citation: 2010 (18) STR 348 (Tri-Ahmd)

Issue: - An assessee cannot be held to have been providing ‘Clearing & Forwarding Agency service’ until and unless he is providing both clearing and forwarding activity.

Service Tax liability cannot be calculated on the amount received in lieu of ocean freight as there is no service tax on the same.

Brief Facts: - Appellant was engaged in providing services to the customers in port area. They were providing the services like getting the goods fumigated, loading and unloading, stuffing goods in containers, labour charges for stuffing the containers, facilitating clearance of imported cargo and also arranging ocean transport. The appellants paid the required charges to the service providers for various services in the port area and recovered the same from the customers by adding their service charges. Initially they had taken registration as CHA and paid the service tax. After taking the registration they paid the service tax on the charges received by them excluding the actual cost. Department contended that as the appellant were not having a CHA licence, they could not be treated as CHA. Thus, show cause notice was issued to the appellant proposing to classify the services provided by them under clearing and forwarding agency service. The Original Authority classified their service as clearing and forwarding agency service and demanded service tax for the period from 01.04.2006 to 31.03.2007. Penalties were also imposed. Appellant is thus in appeal before the Tribunal.

Appellant’s Contention: - Appellant submitted that the service rendered by them were neither CHA service nor clearing and forwarding agency service. They relied upon the CBEC Circular in support of their contention. It was also submitted that the Original Authority had demanded full service tax on the amount collected by them even though such amount consisted of charges fot the services provided and their commission/ service charge and the service charge collected by them forms a very small percentage of the total amount collected. It was contended that the substantial amount demanded accounted for actual expenses and charges paid to various services and ocean freight. Reliance was placed on the judgments of the High Court in CCE, Panchkula v/s Kulcip Medicines (P) Ltd to support their contention in view of the fact that they did not undertake any clearing activity. It was held in the afore-said judgment that unless a person undertakes both clearing and forwarding activities, the liability of service tax is not attracted. Reliance was also placed on the judgment given in DHL Lemuir Logistics (P) Ltd v/s CST, Bangalore [2010 (17) STR 266 (Tribunal)] in support of their contention that all the activities conducted by the appellants cannot be categorized under one category and charged to service tax. It was submitted that if the liability is assumed to be there then the service tax would not exceed Rs. 800, 000/- in view of the fact that the service charges received by them was a small percentage of the actual expenses incurred on various services.

Respondent’s Contention: - Revenue contended that the Larger Bench had considered the issue and observations were made in Medpro Pharma Pvt Ltd [2006 (3) STR 355 (Tribunal)] were applicable. It was also stated that the statement of the partner shows that the services provided by appellant were in the nature of clearing and forwarding agency service.

Reasoning of the Judgment: - The Tribunal held that from the nature of the services provided by the appellants in the port area, the claim made by the appellants appeared to be correct. The CBEC Circular and the judgment given in CCE, Panchkula v/s Kulcip Medicines (P) Ltd [2009 (14) STR 608 (P & H)] support appellant’s case. It was observed that when the Commissioner had passed the impugned order, the judgment of the High Court overruling the judgment of the Larger Bench in Medpro Pharma Pvt Ltd’s case was not available. It was also noted that the Commissioner had passed a detailed order discussing different activities carried out by the appellants. And it was also considered by the appellants could not be considered as agents. At the same time, the Tribunal also noted the fact that substantial portion of the total amount collected by the appellant related to Ocean Freight which itself is not liable to service tax at all. The decision given in DHL Lemuir Logistics (P) Ltd v/s CST, Bangalore relating to air freight was applicable.

Thus, the Tribunal held that the decision of the Commissioner to include ocean freight for levying service tax prima facie appeared to be wrong. The appellants have a strong prima facie case in their favour. In view of the fact that there is a clear decision that freight element could not be included for service tax, substantial portion of the demand did not appear to be sustainable. Accordingly, the impugned order is set aside and the matter is remanded back for fresh consideration.

Decision: - Appeal allowed by way of remand.

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Case: General Commodities Pvt Ltd v/s Commissioner of S. T., Bangalore

Citation: 2010 (18) STR 460 (Tri-Bang)

Issue: - When the certificate issued by the Chartered Accountant that ‘the incidence of duty has not been passed on to the customers’ is accepted, then the concept of unjust enrichment will not apply.

When the amount claimed as refund is shown as ‘Receivables’ then the same cannot be held to be debited to the P & L account.

Brief Facts: - Appellants were receiving the service of Goods Transport Agency (GTA) for transporting the goods and were discharging the service tax in terms of provisions of Rule 2 (1) (d) (v) of the Service Tax Rules, 1994. It was found that the appellants had paid excess service tax as they had not claimed the benefit of abatement under Notification No. 1/2006-ST, dated 01.03.2006. Accordingly, the appellants filed claim for refund of excess service tax paid on GTA service (without claiming abatement). Department issued show cause notice proposing to reject the refund claim on various grounds. Appellant replied that amount claimed as refund was never passed on to their customers by them. They also furnished the documents in support of their claim. The Adjudicating Authority rejected part of the claim on the ground of ‘unjust enrichment’ and sanctioned only part claim but credited it to the Consumer Welfare Fund on a finding that the appellant had passed on the incidence of tax to their customers and therefore, there was ‘unjust enrichment’. Appellant filed appeal before the Commissioner (Appeal).

The Commissioner (A) upheld the order of the Adjudicating Authority by observing that “the appellants had charged the service tax to their P & L account as expenditure and would have claimed exemption under Income Tax to that effect, which indicated that the Service tax element was blended in the value of their transactions and business, thereby it is evident that they have passed on the incidence of tax to numerous buyers. Thus, it was a case of ‘unjust enrichment’. Hence, appellant filed further appeal before the Tribunal.

Appellant’s Contention: - Appellant submitted that the incidence of tax was not passed on to their customers and produced the certificate issued by the Chartered Accountant and the Balance Sheet in support of their contention. They relied upon the judgments given in the cases of Indian Oil Tanking Ltd v/s CC (I) [2008 (228) ELT 572 (Tri.)], RCC (Sales) P. Ltd v/s CCE [2007 (8) STR 55 (Tribunal)], Ashiqui Exports (P) Ltd v/s CC [2008 (221) ELT 67 (Tri.)], IPCA Laboratories Ltd v/s CC (ACC & IMP) [2007 (219) ELT 505 (Tri)], CC&CE v/s Empee Sugar & Chemicals Ltd [2007 (7) STR 622 (Tri)] and Gopi Krishna Processors (P) Ltd [2007 (210) ELT 529 (Tri)].

It was also submitted that the entire amount of service tax claimed was indicated under ‘Statutory receivables’. It was contended that once the amount was shown as ‘Receivables’ as a liability in the Balance sheet, it would mean that the said amount has not been debited to the account.

Respondent’s Contention: - Revenue contended that it was not in dispute that the amount was debited through PLA account as “Service tax paid”. Reliance was placed on the judgment of the Apex Court in Union of India v/s Solar Pesticides Pvt Ltd [200 (116) ELT 401 (SC)] and was contended that once the duty on raw material is added to the price of finished goods, then incidence of duty on the raw material would stand passed on to the ultimate customers.

Reasoning of the Judgment: - The Tribunal found that the lower Authorities had accepted the fact that the appellant was entitled to abatement under Notification No. 1/2006-ST. The declaration filed by the appellant was also accepted by the Adjudicating Authority. It was accepted that the amount shown as ‘Receivables’ has not been debited to the account.

The Tribunal held that the issue of relying upon the certificate of Chartered Accountant and in respect of ‘unjust enrichment’ was decided in the case of RCC (Sales) Pvt Ltd v/s CCE, Hyderabad-IV [2007 (8) STR 55 (Tribunal)]. In this case, reliance was placed on Transformers & Electricals Kerala Ltd v/s CC, Cochin [2005 (188) ELT 60 (Tri-Bang)] wherein it was held that once the Chartered Accountant has given a Certificate certifying that the element of duty has not been passed on to the customers, then, the same is required to be accepted. The certificate was not challenged by the Revenue. In this case reliance was also placed on judgment in Toyota Kirloskar Motor Ltd v/s CCE [2005 (187) ELT 499 (Tri-Bang)] wherein the aspect pertaining to the incidence of duty not having been passed on to the customer was accepted in the light of the documents produced. Accordingly, in RCC (Sales) Pvt Ltd v/s CCE, Hyderabad-IV the assessee was held to be entitled for receiving the refund. It was held that the Commissioner (A) were not justified in directing the refund amount to be credited to the Consumer Welfare fund when the issue was covered and more particularly when he has noted the particulars in the order.

Relying upon the said judgment, the Tribunal in the present case held that the impugned order rejecting the refund claim of the appellant was not sustainable and was liable to be set aside.

Decision: - Appeal allowed with consequential relief.

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PJ/Case Laws/2010-11/10

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