PJ/Case Laws/2010-11/11
Case Laws
Prepared By:
CA Ridhi Anchalia,
Megha Jain and
Sukhvinder Kaur, LLB [FYIC]
Case: - M/s Aries Dyechem Industries v/s CCE, Ahmedabad
Citation: - 2010-TIOL-871-CESTAT-MUM
Issue: - Whether the Rule 4(5)(a) of CCR,2004 debars the job worker from paying the excise duty on the goods that are send back to the manufacturer? Whether manufacturer can avail the credit of the duty paid to the job worker?
Brief Facts: - Appellants are engaged in the manufacture of dyes and dye intermediates under chapter 32. They are availing cenvat credit of duty paid on inputs. They were also importing raw materials. Search and investigation were carried at the appellant’s premises. The appellant were importing inputs both on payment of customs duty and without payment of custom duty under various schemes such as advance authorisation, target plus scheme, DEEC scheme etc. It was noticed that the input Beta Napthol imported under Advance authorisation scheme and Target plus scheme was cleared to another manufacturer under job work challans without any further processing. It was notice that the Beta Napthol which was procured from domestic market was also cleared under job work challans to the said manufacturer. No entry was made that the goods were received back under the cover of challans after jobwork was done on them. It was found that the jobworker was sending finished goods under the cover of invoices after payment of excise duty and VAT. The Department contended that the goods were not sent for job work but were cleared as such on sale by the appellant. It was alleged that the appellant has violated the provisions of Exim policy as well as of relevant Customs Notifications pertaining to Advance authorisation scheme and Target plus scheme. It was also detected that the appellants had taken cenvat credit on the inputs but had not reversed the same while clearing them. Thus, it was concluded that the appellant had utilised the cenvat credit that was not available to them as the said inputs were cleared as such. The Adjudicating Authority passed order demanding the cenvat credit availed at the relevant time alongwith interest and also imposed penalties. The said order was upheld by the commissioner (A) in appeal.
Appellant’s Contentions: - Appellant contended that the issued was squarely covered by the decision of the Apex Court in M/s International Auto Ltd v/s CCE Bihar [2005 (183) ELT 239 (SC)]. It was contended that the decision in CCE,
Respondent’s Contentions: - Revenue contended that the appellant had not sent the goods for jobwork at all. Job worker had paid duty on manufacture. Appellants should have reversed the credit and cleared Beta-Napthol. Jobwork in such a case would not have been a problem. The appellant had not followed the correct procedure. On the same inputs the appellants had taken credit twice resulting in dual benefit.
Reasoning of Judgment: - The Tribunal held that the jobworker had chosen not to avail the benefit of Notification No. 217/86-CE available to them and had chosen to pay the duty. The Rule 4 (5) did not require that any prior permission is to be taken before clearing the goods. Only condition is that the goods should be returned within 180 days. The Tribunal held that the decision given in M/s International Auto Ltd v/s CCE
Decision: - Appeals allowed with consequential relief.
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Case: - Commissioner of Central Excise,
Citation: - 2007 (220) ELT 0926 (Tri. - Del.)
Issue: - Whether deemed export have all the elements of exports? Whether refund claim under Rule 5 of duty paid on inputs is allowable?
Brief Facts: - Respondent had filed refund claim under Rule 5 of the Cenvat Credit Rules, 2002 of duty paid on inputs used in the manufacture of final products cleared for deemed export. The Adjudicating Authority rejected the refund claim. The Commissioner (Appeals) allowed the refund claim observing that supplies from DTA units to SEZ units will be considered as exports. Hence, Revenue filed this appeal. The present case relates to clearance of goods during October and November, 2003.
Appellant’s Contentions: - Revenue submits that the Commissioner (Appeals) erroneously proceeded on the basis of the Board's Circular No. 68/2003-Customs dated 30.7.2003. The Board had clarified in the said Circular that the provisions of Chapter XA of the Customs Act, 1962 on SEZs along with SEZ Rules, 2003 have come into force from 11.5.2004 and, therefore, the clarification of the said Circular are to be effective after 11.5.2004.
Respondent’s Contentions: - Respondent reiterates the findings of the Commissioner (Appeals). They relied upon paragraph 12 of the Board Circular dated 30.7.2003. They also relied on the decision of the Tribunal in the case of Amitex Silk Mills Pvt. Ltd. Vs. CCE, Surat-I [2006 (072) RLT 0011 (CESTAT-Del)].
Reasoning of Judgment: - The Tribunal held that from the order of the Commissioner (Appeals) it was seen that there was no dispute regarding use of the inputs in the manufacture of the final products, nor there is any dispute regarding clearance of the said goods to the SEZ units. The Commissioner (Appeals) allowed the refund claim following the Board's Circular dated 30.7.2003. Tribunal finds that the Tribunal in the case of Amitex Silk Mills Pvt. Ltd held that deemed exports are to be treated as exports for all purposes. Accordingly, the Tribunal followed the decision in Amitex Silk Mills Pvt. Ltd and declined to interfere in the decision of the Commissioner (A).
Decision: - Appeal rejected.
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Case: - Commr. of C. Ex. & Cus., Ahmedabad-I v/s Anjani Synthetics Ltd
Citation: - 2001 (132) ELT 0688 (Tri. - Mumbai)
Issue: - Are the refund claims under deemed credit order subject to time limitation?
Brief Facts: - Respondent was carrying on the business of manufacturing fabrics. Under the deemed credit order refund claim were filed by the respondent.
Appellant’s Contentions: - Revenue contended that the refund claim has been filed beyond the period of six months under Rule 11B of the Central Excise Rules, 1944. They argued that there should be some difference between a man who files the refund claim in terms of Section 11B and the person who does not file refund claim within six months.
Respondent’s Contentions: - Respondent contended that the relevant date for the purpose of Section 11B in their case clearly falls under the category (00B) of the explanation under para 5 of the Section 11B of CEA, 1944. Respondent relied upon the decision of the Supreme Court in the case of M/s. Porcelain Electricals Mfg. Co. v. C.C.E., New Delhi [1998 (098) ELT 0583 (S.C.)] wherein it was held that for making claim for refund before the departmental authority an assessee must adhere to the period of limitation prescribed under the Central Excise Act and the rules framed thereunder.
Reasoning of Judgment: - The Tribunal considered the provisions of Section 11B relating to ‘relevant date’ and held that Section 11B (5) (B) did not mention anything about refund claimable under deemed credit order. It was held that since it is not mentioned there the period of limitation provided under Section 11B cannot be made applicable to the facts of the case. Hence, the claim made by the appellant Commissioner is dismissed.
With regard to Notification No. 85/87, the Tribunal held that in the case of Hotline Teletube & Components Ltd. v. Commr. of C. Ex.,
Decision: - Both appeals dismissed.
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Case: - Rimtex Industries v/s Commissioner of Central Excise,
Citation: - 2010 (254) ELT 0116 (Tri. - Ahmd)
Issue: - Whether the goods received under EPCG licence after invalidation from the manufacturer can be added to value of machinery imported for the purpose of examination of fulfillment of conditions in the EPCG licence.
Brief Facts: - Appellant is engaged in the manufacture and clearance of Textile Machinery Parts used in the spinning mills. During the period from 5-8-2004 to 3-6-2005, the appellant cleared parts manufactured by them to EPCG Licence holders without payment of Central Excise duty on invalidation of EPCG licences. The Original Authority confirmed the duty demand with interest and penalty was imposed on the appellant-firm as well as on the partner. Hence, this appeal is filed.
Appellant’s Contentions: - Appellant contended that the clearances were made under proper documents and with the knowledge of the department. They have furnished ARE-3 forms and also a letter of Assistant Commissioner addressed to Assistant Commissioner,
Appellant relied upon Para 8.3.2 of Handbook of Procedures, wherein it has been stated that for claiming exemption from payment of terminal excise duty, procedure prescribed by Central Excise authority shall be followed and therefore, no excise duty was liable to be paid. And Para 5.3 of Foreign Trade Policy 2004-09 which provides that domestic manufacturers who supply capital goods to EPCG licence holders shall be eligible for deemed export benefit under Para 8.3 of the policy. It is submitted that once the supplies are treated as deemed export, no payment of excise duty can be required.
Appellant relied upon several decisions of the Tribunal on various submissions and also submits that even if it is held that duty was payable, since the issue involved the question of interpretation of law and clearances were made with the knowledge and approval of the department, no penalty on the appellants could have been imposed.
It was also submitted that deemed export is legal fiction created by law and therefore all the benefits which are extended to regular exports should be extended to deemed exports also.
Appellant also relied upon the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Income Tax v. Jaykrishna Harivallabhdas [ITR Vol-231 Page No. 108] in support of their contention that deemed export is legal fiction created by law and therefore all the benefits which are extended to regular exports should be extended to deemed exports also.
Respondent’s Contentions: - Respondent reiterates the observations made in the Order-in-Original and submits that duty demand has been correctly made.
Reasoning of Judgment: - The Tribunal held that the clarifications issued by Ministry of Commerce and CBEC cannot be applied to Domestic Manufacturers since they were issued in respect of clearances by a 100% EOU. It is well settled principle that 100% EOU clearances made to DTA are to be treated as import for the purpose of calculation of measure of customs duty since as per Section 3 of Central Excise Act, 1944, in respect of 100% EOUs, the duty will be equal to Customs duty payable. In fact, the clarification makes it quite clear that 100% EOU are liable to discharge excise duty and measure has to be derived from relevant customs notifications. Therefore, the clarification issued in respect of 100% EOU cannot be applied to DTA. In any case, clarification does not even say 100% EOU can clear goods without payment of Central Excise duty.
The Tribunal further held that the decision in Bhoruka Textiles Limited [2007 (216) ELT 0640 (Tri.-Bang.)] was not applicable to the present case as the issue in that case was whether the goods received under EPCG license after invalidation from the manufacturer can be added to value of machinery imported for the purpose of examination of fulfillment of conditions in the EPCG license. Similarly, it was held that the decision in Sahajanand Technologies Private Limited [2007 (210) ELT 0108 (Tri.-Ahmd.)] was also not applicable to the present case.
The Tribunal held that from the clarification issued by the Ministry of Commerce and the order of the Tribunal it appears that for the purpose of levy of duty to supplies made to EPCG licence holders by 100% EOU, customs duty leviable has to be worked out on the basis of Notification No. 55/03-Cus and the same has to be recovered as Central Excise duty payable. What emerges from this clarification is that, unless there is exemption Notification applicable to clearances, duty has to be paid.
The Tribunal held that the appellant could not show any notification issued under Central Excise Act providing exemption in respect of clearances made to buyers who have EPCG licence and who have got the same invalidated in favour of domestic suppliers. The Commissioner had rightly observed that in the absence of exemption Notification the remedy available to the appellants, which provides that where supplies are not (sic) made against International Competitive Biddings, refund of terminal excise duty will be given. In the absence of any specific provision or exemption Notification and supplies made against invalidation of EPCG Licence, Tribunal cannot find fault with the demand for duty made by the lower authorities.
The Tribunal fully agreed with appellant that legal fiction has to be carried to its logical end and has to be applied; it has to be observed that in the case of benefit of exemption from duty, unless there is statutory provision, such benefits cannot be extended. In this case and in the case of deemed exports, clearly the refund of terminal excise duty benefit is available. If the Legislature intended to provide exemption, an exemption Notification would have been issued. In the absence of specific exemption, this benefit cannot be extended.
As regards penalty, the Tribunal noted that clearances were made with the knowledge and approval of the department and this is because of their wrong interpretation of provisions of law by both the sides. Therefore, imposition of penalty on the appellants is totally unfair and not called for. Demand with interest upheld and penalties imposed on both the appellants set aside.
Decision: - Appeals decided accordingly.
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Case: - Palayam Textiles Processors v/s Commissioner of C. Ex.,
Citation: - 2010 (254) ELT 133 (Tri-Bang)
Issue: - Larger period of limitation cannot be invoked in case the short payment of duty was due to bona fide belief of the assessee.
Brief Facts: - Appellant was carrying out processing of grey fabrics such as dyeing, washing, bleaching, etc. They paid duty on the processed fabrics based on the landed cost of raw material plus job charges. During investigation, it was found that during the period January, 2000 to July, 2004, the appellants had adopted incorrect value for payment of duty. During the period, the appellants were alleged to have short paid the duty. The Original Authority demanded differential duty by invoking larger period under Section 11A of the Central Excise Act, 1944. Equal penalty under Section 11 AC was also imposed. Penalty Rule 25 of the Central Excise Rules 2001/2002 was also imposed. The duty demanded also included duty on packing charges recovered by the appellants in several cases which had not been included in the assessable value during the material period. In appeal, the Commissioner (Appeals) affirmed the order of Original Authority. Both the Authorities had denied deemed credit available to the processed fabrics on the ground that the duty had been short paid initially by suppression of facts, fraud, etc. and the same had not been paid at the time of clearance of the impugned goods. Aggrieved by these orders, the appellant has filed appeal before the Tribunal.
Appellant’s Contentions: - Appellant contended that the short payment had occurred due to their bona fide belief that the value of processed fabrics had to be computed based on the quantity (length) of the processed fabrics and not on the basis of pre-shrunk fabrics. The method of computation of value adopted by them was consistent with the decision in the case of Gemini Dyeing and Printing Mills v/s Commissioner [1997 (091) ELT 0195 (Tri.)]. It was submitted that a different Bench of the Tribunal had held a contrary view which was upheld by the Larger Bench of the Tribunal later on in Ram Kumar Mills Pvt. Ltd. v. Commissioner of Central Excise, Bangalore [2005 (183) ELT 0356 (Tri. -LB)]. Therefore, larger period could not have been validly invoked to demand differential duty from them. Appellant cited several case laws in support of their claim that when the short-payment had occurred due to assessee's bonafide belief, longer period under Section 11A of the Act could not be invoked to demand the duty short paid.
Reasoning of Judgment: - The Tribunal held that there were different views given by different Benches of the Tribunal on the method of computation of value for payment of duty on processed fabrics manufactured from grey fabrics which shrank in the process. The procedure followed by the appellants was in accordance with the view of the Tribunal in the case of Gemini Dyeing and Printing Mills Ltd. The controversy was finally settled in 2005 when Larger Bench of the Tribunal in the case of Ramkumar Mills Pvt. Ltd. held that a different view held by the Tribunal in Indian Rayon and Industries Ltd. v. Commissioner [2002 (150) ELT 0388 (Tri. - Kolkata)] was in consonance with the Apex Court's judgment in Ujagar Prints v. Union of India [1989 (039) ELT 0493 (S.C.)]. Accordingly, the Tribunal held that the appellants had entertained a bonafide belief that the wrong method they followed for computation of value was correct. Therefore longer period could not have been validly invoked to confirm the impugned demand. Accordingly, appeal is partly allowed. Direction is given to the Original Authority to compute the liability of the appellant for the normal period. It was also held that the appellant shall be entitled to the deemed credit as was available to the duty initially paid.
As regards packing charges recovered in certain cases prior to 1-7-2000, when transaction value was introduced, the Tribunal held that the same cannot form part of the normal price as goods had been normally sold without any packing. However packing charges formed part of transaction value from 03-06-2000 onwards. It was found that the collection of these charges was suppressed from the Department; these amounts were not reflected in the monthly returns furnished to the Department. Thus, the demand pertaining to these charges invoking the larger period is sustained. As regards the deemed credit, the Adjudicating Authority to examine the assessee's entitlement in the de novo proceedings keeping in view the provisions restricting the same to the amount initially short paid on account of reasons other than suppression of facts, fraud etc.
Decision: - Appeal partly allowed by way of remand.
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Case: - Ram Remedies Pvt Ltd. v/s Commissioner of Central Excise,
Citation: - 2010 (254) ELT 170 (Tri-Mumbai)
Issue: - Extended period of limitation cannot be invoked when the Department had the opportunity to test the samples and to ascertain the issue of classification of a product but not did so and when the assessee had filed periodical classification declarations.
- The classification of a product was required to be decided on the basis of its characteristic and end use and by testing. In the absence of testing, mere statement of the manager cannot be sufficient evidence to decide classification issue.
Brief Facts: - The appellant were classifying the goods RRS-I N, RRS-II N, etc. manufactured by them under CETH 2710.90 as "others" during the period from 26.02.97 to February 2000. The Department issued show cause notice on 28.02.2002 challenging the classification of the said goods. The Adjudicating Authority held that the said goods were to be classified under CETH 2710.11 and 2710.13 on the ground that the said goods fulfilled the requirement of the boiling point range prescribed for these headings in the tariff and the products either by themselves or in admixture with any other substance are suitable for use as fuel in spark ignition engine. Thus, demand of duty was confirmed by invoking extended period of limitation under Section 11A of Central Excise Act, 1944 with interest and also imposed equal penalty under Section 11 AC. Further, penalty was also imposed on Ex. Director of the appellant. Both are in appeal.
Appellant’s Contentions: - The Appellant have contested the statement of the person who was production-in-charge on the ground that the statement given by him reflected his understanding of the process. The fact remained that they were selling the product as a solvent to their customers and in the absence of a proper test as regards the characteristics and its end use, mere opinion of their manager would not be sufficient to revise the classification. Reliance was placed on the decision in the case of M/s. Indu Nissan Oxo Chemical Industries Ltd. v. CCE, Vadodara [1998 (101) ELT 0201 (Tri.)].
Respondent’s Contentions: - The Department had relied upon the statement of person who was production-in-charge. He stated that the product had boiling point within the range as per the tariff heading and the flash point was below 25°C and he had also stated that all these products are having suitable hydrocarbon mixtures for use in spark ignition engine.
Reasoning of Judgment: - The Tribunal noted that by the time the officers visited the unit, there was no manufacturing operation going on and the existing stock was said to be contaminated and, therefore, no samples could be drawn. Further, during the period when the appellant company was manufacturing the product, the departmental officers had never drawn the samples for testing even though the appellant filed classification declaration from time to time.
The Tribunal held that the first major weakness in the department's case was non-testing of samples. Boiling point range and flash point of the products have been accepted by the appellants. There is no evidence about the suitability of the products for use in spark ignition engine. The statement of the production-in-charge was contested by the appellants. The Tribunal observed that the department is required to show that the product is suitable for use, which has been judicially determined to mean "actually, practically and commercially fit for the use described". In the cited case also it was observed that there must be evidence of more than a casual, incidental, exceptional or possible use. The use must be substantial. The Tribunal perused the order of the Commissioner wherein he has observed that "I find that the use of the goods cannot be criteria for determination of classification of the product. The product has to be classified based on its characteristics and properties". The Tribunal held that the tariff heading under 2710 itself described suitability for use as fuel in spark ignition engine as one of the requirements for classification of the product under this heading. Thus, the Commissioner had proceeded on a misunderstanding of the heading. In the absence of any evidence to show any of the customers had used any of the products as a fuel in spark ignition engine or any other evidence in the form of testing of samples, the department's case cannot be sustained as regards the classification.
Further, the Tribunal held that as regards limitation also, the impugned order was not sustainable because when the tariff heading clearly provided the characteristics of the products and its end use, it was the duty of the departmental officers to draw samples and get the same tested and the officers had failed to do this over a period of three years. Thus, the show cause notice invoking extended period could not have been issued after five years. Impugned order set aside.
Decision: - Appeals allowed with consequential relief.
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Case: - Sudhakar Polymers Ltd. v/s Commissioner of C. Ex.,
Citation: - 2010 (18) STR 635 (Tri. - Bang.)
Issue: - When there is no fraud, collusion, wil-full mis-statement, suppression of facts with intent to evade payment of duty, then penalty under Rule 15 (4) of the CCR, 2004 cannot be imposed.
- In case when there is no issue of default in payment of service tax involved then penalty under Section 76 and Section 77 of the Finance Act, 1994 cannot be imposed.
Brief Facts: - Appellant had paid service tax under the category C&F Agent for services rendered during the financial years 2004-05 and 2005-06 (upto 9/2005). Appellant had paid the service tax at the instance of the Department. Subsequently, appellant took cenvat credit of the service tax paid on the belief that they were not liable to pay the tax already paid. Departmental officers found that such availment of cenvat credit was illegal. Show cause notice was issued. The original authority demanded the cenvat credit of service tax irregularly taken under Rule 14 of the Cenvat Credit Rules, 2004 along with applicable interest. Equal amount of penalty was imposed under Rule 15(4). Penalty was also imposed under Sections 76 & 77 of the Finance Act, 1994. In appeal, the Commissioner (A) affirmed the order of the Original Authority. Hence, appellant is in appeal before the Tribunal. Appellants have already paid the wrongly availed cenvat credit along with due interest on 24-3-2008.
Appellant’s Contentions: - Appellant contended that neither the show cause notice nor the orders of the lower authorities indicated that the appellants had taken wrongly cenvat credit by reason of fraud, collusion, willful mis-statement, suppression of facts or contravention of any of the provisions of Finance Act or rules made there under with intention to evade payment of service tax. It is submitted that in order to impose penalty under Rule 15(4), it was necessary that the appellant was found to have availed Cenvat credit by reason of fraud, collusion, willful mis-statement, suppression of facts or contravention of any of the provisions of Finance Act or rules made there under with intention to evade payment of service tax. The show cause notice did not allege any such fraud, collusion etc. on the part of the appellants nor was there any such finding in the order of the original authority or in the impugned order. Under the circumstances, equal amount of penalty imposed on the appellants was liable to be set aside. It was argued that as the proceedings were to recover wrongly taken Cenvat credit, provisions of Sections 76 & 77 of the Finance Act were not attracted.
Respondent’s Contentions: - Revenue argued that the appellant was liable to penalty as they had wrongly taken back the service tax paid on their own as Cenvat credit. In case they believed that they were not required to pay any service tax already paid, the proper course for them was to claim refund of such tax.
Reasoning of Judgment: - The Tribunal held that it was alleged against the appellant that they had wrongly availed Cenvat credit. The appellant has already discharged the above amount of service tax along with applicable interest. Equal amount of penalty was imposed invoking provisions of Rule 15(4) of Cenvat Credit Rules. The Tribunal held that the penalty could be validly imposed under these provisions in case of fraud, collusion, willful mis-statement, suppression of facts or contravention of any of the provisions of Finance Act or rules made there under with intention to evade payment of service tax per sub rule (4) of Rule 15. It was not the case of Revenue that the appellant had availed credit by reason of fraud, collusion etc. with intention to evade payment of tax. Accordingly, penalty was liable to be vacated.
As regards penalty imposed under Sections 76 & 77, the Tribunal held that the relevant provisions were not attracted as they related to default in payment of service tax and any infraction for which no penalty is provided under Finance Act respectively. The impugned order is not relating to default in payment of service tax or any other provisions or any other infraction under the Act. Thus, penalty is also not validly imposed. Impugned order set aside.
Decision: - Appeal allowed.
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Case: - Tidel Park Ltd. v/s Commissioner of Service Tax, Chennai
Citation: - 2010 (18) STR 642 (Tri. - Chennai)
Issue: - Full cenvat credit of service tax will be allowed on the services which fall under the specified services in Rule 6(5).
Brief Facts: - Appellant were providing both taxable services such as Mandap Keeper and Health club and Fitness centre as well as non-taxable service of leasing out immovable property. The Lower Authorities held that the appellant is entitled to avail credit only upto the extent of 35% upto 10-9-2004 and 20% thereafter in terms of Rule 6(3)(c) of Cenvat Credit Rules, 2004. Hence, the appellant is in appeal before the Tribunal.
Appellant’s Contentions: - Appellant submitted that they are entitled to the whole of the credit of the service tax paid on taxable service as the services provided by them are specified in the 17 specified categories covered by Rule 6(5).
Reasoning of Judgment: - The Tribunal held that there is merit in appellant’s submission that they are entitled to whole of the credit of the service tax paid on taxable service as specified in 17 specified categories covered by Rule 6(5) as such service is not used exclusively in or in relation to the providing of exempted services. Rule 6(5) is a non obstante clause and therefore completely widens the restriction contained in Rule 6(3) (c). It is not the case of the Revenue that the taxable service on which service tax has been paid is not one of 17 categories specified in Rule 6(5) of Cenvat Credit Rules, 2004. Impugned order set aside.
Decision: - Appeal allowed with consequential relief.
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Case: - Lason India Pvt. Ltd. v/s Commissioner of Service Tax, Chennai
Citation: - 2010 (018) STR 0626 (Tri. - Chennai)
Issue: - Whether refund of unutilised cenvat credit of service tax paid on input services used for providing output service can be denied if the service tax has been collected from the claimant but has not been paid by the service provider to the Govt Exchequer?
Brief Facts: - Appellant has sought refund of unutilised credit of service tax paid on input services which were used to provide output service which was exported. The Original Authority allowed the refund claim of appellants. In revision proceedings, the jurisdictional Commissioner disallowed part of the refund amount on the ground that the impugned amount of tax has not been paid to the Government by the service providers supplying the input services. Thus, the appellant has come in appeal before the Tribunal.
Appellant’s Contentions: - Appellant contended that the refund of accumulated credit cannot be denied to them as they have paid the value and the service tax for the services received. They are not responsible for payment of the service tax on services received by them from their suppliers and it is for the Department to collect the service tax from the defaulters. Appellant further states that they have shown their bona fides by obtaining and submitting details of service tax paid by several service providers and they have also furnished all the details regarding the service providers to enable the Department for recovery of service tax from such service providers, wherever due. Appellant also stated that the Adjudicating Commissioner has not even taken into account the details of service tax payments furnished by the appellants while passing the impugned order. Appellant also refer to the Board's Circular No. 766/82/2003-CX., dated 15-12-2003 wherein it was clarified that “action against the consignee to reverse/recover the CENVAT Credit availed of in such cases need not be resorted to as long as the bona fide nature of the consignee's transaction is not in dispute. In case the manufacturer-supplier has received payment from the buyer (including the amount shown as duty of excise) i.e., the person taking CENVAT Credit has made payment of the invoice amount, action should also be taken against the manufacturer-supplier under Sections 11D and HDD of the Central Excise Act, 1944.”
Reasoning of Judgment: - The Tribunal held that Rule 3 of the Cenvat Credit Rules, 2004 says that credit of service tax paid on input service shall be allowed. However, sub-rule (7) of Rule 4 states that credit in respect of input service shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable, as is indicated in the prescribed invoice/bill. Similarly under sub-rule (1) of Rule 4, credit in respect of inputs is allowed immediately on receipt of the inputs in the factory of the manufacturers/premises of the providers of output service. When Rules 3 and 4 are read together, it does not appear to be the intention of the law makers that taking of credit should await actual payment of the excise duty on the inputs or service tax on the input services. In any case, under the liberalized regime now in force, the duty/tax payment at the suppliers end is deferred to the end of the month or quarter. The Circular relied upon by the appellant also makes it clear that in the event of non-payment of service tax on the input service by the supplier, action against the consignee need not be taken unless the bona fide of the transaction is in dispute.
Accordingly, the Tribunal held that in the present case, there was no indication of any mala fide arrangement between the input service providers and the appellants. Since bona fides of the transactions is not in question and since the Rule 4(7) clearly provides for taking of credit after the receiver of the input service has paid for the value of input services and the service tax paid or payable as indicated in the invoices, the appellants are eligible for taking credit of service tax in respect of input services and consequently, when such credit cannot be utilized, refund of accumulated credit is admissible to them on export of the output services as prescribed. Impugned orders set aside.
Decision: - Appeals allowed with consequential benefit.
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Case: - Speed and Safe Courier Service v/s Commissioner
Citation: - 2010 (018) STR 0550 (Ker.)
Issue: - Whether the service charges collected from customers on which full tax is paid for rendering courier service by the agents/franchisees after registration with the Department could be subjected to a further tax for franchisee service to the extent of the net amount received by the appellant?
Whether net service charges recovered from customers for courier service retained by the appellant after payment of the portion due to the agents/franchisees is again assessable for service tax under the head 'franchise service'?
Brief Facts: - The appellant is engaged in rendering courier service which involves collection of letters, parcels, articles etc. from customers and then delivery of the same to the addressees. In this business, the appellant has engaged several agents who are named as Franchisees in the agreement between the appellant and them. These agents collect articles from customers along with service charges at the tariff prescribed by the appellant. These agents called Franchisees are also collecting service tax along with service charges from the customers while accepting articles and are remitting the same in their own name after taking registration with Central Excise Department. The entire service charges collected are stated to be passed on to the appellant and from out of the same, the appellant makes payment to the agents/franchisees at the rate fixed in the agreement. The rate fixed in the agreement is 50% of service charge collected for articles collected for delivery within the State and 25% for articles collected from the State for delivery outside Kerala. Similarly for parcel collected for delivery outside
The department assessed net amount retained by appellant from out of the charges collected for courier service after payment to agents/franchisees towards value of taxable service payable for franchise service. In effect, the service charges collected and shared between the appellant and the agents/franchisees got partly taxed twice for service tax under the Act, one under the head 'tax on courier service' and other under the head 'tax on franchise service'.
Appellant’s Contentions: - Appellant contended that they transported goods between major centres. Local collection and deliveries are done by engaging agents/franchisees. So much so, the services of agents/franchisees and appellant together will only constitute the complete courier service.
Reasoning of Judgment: - The High Court held that admittedly, the appellant's activity is essentially rendering courier service, which is, collection of articles from customers at various places and delivery of the same at the destination requested by the customers. The High Court examined the agreement and ascertained the fact that the courier service charges collected from the customers for booking the cargo is shared between the appellant and the agents/franchisees in an agreed manner. The High Court noted that the Department had admitted the liability for the agents/franchisees for payment of service charges on the entire courier service charges recovered from customers and have therefore permitted them to register and remit the tax on regular basis.
Thus, only the second issue remains to be decided. In this regard, the High Court found that a perusal of Section 67 provides that taxable service is the gross amount in money consideration received from the customers for service provided. In terms of Section 67, the entire amount collected from the customers for rendering courier service is subject to tax at the hands of agent/franchisee.
Accordingly, the High Court was of the opinion that if a service falls under two heads, there is no provision in the Finance Act, 1994 to tax the very same service charges twice under two heads. In the present case, double assessment was done on part of the service charges collected, for rendering courier service at the hands of the appellant. Further, It was held that Section 65(47) read with 65(105)(zze) did not have any application with regard to rendering of courier service by appellant with the assistance of agents/franchisees.
High Court referred to the definition of Franchise under Section 65(47) and held that under franchise agreement, the franchisor gives a right to the franchisee to do business in a representative manner by using franchisor's trade mark or trade name. In such case, the franchisee is to make payments to the franchisor for using their name, trade mark etc., in respect of the goods sold or the service rendered. However, in the present case, in fact, the agent/franchisee is not doing independent business but is only acting as agent for collection and delivery of parcel as agent in the courier service. Apart from appointing the agent/franchisees, the appellants are not rendering any service to the franchisees. The franchisees also do not make any payment to the appellant which alone could be subject to tax under the IT Act. In fact, franchisee gets paid only for the work done for the franchisor, i.e. in the courier service by acting as agent for collection and distribution of articles for customers. The only provision under which tax can be levied for the entire transaction involving the appellant and franchisees/agents is the tax on courier service. Therefore, it was held that the assessment and demand of tax from the appellant was untenable. Impugned orders of the Tribunal and of lower authorities with regard to levy of tax and penalties are set aside. However, Department allowed to cross check the amounts received by the appellant from agents/franchisees and verify whether all the franchisees who have made payments have remitted service tax for entire courier service charges collected as stated by the appellants.
Decision: - Accordingly the appeals were allowed.
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SOY P ITTY on 21 Apr, 2016 wrote:
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visuiyer on 09 Mar, 2016 wrote:
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O V Srinivasan on 04 Jan, 2016 wrote: