PJ/Case Laws/2010-11/14
Case Laws
Prepared By:
CA Pradeep Jain,
Parag Ghate, B.Com
Megha Jain and
Sukhvinder Kaur, LLB [FYIC]
Case: - Commr. of C. Ex & Cus., Vadodara-II v/s Indeos Abs Limited
Citation: - 2010 (254) E.L.T. 628 (Guj.)
Issue: - Whether determination of correct assessable value for the purpose of charging central excise duty can be done away with simply on the ground of revenue neutrality?
Brief Facts: - The Respondent-assessee was manufacturing its goods and clearing them to its own sister concern, which is availing the benefit of Modvat Credit. The goods being cleared were alleged to be undervalued by the respondent. Department issued show cause notice. Matter reached the Tribunal. The Tribunal allowed the appeal of the respondent on the ground that whatever duty the respondent was paying was available as credit to its own unit (Sister Concern) and hence the entire exercise was revenue neutral. Hence, Department is in appeal before the High Court.
Appellant’s Contentions: - Department contended that Tribunal had committed an error in not dealing with the aspect of undervaluation of goods manufactured by assessee despite the fact that the Adjudicating Authority has discussed the said issue at length in the adjudication order.
Reasoning of Judgment: - The High Court held that the grievance of the Department was that the aspect of under valuation has not been considered by the Tribunal at all. The grievance of the Department would have been accepted if the ultimate exercise would have benefited the Revenue by collection of duty in the coffers of the exchequer. In the facts of the present case, admittedly no such benefit accrues to the exchequer. In the circumstances, if the Tribunal has chosen not to determine an academic issue, it is not possible to state that any legal infirmity exists in the impugned order of the Tribunal. No substantial question of law involved.
Decision: - Appeal dismissed.
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Case: - Rajyalakshmi Machine Works Pvt Ltd v/s Commr. of C. Ex.,
Citation: - 2010 (255) E.L.T 274 (Tri. Chennai)
Issue: - Demand for Education cess cannot be raised under Rule 8 as it relates to duties under Section 3 of the CE Act.
Brief Facts: - The appellant failed to pay Education cess due on clearance of goods affected during the months of May and June, 2007 beyond a period of 30 days from the due date. The removals were deemed to have been made without payment of duty and hence a show cause notice was issued proposing recovery of Education Cess and proposing imposition of penalty. The demand confirmed with interest and penalty was also imposed on the appellant.
Appellant’s Contentions: - Appellant contended before the Tribunal that the demand could not be raised and confirmed under Rule 8 of the Central Excise Rules, 2002, for delay in payment of cess, as Rule 2(e) defines “duty” payable under Section 3 of the Act, while “education cess” is payable not under Section 3 of the Central Excise Act, but under Section 91 of the Finance Act, 1994.
Reasoning of Judgment: - The Tribunal held that the contention raised by the appellant was well founded. Although Section 93 of the Finance Act, 2004 sets out that education cess levied under Section 91 shall be a duty of excise, since the Central Excise Rules, 2002 confine the definition of “duty” to duty payable under Section 3 of the Act, Rule 8 is not applicable in the case of delay in payment of cess, which is leviable under the Finance Act and not under the Central Excise Act. Impugned order set aside.
Decision: - Appeal allowed.
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Case: - Commissioner of Central Excise, Surat-II v/s Deepak Nathmal Kedia
Citation: - 2010 (255) E.L.T 222 (Guj)
Issue: - Whether in the facts and circumstances of this case the Tribunal has committed substantial error of law in rejecting appeal of the department on the basis of incorrect jurisdictional fact that the department had not appealed against finding and order of the Assistant Commissioner for non-imposition of penalty on unit?
Brief Facts: - Respondent-assessee availed excess Cenvat credit. Shoe cause notices were issued. The Director of Respondent admitted that they could not maintain any register like RG-23 A Part-II for availing Cenvat credit on the stock declared in their stock declaration filed on 14.6.2003 and had also not shown any debit of Cenvat credit at the time of sending grey fabrics to the process houses. The Assistant Commissioner imposed penalty on the respondent. In appeal, the Commissioner (A) set aside the penalty. Hence, Revenue filed appeal before the Tribunal.
The Tribunal gave finding that the “Commissioner (Appeals) has set aside the penalty on the ground that the same was imposed by the adjudicating authority inspite of the clear finding that there was no fraud, collusion or nay willful misstatement or suppression of facts and error is of the nature of lack of understanding of relevant notification while calculation of eligible Cenvat credit on the stock available on 1-4-2003”. The Tribunal has further observed that “the said findings of the Assistant Commissioner were not appealed against by Revenue before Commissioner (Appeals) and have attained finality.” The appeal was rejected.
Against this judgment of the Tribunal, Revenue has come in appeal before the High Court.
Appellant’s Contentions: - Revenue submitted that the finding of the Tribunal was not correct as the Revenue had filed an appeal before the Commissioner (Appeal) and therein the Commissioner (Appeal) had held that vide its order dated 27.11.2007 that the “adjudicating authority has, in his findings, confirmed that the unit had availed excess Cenvat credit amounting to Rs. 2,86,599/-, which all acts of contravention on their part was committed by them with an intent to avail excess Cenvat credit.” They further observed that “it is evident from the records that the director of the unit in his statement dated 15.4.2004 has admitted that they could not maintain any register like RG-23 A Part-II for availing Cenvat credit on the stock declared in their stock declaration filed on 14.6.2003 and had also not shown any debit of Cenvat credit at the time of sending grey fabrics to the process houses.” The Commissioner (Appeals) further observed that “the unit has not filed any documents related to purchase of grey fabrics to their jurisdictional Range Superintendent with ER-1 monthly return. Such act of the unit is not merely a procedural lapse but an offence with intent to avail excess credit availed.” It was submitted that after recording this finding the Commissioner (A) has allowed the appeal of Revenue for imposition of penalty. It is also submitted that this order had become final and was not challenged further.
It is submitted that this order of the Commissioner (Appeal) was not taken cognizance of by the Tribunal and hence the reasoning given by the Tribunal while confirming the order passed by the Commissioner (Appeals) calls for interference.
Reasoning of Judgment: - The High Court held that the question to be considered is whether the order passed by the Commissioner (Appeal) on 27-11-2007 imposing the penalty on the unit was ever pointed to the Tribunal. High Court held that there is no reference of this order in the Tribunal’s order. Even the Commissioner (Appeals), while deleting the penalty levied on the director, also proceeded on the same footing. It is true that the order passed by the Commissioner deleting the penalty was passed on 28-6-2007 which is first in point of time, whereas the order passed by the Commissioner (Appeals) levying penalty on the unit is of 27-11-2007. However, in any case, the relevant facts were not placed before the Tribunal at the time when the director’s appeal was decided. No substantial question arises.
Decision: - Appeal Dismissed.
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Case: - Commissioner of Central Excise,
Citation: - 2010 (18) S.T.R 628 (Tri.
Issue: - Whether Cenvat credit is admissible on service tax paid on the transportation of raw material used in exempted goods?
Whether Cenvat credit is admissible of ST paid on transportation of raw materials which are subsequently removed as such?
Brief Facts: - Respondents are engaged in manufacture of Iron and Steel Castings, dutiable and exempted goods. The Original Authority denied Cenvat credit on the Service tax paid on GTA used on the transportation of procurement of raw material, used in the manufacture of exempted and dutiable goods. Further, Cenvat credit on Service tax of GTA was denied on removal of inputs as such. The Commissioner (Appeals) held that “Rule 6 (5) in clear terms provides that credit can only be denied if the services are used exclusively in or in relation to the manufacture of the exempted goods. In other words, if the services are rendered both for exempted and dutiable goods manufactured, as the case here, then the credit taken cannot be denied. Since the service availed is not used exclusively for exempted goods, therefore credit cannot be denied.” On the issue of reversing of credit on GTA in case of removal as such of inputs, the Commissioner (A) held that “there is no requirement under the Cenvat Credit Rules, 2004 for reversing of credit availed on input services even if the inputs are removed as such subsequently. Therefore the credit availed cannot be denied.” Against this order, Revenue has filed this appeal before the Tribunal.
Appellant’s Contentions: - Revenue submitted that Rule 6(1) of Cenvat Credit Rules, 2004 provides that, “Cenvat credit shall not be allowed on such quantity of input or input services, which is used in the manufacture of exempted goods or exempted services.” The Commissioner (Appeals) has erred in allowing credit of Service tax on GTA on inputs used in the manufacturing of dutiable and exempted goods. Further it was submitted that Rule 3(5) of Cenvat Credit Rules, 2004 provides that, “when inputs or capital goods, on which Cenvat credit has been taken, are removed as such from the factory, or premises of output service, as the case may be, shall pay an amount equal to the credit, availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in Rule 9”. The contention of the respondent are required to reverse credit of Service tax on GTA on removal of inputs as such.
Respondent’s Contentions: - Respondent submits that credit on input services were used both on dutiable and exempted products. It was contended that Rule 6(5) of the Rules provides that, “no service tax paid on taxable services shall be allowed on such services used exclusively in or in relation to the manufacture of exempted goods or provided exempted services.” It was submitted that in the present case, the taxable service was not used exclusively in or in relation to manufacture of exempted goods. On the issue reversal of credit on GTA on removal as such of inputs, the respondent relied upon the decision in the case of Chitrakoot Steel & Power Pvt. Ltd v. CCE, Chennai [2008 (10) S.T.R. 118 (Tribunal-Chennai)].
Reasoning of Judgment: - Tribunal held that there was no allegation that the input services were used exclusively in or in relation to manufacture of exempted products or providing exempted services. Therefore, there is no reason to deny the credit on input services.
On the other issue, Tribunal relied upon the case of Chitrakoot Steel & Power Pvt. Ltd wherein it was held that there is no provision for recovery of equal amount of credit on input services on removal of input or capital goods from factory as such. No reason to interfere in the order of Commissioner (A).
Decision: - Appeal rejected.
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Case: - Veerabhadreshwara Transport vs Commissioner of C. Ex., Belgaum
Citation: - 2010 (18) S.T.R. 621 (Tri. Bang.)
Issue: - Whether the penalty can be imposed when there is no allegation of willful suppression, fraud etc.?
Brief Facts: - Appellant had provided the service of Goods Transport Agency Service to a proprietorship concern during the period 1-1-2005 to 31-3-2006 without following the statutory formalities including payment of service tax due. The service tax liability incurred by the appellant was pointed out during the investigation. Accordingly, the appellants paid service tax due and on 29-6-2006 paid the applicable interest. The Original Authority confirmed the above liability against the appellant but did not impose any penalty on the appellant relying on several case laws wherein it was had held that once the assessee had made good the excise duty not paid/short paid along with applicable interest before the issue of show cause notice, the assessee was not liable for penalty. In revision proceedings of the above order under Section 84 of the Finance Act, 1944, the Commissioner imposed penalties under Section 76, 77 and 78. Against this order, Appellant is in appeal before the Tribunal.
Appellant’s Contentions: - Appellant argued that the non-payment of service tax had occurred due to the ignorance of the appellant as regards its duty liability. The appellant was under the impression that no tax was payable for services under GTA rendered to the proprietorship concern. This is obvious from the statement recorded on 14-6-2006 from the proprietor of the appellant. The Original Authority had not given any finding that the non-payment had occurred due to fraud, collusion, suppression of facts or wilful mis-statement of facts on the part of the appellant. It was submitted that there was no categorical finding had been given as to whether non-payment had occurred owing to any fraud, collusion etc. enumerated under Section 73(1) of the Act. It is submitted that under Section 73(3), once a provider of service paid the tax due along with interest before the SCN, no proceedings should be initiated against the appellant unless there existed fraud, collusion etc. But in their case, since there are no such findings against the appellant, the proceedings should have been treated to be concluded on 29-6-2006 when the appellant paid the tax due along with applicable interest. They relied upon the judgments given in the cases of CCE, Jalandhar v/s Darmania Enterprises [2009 (14) STR 741 (P&H)] and Majestic Mobikes Pvt Ltd v/s CST,
Respondent’s Contentions: - Revenue contended that the proceedings were initiated on receipt of intelligence of evasion of service tax by the appellant. The Original Authority had refrained from imposing penalties relying on case laws in respect provisions in the Central Excise Act. These case laws are no longer binding in the wake of the judgment of the Apex Court in the Dharmendra Processors case [2008 (231) E.L.T 3 (SC)]. The Original Authority had not exercised discretion under Section 80 of the Act and waived penalty, the appellant was liable to suffer as per law.
Reasoning of Judgment: - The Tribunal found that the Original Authority had not recorded any finding as to whether the appellant had evaded the service tax due by fraud, collusion etc. There is no finding if the appellant was aware of its liability to pay the service tax under GTA and had knowingly refrained from paying the tax due. The statement of the proprietor only indicates that the appellant was not aware of its liability. Therefore, in the absence of finding of intention to evade payment of duty, the appellant was entitled to the relief prescribed in the Circular No. 341/18/2004-TRU, dated 17.12.2004. In this Circular it was provided that in cases of default of payment of service tax before 31.12.2005, if the default was not due to deliberate fraud, collusion, suppression of facts or willful mis-statement with intent to evade payment of duty, then no penalty will be payable.
It was further held that order the Commissioner (Appeals) imposing penalties on the appellant was passed without any additional evidence. His finding that the proprietor’s statement indicated that the appellant was aware of his liability was without basis. Penalties are therefore set aside. Moreover, as per Section 73(3) of the Act, when the assessee discharged liability to service tax along with applicable interest before issue of show cause notice, no proceedings should be initiated against the assessee.
The Tribunal also held that the case laws relied upon by the appellant support clearly their case. It was held that in the facts of the case, the appellant was entitled to relief under Section 80 which provided for waiver of various penalties prescribed under Act. Impugned order set aside.
Decision: - Appeal allowed.
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Case: - M/s Dagger Die Cutting v/s Commissioner of Central Excise, Chennai II
Citation: - 2010-TIOL-408-HC-MAD-CX
Issue: - When the issue involved relates to the rate of duty or value of goods then appeal is to be filed before the Apex court and not before High Court?
Brief Facts: - Petitioner was engaged in manufacturing and selling of Leather Die Cutting Knives and was started in 1993. Petitioner is a registered SSI and is availing exemption in payment of excise duty. The appellant is also entitled to duty credit via modvat and cum-duty benefits. Husband of the petitioner started Dagger International which was involved in retailing the Die Cutting Knives.
A show cause notice dated 19.5.2000 was issued by the Commissioner claiming duty for the period from 1995-96 to 2000-2001. Duty was claimed for the transactions that took place during the years 1995-96. Petitioner filed reply to the show cause notice. The first respondent confirmed the duty demand against the petitioner in terms of proviso to Section 11A of the Central Excise Act, 1944. Penalty was also imposed invoking provision under Section 11A and Rule 173Q of the Central Excise Rules, 1944. In appeal, the second respondent upheld the order of the first respondent that price of M/s Dagger International was to be accepted. However, the matter was remanded to the first respondent for grant of benefit of modvat credit and to treat the price as cum-duty in terms of the judgments of the Supreme Court. The first respondent also was directed to arrive at the exact amount of duty due on readjustment after giving an opportunity to the appellant to produce evidence.
Petitioner filed petition before the second respondent seeking for rectification of the original order dated 03.05.2002 which was rejected on the ground that as it was merit-less.
Petitioner challenges the order dated 25.4.2003 passed by the second respondent before the High Court in writ petition filed under Article 226.
Petitioner’s Contentions: - Petitioner has challenged the impugned order on the grounds that the show cause notice was time-barred as it was sent after one year period prescribed in law. The impugned orders have been passed on the basis of allegations not contained in the SCN.
On the issue of admissibility of Writ Petition, it was submitted that in a case where a perverse order has been passed by the authority concerned, the High court has ample power under Article 226 of the Constitution of India to go through the entire materials to test whether the order impugned is a perverse one.
Petitioner further submitted that Section 35-L of the said Act has no application to the facts and circumstances of this case. Even otherwise, when a certiorari remedy has been sought for on the ground that there was violation of principles of natural justice also this court has every authority to entertain the writ petition under Article 226 of the Constitution of India.
It is further contended by the Appellant that M/s Dagger International is not a related party to the petitioner.
Petitioner contended that none of the materials collected by the first respondent would establish that the petitioner and M/s. Dagger International are related persons.
Respondent’s Contentions: - Respondent submitted that the power of judicial review under Article 226 of the Constitution of India conferred on this court is very limited. Respondent relies upon the cases in Bachan Singh v/s Union of
Respondent referred to provision of Section 35-L and contended that the final order passed by the second respondent is subject to appeal before the Supreme Court. When the statute provides for appeal, this court has no jurisdiction to entertain the writ petition filed overlooking the appeal remedy available for the petitioner before the Supreme Court.
Further, Respondent relied upon the decision given in Colour-Chem. Ltd v/s Union of
Respondent further submitted that the materials collected by the first respondent would go to show that the petitioner and M/s. Dagger International are related persons.
Respondent have also relied upon the judgment given in Collector of Central Excise, Ahmedabad v/s I.T.E.C. (P) Ltd [2002 (145) ELT 280 (SC)].
Reasoning of Judgment: - The High Court held as under:
On the issue of maintainability of writ petition, the High Court held that it is true that the High Court does not act as a court of appeal. But, the power of this court to weigh the materials on record to test whether the order under challenge is perverse is well within the realm of the judicial review. During the course of weighing the evidence to test whether there was any perversity in the finding, if the court comes to a conclusion that there are materials to show that such a finding impugned could be arrived at and that there was no misdirection either on law or on facts, the court would not interfere with the findings of the Tribunal concerned.
Further, it was held that the jurisdictional error committed by the Tribunal while exercising the power can also be corrected by this court invoking the powers of judicial review under Article 226 of the Constitution of India.
It was held that an order passed by the Appellate Tribunal relating to determination of any question having a relation to the rate of duty of excise or to the value of goods for the purpose of assessment shall be challenged by way of appeal to the Supreme Court as per section 35-L of the said Act.
It was held that in the petitioner’s case, the second respondent had not decided the rate of duty of excise or the value of goods for the purpose of assessment. The impugned order clearly stated that the exact amount of excise duty would be adjudicated by the first respondent herein. No dispute has arisen with regard to the value of goods in this case.
The High Court held that the issues determined in this case did not fall within the scope of Section 35-L of the Act.
The High Court applying the ratio laid down in the case of J. K. Cotton Spinning & Weaving Mills Co. Ltd. v/s Collector of Central Excise [AIR 1998 SC 1270] and in L. Hirday Narain v/s Income-Tax Officer, Bareilly [AIR 1971 SC 33] found that even assuming for the sake of argument that an appeal before the Supreme Court would lie under section 35-L of the Central Excise Act, 1944, if the High Court had not entertained the writ petition filed under Article 226 of the Constitution of India, the petitioner would have very well moved the Supreme Court. Therefore, there is no justification for this court to dismiss the writ petition as not maintainable after a lapse of seven years from the date of admission of the writ petition before this court.
The High Court held that it was in full agreement with the observations made in Tata Expert Ltd v. Union of India [1985 (22) E.L.T. 732 (M.P.)]. Reliance was also placed on the judgments given in Galada Continuous Casting Ltd v. Assistant Collector [1987 (32) E.L.T. 474 (A.P.)] and on U. P. State v. Mohd. Nooh [AIR 1958 SC 86].
The High Court held that when the remedy of certiorari has been sought for on the ground that the principles of natural justice were violated, even if the statute provides for an appeal remedy, the party aggrieved for such violation can invoke the jurisdiction of the judicial review under Article 226 of the Constitution of India.
Relying on the judgment given in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Others [(1998) 8 SCC 1)], the High Court held that Where any of the fundamental rights is sought to be enforced, or violation of principles of natural justice is sought to be set right or the jurisdiction to pass an order by the authority concerned or the vires of the Act itself is under challenge, the plea that there is alternative remedy available under the statute is not sustainable.
The High Court held that the case Colour-Chem. Ltd v/s Union of
The Court further held that the case of Nivaram Pharma Pvt. Ltd. v. Cegat, Madras [2006 (205) E.L.T. 9 (MAD.)] was not applicable to the instant case as in that case there was no allegation of violation of principles of natural justice. Further, it is not clear whether the remedy of certiorari was prayed for in the said case.
The High Court held that the case of Devala Tea Factory v. Central Board of Excise & Customs,
Accordingly, the High Court held that the High court has jurisdiction to deal with the writ petition on three grounds: -
· The impugned order does not decide the issue relating to the determination of excise duty and therefore, no appeal would lie directly before the Supreme Court under section 35-L of the Central Excise Act, 1944.
· Even if appeal remedy is available, when violation of principles of natural justice is alleged, the writ court has jurisdiction to deal with the matter.
· After admission of the writ petition and entertaining the same for about seven years, the court is not justified in dismissing the plea of the writ petitioner on the ground that alternative remedy was provided under the statute.
On the issue of invocation of extended period of limitation, the High Court found that the show cause notice was issued on 19.5.2000 demanding duty for the transaction during the period 1995-2000. The show cause notice simply said that there had been suppression and therefore, the period of limitation as provided in Section 11A of the Central Excise Act, 1944 stood extended.
The High Court held that the show cause notice did not substantiate the charge of suppression. No averment was made in the show cause notice that there was contravention of relevant provisions with intention to avoid payment of excise duty. Nor could there be any inference upon the facts alleged.
It was held that as per section 11A of the Central Excise Act, 1944, where any duty of excise has not been levied or paid or has been short levied or short paid, a Central Excise Officer may within one year from the relevant date, serve notice on the person chargeable with duty which has not been levied or paid or which has been short levied or short paid. But, in a case where any duty of excise has not been levied or paid or has been short levied or short paid by reason of fraud, collusion or any willful mis-statement or suppression of fact with intent to evade payment of duty, a Central Excise Officer may within five years from the relevant date serve notice on the person chargeable with such duty.
It was held that there shall be a positive act on the assessee's part necessary to justify invocation of extended period of limitation. Mere usage of the words suppression of fact does not amount to suppression. [Associated Pigments Ltd. v. Superintendent of Central Excise [1993 (68) E.L.T. 514 (
It was also held that the extended period of five years is inapplicable for some failure or negligence of the manufacturer to take out licence or pay duty when there was scope for doubt that the goods were not dutiable. There should be a specific charge that there was suppression of goods with an intention to evade duty [Padmini Products v. Collector of Central Excise [1989 (43) E.L.T. 195 (S.C.)].
The High Court held that in the instant case it was alleged in the show cause notice that the petitioner failed to take licence under Rule 174 of the Central Excise Rules, 1944. As per the law laid down by the Hon’ble Supreme Court, mere failure to take licence is not a ground for availing the extended period of limitation by the Revenue.
The High Court held that the extension of the period of limitation entails both civil and criminal consequences and therefore the acts of fraud or suppression must be specifically pleaded in the SCN. The allegation in regard to suppression of facts must be clear and explicit so as to enable the noticee to reply thereto effectively. In the absence of specific statement, the court is entitled to raise the inference that the case was not one where the extended period of limitation could be invoked (Larsen & Toubro Ltd. v. Commissioner of Central Excise, Pune-II [2007 (211) E.L.T. 513 (S.C.)]).
It was held that in the present case, there is no specific allegation or substantiation of suppression of facts has been made. Therefore, it has to be inferred by the court that the extended period of limitation could not have been invoked by the Revenue.
Reliance was placed on Commissioner of Central Excise, Bangalore-III v. Bripanil Synthetics (P) Ltd. [2006 (203) E.L.T. 11(KAR.)] wherein it was held, referring to the decision of the Supreme Court, that unless there is evidence or proof that the licence was not taken out or duty was not paid on account of any fraud or collusion, wilful mis-statement or suppression of facts, show cause notice cannot be issued under section 11A of the Act invoking the extended period of limitation.
The High Court held that there should have been a foundation laid in the show cause notice that there had been wilful suppression of facts to invoke the provision under section 11A of the Act to avail the extended period of limitation. Mere failure to take licence cannot be a ground to invoke the said proviso. There should be a positive act on the part of the assessee. It is to be noted that the show cause notice issued to the petitioner does not substantiate the allegation of suppression of facts. The mere fact that licence/registration was not taken cannot be a ground for availing the extended period of limitation. Therefore, it is held that the essential ingredients of the proviso under section 11A of the Central Excise Act, 1944 are not present in this case to issue the subject show cause notice.
On facts of the case, the High Court held that a perusal of the order passed by the second respondent, shows that he had looked into additional grounds which were not found in the show cause notice issued to the petitioner on 9.5.2000. The petitioner is bound to answer only the grounds alleged in the show cause notice issued to him. If any additional grounds are introduced by the authorities behind the back of the petitioner, the petitioner may not be in a position to put-forth its defence. Therefore, the introduction of additional grounds after the issuance of show cause notice is against the principles of natural justice.
It was held that the second respondent has referred to the fact that the petitioner as well as M/s. Dagger International had a common Auditor which exhibits common interest between the parties. It appears that the second respondent has also introduced another ground that M/s. Dagger International had no working capital of its own and it was surviving only on the credit period granted by the petitioner. It has also been observed by the second respondent that Mr. Nilanjan Deshpande (husband) was providing his service as Chief Executive Officer gratuitously which would go to show that there was mutuality of interest. It has been commented that Mr. Nilanjan Deshpande was virtually in control of both the Concerns. It was also observed by the second respondent that there was commonality of interest as one Concern was involved in manufacturing and the other Concern was involved in retail business.
The High Court noted that there was virtually no allegation in the show cause notice that the petitioner indulged in clandestine manufacture and removal of excise goods. Without affording any opportunity to the petitioner to show cause about those additional grounds, the second respondent had adverted to those additional grounds and slapped on the petitioner with the impugned order.
Reliance was placed on the judgment given in Tata Oil Mills Co. Ltd. v. Union of India & Others [1981 E.L.T. 189 (BOM.)]. And it was held that in the instant case, it has been demonstrated that the respondents have kept on improving the grounds from stage to stage with a view to fix liability on the petitioner without affording opportunity to the petitioner to meet the grounds on which he was sought to be made liable.
The High Court considered the gist of the allegations made in the show cause notice and perused the additional allegations raised by the second respondent in the course of disposal of the appeal.
It was found that the second respondent had on its own accord built up a case of related persons on the allegations not contained in the SCN. Further, the reasoning and finding of the second respondent on the issue of related persons are found to be totally misconceived. The petitioner was not given an opportunity to answer and give his explanation to those additional grounds raised by the second respondent during the course of disposal of the appeal. Thus, the petitioner has demonstrated that there is a violation of principles of natural justice inasmuch as the petitioner was not given an opportunity to answer and explain the additional grounds rose during the course of disposal of the appeal by the second respondent.
The petitioner and M/s Dagger International have their own office premises. There is no bar for M/s Dagger International to have its office in his house. Separate bank accounts have been maintained by the petitioner and M/s Dagger International. The petitioner and M/s Dagger International have gone in for separate registration under various status. They had engaged separate set of employees for themselves. Just because Mr. Nilanjan Dashpande is the husband of Mrs. Rukhsana Deshpande, one cannot jump to a conclusion that the two units separately run by Nilanjan Dashpande and Rukhsana Deshpande are related persons and have mutuality of interest.
It was held that if the duty of excise is chargeable on any excisable goods with reference to value, such value shall be deemed to be the normal price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, but in such cases the buyer shall not be a related person as per section 4 of the Central Excise Act, 1944. Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person, shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal to dealers. As per section 4(1)(a)(iii) of the said Act. A 'related person' means a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and includes a relative. The term relative shall have the meaning as found in the Companies Act, 1956.
Further it was noticed that in Ralliwolf Ltd. v. Union of
It was held that the allegations raised in the show cause notice were not sufficient to attract the third proviso to Section 4 of the Act. Irrelevant materials were given much importance by the respondents to arrive at a conclusion that there was mutuality of interest between the petitioner and M/s Dagger International.
It is alleged that machinery for the petitioner was negotiated by Mr. Deshpande on behalf of the petitioner. Quite unfortunately, the respondents did not consider the explanation that such machinery was purchased by Mr. Deshpande on behalf of the petitioner prior to the formation of M/s Dagger International. It is complained that correspondences were made to the bank on behalf of the petitioner. It is explained by the petitioner that the correspondences were made when the Proprietrix of the petitioner was out of station.
It is further alleged that there is no agreement regarding sale price between M/s Dagger International and the petitioner. The prices have been revised for the last five years. M/s Dagger International had not revised its prices upwards for five years. But, they had reduced them at certain times but, the fact remains that the petitioner's prices remained the same and there was no alteration even when M/s Dagger International reduced their prices.
The further charge is that M/s Dagger International did not pay for the goods purchased from the petitioner immediately on bill-to-bill basis. It has been submitted by the petitioner that the bills were settled as and when the customers of M/s Dagger International settled the bills to M/s Dagger International. There is no law that the business should be transacted only under written agreements.
The petitioner had associated her husband who had the technical expertise at the initial stage when she faced certain problems in marketing the products. The fact that the husband Mr. Deshpande had acted as Chief Executive Officer on a gratuitous basis, will not establish that there was mutuality of interest.
It appears that xerox machine of M/s Dagger International was found installed in the office of the petitioner. But, quite unfortunately, the plausible explanation given by the petitioner that the xerox machine of M/s Dagger International was found in the petitioner's premises in view of the renovation work taken place in the premises of M/s Dagger International was not seriously considered by the respondents.
It was further held that nothing has been shown in this case that the petitioner had interest directly or indirectly in the business of M/s Dagger International.
When a Concern manufactures a special product which can be bought by very few parties in
In the instant case, it is not the case of the Department that the price was unreasonably low. It is the case of the Department that the price was not raised by the petitioner.
Reliance was placed on Chetan B. Thadani v. Union of
It was further held that judgment given in the case of Flash Laboratories Ltd. v. Collector of Central Excise, New Delhi [2003(151) E.L.T. 241 (S.C.)] was not applicable as that was a case where it was established that the products manufactured were sold for a low price by the manufacturer. In such circumstances, it was held that both the Companies were related person. But, in the instant case, it has not been established that the products manufactured by the petitioner were sold for a low price to M/s Dagger International.
It was further held that judgment given in the case of Controller of Central Excise, Ahmedabad v. I.T.E.C. (P) LTD. [2002 (145) E.L.T. 280 (S.C.)] was not applicable as that was a case where there were common Directors in both the Companies. On facts, it was established that the benefits of both the Concerns were shared by members of one and the same family. Here, in the instant case, there is no material to show that the profits of both the Companies were shared by the family members of the petitioner and M/s Dagger International.
It was held that the price of the goods at which it was sold is very important and essential consideration. The price should be unreasonably low to conclude that the two Bodies are related. In the instant case, even the show cause notice did not make out such an allegation. A related person must be a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other. But, unfortunately, the respondents could not establish that the petitioner and M/s. Dagger International are related persons.
In the end, the High Court held that the show cause notice issued by the respondents was bad in law. There is violation of principles of natural justice in issuing the show cause notice and taking the subsequent proceedings by the respondents. The petitioner and M/s. Dagger International are found not to be related persons. Therefore, the entire impugned proceedings of the respondents are quashed.
Decision: - Writ petition allowed. Connected Miscellaneous Petitions also were disposed of.
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Case: - Shubham Chemicals & Solvents Ltd. vs. Commissioner of Customs, Kandla
Citation: - 2010 (255) E.L.T. 99 (Tri. – Ahmd.)
Issue: - Valuation (Custom) - cannot be enhanced on the basis of identical consignment when date of contract, supplier, quality and quantity does not match.
Brief Facts: - Appellants imported styrene monomer from
Appellant’s Contentions: - The appellants had contended before the Commissioner (Appeal) that the invoices represented the correct transaction value. In this regard, they have produced the copy of contract with the foreign party wherein the price was fixed, the letter of credit opened with Standard Chartered Bank, the copy of commercial invoice and the copy of invoice to another party showing the price of the said goods.
Reasoning of Judgment: - The Tribunal held that appellant had entered into the contract with suppliers for the purchase of goods on 22.07.2004 and a letter of credit was opened with standard chartered bank showing the fixed price. The transaction value, duly supported by the contract between the two parties and a letter of credit opened in bank can not be dismissed lightly on the basis of doubt as has been done by the commissioner of appeal, in the absence of any binding evidence to show that the contract was genuine or there was any flow back of money, the transaction value should not have been rejected. Enhancing the transaction value on the ground that there was another import of identical goods in the same vessel at higher price may not be appropriate and just in as much as contract date in the said import is not available. Also there is no evidence to show that the quality and quantity of the goods was identical and the supplier was also the same. Impugned Order set aside.
Decision: - Appeal Allowed.
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Case: - Commissioner of Customs,
Citation: - 2010-TIOL-477-HC-KAR-CUS
Issue: - Customs - amendment in Section 68 -matter pending on the date of the amendment - amendment is prospective one - benefit available to assessee.
Brief Facts: - Respondent-assessee imported memory chips vide Yellow Bill dated 22-3-1989. The goods were deposited at Central Warehousing Corporation on 16-6-1999 under bond in terms of Section 59(1) of the Customs Act, 1952. Within the time stipulated for removal of bonded goods, the assessee did not remove the goods from the warehouse. The time stipulated ended on 15-6-1990. Revenue treated the goods as 'improperly removed' in terms of Section 61(1)(b) of the Customs Act. SCN was issued to the respondent on 2-12-1999 demanding the duty payable and also to levy interest and penalty in accordance in law. Being aggrieved by the order passed by the Authority, the assessee filed appeal before the Commissioner (Appeals) which came to be dismissed. As against the same, the assessee filed an appeal before the Tribunal. The Tribunal allowed the appeal by considering the proviso the Section 68 of the Act. During the pendency of proceedings before the Tribunal, the assessee had challenged the impugned order of the Revenue filed writ petition under Section 23(2) of the Act which was dismissed. Revenue has filed appeal before the High Court challenging the order of the Tribunal. Following questions have been raised:
(i) Whether the CESTAT is legally right in giving relief to the Respondent under the amended Sec. 68 of the Customs Act, 1962, which came into operation only from 14-5-2003, when the transaction in question had taken place much earlier to the date of commencement of the said amended Section?
(ii) Whether the CESTAT is legally right in granting relief to the Respondent under amended Sec. 68, when in the earlier round of litigation the Hon'ble High Court of Karnataka has refused to give such a relief under Sec. 23(2) of the Customs Act, 1962?
(iii) Whether the CESTAT is legally right in quashing the Duty, the interest and penalty, while giving relief to the Respondent under amended Sec. 68 of the Customs Act, 1962, when the proviso to the said Section clearly prescribes that owner of any Warehoused Good's may relinquish his title to the goods upon payment of rent, interest, other charges and penalties that may be payable in respect of the Goods?
Appellant’s Contentions: - Revenue contended that the Tribunal committed a serious error in granting relief to the assessee by relying upon the amended the provisions of Section 68 of the Customs Act since as the same had come into effect from 14-5-2005 onwards. When the assessee has failed to get the relief on an earlier occasion from the hands of this Court, the amended provisions of Section 68 of the Act could not have been invoked by the Tribunal.
It was contended that even if these contentions are held against the Revenue, the order of the Tribunal is liable to be set aside as the Tribunal by invoking the provisions of Section 68 of the Act could have given relief to the assessee only in regard to duty payable by it, but not in regard to arrears of rent, interest and penalty levied by the authorities.
Respondent’s Contention: - Respondent-assessee contended that even though the writ petition filed by the assessee invoking the relief under Section 23(2) of the Act has been dismissed, there is no bar for the assessee to avail the benefit of the amended provision of Section 68 of the Act. Respondent relied upon the judgment of this Court in Commissioner of Customs,
Reasoning of Judgment: - The High Court held that even if the writ petition filed by the assessee has been dismissed invoking the relief under Section 23(2) of the Customs Act on account of the amendment brought to Section 68 of the Act by introducing the proviso in the year 2003, there cannot be a bar to the assessee to make use of the amended provision since the case of the assessee was still pending before the Authorities and the dismissal of the writ petition on an earlier occasion considering the provisions of Section 23(2) of the Act cannot be held to be a bar by applying the principles of res-judicata to invoke the proviso to Section 68 of the Act. Therefore, question No. 2 was answered against the Revenue and in favour of the assessee.
In regard to question No. 1, the High Court held that if the matter is pending on the date of the amendment is a prospective one, the prospective amendment would ensure to the benefit of the assessee. On facts and circumstances of the case, the amended provision would ensure to the benefit of the assessee as the intention of the legislature is to give benefit to the assessee to grant exemption in respect of the duty payable by an assessee. Therefore, High Court answers question No. 1 against the Revenue and in favour of the assessee.
So far as question No. 3 is concerned, the High Court held that by invoking the proviso to Section 68 of the Act, the assessee can claim exemption of duty payable by it on account of the surrounding circumstances of this case provided, he relinquishes the title to the goods upon payment of rent, interest and other charges including penalty. When the amended proviso is so clear in regard to the grant of exemption in respect of the duty payable by an assessee, the assessee has to fulfill the other requirements of the proviso. In the circumstances, High Court was of the opinion that the Tribunal has committed an error in not considering the entire proviso to Section 68 of the Act. The Tribunal without considering the same has granted exemption in respect of the entire duty payable by the assessee and also the interest and penalty levied. Accordingly, High Court answered the question No. 3 in favour of the Revenue.
On the submission of the respondent-assessee that they have paid the rents regularly to the ware-house, the High Court held that in order to compute the interest and penalty payable by the assessee and other charges, if any, matter is remitted to the Assessing Officer holding that in view of the proviso to Section 68 of the Act, the assessee can claim exemption in respect of the duty payable by it on relinquishing his title to the goods in the warehouse.
Decision: - Appeal dismissed accordingly.
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Case: - M/s Om Shanti Satins Ltd v/s Commissioner of Cus. & C. E., Hyderabad-II
Citation: - 2010-TIOL-93-CESTAT-BANG
Issue: - 100% EOU - supply against DFRC - goods not to be treated as allowed to be sold in
Brief Facts: - Assesses are 100% EOU engaged in the manufacture of grey cotton fibres. For the period from April 2001 to July 2002, they cleared fabrics to a number of customers against Advance Release Orders (ARO) issued in terms of Duty Free Replenishment Certificates (DFRCs). For clearing the fabrics, assesses followed the necessary procedure by applying to the Deputy Commissioner for supply of goods to DFRC licence holders. Assesses obtained permission of the Development Commissioner to clear the goods in DTA. While giving details, the assesses had indicated the physical and deemed exports separately and claimed permission to clear 50% of the quantities indicated as physical exports alone and not other clearances made by the assessee including deemed export.
Show cause notice was issued demanding duty on the ground that clearances made by the assesses were not exempted from payment of Basic Customs Duty, Countervailing duty (CVD) and Special Additional Duty (SAD) till the issue of Notification No. 28/2001-CE dt.16.5.2001 and therefore, duty should have been paid for the period from 1.4.2001 to 16.5.2001.
Another allegation in the show cause notice was that there was no exemption from payment of additional duty of excise (CVD) under Notification No. 28/2001-CE. CVD was demanded on clearances of fabrics made to ARO holders for the period from 1.4.2001 to 31.7.2002. The Commissioner passed an ex-parte order which was set aside by the Tribunal and matter was remanded for de novo adjudication. In the de novo proceedings, the Commissioner dropped a part of the demand on ground of limitation but confirmed the duty of remaining duty with interest and imposed penalty of Rs.6,00,000/-. As the demand was restricted to normal period under Section 11A, it has been restricted only to demand CVD.
Assessee has filed appeal being aggrieved over the demand of CVD. Revenue is in appeal being aggrieved for restriction of the demand to CVD and for dropping the demand for the longer period.
Appellant’s Contentions: - Assessee contended that the issue was settled in Maruti Cottex Ltd. Vs. CCE [2005 (183) ELT 393] which was affirmed by the
It was further contended that in terms of DFRC, an importer can import inputs duty free or can source the inputs from indigenous source against ARO issued by DGFT. As the DFRC and the materials imported against were freely transferable, the AROs were also eligible for transfer facility. The indigenous source from where the DRFC transferee or the ARO transferee can procure the goods includes a 100% EOU.
It was further contended that Notification No.125/84-CE dated 26.5.1984 exempted goods produced and manufactured by an EOU from the whole of duty of excise leviable under Section 3 of the Central Excise Act, 1944. In terms of the proviso, the goods which are “allowed to be sold in India” are excluded from the benefit of the above Notification, it was urged that the Apex Court in the case of SIV Industries Ltd. Vs. UOI [2000 (117) ELT 281 (SC)] had held that the expression “allowed to be sold in India” would cover only the clearances approved by the Development Commissioner. The clearances to DFRC holders are not covered by the permission of the Development Commissioner and cannot be categorized as “goods allowed to be sold in
It was stated that the Commissioner denied the benefit of Notification on the ground that the expression used in Section 3 prior to 11.5.2001 viz., “allowed to be sold in
- Goods cleared into the DTA with the permission of the Development Commissioner which would be categorized as “goods allowed to be sold in
- Goods cleared into the DTA without the permission of the Development Commissioner would be categorized as “goods not allowed to be sold in
It was contended that the clearances made by the assessee to DFRC holders are not covered by DTA permission. Consequently, they cannot be considered as “goods allowed to be sold in
It was also contended that in terms of Para 7.7 of the Policy, the supply of goods to the DFRC holder or transferee is considered as deemed exports. In terms of Para 10.3 of the Policy, deemed exports would be eligible for refund of terminal excise duty. Therefore, any duty paid by the assessee would be available as refund and it would only be scriptory excise in paying the amount and getting the refund of it. Reliance was placed on the decisions in Gopal Zarda Udyog Vs. CCE [2001 (128) ELT 409] and CCE,
Respondent’s Contention: - Revenue contended that assesses were not exempted from payment of basic customs duty, countervailing duty and special additional duty for the period from 1.4.2001 to 16.5.2001 for the reason that Notification No.28/2001-CE was issued only on 16.5.2001.
Reasoning of Judgment: - The Tribunal held that the proviso to the Notification 125/84 excluded the clearances which are “allowed to be sold in
Thus, the Tribunal held that the duty demand was not sustainable.
Decision: - Assessee’s Appeal allowed. Revenue’s appeal dismissed.
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Case: - M/s Reil Electricals India Limited v/s The Commissioner of Central Excise
Citation: - 2010-TIOL-444-HC-MAD-CX
Issue: - The restrictions of payment of duty consignment wise from PLA and not utilization of Cenvat credit - under Notification No. 32/2006 - upheld when there is evasion of duty by the manufacturer.
Brief Facts: - Petitioner is the manufacturer of automative electrical items. On 10.11.2008, the Superintendent informed the petitioner that their returns showed that the Cenvat credit availed appeared high when compared to the utilization. Hence, they were directed to produce documents relating to the Cenvat credit availed from the months Jan, 2008 to Oct 2009 along with the statement for further verification. Petitioner filed a reply on 4.2.2009 wherein it admitted that on review of records and registers, it was found that they had availed excess Cenvat credit in respect of various inputs. Thus, there was short payment of excise duty from July 2008 onwards. The petitioner furnished a chart showing the excess/short CENVAT credit taken between the months of May 2008 end December 2008 (excluding April) along with the details of correct credit due based on the input invoices and the credit taken. The petitioner paid the duty with interest. It was submitted by the petitioner that the short payment together with interest be treated as duty paid and the omission regularised as per the provision of Section 11A (2B) of Central Excise Act, 1944.
Revenue initiated an enquiry wherein the person in charge of the accounts submitted that the excess credit was taken to avoid payment of duty from PLA and all this was done with the knowledge of the Management and as per there instructions. The chief executive officer also admitted that excess cenvat credit was taken as there was no balance in credit account but they had paid the entire amount with interest on later date.
In view of the administrative instructions contained in Notification No. 32/2006 dated 30.12.2006, proceedings were initiated against the petitioner. These instructions were issued to discourage errant tendencies to evade duty by dubious means on the view that the assessee knowingly removed excisable goods without payment of duty. Restrictions were imposed on them. Petitioner was directed to pay excise duty for each consignment at the time of removal of the goods w.e.f 11.1.2000 to 30.4.2010. Cenvat credit could not be used for payment of excise duty for the said period. They could take the cenvat credit but could use it only after the said period was completed.
Against this order, petitioner has approached the High Court challenging the action taken against them.
Petitioner’s Contentions: - Petitioner contended that immediately after payment of duty, they had moved the Settlement Commission by petition on 12.1.2009. In the light of the petition filed before the Settlement Commission, it was contended that the question of imposition of any restrictions as regards the availing of the Cenvat credit or payment of duty did not arise. It was contended that there was no violation committed by the petitioner to bring the payment of duty under the restrictions laid down in Notification No. 32/2006. It was submitted that there case did not fall under the said Notification. It was contended that there was no motive to commit any violation. The mistake in records was due to the person in charge of the factory. Considering the conduct of the petitioner, the order has to be set aside. Petitioner pointed out to the recommendation of the Commissioner in favour of the petitioner which had been ignored while passing the order.
Respondent’s Contention: - Revenue contended that when the goods had been removed admittedly without any payment of duty and when there was no payment of duty, the restrictions imposed directing the petitioner to pay the duty for each consignment at the time of removal of goods was rightly made and no exception could be taken to the order passed. The procedure contemplated under the notification had been fully complied with and on the admitted fact that with the knowledge of the petitioner, the goods had been removed without payment of duty and consciously claimed Cenvat credit, which it is not otherwise entitled to, the belated payment of duty with interest, however, did not absolve the petitioner of the conscious violation committed, rightly, in the interest of Revenue, the impugned order has been passed.
Reasoning of Judgment: - The High Court held that Notification No. 32/06 imposes restrictions on the facilities as regards payment of duty when the violations as regards removal of goods without payment of duty are done consciously. The Notification imposes restrictions on the payment of duty as well as on the availing of Cenvat credit on the stated circumstances of violation. Such restrictions are imposed keeping in mind the need to protect the interest of the Revenue as well as to have a check on the breach of law consciously committed by an assessee, leading to evasion of duty, that restrictions imposed as to the payment of duty and availing of Cenvat credit would bring an erring assessee to comply with the provisions in accordance with law. The restrictions imposed are only for a restricted period of time. Given the nature of restrictions thus imposed, that too on a satisfaction of the conduct of the assessee knowingly committed the violation, rightly, in the case on hand, the respondents had passed the impugned order. It must be noted that such restrictions are necessary to bring the erring assessee on the correct rails, so that there is a compulsion on statutory compliance at least in the future. It is further seen that to avoid any arbitrary exercise of authority in imposing restrictions, the Board had laid down broad outline and the circumstances which warrant imposition of restriction. A reading of various circumstances narrated warranting imposition of restrictions clearly shows that these measures are aimed at preventing duty evasion arising on account of removal of goods without payment of duty and availing of Cenvat credit which otherwise is not justifiable.
The High Court held that in the present case, petitioner had availed Cenvat credit and there was removal of goods without payment of duty. The lapse was admitted and restrictions were rightly imposed. The mere fact of payment of duty with interest does not absolve or cleanse the petitioner of the violations committed by the petitioner. Hence, on the substantiated fact, that the petitioner had knowingly committed this violation and imposing the restrictions on the payment of duty and availing of CENVAT credit and that too for a limited period by the respondents cannot be viewed as an arbitrary exercise. On facts, it was clear that a conscious attempt was made to gain an advantage which otherwise is not permissible under law. Hence, in the context of the evidence of person in charge and subsequent statement of CEO, it is difficult to accept the statement that when the petitioner had made the differential duty with interest, they should be exonerated from the consequences of violation.
Decision: - Writ petition dismissed.
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SOY P ITTY on 21 Apr, 2016 wrote:
hitesh on 03 Apr, 2016 wrote:
hitesh on 20 Mar, 2016 wrote:
visuiyer on 09 Mar, 2016 wrote:
hitesh on 06 Mar, 2016 wrote:
hitesh on 29 Feb, 2016 wrote:
Abhimanyu Singh on 08 Feb, 2016 wrote:
CA R P Vijay on 04 Jan, 2016 wrote:
Rahul Singhvi on 04 Jan, 2016 wrote:
O V Srinivasan on 04 Jan, 2016 wrote: