PJ/Case Laws/2010-11/15
Case Laws
Prepared By:
CA Pradeep Jain,
Parag Ghate, B.Com
Megha Jain and
Sukhvinder Kaur, LLB [FYIC]
Case: - Commissioner of Customs, Central Excise & Service Tax v/s M/s Sunflag Iron & Steel Co Ltd
Citation: - 2010-TIOL-988-CESTAT-MUM
Issue: - Refund of service tax on services used with regard to export of goods under Notification No. 41/2007-ST cannot be denied when the exporter has paid the service tax but the bill raised by the service provider indicate that the service tax is paid by another service provider.
Brief Facts: - Respondent-exporter had filed a refund claim of service tax claiming the benefit of exemption under Notification no. 41/2007-ST, dated 06.10.2007. The refund was claimed on the strength of bill raised by the service provider indicating service tax amount claim by the service provider from the respondent whereas the service tax was paid by some other party. A show cause notice was issued to proposing deny the refund on the basis that the service provider who had issued the bill had not paid the service tax, instead they were claiming service tax to pay other parties. The Adjudicating Authority disallowed the claim for cargo handling services and port services. Respondent filed appeal before the Commissioner (A), who allowed the appeal of the respondent. Aggrieved by the same, Revenue has filed this appeal before the Tribunal.
Appellant’s Contentions: - Revenue submitted that the impugned order is not proper and legal. In this case the invoices were issued by the party who has actually paid the service tax and the party who has actually provided services has not raised the invoices.
Reasoning of Judgment: - The Tribunal perused the order of the Commissioner (Appeal) wherein it was held that “refund claim for Cargo Handling services was rejected by the lower authority on the ground that respondent had claimed the refund in the name of Handling of container. But the perusal of documents and the definition of cargo handling services show that the services provided to the respondent were cargo handling services and simply because of change of name is mentioned will not bar him from claiming refund.” With regard to port services, the Commissioner (A) has held that “refund was rejected on the ground that documents were invalid. But the payment of service tax by the appellant was not disputed. The dispute was that the service provider is one person and the service tax is paid by another person.” Further, it was held that “the refund claim for port services provided by M/s Global Logistics has been disallowed but this was not proposed in the show cause notice. Thus, the lower Authority had traversed beyond the show cause notice.”
Thus, the Tribunal held that fact that the respondent has paid the service tax and it is also not disputed that the respondent is not entitled to take the refund of service tax paid by the respondent as per Notification no. 41/2007-ST, dated 06.10.2007. The Commissioner (A) has dealt with the issue in detail and there is no infirmity in the impugned order. It is within the provisions of law and is legal and proper. Impugned order is upheld.
Decision: - Appeal rejected.
Comments: - This is very good decision. Numerous show cause notices have been issued on this ground. Normally CHA pays the amount to various service providers on behalf of exporter and gets the reimbursement of expenses from them. The department did not allow the refund claim on such orders. We hope the issue will be resolved now.
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Case: - Rishi Steels Pvt. Ltd. v/s Asstt. Commissioner of Central Excise
Citation: - 2010 (255) ELT 220 (Bom.)
Issue: - The demand, penalty and interest is payable by the petitioner when it is not further challenged. The attachment in such circumstances is upheld.
Brief Facts: - Demand was confirmed against the petitioner-assessee by the lower Authorities. Petitioner deposited Rs. 14, 57, 000/-. Petitioner assumed that only sum of Rs. 29, 00, 000 was required to be paid by him. The Assistant Commissioner issued notice of attachment of immovable/ movable property belonging to the petitioner on the ground that he had failed to pay the sum of Rs. 26, 25, 000/-. Petitioner filed writ petition challenging the order of attachment of property.
Petitioner’s Contentions: - The Petitioner proceeded on the assumption that under SCN which was the subject matter of the challenge in appeal before the Commissioner (A), the petitioner was liable to pay only sum of Rs. 29, 00, 000 as against which he has already deposited the sum of Rs. 14, 57,000 and therefore, he was not liable to pay any further amount.
Reasoning of Judgment: - The High Court perused the order of the Appellate Authority and adjudication authority had held that the petitioner was not only liable to pay amount of Rs. 11, 97,000/-, which demand has been confirmed by the Appellate Authority and that order has become final as it was never challenged by the petitioner. Besides the liability to pay the confirmed demand amount to the extent of Rs 11, 97, 000/-, the petitioner is also liable to pay the duty involved in respect of invoices referred to in Para 3 of the same order as indicated in para 7.2 (i) and (iii). In addition, the petitioner is liable to pay penalty of Rs. 12, 50, 000/- and interest of Rs. 1, 25, 000/-. The total liability of the petitioner, is therefore, Rs. 25, 27, 000/- plus the amount of invoices referred to in clause 3 of the order.
Accordingly, it was held that the assumption of the petitioner that SCN was wholly misplaced. By the SCN, the petitioner was called upon to pay amount of Rs. 28, 38, 864/- towards penalty as well as interest. The Appellate Authority had decided the appeal partly in favour of the petitioner by confirming the duty demand to the extent of Rs. 11, 97, 000/-. In addition, the petitioner was liable to pay penalty as well as interest. Thus, the assumption on which present petition proceeds is untenable. No reason to interfere with the order of attachment for non-payment of dues by the petitioner. Request for withdrawing of petition also not allowed.
Decision: - Petition dismissed.
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Case: - SPBL Limited v/s Commissioner of C. Ex., Jaipur-II
Citation: - 2010 (254) ELT 104 (Tri. - Del.)
Issue: - Unjust enrichment - once the burden of proof established by the manufacturer - the burden shifts to department to show that duty incidence has been passed on. No condition to show that it is not passed on to ultimate customer.
Brief Facts: - Appellants were engaged in the manufacture of Processed Manmade Fabrics classifiable under Chapter 54 and 55. They used to receive Grey Fabrics from various Grey Fabric suppliers and used to return the Processed Fabrics to the dealers on payment of duty on the basis of job work done and processed on such fabric procured by them. In terms of Trade Notice No. 18/CEX/2001/M-III, dated 20-3-2001 issued by Bombay Commissionerate the appellants were paying duty on the assessable value arrived at on the basis of 115% of the cost of production, though subsequently pursuant to the issuance of the Board's Circular No. 610/10/2002-CX., dated 19-2-2002 it was settled that the duty liability on the processed fabrics payable would be on the basis of principles laid down by the Hon'ble Supreme Court in the case of Ujjagar Prints Ltd.[1989 (039) ELT 0493 (S.C.)] i.e. on the assessable value taking into account the landed cost of raw material plus job charges including actual profit margin.
Thus, the appellants filed refund claim. The refund claim is in two parts, one relating to the amount of Rs. 31, 83, 519/- which pertains to the goods cleared to M/s Sangam Suitings Ltd, sister concern of the appellants. The second part relates to the amount of Rs. 67, 19,061/- which pertains to the clearances made to the other parties.
The Adjudicating Authority held that the claim was admissible on merit and sanctioned the refund claim. But on the ground of bar of unjust enrichment, the amount of refund was directed to be credited to the Consumer Welfare Fund in terms of Section 11B (2) of the Central Excise Act, 1944. This was done on the ground that the appellant had failed to discharge their burden regarding non-passing of duty liability to the consumer. Appeal against the impugned order was rejected. Hence the appellants have approached the Tribunal.
Appellant’s Contentions: - Appellants contended that the lower Authorities had ignored the fact that the appellants pursuant to the processing of the fabrics had supplied the same to their dealers and not directly to the ultimate consumer and in the process they either had not collected the part of the amount which was claimed as refund from the department or that subsequent to the passing of such burden upon the dealer, the same was refunded by the dealers to the appellants by issuing necessary credit note and corresponding debit note by the appellants to the dealers.
It was further submitted that the law does not require the appellants to establish that the burden of duty was passed on to the ultimate consumer, and it is sufficient for them that they have not passed on the burden to the dealers. In that regard, they have submitted various letters written by M/s. Sangam Suitings Ltd. (sister concern of appellant) confirming the fact that the payment made by them related to the amount excluding the amount of duty payable on the basis of addition of 15% of the profit margin.
As regards the other dealers, it was pointed out that the documentary evidence in the form of credit note and debit note besides balance sheet disclosed that the amount which was sought to be refunded was always shown as advance to the department and not towards expenses in the said balance sheet. Reliance is placed on the judgment in Addison & Co. v. CCE,
Respondent’s Contention: - Revenue contended that the decision of the lower Authorities is in consonance with the decision in the matter of Mafatlal Industries Ltd. v. UOI [1997 (089) ELT 0247 (S.C.)]. It was further submitted that the provision of Section 11B(2) clearly required that the amount refundable is required to be credited to the Consumer Welfare Fund unless the claimant clearly establishes that the duty burden in that regard has not been passed on to the ultimate consumer. By relying on the decision in the case of Sangam Processors (Bhilwara) Ltd. v. CCE, Jaipur [1994 (071) ELT 0989 (Tribunal)], it was submitted that in the said case the Tribunal had held that issuance of credit note can not establish the discharge of burden cast upon the claimant in terms of Section 12B.
As far as letters of M/s Sangam Suitings Ltd are concerned, it was submitted that the same is sister concern of the appellants, and if those letters could be procured by the appellants it is not understood why similar letters were not procured from other dealers.
Reasoning of Judgment: - The Tribunal held that the contention of the appellants that the duty element was not passed on to the dealers and that was sought to be established by the above documents, neither of the contents were disputed nor any counter evidence in this regard was produced by the department. This relevant aspect of the matter was not considered either by the Adjudicating Authority or Commissioner (Appeals) while deciding the matter.
The Tribunal held that once it was established by the appellants that the burden in relation to the amount which was sought to be claimed was not passed on to the dealer to whom goods were supplied, the burden cast upon them in terms of Section 12B was clearly discharged and the onus had shifted upon to the department. Since there is no evidence produced by the department to counter the said material on record, it was held that as far as amount of Rs. 31, 83,519/-is concerned, there is no proof of passing on the burden upon their dealers.
It was held that respondent rightly contended on the basis of judgment in Mafatlal Industries Ltd. that it is not sufficient for the claimant to establish that the burden had not been passed on to the dealer but it has to be established that the burden has not been passed on to the ultimate consumer. But once it is disclosed and clearly established that the manufacturer had not passed on the burden in relation to the particular amount of duty on its dealer unless specifically shown that the dealer on his part has collected the money and passed on to the original manufacturer, it is difficult to accept the contention that the Tribunal will have to presume that the burden has been passed on to the ultimate consumer. The very fact that the burden has not been passed on to the dealer leads to presumption that the burden has not been passed on the consumer which consequently leads to discharge of burden in terms of Section 12B. In case it is presumed that the burden has not been passed on to the dealer and the dealer collect the duty amount, the bar of unjust enrichment will apply to dealer and not to the claimant. It was held that in present case, it cannot be said that the claimant had not discharged the burden cast upon them in terms of Section 12B.
With regard to the claim relating to Rs. 67, 19,061/-, the Tribunal held that undisputedly the appellants have passed on the burden upon the dealer. The Tribunal perused the judgment given in the case of UOI v. A.K. Spintex Ltd. It was held that Section 12B of the Act provides that every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyers of such goods.
Referring to the judgment in Mafatlal Industries Ltd in relation to Section 12A and 12B, the Tribunal held that it clearly disclosed that in case of contention of the manufacturer about non-passing of duty burden in relation to the goods cleared by him, he has to establish the claim in that regard by producing cogent evidence in support of such claim. Until burden in this regard is discharged by producing the cogent evidence, the requirement of Section 12B does not stand satisfied, and therefore, presumption would not stand rebutted till then.
It was held that in A.K. Spintex Ltd. case, it was held that the claim regarding issuance of debit note and credit note was not disputed and was clearly established and in those circumstances, it was clearly proved that the price did not include duty element which was sought to be claimed as refund.
On the facts of the appellant’s case, the Tribunal held that it is not in dispute that the appellants claimed that there had issued debit notes by them in favour of the dealers and corresponding credit notes were issued by the dealers.
It was held that the issue as to whether the burden which is required to be discharged to claim refund can be discharged by producing the evidence in the form of credit and debit notes and whether such evidence would disclose non-passing of duty burden stands concluded as far as the appellants are concerned. Bearing the same in mind, it cannot be presumed for the appellants to reopen the said issue in this appeal.
The judgment of A.K. Spintex Ltd is of no help to the appellants as far as claim in relation to amount of duty of Rs. 67, 19,061/- is concerned. The decision in the case of Jaipur Syntex Ltd. and in the case of Addison & Co. also do not lend any support to the contention of the appellants in relation to the claim relating to Rs. 67,19,061/-.
In the result, the Tribunal partly allowed the appeal. Impugned order relating to refund claim of Rs. 31, 83,519/- is not sustained and is set aside. The said amount required to be refunded to the appellants along with interest thereon. As far as claim for Rs. 67, 19,061/- is concerned no fault found with the order passed by the Authorities below directing the amount to be credited to the Consumer Welfare Fund.
Decision: - Appeal disposed of in above terms.
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Case: - Om Udyog v/s Union of
Citation: - 2010 (254) E.L.T. 547 (P & H)
Issue: - Whether on facts of the case, detention of goods for a period of more than two months can be held to be justified?
Brief Facts: - Petitioner imported Processed Distillate Oil in January-February 2010 and filed Bill of Entry under Section 46 of the Customs Act, 1962. Petitioner sought clearance of the goods for home consumption on payment of import duty. The officers of the department physically verified the goods and took samples for the purpose of making assessment of duty under Section 17. Correspondence was also exchanged between the petitioner and the department. Thereafter, the goods were seized between 12.3.2010 to 19.3.2010. Petitioner then sought release of goods on the ground that examination of goods had already taken place and there was no justification for seizure of goods. It was also pointed out that detention of goods was resulting in demurrage charges. This fact was also pointed out by the Deputy Commission, Customs in a letter to the Additional Director, DRI. Request was made to release the goods, unless required for examination or re-examination. It was also mentioned that bill of entry had already been assessed provisionally by the proper officer. But the goods were still not released. Thus, the petitioner has filed this petition in the High Court stating that the goods were being illegally detained.
DRI in his reply had communicated to the Petitioner that the goods could be kept in bonded warehouse under Section 49.
Petitioner’s Contentions: - Petitioner has relied upon the instructions Annexure P.12 dated 22.8.2006 wherein it is provided that first examination of goods should take place in 48 hours and assessment should be done within 24 hours thereafter. If it was necessary to detain the goods, the importer must be intimated so that he may shift the goods to bonded warehouse under section 49 of the Act. Goods may be provisionally released and decision to release goods should be taken within five days after the presentation of bill of entry. Exceptions were of prohibited goods or fraudulent practices.
Petitioner submitted that the goods were being detained for the last about three months and it was only on April 7, 2010 that Respondents had made a statement that the goods could be shifted to the godown of the petitioner under the seal of the respondents. Mere shifting of goods to the godown of the petitioner was no relief as the goods could not be dealt with as the petitioner may like to. The petitioner was, thus, suffering loss. Action of the respondents was without any valid justification. The said action amounted to seizure without following the statutory safeguards. It was submitted that though, power of seizure may exercised for advancing the object of law, the same could not be allowed to be misused without there being any prima- facie case and without following the prescribed procedure. The undervaluation could be taken care of by assessment or provisional assessment and unless the goods are prohibited goods, the power of seizure could not be exercised so as to deprive the importer of use of goods for a long time. It is not the case of the respondents that the goods are prohibited goods. As per letter dated 17.4.2010, only allegation of the DRI was that dispute was about classification of goods. Reliance has been placed on judgment in Mapsa Tapes Private Limited vs. Union of
Respondent’s Contentions: - Respondents have placed reliance upon judgment of the Madras High Court in Bhoormal Premchand v. Collector of Cus., Madras [2000(125) ELT 118] wherein after referring to the judgment of the Hon'ble Supreme Court in Collector of Customs, Madras v. Nathella Sampathu Chetty [AIR 1962 SC 316], it was observed that temporary detention for checking did not always amount to seizure.
Reasoning of Judgment: - The High Court held that it is not the case of the respondents that power of seizure had been invoked as formation of satisfaction under Section 110 of the Act, which is condition precedent for exercise of such power, has not been shown. The High Court held that in Mapsa Tapes case it was held that exercise of power of seizure requires recording of reasons before exercise of such power.
On facts, it was observed that it is not the case of the respondents that goods were prohibited goods. It is also not their case that duty assessed under Section 17 or 18 has not been paid. In such a situation, non clearance of goods may be justified for minimum period required for assessment. But in no case, non-clearance of goods for months can be justified. Non clearance seriously affects rights of lawful importer and fair procedure being constitutional mandate, no authority can plead unlimited power of non clearance for its own incompetence as a justification beyond reasonable period.
The High Court further held that submission of respondents that the petitioners could get the goods released on furnishing requisite bond under Section 110A of the Act is misconceived as Section 110A applies only when seizure is effected under Section 110.
High Court was of the view that while officers of Custom Department may have justification to verify whether goods were prohibited or were otherwise liable to confiscation or to assess and recover duty, they are not immune from accountability against abuse of power by detaining goods for indefinite period on the ground that they were in the process of checking the value or nature of goods. They are under legal obligation to do so promptly and if by reason of their incompetence they are unable to do so, detention of goods beyond reasonable time cannot be allowed.
It was held that in present case, no justification has been shown for continued detention of goods. Accordingly, direction given to respondent that the said goods of the petitioners be released forthwith subject to compliance of provisions relating to payment of duty.
Decision: - Petitions allowed.
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Case: - GMP Finishing Mills,
Citation: - 2010 (254) ELT 608 (P & H)
Issue: - Unjust enrichment - burden lies on assessee - absence of documentary evidence - burden not discharged. Refund transferred to consumer welfare fund.
Brief Facts: - Appellant are engaged in processing man-made fabrics with the aid of power and steam. They were operating with hot air stenters. They were paying duty on actual capacity as determined by the Commissioner, Central Excise. The duty was paid on the basis of size of the chamber. Revenue contended that appellant is also liable to pay duty on the galleries which were pollution control equipment. Accordingly, appellant paid the duty on the basis of size of the chamber and on size of the galleries for the period from June, 1999 to August, 1999 and October, 1999 to March, 2000.
Meanwhile, Supreme Court considered the question whether similar manufacturers are liable to pay duty on the galleries in the case of CCE, Jaipur vs. M/s Sangam Processors (Bhilwara) Ltd [2002 (146) ELT 254] and held that galleries were not liable to pay duty.
Accordingly, the appellants claimed refund of duty paid by them. The Assistant Commissioner, who was the adjudicating authority, sanctioned the refund claim, but ordered that as the appellant has not shown that it has not recovered the duty from its buyers, therefore, refund was ordered to be transferred to the Consumer Welfare Fund. In appeal, the Commissioner (Appeal) held that although there is no dispute regarding the admissibility of refund on the duty already paid on the galleries at the instance of the Department, however, as the appellant has not produced any evidence to show that they have not adduced of the incidence on duty paid on the galleries to the customers, therefore, the Adjudicating Authority has rightly applied the doctrine of unjust enrichment and issued directions to credit the amount of duty paid by the appellant to the Consumer Welfare Fund.
Aggrieved by the aforementioned order, the appellant filed appeal before the Tribunal, which has dismissed on the ground that the appellant has failed to adduce any material to show that duty was paid by it in respect of the galleries and the same has not been passed on to the buyers of the goods.
The appellant have filed appeal before the High Court raising the following question of law:
"Whether it is just and fair to reject the refund claim when excise duty was paid under protest and against provisional assessment order?"
Appellant’s Contentions: - Appellant contended that the duty was liable to be paid in respect of galleries. It is contended that once it has been held in M/s Sangam Processors' case that size of galleries was not to be included in the chambers for the purpose of capacity determination and no duty was liable to be paid by the manufacturer, therefore, the Revenue was liable to refund the duty paid on the galleries.
Respondent’s Contentions: - On the other hand, counsel for the respondent has submitted that the appellant has not relied on any material to show that it has not collected the duty paid by it from the buyers of the goods. It is contended that refund of duty would tantamount to unjust enrichment of the appellant, as it has already recovered the duty from the buyers and would be getting the refund also, if the appeal is allowed, which is impermissible.
Reasoning of Judgment: - The High Court held that it is not in dispute that the appellant was not liable to pay duty on the same and was entitled to refund. However, before getting the refund, the appellant had to place on record sufficient material to show that it had paid the duty itself and had not passed on the burden on to his buyers. In the present case, no material has been placed on record by the appellant to show that it has not recovered the duty paid by him from his buyers and hence the appellant cannot be allowed to receive the refund as that would tantamount to unjust enrichment.
It was further held that Section 11(B)(1) specifically provides that application for refund shall be accompanied by such documentary or other evidence, as the applicant may furnish, in order to establish that amount on duty of excise in relation to which the refund is being claimed was paid by him and the incidence of said duty has not been passed on by him to any other person. In the absence of any material to show that incidence of duty has not been passed on to any other buyer, it would have to be presumed that the appellant has collected the duty from his customers. The appellant has failed to discharge the legal obligation as no documentary or any other proof in this regard has been adduced by it. The Lower Authorities have rightly relied on the judgement in CEA Mumbai-II vs. Allied Photographics India Ltd. [2004(166) ELT 3 (SC)] wherein it has been held that doctrine of unjust enrichment could be validly invoked.
Accordingly, it was held that the appellant had failed to prove that it has not recovered the duty paid by him from any of his customers and has thus, failed to discharge the onus, hence the appellant is debarred from taking the amount of refund as that would amount to unjust enrichment. Impugned orders of the Tribunal as well as authorities below upheld. Question answered against the appellant. It was held that the Revenue was fully justified in rejecting the refund claim, as the appellant has failed to adduce any documentary or other evidence to show that duty paid by him in respect of galleries has not been passed on to the customers of the goods.
Decision: - Appeal dismissed.
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Case: - Commissioner of Central Excise, Delhi-IV v/s Sai Ram Industries
Citation: - 2010 (255) E.L.T. 256 (Tri.-Del)
Issue: - Second stage dealer- goods purchased from person who is not first or second stage dealer. Credit is not admissible.
Brief Facts: - Respondent are manufacturers of goods falling under sub-heading 8708 1010 of the Central Excise Tariff and were availing Cenvat credit of duty on the inputs under Cenvat Credit Rules, 2004. Show cause notice was issued to them seeking recovery of allegedly wrongly taken Cenvat credit amounting to Rs. 9586/- along with interest which has been taken on the basis of an invoice issued by M/s. Golden Steel Company. It was contended by the Department that the said invoice is not an invoice issued by the 1st stage dealer or second stage dealer or a manufacturer and hence not valid duty paying document for taking Cenvat credit. Penalty was also proposed to be imposed on the respondent under Rule 15(2) of the Cenvat Credit Rules, 2004 and also on M/s. Golden Steel Company on the basis of whose invoice Cenvat credit has been taken, and M/s. Gautam Steel Traders who had sold the goods to M/s Golden Steel Company.
The Assistant Commissioner confirmed the demand of Cenvat credit of Rs. 9589/- along with interest and imposed penalties of equal amount on the respondent as well as on M/s. Golden Steel Company and M/s. Gautam Steel Traders. In appeal, the Commissioner (Appeals) set aside the demand of cenvat credit and penalty on the respondent and set aside the penalty on M/s. Golden Steel Company but upheld the penalty on M/s. Gautam Steel Traders. Against this order of the Commissioner (Appeals) Revenue has filed this appeal before the Tribunal.
Appellant’s Contentions: - Appellant submits that since the manufacturers M/s. Swastika Pipes Ltd. had sold the goods, in question, to M/s Rameshwar Das Devi Dayal, the intending agent and M/s. Gautam Steel Trader has purchased the goods from M/s. Rameshwar Das Devi Dayal, and the Respondent had purchased the goods from M/s. Golden Steel Traders who in turn had purchased the goods from M/s. Gautam Steel Traders, M/s Golden Steel Company cannot be treated as “second stage dealer” and accordingly the invoice issued by them to the respondent is not a valid document for taking Cenvat credit. In this regard, they also emphasized the definition of “first stage dealer” and “second stage dealer” as given in the Cenvat Credit Rules, 2004.
Respondent’s Contentions: - Despite receipt of notice, no one appeared for the respondents.
Reasoning of Judgment: - The Tribunal held that the goods had been manufactured by M/s Swastika Pipes Ltd, Rohtak who had sold the goods to M/s. Rameshwar Das Devi Dayal,
The Tribunal held that as per the definition of “first stage dealer” given in Rule 2 (ii) of the Cenvat Credit Rules, 2004, the “first stage dealer”, means the dealer who purchases the goods directly from the manufacturer or from the depots of the manufacturer or the premises of consignment agent of the said manufacturer or from any other premises from where the goods are sold by M/s. Swastika Pipes Ltd. to M/s. Rameshwar Das Devi Dayal who is not their consignment agent and M/s Gautam Steel Traders have obviously purchased the goods directly from the manufacturers but have purchased the same from M/s Rameshwar Das Devi Dayal and the manufacturer’s invoice mentioned M/s. Rameshwar Das Devi Dayal as the buyer, M/s Gautam Steel Trader cannot be called “first stage dealer” within the meaning of this term as defined Rule 2 (ii) of the Cenvat Credit Rules.
It was further held that since M/s Golden Steel Company had purchased the goods from M/s Gautam Steel Trader and since M/s Gautam Steel Trader are not “first stage dealer”, M/s Golden Steel Company would not be covered by the definition of second stage dealer, as the term “second stage dealer”, as defined in Rule 2 (s) of Cenvat Credit Rules, 2004, means a dealer who purchases the goods from first stage dealer. In view of this, the invoice issued by M/s Golden Steel Company cannot be said to be a valid duty payment document for taking Cenvat Credit in terms of Rule 9 of the Cenvat Credit Rules. Therefore, Commissioner (Appeals) order permitting Cenvat Credit on the basis of this invoice is not correct. Since the respondent company had taken Cenvat credit on the basis of invoice which is not a valid duty paying document, the credit has been taken by them wrongly and accordingly penalty under Rule 15 (1) of Cenvat Credit Rules would be attracted.
Accordingly, the impugned order was set aside and the order passed by the Assistant Commissioner was restored.
Decision: - Appeal allowed.
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Case: - Commissioner of Central Excise, Chandigarh-II v/s M/s Sarvpriya Industries Ltd
Citation: - 2010-TIOL-523-HC-P&H-CX
Issue: - Penalty under Section 11AC- intent to evade payment of duty is must.
Brief Facts: - Respondent-assessee was engaged in the manufacture of motor seat parts. During search operation on 20.12.2001, it was alleged that there was illegal utilization of credit on AED(T) on the basis of impugned invoices. Show cause notice dated 14.12.2005 was issued. The Original Authority confirmed the demand of duty and also imposed penalty. The said order was affirmed by the Commissioner (Appeals). On further appeal, the demand of duty was upheld but penalty was set aside by the Tribunal. It was held by the Tribunal that the amount of credit taken was reversed on the spot on 20.12.2001. After 4 years show cause notice dated 24.12.2005 was issued, the penalty was proposed to be levied under Section 11AC, but there was no material on record to show suppression of facts with intent to evade payment of duty.
Hence, Revenue is in appeal before the High Court raising the substantial question of law that “Whether the Hon’ble Tribunal is right in refraining from imposing mandatory penalty in terms of Section 11AC of the Central Excise Act, 1944 when it has confirmed the demand of duty of extended period in terms of provisions of Section 11A of the Central Excise Act, 1944?
Appellant’s Contentions: - Revenue submitted that levy of penalty was automatic once duty was paid less even if there was no intention to evade the payment of duty. Reliance has been placed on the judgments of the Supreme Court in Union of
Reasoning of Judgment: - The High Court held that the contentions of the Revenue were not acceptable. It was held that the law laid down in Dharmendra Textile’s case as well as in Rajasthan Spinning & Weaving Mills is that mandatory penalty under Section 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the Authorities may have no discretion once conditions stipulated under Section 11AC of the Act exist, in absence of fulfillment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty under Section 11AC of the Act was not warranted. No substantial question of law arises.
Decision: - Appeal dismissed.
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Case: - Commissioner of Central Excise, Jaipur v/s M/s. Rajasthan Spinning & Weaving Mills Ltd
Citation: - 2010-TIOL-51-SC-CX
Issue: - Whether the assessee was right in availing Modvat credit in respect of the steel plates and M.S. Channels used by them for erection of chimney for the diesel generating set, falling under Chapter 85 treating them as “capital goods” in terms of Rule 57Q?
Brief Facts: - Respondent-assessee is a public limited company engaged in the manufacture of yarn. They availed Modvat credit on “capital goods” described in the Table given below Rule 57Q in respect of steel plates and M.S. Channels used by them for erection of chimney for the diesel generating set, falling under Chapter 85 of the Central Excise Tariff Act, 1985. Show cause notice was issued to them alleging that Modvat credit availed of on steel plates and M.S. Channels used in the fabrications of chimney, was inadmissible as the subject items were not “capital goods”, as described in the said Table. And Modvat credit was wrongly availed by the respondent. In reply to the show cause notice, Respondent pleaded that the items in question being components of chimney which in turn was an accessory of the diesel generating set, falling under heading 85.02, they also qualify the test of “capital goods” specified against serial No. 5 of the Table, and therefore, Modvat credit in respect of the said items was clearly admissible. It was asserted that chimney was a vital part of the generating set for discharge of gases arising out of burnt fuel, mandatory under the Pollution Control laws.
The Assistant Commissioner held that since steel plates and M.S channels were not used as input in the manufacture of final product, these could not be covered under any of the chapter headings in the Table under Rule 57Q, Modvat credit on the said items was inadmissible. Accordingly, Modvat credit availed by the respondent was disallowed and penalty was imposed. In appeal, the Commissioner (Appeals) upheld the disallowance of credit but set aside the penalty levied on the respondent. Respondent went further in appeal to the Tribunal.
The Tribunal held that since the chimney is used as an accessory to the diesel generating set, and steel plates and M.S channels were used in the fabrication of chimney these items also fall within the ambit of serial No. 5 of the said Table and therefore, Modvat credit on these items could not be denied. Against this order of the Tribunal Revenue has filed this appeal before the Supreme Court.
Appellant’s Contentions: - Revenue submitted that the Tribunal has failed to appreciate that “capital goods” as described in the Table under Rule 57Q would include only those goods which are specified against serial Nos. 1 to 4 of the said Table and, thus, the “capital goods” in the present context cover only the diesel generating set and its components, spares and accessories and not steel plates or M.S Channels, which are independently classifiable under Chapter Sub-Heading 7208.11 and 7216.10 respectively. It was argued that both the subject items were not used as input in manufacture of final product so as to make them eligible for Modvat credit in terms of serial No. 5 of the said Table.
Respondent’s Contention: - Respondent submitted that the issue sought to be raised by the Revenue has been concluded in favour of assessee by a decision of this court in Commissioner of Central Excise, Coimbatore & Ors v/s Jawahar Mills Ltd. & Ors [(2001) 6 SCC 274]. It was observed therein that any goods that may be used in the factory of the manufacturer of final product would be “capital goods” and would be entitled to Modvat credit. It was, thus, asserted that the said items used in the fabrication of chimney, which in turn is an important component of diesel generating set, qualify the test of “capital goods” and would be entitled to Modvat credit.
Reasoning of Judgment: - The Supreme Court held that Rule 57Q enabled the manufacturers of specified goods to claim Modvat credit of duty paid on capital goods used by them in the factory for manufacture of final product. It was held that the language of the Rule is clear and unambiguous. It applies to the final products described in column (3) of the Table under the Rule as also to other goods, referred to as “capital goods”, described in the corresponding entry in column (2) of the said Table, used in the factory of the manufacturer of final product.
The Supreme Court referred to the judgment given in Jawahar Mills Ltd’ case wherein it was observed that capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances if any of these goods is used for producing or processing of any goods or for bringing about any change in the substance for the manufacture of final product. The Supreme Court held that although this view was expressed in the light of the definition of “capital goods” in the said Rule, which is not these in Rule 57Q, as applicable in the instant case, yet the “user test” evolved in the judgment, which is required to be satisfied to find out whether or not particular goods could be said to be capital goods, would apply on all four to the facts of the present case.
Appling the “user test” on the facts in hand, the Supreme Court held that the steel plates and M.S Channels, used in the fabrication of chimney would fall within the ambit of “capital goods” as contemplated in Rule. It is not the case of the Revenue that both these are not required to be used in the fabrication of chimney, which is an integral part of the diesel generating set, particularly when the pollution Control laws make it mandatory that all plants which emit effluents should be so equipped with apparatus which can reduce or get rid of the effluent gases. Therefore, any equipment used for the said purpose has to be treated as an accessory in terms of serial No. 5 of the goods described in column (2) of the Table below Rule 57Q.
In the end it was held that the Tribunal was correct in law in holding that the assessee was entitled to avail of Modvat credit in respect of the subject items, by treating items as capital goods in terms of Rule 57Q of the Rules.
Decision: - Appeal dismissed.
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Case: - Commr. of Central Excise v/s International Cylinders Pvt. Ltd.
Citation: - 2010 (255) E.L.T 68 (H.P.)
Issue: - When it is proved by the department that something illegal was going at assessee’s end then the burden shifts on assessee to prove that goods were not removed without payment of duty.
Brief Facts: - The H.P. Police seized 822 cylinders from the godowns of Respondent No. 1-Company. During the investigation, the police seized various records from Taruwala Municipal Barrier and the Police Barrier at Behral and Kala Amb. On investigation, the police found that the respondent No. 1-Company had cleared 53 trucks carrying cylinders or scrap from the factory premises without any excise documents during the period 1986 to 1992. Thereafter the Excise Department took up the matter. It obtained copies of the documents from the police including the abstract of the records of the barriers. The Director of Respondent- Company was questioned who admitted that trucks bearing registration number HPN-2388 and HP-17-3288 belonging to the respondent Company were utilized by it for transportation of goods. The Director also stated that sometimes the aforesaid trucks were also utilized for transportation of stones of other parties from Sataun area. Show Cause Notices were issued to the respondent-Company. The drivers of the two vehicles admitted that the trucks were taken by them on various days. It was also not disputed that each truck had the capacity to carry 400 cylinders or 5 metric tones of scrap. The Collector held that the department had by overwhelming evidence proved the case of manufacture and clandestine removal of goods to the exchequer against the respondents. Accordingly, duty was demanded and penalty was imposed. Respondents filed appeal before the Tribunal.
The Tribunal set aside the impugned order holding that there was no material on record to prove that 400 cylinders were being carried in the trucks every time they crossed the barrier. The statement by employee was not relied upon since according to the Tribunal the same may be biased. In respect of drivers, the Tribunal only stated that there seems to be some contradictions in their statements. The Tribunal also placed heavy reliance on the fact that the department had failed to show that the respondent had received 296 metric tones of LPG sheets which would be required for manufacture of 14800 cylinders. The Tribunal, however, held that the department had proved that the respondent-company had received 52.690 metric tonnes LPG sheets for illicit manufacture of cylinders but according to the respondent, this material was being used for the manufacture of foot rings. The Tribunal held that there was no clinching evidence on record to show that the materials required for the manufacture of 14, 800 cylinders had been received. The statements relied upon by the department were not tested by cross-examination by the respondent-company and the entries in the octroi/sales tax/police barriers do not tally with the actual transportation of the cylinders on each truck.
Aggrieved by the same the Revenue has filed this reference petition before the High Court.
Reasoning of Judgment: - The High Court held that from the facts, it is apparent that many trips were made by the trucks of the respondent-company and on this occasion, the trucks went through the barriers. There is no entry of these trips in the record of the respondent-company. The best evidence was available with the respondent-company to show what was being carried in these trucks on these occasions when they crossed the barriers. There is no explanation by the respondent-company in this regard. It has not produced any record to show what was being carried in the trucks.
It was held that admittedly, the entries in the barriers clearly show that on these trips either scrap or empty cylinders or LPG cylinders were being carried. These entries clearly show that this material was being carried in the trucks. There is a presumption of truth attached to official records maintained during the ordinary course of business. It is also come in evidence that the persons at the barriers used to verify the nature of goods being carried in the trucks. Therefore, though the quantity of goods being carried in the trucks may not be proved on record by the entries made in the record of the barriers but the fact remains that the identity or type of goods being carried in the trucks is proved by the entries in the records of the barriers.
Another very important factor is that according to the department 71.770 metric tones of LPG sheets had been imported without payment of Central Excise Duty. Even the Tribunal has held that the department has proved that 52.690 metric tones LPG sheets were imported without payment of excise duty. This was a clear indicator of the fact that some illicit and illegal manufacturing work has being carried in the factory. The explanation of the respondent that this material was used for making foot rings of the Cylinders cannot be accepted. No sane manufacturer of goods would use the high quality and expensive sheet of the thickness of 3 to 3.15 mm meant for manufacture of the cylinders for the manufacture of the foot rings.
In the opinion of the High Court, there could be no manner of doubt that there was some clandestine manufacture of cylinders going on in the factory. Which was the extent thereof, and what was the excise and penalty payable thereon are matters which cannot be decided in this petition. However, they are clearly of the view that the approach of the appellant was wrong and against the law. Once the department proves that something illegal had been done by the manufacturer which prima facie shows that illegal activities were being carried, the burden would shift to the manufacturer. It was impossible for the department to prove how many cylinders were being carried in the trucks. However, if the department proves that the trucks crossed the barriers carrying some cylinders for which no record was maintained in the factory nor any excise duty was paid then the presumption can be drawn that the trucks were carrying cylinders as per the capacity of the trucks.
The approach of the Tribunal that it was for the department to prove that “what was the quantity of goods carried in each truck which crossed the barrier and of which there is no entry in the records of the company” is totally illegal. Once the illegal activity was proved, the burden shifted upon the assessee.
It was further held that no law can be interpreted in a manner so as to give premium to illegal and criminal activities. It is common sense that no person will maintain authentic records of the illegal activities or manufacture being done by it. It was held that the certain facts which were proved by the Department were upheld by the Tribunal. These facts indicated that illegal activities were going on in the premises of the respondent-company. Accordingly, it was held that the matter is to be re-examined by the Tribunal. Question referred answered in favour of the Revenue. Impugned order set aside.
Decision: - Matter remanded to be decided in view of observations made by the High Court.
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Case: - Wrigley India Pvt. Ltd. v/s Commissioner of C. Ex,
Citation: - 2010 (255) ELT 201 (P & H)
Issue: - Cenvat credit – “boomer-tattoos” - neither primary nor secondary packing material - additional promotional material - not admissible.
Brief Facts: - Appellant is engaged in the manufacture of chewing gum/bubble gum and were availing the benefit of Cenvat Credit, in respect of inputs used in or in relation to the manufacture of bubble gum, including packaging material. Revenue claimed that the appellant was wrongly availing cenvat credit on “boomer–tattoos” which were not inputs used in or in relation to the manufacture of their final product i.e. chewing gum/bubble gum.
The Adjudicating Authority disallowed the Cenvat credit. Appeal by the appellant was dismissed by the Commissioner (A). Further appeal before the Tribunal was also dismissed. Thus, the appellant filed this appeal before the High Court.
Petitioner’s Contentions: - Appellant contended that the manufacturer can avail the Cenvat credit in respect of inputs including the packing material and as “boomer–tattoos” are used in packing materials, in respect of bubble gum, therefore, it is entitled to Cenvat Credit, is not only devoid on merit, but misplaced as well. Admittedly, the assessee is availing the Cenvat credit in respect of packing material, in which bubble gums are wrapped, but the revenue has denied the same in respect of “Boomer–tattoo”.
Reasoning of Judgment: - The High Court held that the “boomer–tattoo” in the package material of the bubble gum is an additional step in aid used for promotional material and is not termed as packaging material as such, especially, when it is depicted on the packing that free tattoo inside. The primary function of putting the tattoo in the wrapped bubble gum is to promote the trade and to attract the children, rather than to be used for the purpose of packing tattoo.
It was held that it could not possibly be said that the boomer tattoo is used as an initial packing material. Meaning thereby, the wrapper of the tattoo on the bubble gum is not at all required in the form of primary packing.
Moreover, the Commissioner (A) and the Tribunal had recorded a finding of the fact that there is no direct or indirect use of the tattoo in or in relation to the manufacture of the product, rather it is separately known as tattoo in the market. It has a specific identity, specific purpose of promotion of the product and for the purpose of advertisement. Hence, it is not a packing material and can not be considered as inputs within the meaning and definition of inputs as contemplated under the relevant rule.
Therefore, the High Court held that “boomer–tattoo” is not a primary packing material used in or in relation to the manufacture of the final products, either directly or indirectly nor can it be considered as primary packing material. The usage of tattoo material is an additional step in aid to promote the trade and involves element of advertisement. As such it can not be termed as primary packing material; therefore the assessee is not entitled for Cenvat Credit on the “Boomer tattoo”. No legal infirmity found in the impugned order.
Decision: - Appeal dismissed.
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