PJ/Case Laws/2010-11/16
Case Laws
Prepared By:
CA Rajani Thanvi,
Parag Ghate, B.Com
Sukhvinder Kaur, LLB [FYIC]
Central Excise Section
Case: - Commissioner of C. Ex., Pune-I v/s Sonai Engineering Pvt. Ltd
Citation: - 2010 (253) ELT 806 (Tri. -Mumbai)
Issue: - Cenvat credit admissible on Storage system installed for storing raw materials.
Brief Facts: - Respondent-assessee availed cenvat credit on the storage system maintained by them. Revenue objected to the availment of credit by Respondent. The Lower Authorities dropped the demand against the respondent holding these storage system is used for storing the raw material and it is matter of common knowledge that the raw material are not used directly in the manufacture of final product, at the moment they are received in the factory. The lower authority had relied upon the decision of Collector v/s Solaris Chemtech Ltd [2007 (214) E.L.T. 481 (S.C)] wherein the
Appellants Contention: - Revenue submitted that the storage system is not the storage tank and the respondents are not entitled for taking Cenvat Credit on this storage tank as they are not being used directly or indirectly in the process of manufacturing of the final product and the same are not the capital goods.
Reasoning of Judgment: - The Tribunal held that the raw materials have to be stored first and then it is to be used in manufacturing process so the storage system maintained by the respondent is nothing but indirectly involved in the process of manufacturing of the final product. Reliance was placed on the judgment given in the case of Banco Products (India) Ltd. Vs. CCE [2009 (235) E.L.T. 636 (Tri LB)] wherein it was held that the plastic crates used for storing/handling of raw materials, intermediate products etc. are held as capital goods are also as input. The Tribunal further found that the storage system is being used for storing the raw material by respondent is an integral part of the activity of manufacture and is directly or indirectly involved in the process manufacturing. Hence the Cenvat credit cannot be denied.
Decision: - Appeal rejected.
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Case: - Multi Organics Pvt. Ltd v/s Commissioner of C. Ex.,
Citation: - 2010 (253) E.L.T 804 (Tri - Mumbai)
Issue: - Whether the principle manufacturer can take cenvat credit of service tax paid on job charges by the job worker?
Brief Facts: - During the material period, the appellant had got certain inputs processed by a job worker and paid duty on the final products manufactured out of the job-worked goods. The job worker paid service tax on the job charges. Appellant had taken CENVAT credit of the service tax paid by the jobworker. Revenue raised objection against taking of credit. The Commissioner (Appeal) denied the credit to the appellant but refrained to impose any penalty under Section 11AC on the ground that the demand was time barred. Appellant has challenged the impugned order on merits and Revenue is challenging the said order on the limitation point.
Appellants Contention: - Appellant has relied on the judgments given in the case of Commissioner of Central Excise, Mumbai-III vs. DIL Ltd [2008 (9) S.T.R. 411 (Tri. -Mumbai)] and SPIC (HCD) Ltd. Vs. Commissioner of Central Excise, Chennai [2006 (201) E.L.T 386 (Tri.-Chennai)]. They also claimed support from the Supreme Court’s decision in Commissioner of Central Excise & Customs vs MDS Switchgear Ltd. [2008 (229) E.L.T. 485 (S.C)].
Respondents Contention: - Revenue has relied upon Bombay Dyeing & Manufacturing Co. Ltd. Vs. CCE, Mumbai [2001 (135) E.L.T. 1392 (Tri.-Mumbai)]. It was submitted that the decision taken by the Tribunal in the case of DIL Ltd cannot be considered be one on merits in as much as, in that case, the department could not cite any case law on the issue. It is claimed that the view taken by this Tribunal in the case of Bombay Dyeing & Manufacturing Co. Ltd is one on merits and the same requires to be followed in the present case.
Reasoning of Judgment: - The Tribunal found that an issue identical to the one arising from the present case was considered by this Tribunal in the case of DIL Ltd wherein it was held that the principal manufacturer was entitled to avail credit of the service tax paid by their job worker. The Tribunal in that case rejected the Revenue’s contention that, as the job worker was not required to pay service tax by the virtue of exemption Notification and therefore the principal manufacturer was not entitled to take credit of any service tax paid by the job worker was rejected. In the case of DIL Ltd, it was not in dispute that service tax had been paid by the job worker and the relevant service was received by the principal manufacturer.
The Tribunal held that the facts of the present case where similar to the case of DIL Ltd. In the case of SPIC (HCD) Ltd, the assessee was allowed to take Cenvat credit of the duty paid by the job cited by the respondent appears to be contradictory to the decision in SPIC (HCD).
The Tribunal held that according to one of the well established tenets of judicial discipline, where there are contradictory decisions of coordinate benches, the later one would prevail and therefore the view taken by the Division Bench in the Case of SPIC (HCD) would be the appropriate precedent.
It was also held that decision of the
Accordingly, the Tribunal allowed assessee’s appeal for Cenvat credit of the service tax paid by their job worker on the service rendered by the latter is allowed.
Decision: - Assessee’s appeal allowed. Revenue’s appeal dismissed.
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Case: - Indo Shell Mould Ltd v/s Commissioner of C. Ex.,
Citation: - 2010 (253) E.L.T 799 (Tri - Chennai)
Issue: - Interest under Rule 14 of CCR will not be payable if cenvat credit is only taken but not utilised by the assessee.
The verdict of the Supreme Court whether decision or judgment is required to be respected and followed by the Lower Courts.
Brief Facts: - Appellant had taken credit but had not utilised the same. The Lower Authorities held that in view of Rule 14 of the Cenvat Credit Rules, 2004, interest is payable on Cenvat credit wrongly taken even if not utilized. They have also placed reliance on the Board’s Circular No. 897/17/2009-CX, dated 3-9-2009. Hence, appellant is in appeal before the Tribunal.
Appellants Contention: - Appellant have placed reliance on the recent decision of the High Court of Punjab & Haryana in the case of Ind-Swift Laboratories Ltd vs. UOI [2009 (240) E.L.T. 328 (P&H)] wherein it was held that Rule 14 has to be read down to mean that where Cenvat credit has been taken and utilized wrongly, interest should be payable on the cenvat credit taken and utilized wrongly. Interest cannot be claimed simply for the reason that the cenvat credit has been wrongly taken as such availment itself does not create any liability of payment of excise duty.
Respondents Contention: - Revenue supported the impugned order on the basis of the specific wording of the Rule 14, which it was pointed out that is different from the wording earlier used in Rule 57-I of the Central Excise Rules, 1944.
Reasoning of Judgment: - The Tribunal found that Board’s Circular cited by the department justified recovery of interest on cenvat credit taken wrongly. It was held that the said Circular curiously states that the order of the Hon’ble Supreme Court in the case of CCE, DELHI III Vs Maruti Udyog Ltd [2007 (214) E.L.T A50 (SC)] is a decision and not a judgement.
The Tribunal held that such a distinction cannot be made and moreover, whether it is a decision or a judgment, when delivered by the Hon’ble Supreme Court, the same has to be respected and followed. The Tribunal further found that the issue dealt thereunder was in the context of erstwhile Rule 57-I of the Central Excise Rule, 1944, and the order was against the department.
The Tribunal held that benefit of the decision of High Court of P&H in the case of Ind-Swift Laboratories in the context of the present Rule 14 of the Cenvat Credit Rules, 2004 was available with them wherein it was categorically held that the said rule has to be read down and no interest can be charged in respect of cenvat credit taken but not utilized. Following the ratio of the said decision of the High Court of P&H, it was held that the appellants are not liable to pay interest on the cenvat credit taken but not utilised. Impugned order is set aside.
Decision: - Appeal allowed.
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Case: - Commissioner of Central Excise,
Citation: - 2010–TIOL–997–CESTAT–BANG
Issue: - Whether issue decided by higher authority can be changed by lower authority.
Brief Facts: - Respondent is a 100% EOU and hold the Customs Private Bonded Warehouse Licence. They are also registered with the Central Excise Department and are manufacturers of 100% Cotton Yarn, PSF/Cotton Blended Yarn, PSF/Viscose Blended Yarn and 100% Polyester Yarn falling under Chapter 52. Respondent are also clearing goods into DTA from time to time, after obtaining permission from the Development Commissioner, Visakhapatnam Export Processing Zone (VEPZ),
On import of Textile Yarns apart from Basic Customs Duties, goods were also subject to Addl. Duty of Customs (Countervailing Duty) equivalent to total duties leviable as duty of Excise on like goods, produced in the country. This CVD thus includes basic Central Excise Duty under Central Excise Act and Addl. Duty of Excise under Addl. Excise Duty (Textile & Textile Articles) Act, 1978. Section 3 of Additional Duties of Excise (Textile Article) Act, 1978, levies Addl. Duties of Excise on certain Textiles and Textile articles falling within Chapter 52 and 55 of Central Excise Tariff Act, 1985. This Additional Duty of Excise is to be levied at 15% of the total amount of Excise Duty chargeable on these goods and shall be in addition to the duties of Excise chargeable on such goods under Central Excise Act, 1944, or any other law for the time being in force.
Respondents were availing benefits under Notification no. 8/97-CE dated 1.3.97 for clearances and paying the duties accordingly up to 29.2.2000. Respondents had filed a classification declaration w.e.f. 1.3.2000 claiming exemption under Notification No.8/97-CE dated 1.3.97 for Cenvat and Nil rate of duty for AED (T&TA) under Notification No.55/91 dated 25.7.91. Periodical show cause notice was issued to deny the exemption claimed by the respondent.
Respondent challenged the SCN before the Adjudicating Authority. Respondent contended that Cess is not payable by them. The Adjudicating Authority held that this periodical show cause notice and earlier show cause notice was adjudicated by the Commissioner by Order-in-Original No.16/2002 dated 10.6.2002 and subsequent show cause notices were also adjudicated by his predecessors. It was noted that the said Orders-in-Original were set aside by the Tribunal and accordingly the Adjudicating Authority dropped the proceedings initiated by the show cause notice. Revenue has come up in appeal against the impugned order.
Appellant’s Contentions: - Revenue contended that the order of the Tribunal on the basis of which the Commissioner (Appeal) had passed the order was passed when Notifications No.55/91 CE dated 25.7.1991 was not rescinded. The said Notification which granted exemption to all excisable goods produced or manufactured in a hundred per cent Export Oriented Undertaking from the whole of the duty of excise leviable thereon under the Second mentioned Act (AED (T&TA) was rescinded w.e.f. 01.04.2003. In its place new Notification No. 24/2003 dated 31.3.2003 was issued which exempted all excisable goods produced or manufactured in a export oriented undertaking from whole of the duty of excise leviable thereon under Section 3 of the CE Act, 1944 and additional duty of excise leviable thereon under Section 3 of the Additional duty of excise (GSI) Act, 1957 and additional duty of excise leviable thereon under Section 3 of the Additional Duty of Excise (T&TA) Act, 1978 provided that the exemption contained in this Notification in respect of duty of excisable leviable under Section 3 shall not apply to such goods if brought to any other place in India.
Revenue relied upon the Board's Circular No.29/2003 dated 3.4.2003 wherein it was clarified that exemption will not be available where the goods are cleared into DTA. The duty would be levied on the goods under Section 3. Since duty on goods manufactured by EOU/EHTP/STP and sold in DTA is equal to the aggregate of the duty of customs leviable on similar imported goods, the CVD would constitute all the components of excise duties viz. duty of excise leviable under Section 3 and additional duties of excise leviable under Section 3 of the Additional Duties of excise (Goods of Special Importance) Act, 1957 and additional duty of excise leviable under Section 3 of the Additional Duties of Excise (T&TA) 1978. It was also clarified that to avoid double charging of duty leviable under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and under Additional Duties of Excise (T&TA) Act, 1978 is collected once only as a components of CVD.
It was submitted that in view of the clarification issued by the Board above, it appears that though the AED T&TA is exempt under the respective Act, it has to be collected as a component of CVD when the goods are cleared into the DTA by an EOU. It was submitted that the Commissioner had not given any findings on the above clarification issued by the Board in respect of Notification No.24/2003 while following the ratio given in the case of Nahar Industrial Enterprises Ltd v/s UOI. It was also submitted that although the Circular dated 19.10.2000 which is in the nature of clarification to Notification No.8/97 was quashed by the Supreme Court, the Notification is still in force with the relevant amendment and also with the Circular No.29/2003 which already clarified why the AED under respective Acts has been exempted in respect of the EOU's etc.
It was further contended that Notification No.8/97 dated 1.3.1997 exempts the finished products, rejects, and waste or scrap specified in the Schedule to the CETA, 1985 and produced or manufactured in a hundred percent export oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India and allowed to be sold in India under and in accordance with the provisions of Paras 102 and 114 of the EXIM Policy April 1992 – 31 March 1997 from so much of the duty of excise leviable thereon under Section 3 of the CE Act, 1944 as is in excess of an amount equal to the duty of excise leviable under the said section 3 of the CE Act on like goods produced or manufactured in India other than in a hundred per cent export oriented undertaking or a free trade zone, if sold in India.
It was submitted that Notification No.24/2003, which rescinds the Notfn. No.55/91 clearly stipulates that provided that the exemption contained in this Notification in respect of duty of excise leviable under Section 3 of the said CE Act shall not apply to such goods if brought to any other place in
Respondent’s Contentions: - Respondent submitted that they had challenged the OIO, dated 10.6.2002 successfully before the Tribunal which was set aside by the Tribunal. It is the submission that subsequent OIO were also set aside by this Bench by Final order no. 1822/2004 dated 16.11.2004.
Reasoning of Judgment: - The Tribunal held that the issue involved has attained finality in favour of the assessee by Final Order 1684/2001 dated 01.11.2004 and 1822/2004 dated 16.11.2004. The issue involved in this appeal was same as was before this Bench, i.e. demand of Additional Duties of Excise not paid under Additional Duties of Excise (Textile and Textile Articles) Act, 1978, as required under Notification No.8/97-CE dated 1.3.97 as amended by Notification No.11/2000-CE dated 1.3.2000.
The Tribunal found that the issue is no longer res integra as the matter has been decided by this Bench in respect of very same assessee following the ratio of the Apex Court judgment in the case of Nahar Industrial Enterprises Ltd. Vs. U.I.O. [2004 (170) ELT 518 (S.C)]. Therefore, respectfully following the ratio of the above cited judgments, Tribunal held that impugned order is correct and does not suffer from any infirmity.
Decision: - Appeal rejected.
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Case: - M/s Ohm Industries v/s Commissioner of Central Excise,
Citation: - 2010-TIOL-986-CESTAT-BANG
Issue: - Whether credit can be disallowed on capital goods installed at another unit of assessee but not at registered address?
Brief Facts: - Appellants are registered manufacturers of pulley, bush, pump and parts falling under Chapter 84, 85, 87 etc. having a factory in Govt. Industrial Estate, Udyambag, Belgaum. Appellants were availing Cenvat credit on inputs and capital goods. During audit, the Department audit group noticed that for the period 7/01 to 9/05, appellants had procured capital goods viz. shot blasting machine with accessories, D.G. Set, Electrical equipments etc., and availed cenvat credit but the said capital goods were not installed in the registered premises of the appellants but at another place. A show cause notice was issued demanding the Cenvat credit wrongly availed along with interest and penalty. The appellant replied that change of name of their unit and starting of foundry unit at another site was informed to the department; that the availment of credit on the said capital goods was duly declared in monthly returns; that the place where the capital goods were used was theirs only and the said capital goods were exclusively used for their manufacturing of castings.
The Original Authority held that when capital goods were not installed in the registered unit then that unit could not avail the credit and confirmed the demand with interest and penalty. Aggrieved by such an order, appellants preferred an appeal to the Commissioner (Appeals). The Commissioner (Appeals) upheld the order-in-original. Hence appellant filed this appeal before the Tribunal.
Appellant’s Contentions: - Appellant submits that there is no dispute that the capital goods are installed in their own unit. They had asked for the registration of the said unit. They had not separately asked for the registration. The goods which are manufactured out of the said capital goods were totally consumed in their own unit. In this respect reliance was placed on the decision of the Tribunal in the case of Pooja Forge Ltd Vs. CCE [2006 (196) ELT 18(T)]. It was submitted that this decision was challenged by the revenue before the High Court of Punjab and Haryana and the Tribunal's order was upheld by the High Court.
It is submitted that if they would have got the registration for the unit where the capital goods were installed, they could have manufactured the castings and transferred them on payment of duty on cost construction basis to their main unit and their main unit could have taken the credit. There was no question of revenue loss to the revenue.
Respondent’s Contentions: - Revenue submitted that the appellant should have got the unit registered. The provisions of Cenvat Credit Rules 2002-2004 specifically provide for use of the said capital goods in the factory of the manufacturer and the provisions being very clear the appellant should have used the said capital goods in the premises where he was registered to pay the duty.
Reasoning of Judgment: - The Tribunal held that the capital goods were installed undisputedly in the appellant's own unit within the jurisdiction of the same range office. It is undisputed that the second unit where capital goods were stored is of the appellant only and it is also admitted that entire goods manufactured and cleared by other unit is received by the appellants. In such a situation, the credit of the duty paid on the capital goods by the appellants cannot be denied by the Revenue Authorities. Reliance is placed on the decision in the case of Pooja Forge Ltd v/s CCE
In view of the above reasoning, the Tribunal held that denial of Cenvat credit of the duty paid on capital goods to the appellant is incorrect. Impugned order set aside.
Decision: - Appeal allowed.
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Case: - In RE: Munot Textiles
Citation: - 2007 (207) E.L.T. 298 (G.O.I.)
Issue: - Whether rebate of excise duty is allowable to the manufacturer when the drawback of customs duty has been claimed by the merchant exporter?
Brief Facts: - The assessee is engaged in the manufacture of terry towels falling under Chapter 63 and were availing the facilities of Cenvat Credit under Cenvat Credit Rules, 2002. Assessee was also exporting their finished goods through merchant exporter. The merchant exporter has exported the goods from the factory premises of the assessee under claim of rebate under the provisions of Rule 18 of Central Excise Rules, 2002 under ARE-1s & No. 2 dated 30-5-2003, and 3-6-2003 respectively duly signed by the assessee and merchant exporter with the suitable remarks on the said ARE-1s, that the rebate amount will be claimed by the manufacturer in the Col. No. 12 of the said ARE-1s, and under the cover of Invoice No. 1 dt. 30-5-2003, and invoice No. 2 dt. 3-6-2003.
The Adjudicating Authority observed that inspite of declaration in the ARE-1s that the export under reference was not under claim of duty drawback under Customs & Central Excise Duties Drawback Rules, 1995 the assessee had claimed the duty drawback and received the same. Thus, it was held that the appellant have mis-declared the facts to the Deptt with intent to avail double benefit of two claims i.e., under duty drawback scheme and under the claim of rebate. The Adjudicating Authority rejected the rebate claim. The appeal filed against this order was rejected by the Commissioner (Appeals). Therefore, Revision Application has been filed by the assessee.
Appellant’s Contentions: - Assessee contended that they had filed the rebate claims by endorsing on ARE-1s, that they are availing the Cenvat and not claim the drawback. The Assessee did not export the goods himself but the goods were exported by the Merchant exporter. The Assessee as per the procedure completed all the documents by mentioning clearly on all the documents that he is availing the Cenvat.
It was contended that the Assessee had cleared the goods through the merchant exporter. Accordingly all the documents were prepared by the said merchant exporter and exported from the
It was contended that the Assessee claimed the rebate as provided under Notification No. 40/2000 issued under Rule 18. This rule provides that the rebate of duty paid on exported goods is permissible if the goods are properly exported. It was submitted that the drawback rules only provides that if the Cenvat is availed the drawback is not permissible.
It was contended that the goods were not exported by the applicant but were exported by the merchant-exporter who claimed the drawback. If there is any irregularity it is on the part of the merchant-exporter and not on the applicant. The applicant has not mis-declared any particulars in the ARE-ls, and by way of any undertaking.
It was contended that the claim was not rejected on any legal ground quoting the rule or any Notification but it is only rejected on the presumption that the assessee entered with agreements with the export to claim the Cenvat as well as the drawback by the merchant-exporter.
Reasoning of Judgment: - Government noted that it is admitted fact that the applicants have cleared the goods terry towels on payment of Central Excise duty vide ARE-1’s, for export and the impugned goods has actually been exported by the merchant-exporter.
The Government observed that as per facts on records the applicants have fulfilled all the conditions and limitations lay down under Notification No. 40/2001-CE (Nt.), dt. 26-6-2001, issued under Rule 18 of the Central Excise Rules, 2001. Government also agrees with the contention of the applicants that in the said notification there is no condition that for claiming rebate of Central Excise duty paid on the goods exported, the exporter should not claim duty drawback.
However, it was observed that under Rule 13 of the Drawback Rules, it has been provided that if the Cenvat is availed the drawback is not permissible. Thus, it is felt that no drawback was admissible on the impugned goods as the manufacturer of the goods has availed Cenvat Credit on the input used for manufacturing the goods, exported. It is further admitted fact that the applicants have not availed the facility of Drawback under the drawback rules but the merchant-exporter has claimed and obtained drawback. No doubt both manufacturer and the merchant-exporter had given declaration on the relevant AR4s, that no duty drawback, under Customs & Central Excise Duties Drawback Rules, 1995 has been claimed thereby contravention of duties drawback rules has taken place. Therefore, action against defaulter could have been taken under the Customs & Central Excise Duties Drawback Rules, 1995, r/w Customs Act, 1962, as provided. But this cannot be ground for denial of rebate to the applicants.
Accordingly, the Government opined that that the impugned Order-in-Appeal is not maintainable and is therefore set aside. Matter remand back to the original authority for sanctioning rebate to the applicants if otherwise in order.
Decision: - Appeal allowed.
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Customs Section
Case: - Rajkumar Impex Pvt. Ltd v/s Commissioner of Customs, Tuticorin
Citation: - 2010 (253) E.L.T. 795 (Tri - Chennai)
Issue: - Concept of unjust enrichment not applicable if refund claims of duty covered under Section 26 of the Customs Act, 1962.
Brief Facts: - Appellant had paid export duty on cashew nut kernels during the period 26-9-2006 to 30-11-2006 under 114 shipping bills. The appellant filed claim for refund of the export duty. The refund claim was sanctioned on merits but credited the amount to the consumer welfare fund under the provisions of Section 27(2) of the Customs Act, 1962 on the ground that the importer has passed on the incidence of duty paid by him to the buyer. Appellant is challenging the impugned order before the Tribunal.
Reasoning of Judgment: - The Tribunal found the merit in the submission of the appellant that refund of export duty is covered by Section 26 of the Customs Act. It was held that the mechanism for testing such claims on the anvil of unjust enrichment has been incorporated only in section 27 and not in Section 26.
It was held that reliance placed by the Revenue upon decision in Commissioner of Customs, Bangalore, vs Ken Agritech Pvt. Ltd [2004 (175) E.L.T. 227] holding that the provisions of Section 27 of the Customs Act, 1962 relating to refund of duty of customs are also applicable for refund of cess paid on export, has overlooked the fact the refund of export duty is covered under the provisions of Section 26 and not under the provisions of Section 27 of the Customs Act, 1962. Accordingly, it was held that the appellant is not required to establish that they have not passed on the incidence of duty to any person. Impugned order set aside.
Decision: - Appeal Allowed.
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Service Tax Section
Case: - Commissioner of C. Ex, Chennai v/s Sundaram Brake Linings
Citation: - 2010 (19) STR 172 (Tri. – Chennai)
Issue: - Whether credit of service tax paid on outdoor catering service is allowed as input services.
Brief Facts: - In all the 13 cases common issue is involved. Respondent-assessees have claimed credit of service tax paid on outdoor catering service claiming the same to be input service used in or in relation to various manufactured excisable goods.
The SCN alleged that the respondents took credit of service tax paid on the catering service provided by M/s. Siva Industrial Caterers (I) (P) Ltd. and M/s. Vaigai Canteen (P) Ltd. The canteen service providers brought prepared food into the factory of the respondents in their own vessels and served the food to the labourers and staff of the respondent-company and others. The canteen service providers submit bills to the respondents at periodical intervals and appropriate service tax is charged in the bills by the canteen service providers. Service tax so paid is taken as credit by the respondents and adjusted towards payment of excise duty on the motor vehicle parts manufactured and cleared by the respondents. It has been further alleged in the SCN that food is supplied by the canteen service providers for the labourers and staff and that no goods are manufactured utilizing the impugned catering service. Hence it has been proposed in the said notice that the catering services are not even remotely related to the manufacture of the final product. The further allegation by the Department is that the catering services are also not specifically mentioned in the inclusive part of the definition of input service under Rule 2(l) of the CENVAT Credit Rules.
In all these cases the Original Authorities have denied the credit of service tax paid on outdoor catering service utilized by the respondents mainly on the ground that the same was not used in or in relation to the manufacture of the finished excisable goods in the factories of the respondents.
However, the lower Appellate Authorities have allowed such credit in favour of the respondents mainly applying the decision of the Larger Bench in the case of CCE, Mumbai Vs. M/s. GTC Industries Ltd. [2008 (12) STR 468]. The different Commissioners of Central Excise as well as Commissioner of Central Excise, LTU have accordingly filed these appeals before the Tribunal.
Appellant’s Contentions: - Revenue contended that the impugned orders were not tenable as these orders did not take into account the fact that supply of food by the caterers to the workers and staff is neither directly nor indirectly related to the manufacturing of the finished excisable goods.
It was submitted that the decision of the Tribunal in the case of GTC Industries relied upon by the Lower Appellate Authority has not been accepted by the Department and the appeal against the same is pending in the Bombay High Court.
It was contended that no nexus has been established by the respondents between the impugned outdoor catering service and the manufacture of the finished excisable goods by the respondents. Such a requirement is clearly necessary as has been held in the case of Vikram Ispat Vs. CCE, Raigad [2009 (16) STR 195]. It has also been held in the said case that any service to be brought within the ambit of definition of ‘input service' should be one which should satisfy the essential requirement contained in the main part of the definition. This requirement is equally applicable to the various items mentioned in the inclusive part of the definition as well. In this case, the Tribunal has distinguished the decision of the Larger Bench in the case of GTC Industries and has held that no credit can be allowed unless the assessee adduces evidence to establish the nexus between the services and the manufacture of the final products.
It was contended that in the case of CCE, Nagpur Vs. Manikgarh Cement Works [2010 (18) STR 275] it was held that to come under the definition of input service, a service must satisfy the essential requirement of having been used in or in relation to the manufacture or clearance of final product whether directly or indirectly. This decision also holds that the Supreme Court in the case of Maruti Suzuki Ltd. Vs. CCE, Delhi [2009 (240) ELT 641 (SC)] has impliedly overruled the decision of the Bombay High Court in the case of Coca Cola India Pvt. Ltd. Vs. CCE, Pune [2009 (15) STR 657 (Bom.)]. The Tribunal has also held in this case that the decision of the Supreme Court in Maruti Suzuki though rendered in a case relating to ‘inputs' is also applicable to a case of ‘input service' in view of the main part of the definition.
It was contended that in the case of Maruti Suzuki, the Supreme Court had laid down the test for eligibility of CENVAT credit, and the same is required to be satisfied by way of establishing the nexus between the inputs or input service on the one hand and finished goods on the other. This is not satisfied in the case of outdoor catering service since the finished goods are motor vehicle parts, paper, cement etc in these cases.
It was contended that in the case of Vandana Global Ltd. Vs. CCE, Raigad [2010 (253) ELT 440 (Tri.–LB)], the Larger Bench of the Tribunal has followed the decision of the Supreme Court in the case of Maruti Suzuki according to which no credit can be allowed in respect of input or input service unless the same is integrally connected to the manufacture of the finished excisable goods.
Revenue cited the decision given in the cases of Mahindra Sona Ltd. Vs. CCE, Nasik [2009 (15) STR 474] and Kirloskar Oil Engines Ltd. Vs. CCE, Aurangabad [2009 (16) STR 321] under which such cases have been remanded to the original authority for verifying whether the cost of catering service has been included under the CAS and whether the number of workers in the factory meet the criterion requiring canteen services to be provided. Revenue stated that such a remand is necessary even if the decision in GTC Industries is required to be followed. It was also stated that the provision of food to the employees and staff is in the nature of a welfare activity and is not integrally connected to the manufacturing process.
Respondents Contention: - Respondent-assessee contended that the Larger Bench decision of the Tribunal in the case of GTC Industries was rightly followed by the Lower Appellate Authority. Since the value of the catering service is part of the cost of production, the same has to be considered as input service and credit has to be allowed. Respondent stated that the case of Maruti Suzuki related to supply of electricity outside and the same cannot be applied to the present case. Respondent also stated that no remand is necessary for any verification as it is clear that CAS–4 requires the cost of the catering service to be included in the value of the finished goods and secondly, all the respondents are required to provide canteen facility since the number of workers in the factories of the respondents exceed the minimum number specified under the Factories Act, 1948. Respondent also stated that the provision of food to the workers is not a welfare measure but a legal requirement.
Respondents in some of the appeals stated that the cases may be remanded as no verification regarding cost calculation under CAS – 4 had been done by the Lower Authorities.
Respondents in some of the appeals additionally stated that some of the factories of the respondents were in remote area where the workers cannot find food in the vicinity and unless the respondents supply food to the workers within the factory, they cannot work and produce the finished goods. Hence, respondent stated that the provision of food is related to the manufacture of the finished goods. The respondent additionally stated that as per Circular No. 120/01/2010-ST dated 19.1.2010, outdoor catering service is one of the input services.
Reasoning of Judgment: - The Tribunal perused the judgment given in GTC Industries case and held that while CAS-4 appears to restrict inclusion of only subsidized food (i.e. subsidy on food) in the production cost, the finding of the Larger Bench appears to even cover cases where the cost of food is borne by the workers and where the subsidized food is not provided. The conclusion of the Larger Bench requires that the credit of service tax paid on catering service is to be allowed in all cases.
It was held that the basis of the Larger Bench decision in GTC Industries appears to be that if the cost of any goods or services forms a part of the assessable value of the finished goods, such goods and services would come under the definition of ‘input' and ‘input service' and credit of the duty / tax paid on such goods and service should be allowed.
It was held that this decision of the Larger Bench was rendered on 25.9.2008. Subsequently, on 17.8.2009, the Supreme Court has rendered decision in the case of Maruti Suzuki where the very basis of the Larger Bench decision in the case of GTC Industries has been negated while considering the provisions of the very same CENVAT Credit Rules, 2004.
The Tribunal held that the Supreme Court has specifically ruled that mere inclusion of value in the assessable value of the final product will not entitle a manufacturer to take credit. The ratio of this decision of the Supreme Court rendered in the context of the very same CENVAT Credit Rules, 2004 though in the context of input duty credit is very much applicable to cases of credit of tax on input service. Unless, the other tests laid down by the Hon'ble Supreme Court in the context of the expression ‘used in or in relation to the manufacture' are satisfied, mere inclusion of the value in the assessable value would not suffice.
It was also seen by the Tribunal that the ratio of the Supreme Court's decision in Maruti Suzuki has been specifically relied on by another Larger Bench of the Tribunal in the case of Vandana Global. In the said case, an argument was advanced on behalf of the assessees that since the value of cement and steel items used for laying foundation and building structural support contributes to the value of the final product, the credit of duty paid on the same should be allowed. Such a contention was rejected by the Larger Bench in its order dated 30.4.2010 following the Supreme Court's decision in the case of Maruti Suzuki.
In view of the subsequent decision of the Supreme Court rendered in the case of Maruti Suzuki overruling the very basis of the decision of the Larger Bench in the case of GTC Industries and the said ruling of the Supreme Court having been followed by another Larger Bench of the Tribunal in the case of Vandana Global, the Tribunal has followed the ratio of the decision of in the case of Maruti Suzuki in preference to the decision of the Larger Bench in the case of GTC Industries.
In view of the foregoing, the fact that CAS – 4 requires the cost of subsidy towards subsidized food as also several other fringe benefits to be included in the cost of production cannot be a consideration for allowing credit of service tax paid on outdoor catering service unless such service is found to be ‘used in or in relation to the manufacture of' the respective finished excisable goods manufactured by the respondents. It is seen from the said Table that the finished goods are in some cases motor vehicle parts, in some cases the finished goods are paper and paper boards, cement, gelatine, brake fluids, bulk drugs etc. The caterers engaged by the respondents supply various food items for consumption by the workers and the staff. It is no one's case that the food items could even be remotely considered as inputs for the various finished excisable goods manufactured by the respondents.
The Tribunal by way of demonstrating an example held that eligibility of credit in respect of any particular input or input service has to be examined not in a general way but only with reference to the particular finished excisable goods and the manufacturing process involved.
The Tribunal further held that in the case of KBACE Tech Pvt. Ltd. Vs. Commissioner of Central Excise & Service Tax, Bangalore [2010 (18) STR 281] in the context of interpreting the CENVAT Credit Rules, 2004 that the rule making authority can frame rules covering lesser area than what it is empowered to do under the statute but cannot go beyond limits provided under the statute and make rules covering a greater area. Hence, the scope of Rule 2(l) defining ‘input service' including its inclusive part that covers ‘services relating to activities relating to business' has to be interpreted with reference to Section 37(2)(xviaa) of the Act extracted in para 9 above. When the specific CENVAT Credit Rules are examined in the context of the rule making powers under the Act and in the context of the guidelines laid down by the Hon'ble Supreme Court in its decisions such as in the case of Maruti Suzuki, one comes to a clear conclusion that outdoor catering service cannot be considered to be an eligible input service for grant of credit in respect of the finished excisable goods manufactured by the respondents. The relevant rule making power under Section 37(2)(xvia) for granting credit of duty paid on goods (inputs) and the power under Section 37(2)(xviaa) for granting credit of tax paid on taxable services (input services) are similar and both use the same expression ‘used in, or in relation to, the manufacture of excisable goods'.
It was held that the Supreme Court's decision in the case of Maruti Suzuki extensively deals with the very same expression in the context of interpreting the CENVAT Credit Rules, 2004.
Thus, the Tribunal disagreed with the proposition advanced in the case of SEMCO Electrical Pvt. Ltd. Vs. CCE, Pune [2010 (18) STR 177] that the decision of the Supreme Court in Maruti Suzuki being a decision in respect of inputs would not apply to a case relating to input services. On the contrary, the same expression having been used for inputs and input services by the Legislature, the test laid down in Maruti Suzuki for interpreting the expression ‘used in, or in relation to the manufacture of excisable goods' would have to be followed in respect of input services also. The law permits credit of duty/tax in respect of inputs/input services only when the same are used in, or in relation to manufacture of excisable goods. The law does not provide any other basis. It does not provide for credit on the basis that the value of input/ input service is included in the value of finished excisable goods.
Hence, it was held that the tests laid down in Maruti Suzuki cannot be overlooked. Use of the input service must be integrally connected with the manufacture of the final product. The input service must have nexus with the process of manufacture. It has to be necessarily established that the input service is used in or in relation to the manufacture of the final product. One of the relevant test would be can the final product emerge without the use of the input service in question. When these tests are applied following the decision of the Supreme Court in Maruti Suzuki, one finds that the impugned outdoor catering service does not meet the same in relation to the manufacture of the finished excisable goods of the appellants.
It was further held that reliance placed on Board's Circular dated 19.1.2010 by the appellants was considered in the decision of the Tribunal in the case of KBACE Tech and it was held therein that the Circular does not have the effect of amending the statute. Moreover, the same was issued in the context of refund of service tax paid on input service used for providing output service. Hence, the same is not relevant to these cases where the issue is relating to input service used in or in relation to manufacture of finished excisable goods.
In the end, the Tribunal set aside the impugned orders passed by the lower Appellate Authorities and restored the original orders by upholding the demand of service tax and interest. However, penalties imposed in the orders passed by the original authorities were set aside in the circumstances of these cases considering the nature of dispute involved.
Decision: - All the 13 appeals are partly allowed in the above terms. Cross objection in one of the appeals disposed of accordingly.
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Case: - Nagarjuna Construction Co. Ltd. v/s Commr of C. Ex.,
Citation: - 2010 (19) S.T.R. 259 (Tri.–Bang)
Issue: - Whether the service of laying down of pipelines can fall under the category of “Commercial or Industrial Construction Services”?
Brief Facts: - Appellant is engaged in providing the taxable service falling under the category 'Commercial or Industrial Construction Services', 'Consulting Engineers Services', 'Erection, Commissioning or Installation Services' etc. During the period 16.06.2005 to 31.03.2007, appellant had executed the laying of long distance pipelines in
Appellant’s Contentions: - Appellant contended that GWSSB is created by the Government of Gujarat to plan and implement the drinking water supply and sanitation policy and to operate and maintain the water supply schemes to develop human resources for the effective implementation of programmes among others. They have relied on the certificate issued by the Member Secretary of GWSSB to the effect that GWSSB is not a Commercial Organization as it supplies drinking water to the community recovering nominal charges to inculcate a sense of responsibility in usage of water among the beneficiaries. It is submitted that GWSSB is not a commercial concern. They cited the definition of 'Industrial Concern' in the Collection of Statistics Act which meant a public limited company or a cooperative Society or a firm or any other person engaged in the manufacture, assembling, packing, preservation, or processing of goods or in mining or in the generation or distribution of electricity or any other form of power. The GWSSB was not engaged in trade or commerce. It was created under a statute and was solely engaged in supplying potable water to the villages, Nagar Palikas etc. They sold water to others at a higher price which was incidental or ancillary to their main objective. The statutory auditors of GWSSB have certified that their accounts had been prepared on the basis of the Accounting Standards applicable to non commercial/non business entities.
It was submitted that in order to attract levy under 'Commercial or Industrial Construction services,' the impugned pipelines must be used in commerce or industry, or work intended for commerce or industry. They submitted Balance Sheet for the year ending 31.03.2006 of GWSSB which does not show either profit or loss since GWSSB is a Government Organization carrying out sovereign responsibilities of the state Government without profit motive. Revenue generated by GWSSB was mostly (above 90%) on sale of water to Gram Panchayats and Nagar Palikas.
Reliance was placed on the case law in MSCO Pvt. Ltd. v/s Union of
It was further contended that the impugned activity was executed under 'Works Contract' and which was brought in tax net w.e.f. 01.06.2007. Therefore, the same activity could not be taxed under 'Commercial or Industrial Construction Services' for a previous period. They relied on the decision of the Tribunal in Diebold Systems (P) Ltd. Vs. CCE - [2008 (9) STR 546] and in Glaxo Smithkline Pharmaceuticals Ltd. Vs. CCE - [2005 (188) ELT 171] wherein it was held that certain services specifically covered by 'Business Auxiliary Service' (BAS) could not be taxed under 'Management Consultancy Service' for an earlier period when BAS was not on the statute book. Same ratio was laid down in Widia GMBH case [2006 (4) STR 309]. It was contended that the Commissioner had not specifically concluded that the subject activity was not covered by 'works contract service'.
Respondent’s Contention: - Revenue argued that GWSSB was in the business of purchase and sale of water and the same did not constitute a social service. It was also submitted that the subject activity may be covered under 'works contract service' w.e.f. 01.06.2007. However, during the material period, the same was covered under 'Commercial or Industrial Construction Service'.
Reasoning of Judgment: - The Tribunal held that appellants had undertaken the activity of laying pipeline system for GWSSB during the material period for supply of mainly drinking water to Gram Panchayats and Nagar Panchayats. The definition of Commercial or Industrial Construction Service as per Section 65 (25b) of the Act was considered. It was held that as per the definition a pipeline unless deployed primarily in commerce or industry or work intended for commerce or industry will not be considered to be the outcome of the activity taxable under 'Commercial or Industrial Construction Service'. The Tribunal perused the Gujarat Act No. 18 of 1979 wherein the duties and functions of GWSSB were specified. The letter issued the Member Secretary of GWSSB certifying the above fact was also perused.
It was held that GWSSB was found to be engaged in trading water which was a commercial activity. GWSSB was registered under the Industrial Dispute Act, 1947 and was engaged in an activity which came within the definition of 'industry' as per that Act. It was held that GWSSB discharged an important duty and responsibility of the Government to provide drinking water to the people residing in its jurisdiction. Production of drinking water to the community in Gram Panchayats and Nagar Panchayats in the State on recovery of user charges at a highly subsidized rate, does not come within the expression 'industry' used in the definition of the taxable entry in question. The figures of revenue of the Board for the year 2005-06 showed that 90% of its revenue came from sale of water to local bodies rural population. The revenue was less than 1/3rd of the cost incurred to maintain water supply by the Board. The Board is run by substantial amounts released by the State Government as grant every year. These facts show that the pipelines in question were not laid to facilitate any commercial or industrial activity.
Reliance was placed on the decision of the Tribunal in Indian Hume Pipe Co. Ltd. Vs. CCE, Trichy [2008 (12) STR 363 (Tri.-Chennai)] which had dealt with taxability of long distance pipeline laid by the appellant therein under the entry 'erection, commissioning or installation' of the Act held that the impugned order demanding duty on the activity of laying of pipeline interpreting it to be erection, commissioning and installation of a plant is totally misconceived and unacceptable." Reliance was also placed on M/s Lanco Infratech Ltd. Vs. CST,
The Tribunal further held that the Commissioner had found that the work was undertaken on "Build and Operate Contract" which included design, procurement and supply, construction, commissioning and operation and maintenance and therefore, fell outside the scope of 'Works Contract on turnkey basis'. Thus, the Commissioner had accepted that the contract involved was a composite contract. While demanding tax on construction service being part of the composite contract, the Adjudicating Authority had vivisected the composite contract and found part of it liable to service tax. The Tribunal held that the impugned demand on 'construction service' is contrary to the ratio of the Tribunal's decision in Diebold Systems (P) Ltd. Vs. CCE case. Impugned order set aside.
Decision: - Appeal allowed.
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Case: - Commissioner of Service Tax,
Citation: - 2010 (19) STR 169 (Kar)
Issue: - Whether foreign company is liable to pay service tax on the services of technical assistance and technical know-how rendered to an Indian company?
Brief Facts: - Respondent-assessee is a foreign company. For the services provided to an Indian Company between November, 1998 and December, 2000 by them Revenue contended that respondent were liable to pay service tax. Before the Adjudicating Authority, respondent contended that it is not liable to pay service tax in respect of the service rendered by the assessee (Foreign Company) to an Indian Company on the ground that Service Tax Act was not applicable for the relevant period. Demand was confirmed and was upheld by the Commissioner (Appeal).
Respondent along with two more companies viz. M/s Bharat Electronics Ltd. and M/s SKF India Ltd filed appeal before the Tribunal. The Tribunal, by a common order, held that the services rendered by the respondent-assessee does not attract the service tax. Hence, Revenue is in appeal before the High Court raising the following question of law:
"Whether, during the relevant period, in view of Board's Circular dated 2.7.1997 the technical assistance and technical know-how received by the Respondent from a foreign company did not constitute taxable service, viz., Consulting Engineer Services?"
Appellant’s Contentions: - Revenue contended that the Tribunal has committed a serious error in not considering the fact that the respondent-assessee being a foreign company has rendered the services to an Indian Company and service rendered to an Indian Company is liable to pay service tax. Reliance has been placed upon the provisions of sub-section (31) of Sec. 65 of the Service Tax Act. It was contended that the respondent-assessee as a consultant engineer has rendered professional technical know-how is liable to be taxed under the Service Tax Act. Therefore, it was contended that the Tribunal has committed a serious error in not considering the provisions of sub section (31) of Sec 65.
Appellants contended that facts involved in SKF India Ltd. are different from the facts involved in the present case.
Respondent’s Contention: - Respondent contended that sub-section (31) of Sec. 65 only deals with the definition of the word 'Consulting Engineer'. It was further contended that the word 'anybody corporate or any other firm' has been substituted w.e.f. 1.5.2006 by Finance Act, 2006. Prior to the amendment of the Finance Act, consulting engineer was applicable to a particular person or individual and not to a body corporate or a firm. Therefore, Respondent contended that even if the case of the revenue is accepted since respondent-assessee is a corporate body as the dispute is pertaining to prior to the amendment of Finance Act, Revenue cannot rely upon the said provision of law. It was further contended that sub-section (34) of Sec. 65 would be applicable to a person who renders service as a consulting engineer only in the case of service provider of Indian Origin. It is submitted that in spite of being a foreign collaborator, the provision of Sec.66A which has come into force w.e.f. 18.4.2006 fix the liability on the service recipient. It is submitted that even if this provision is made applicable to the case of foreign service provider only on or after in respect of the service rendered on or after 18.4.2006. Under any circumstances, Revenue cannot levy service tax on the respondent-assessee.
Respondent lastly contended that the Tribunal had passed a common order in the case of BEL and M/s SKF India Ltd. And the appeal of the Revenue in the case of SKF India Ltd in CEA 11/2007 has been dismissed by this court by its order dated 4.3.2010. In the said appeal, the questions of law were answered against the revenue. It is further contended that the question of law framed in the present appeal and the questions of law framed in CEA 11/2007 in the matter of SKF India Ltd. are one and the same.
Reasoning of Judgment: - The High Court held that even if the arguments of Revenue are accepted, sub-section (31) of Sec.65 of the Act would apply to the services rendered by an Indian as a consulting engineer. In the present case, the dispute is in regard to November, 1998 to December, 2000. As on November, 1998, the word 'company' or 'Firm' was not included under the definition of sub-section (31) of Sec.65 of the Act. Therefore, the contention of Revenue cannot be accepted even if it is considered that sub-section (31) of Sec.65 of the Act would apply to a service provider of foreign origin. Sec.66A of the Act has come into force w.e.f. 18.4.2006.
It was held that if the provision has come into force w.e.f. 18.4.2006, in the absence of the Revenue enlightened the court to levy service tax on a foreign company during the relevant assessment year, the Court is afraid to accept the contention urged by Revenue in order to rely upon Sec.66A of the Act.
If sub-section (31) of Sec.65 of the Act and Sec.66A of the Act are not applicable, the Court has no other option than to answer question of law against the Revenue and in favour of the assessee. Moreover, question of law raised in this appeal is answered by this court in a connected matter in CEA 11/2007 in the case of M/s SKF India Ltd. Therefore, the question of law is answered against the Revenue.
Decision: - Appeal dismissed.
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SOY P ITTY on 21 Apr, 2016 wrote:
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