PJ/Case Laws/2010-11/17
Case Laws
Prepared By:
CA Ridhi Anchalia,
Sukhvinder Kaur, LLB [FYIC]
Parag Ghate, B.Com and
Megha Jain
Central Excise Section
Case: - Commissioner of C. Ex.,
Citation: - 2010 (253) E.L.T 696 (Tri.-Del.)
Issue: - Whether excess raw materials found with the assessee than shown in the records is an evidence that the assessee had intentions of clandestine removal? Are such inputs liable for confiscation under Rule 25?
Brief Facts: - While conducting stock verification by Excise officers visited the factory premises of the respondent-company, the stock of finished goods was found tallied with the recorded balance. Excess stock of raw materials namely, Flexi PU foam sheets/blocks, was found than the recorded. The excess stock was seized by the officers. Show cause notice was issued to the respondent. The Original Authority held that unaccounted raw materials were kept for the purpose of manufacture of excisable goods without bringing into account and for removing clandestinely. Accordingly, the excess found raw materials was confiscated under Rule 25 of the Central Excise Rules, 2002 but the same was allowed to be redeemed on payment of fine. Penalty was imposed on the respondent-company and on the Deputy Manager of the respondent-company. In appeal, Commissioner (Appeals) held that inputs could not be confiscated under Rule 25 of the Central Excise Rules, 2002 and accordingly, set aside the order of the Original Authority. Revenue has filed appeal before the Tribunal.
Appellants Contention: - Revenue submitted that the respondents have failed to account inputs and the said inputs are also excisable goods manufactured by the supplier of the said inputs in terms of Section 2(d) of the Central Excise Act, 1944. As the excisable goods were stored in the premises of the respondent, Rule 25(b) of the Central Excise Rules, 2002 was applicable and therefore, the said inputs were liable for confiscation.
Respondent’s Contention: - Respondents submitted that as noted in the show cause notice, there was no discrepancy in the stock of finished goods. The excess of raw material noted was due to mistake in Weighment. It was submitted that at any rate there is no allegation that the inputs were kept unaccounted with a view to manufacture excisable goods meant for clandestine removal is purely on assumption. The terms excisable goods under Rule 25 of the Central Excise Rules cannot cover the inputs procured by the manufacture. In the absence of any allegation of wrong taking of credit on the said inputs, provisions related to confiscation of cenvated inputs under Cenvat Credit Rules also do not apply. At the most, it can be a case of irregular maintenance of raw material account. Reliance has been placed on the judgment in the case of J.J. Packagers (P) Ltd [2006 (196) E.L.T 381] that Rule 25 of the Central Excise Rules could not be invoked in respect of raw materials. Respondent also relied upon the decision in the case of CCE
Reasoning of Judgment: - The Tribunal held that in Para 2 of Show cause notice refers to only excess of raw materials. However, in Para 4 the allegation expands to cover non-accountal excess stock in inputs/semi finished goods in the records. The allegation in the show cause notice that the inputs were kept for the purpose of manufacturing goods without bringing into account and clandestinely removing the same is in the nature of presumption and is not supported by any corroborative evidence including circumstantial evidence like any clandestine removal in the past etc. Therefore, the finding of the original authority in this regard cannot be sustained.
The Tribunal further held that there was excess stock of inputs and therefore, improper maintenance of accounts was clearly established. The dispute about the manner of stock taking has been raised belatedly and does not deserve any consideration. Further, the excess was substantial in quantitative terms and in percentage terms. In the absence of allegation of Cenvat Credit having been taken, the violation has to be treated only as a technical violation. The finding of the Commissioner (Appeals) that Rule 25 of the Central Excise Rules, 2002 cannot be applied to inputs brought by the manufacture of final products cannot be found fault with as such view is supported by the decision of the Tribunal in the case of Avanti LPG and J.J. Packagers (P) Ltd. Thus, the order of Original Authority imposing redemption fine has been restored and the amount of fine is reduced. Order imposing penalty has been restored. However, order of the Commissioner setting aside impugned order imposing penalty on the Deputy Manager has been upheld.
Decision: - Appeal disposed off accordingly.
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Case: - Colgate Palmolive (I) Ltd v/s Commissioner of C. Ex., Mumbai
Citation: - 2010 (253) E.L.T 144 (Tri. Mumbai)
Issue: - Combi-pack of toothpaste and brush – brush not packed at factory premises but at marketing agent’s premises – excisable goods to be assessed to duty in form in which cleared from factory u/Sec. 4 or 4A.
Brief Facts: - During the material period, the appellant was engaged in the manufacture of toothpaste, which was packed in printed cartons and removed from the factory. The maximum retail price (MRP) of the toothpaste was printed on these cartons. Besides, particulars regarding a toothbrush were also printed thereon. These particulars included the individual MRP of the toothbrush. However, the brush was inserted in the carton at the premises of the assessee’s marketing agent. The assessee had a sales promotion scheme, wherein a lesser price was offered to the ultimate consumers in respect of the toothbrush. This offer was also printed on the above carton. During the period April to October, 1999, the combi-packs marketed by the assessee’s agent contained toothpaste 200 gm with MRP of Rs 42/- and toothbrush with MRP of Rs 18/-, totaling to Rs 60/-. The Multipack was offered to the ultimate consumer at Rs 49/-. The assessee paid duty on the basis of MRP of Rs 42/-.
Revenue objected to the same. According to Revenue, the appellant ought to have paid duty on the basis of the combined MRP of Rs. 49/-. One of the appeals is against the differential demand of duty raised by the lower Appellate Authority on this basis. For the period from January to March, 2000, a similar demand was raised on the appellant in respect of combi-packs of toothpaste and toothbrush, each with combined MRP of Rs. 31.5, which was promotional price offered to the ultimate consumers. The individual MRP’s of the toothpaste and the toothbrush in a combi pack were Rs 28.5 and Rs 18/-. Alongside the total MRP of Rs 46.5, the concessional MRP of the combined pack was shown as Rs 31.5. According to the Revenue, the assessee ought to have paid cleared from the marketing agent’s premises.
Show cause notices were issued and demand was confirmed against the appellant. Appeals before the Commissioner (A) were also rejected. Hence, appellant is before the Tribunal.
Respondents Contention: - Revenue referring to Explanation I to Section 4A of Central Excise Act, 1944, contended that in the MRP based assessment of duty, the form in which the goods are sold to the ultimate consumer has to be taken into account. By invoking interpretative Rule 3 (b), it was argued that the combi-pack in the hands of the ultimate consumer should be assessed to duty on the basis of the MRP at which it is sold to such consumers. It was argued that the presence of toothbrush in the combi-pack is immaterial in as much as it is the toothpaste which imparts the ‘essential character’ of the product.
Reasoning of Judgment: - The Tribunal noted that (a) that toothpaste is admittedly an item notified under Section 4A of Central Excise Act, 1944, whereas toothbrush was not so notified though, in respect of both these items, there was a requirement under the Standards of Weights and Measures Act, 1976 and the Rules made thereunder to declare on the package the retail sales price of the goods; (b) that toothbrush was chargeable to ‘nil’ rate of duty during the material period; (c) that, in form in which the goods were removed from the assessee’s factory, they did not include any toothbrush; (d) that only one MRP for toothpaste was printed on the pack at the time of its clearance from the factory; and (e) that the combi-pack came into existence only at the premises of the assessee’s marketing agent.
It was further held by the Tribunal that Revenue had argued beyond the scope of the case made out by the Department in the show cause notice. The show cause notice simply demanded differential duty from the appellant on the ground that the product toothpaste is covered under Section 4A of the Act and duty thereon is required to be discharged as per the MRP at which the goods were sold to the ultimate consumer. The show cause notice clearly stated that the brush was inserted in the pack at the premises of the assessee’s marketing agent subsequent to clearance of the toothpaste from the assessee’s factory.
It was held that it is settled law that excisable goods have to be assessed to duty in the form in which they are cleared from the factory of production, whether under Section 4 or under Section 4. Had the combi-pack containing the paste and brush been cleared from the assessee’s factory with a combined MRP printed thereon alongside individual MRP’s, the position would have been different. In the instant case, the toothpaste alone was cleared in packed condition, with a single MRP thereof printed on the pack, from the assessee’s factory. For one period, this MRP was Rs. 42/- and, for the other period, it was Rs. 28.5. Thus, the Tribunal gave the finding that the appellant had paid duty on this basis in terms of Section 4A of the Act. They were not liable to pay any additional amount of duty on the goods in question. Demand of differential duty and penalty is set aside.
Decision: - Appeal allowed.
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Case: - M/s Madras Cements Ltd v/s Commnr of Central Excise, Chennai
Citation: - 2010-TIOL-59-SC-SX
Issue: - Whether the assessee is eligible to avail MODVAT/CENVAT credit on inputs and capital goods used in mines?
Brief Facts: - Appellant was engaged in mining activity and taking credit on inputs and capital goods used in mines. Revenue has objected to the same.
Reasoning of Judgment: - The Tribunal held that with regard to availing MODVAT/CENVAT credit on inputs (explosives, lubricating oils, etc), the issue is squarely covered by the decision of this Court in the case of Vikram Cement Vs. CCE [2006 (194) ELT 3]. Looking the same case the appeals that are concerned with inputs are allowed.
As regards the MODVAT/CENVAT credit on capital goods is concerned it was held that if the mines are captive mines so that they constitute one integrated unit together with the concerned cement factory, MODVAT/CENVAT credit on capital goods will be available to the assessee. On the other hand, if the mines are not captive mines but they supply to various other cement companies of different assessees, and it is found that the said goods were being used in the lime stone mines outside the factory of the assessee, MODVAT/CENVAT credit on capital goods used in such mines will no be available to the concerned assessee under the appropriate MODVAT/CENVAT Rules. Matter remanded for deciding this issue only.
Decision: - Appeal disposed of accordingly.
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Service Tax Section
Case: - The Commissioner of Central Excise & Customs, Guntur v/s M/s Kanaka Durga Agro oil Products Pvt. Ltd & another
Citation: - 2009-TIOL-1123-CESTAT-BANG
Issue: - Whether the service tax paid on the individual truck operators and owners under the GTA is correct?
Brief Facts: - Respondents paid Service Tax under the category of Goods Transport Agency (GTA) in terms of Notification No. 32/2004-ST dt. 3.12.2004, in terms of which, the effective rate of Service Tax is only 25% of the gross amounts charged from the customer by the GTA. However, Revenue proceeded against the respondents on the ground that they had not fulfilled the conditions of the said exemption Notification and differential service tax was demanded. The Original Authority confirmed the demand. In appeal, the Commissioner (A) gave a finding that “since the transportation has been undertaken by the individuals owning and operating the trucks, they are not registered with the department and the question of availing credit and other facilities does not arise and consequently, they need not follow the procedures prescribed by the Board.” Appeals of respondents were allowed with consequential relief. Against this decision, Revenue is in appeal before the Tribunal.
Appellant’s Contentions: - Revenue relied upon the Order 37B issued by the Board and contended that the exemption is available only if declaration is given by the service provider in all such cases on the consignment note to the effect that the conditions of the aforesaid exemption notification have been satisfied. It is also evident from the Board’s order that fulfilling of the conditions laid down in the Notification is sine qua non allowing the benefit of exemption.
Revenue relied upon the decision given by the Tribunal,
Respondent’s Contentions: - Respondent relied upon the Finance Ministers speech in 2004 wherein the Finance Minister had clearly stated that the Government did not have any intention in subjecting the individual truck owners’ to Service Tax. It was submitted that only transport booking agents were brought under the Service Tax net under GTA as per the Finance Minister’s speech. It was submitted that the respondents were engaged in the services of individual truck operators or truck owners and therefore, they were not liable to be taxed in respect of the services availed from GTA owners. The tax so paid is wrongly collected by the Revenue and is liable to be refunded, which the Commissioner (A) has held in favour of the respondents by ordering consequential relief.
It was submitted that the department’s appeals are supposed to be legislative intent of introducing Service Tax on GTA, which was on agents of truck owners/operators and not on the owners and operators themselves. It was submiited that it was clarified that the Apex Court in Laghu Udyog Bharati Vs. UOI [1999 (112) ELT 365 (SC)] that service tax could not be levied on service receiver with regards to Goods Transport Operator or GTO services by means of rules framed under the Act., when the Act required tax to be levied on Service Providers. Therefore, while introducing the law on GTA services, the Union Minister of Finance specifically clarified on the floor of the parliament to allay the doubts and fears of the truck owners and operators while presenting the budget in the year 2004 on 8.7.2004 that no tax would be levied on such parties and only on booking agents. It is not the case of the revenue in the present appeals that the respondents had obtained services of the booking agents and it is found to the contrary in the impugned orders that the truck owners gave vehicles on hire to respondents to transport the goods.
It was submitted that if doubt arise in interpretation of the fiscal or a taxing statute, speeches made by the mover of the bill on the floor of the Parliament are admissible as an aid to construe a statute. Reliance was placed on KP Varghese v/s ITO [1981 (131) ITR 597 (SC)].
It was submitted that the Service Provider under Section 65, (50b) of the Act is “goods transport agency” and not “goods transport operator”. In other words, there must be services rendered by GTA. This is because what is tax on the services rendered by a GTA in relation to transport of goods by road. It was submitted that the department has ignored this aspect of law, which is a cardinal importance.
It was further submitted that the provisions of the taxing statute especially the charging section has to be interpreted strictly and there is no scope for any intendment. Reliance was placed on Hemraj Gordhandas v/s HH Dave [1978 ELT J350 (SC)] wherein it was held that there is no room for intendment in any taxing statute. The words of the statute shall be strictly construed.
Reasoning of Judgment: - Tribunal held that the tax has been paid wrongly and the respondents were not liable to pay any service tax. Accordingly, impugned orders are upheld.
Decision: - Appeal rejected.
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Case: - JK Tyre & Industries Ltd. v/s Commissioner of C. Ex,
Citation: - 2010–TIOL–709–CESTAT–BANG
Issue: - Whether the assessee can claim Cenvat credit for the service tax paid on CHA charges for the period April to August 2006?
Brief Facts: - Appellant-assessee availed cenvat credit on the Custom House Agent service in respect of transportation of goods to be exported to the port. The Adjudicating Authority denied the credit on the ground that cenvat credit of service tax which was paid on the service relating to export of goods during the period 04/2006 to 08/2006. The Commissioner (Appeal) relied upon the judgment given in the case of M/s Excel Crop Care Ltd v/s CCE, Ahmedabad [2007 (7) STR 451 (Tri-Ahmd)]. Appellant are challenging the impugned order before the Tribunal.
Appellant’s Contentions: - Appellant contended that the impugned services were incurred up to the port area and that the ownership of the goods continued with the appellants till the goods were delivered to its buyers abroad. They relied on Para 8.2 of CBEC Circular F. No.137/85/2007-CX.4 dated 23.08.2007 which clarified that place of removal figuring in the Cenvat Credit Rules included a depot, premises of a consignment agent, or any other place or premises from where the excisable goods are to be sold after their clearance from the factory from where such goods are removed. Board also clarified that in case where the delivery of the goods on sale took place at the destination point, the credit of the service tax paid on transportation up to such place of sale would be admissible.
Appellant also relied on the decision of the Tribunal in the case of CCE, Rajkot Vs. Adani Pharmachem Pvt. Ltd.[2008 (12) STR 593 (Tribunal.-Ahmd.)] wherein the Tribunal had held that credit relating to services used by assessee up to the place of removal was admissible and that in case of goods exported, since sale took place at the port area, the assessee was entitled to credit of service tax paid on CHA services at the port area.
Respondent’s Contention: - Revenue submitted that credit of service tax paid on input services up to the place of removal was not admissible. CHA service availed by the assessee was not admissible as the same are availed at the place of removal. Moreover, the activities relating to business contained in the definition of input service covers only activities such as accounting, auditing, credit rating and quality control etc. It does not include services involving physical handling of goods.
Reasoning of Judgment: - The Tribunal considered the definition of input service in Rule 2 (l) of CCR, 2004. It was held that in the clarification issued by the Board, place of removal is clarified to be place at which the assessee transferred ownership of the goods. In the instant case, the appellants' claim is that the ownership of all the consignments involved were transferred to their buyers at the place of destination. It was submitted that if an opportunity is given, the appellant will be in a position to satisfy the Authorities that the CHA services involved were available up to the place of removal. In the circumstances, this appeal is allowed by way of remand. It will be open to the appellants to establish before the authorities that the ownership of the goods involved was transferred at the destination. Exports were on FOR destination basis.
Decision: - Appeal allowed by way of remand.
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Case: - Commissioner of Central Excise v/s Vahoo Colour Lab
Citation: - 2010 (18) S.T.R. 548 (P & H)
Issue: - Whether the assessee was liable to pay the service tax on the value of goods/material consumed during the course of processing of photography?
Brief Facts: - Assessee is engaged in rendering service relatable to photography, developing and printing. During enquiry, it was revealed that the assessee had not sold the material/goods to the recipient of service and availed the benefit of Notification dated 20.06.2003. It was alleged that assessee willfully suppressed the taxable value of material/goods consumed, during the process of providing the service. Show cause notice was issued to the assessee.
In their reply, the assessee explained that the photography films, printing papers, chemical and envelopes are the integral and essential ingredients of their developing/printing job and without the use of the same, photography service cannot be provided. These expenses were stated to constitute a major portion of their expenditure, besides the expenditure of electricity, repair and maintenance of machines directly related to the processing of photography films. It was claimed that they have already paid the service tax on the value of service and are not liable to pay the remaining claimed service tax. According to them, the material brought and sold as such are chargeable to sales tax and is a State subject and Central Government has no power to tax purchase or sale of goods under the garb of service tax when they are not brought or sold in the course of
The Adjudicating Authority relied upon the clarification of the CBEC, in the matter of Punjab Color Lab Association that “the exemption in respect of input material consumed sold by the service provider to the service recipient while providing the taxable service is available. However the exemption is available only if the service provider maintains the records showing the material consumed/sold while providing taxable service. The value of such material should also be indicated on the bill/invoice issued in respect of taxable service. In addition to this authority dropped the proceedings initiated against the SCN.”
The Revisional Authority reviewed the order of Adjudicating Authority and confirmed the demand of service tax alongwith interest and also imposed a penalty, equal to the amount of service tax.
Against the order of the Revisional Authority, assessee filed appeal before the Appellate Tribunal. The Appellate Tribunal set aside the order of Revisional Authority and restored the original order of Adjudicating Authority. The Appellate Tribunal had relied upon the judgment given in Deluxe Colour Lab Pvt. Ltd. [2009 (13) STR 605 (Tribunal)] wherein it has been held that photography service is in the nature of works contract and it involves elements of both, sales and service and the service tax is leviable on the sale portion.
Against this decision, Revenue was in appeal before the High Court.
Reasoning of Judgment: - The High Court held that from the records it was clear that the assessee had already paid the service tax on the value of service but the claim of the revenue is that the service tax is also leviable on the cost of material consumed during the course of processing of photography by the assessee. The High Court noted the judgment given in Deluxe Colour Lab Pvt. Ltd. on which reliance was placed by the Appellate Tribunal.
The High Court noted on an identical question the Supreme Court in the case Bharat Sanchar Nigam Ltd. v. Union of India [2006 (2) S.T.R. 161(S.C.)] had been held that if the nature of transaction involved is composite contract, of service and sale and if the components of sale element is discernible, then both the components cannot be re-mixed for the purpose of relevant tax.
It was held that it was not a matter of dispute that processing of photography cannot be completed without the developing and printing process, to provide the service to the recipient. The photography films, printing papers, chemicals and envelopes are the integral and essential ingredients to complete the process of photography. Meaning thereby, the components of sale of photography, developing and printing etc. are clearly distinct and discernible than that of photography service.
Therefore, it was held that as the photography is in the nature of works contract and it involves the elements of both sale and service, therefore, the service tax is not leviable on the sale portion, in the obtaining circumstances of the case. No infirmity in the decision of the Appellate Tribunal.
Decision: - Appeals dismissed.
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Case: - Commr. of S.T., Ahmedabad v/s Cadila Pharmaceuticals Ltd
Citation: - 2010 (18) S.T.R. 611 (Tri. - Ahmd)
Issue: - Whether the assessee is liable for the service tax taken on abatement if they have not taken credit on input or capital goods used for providing services nor they have claimed the benefit of Notification No. 12/2003-ST dated 20.6.03?
Brief Facts: - Respondents are engaged in manufacture of P&P medicaments and is also engaged in providing taxable service under the category of Technical Inspection & Certification Service. In the capacity of service receiver, the respondents were alleged to be liable to pay the service tax on 'Goods Transport Service' also, on the ground that in the consignment notes issued to the respondents by Goods Transport Agencies, there was no declaration to the effect that no credit on input or capital goods used for providing services has been taken nor the benefit of Notification No.12/2003-ST, dt.20.06.03 was availed. Show cause notice was issued to the respondents proposing denial of CENVAT credit attributable to 75% abatement of the gross value charged with interest. Penalty was also proposed to be imposed.
The Commissioner in the impugned order observed that the respondents provided certificate from the transporters to the effect that they had neither availed CENVAT credit nor the benefit of Notification No.12/2003-ST, dt 20.06.03. On the basis of such declaration and the Chartered Accountant's certificate which indicated that the respondents could provide such certification in respect of part of the service tax demand, the Commissioner dropped the demand in respect of this amount. However, the balance amount of service tax credit was denied since the respondents could not provide such declaration. Revenue is in appeal against the order of the Commissioner.
Appellant’s Contentions: - Revenue submitted that the Commissioner in his order had relied upon the Circular issued by CST, CBEC,
Respondent’s Contention: - Respondent submitted that the Board's Circular cannot override the provisions of Notification and the law. The Notification only provides that the abatement will be available if the service provider had not availed the benefit of Notification or CENVAT Credit. The Board's Circular only relates to modality of implementing the notification and cannot be held to be mandatory. Respondent also submitted that the Commissioner's order has been passed after the matter was remanded by the Tribunal wherein the Tribunal had remanded the matter to enable the respondents to produce evidence to show that the service provider had not availed the CENVAT Credit and had not availed the benefit of notification.
Respondent submitted that the Commissioner could not have gone beyond the remand order and in absence of the appeal filed by the Revenue against the remand order, now the Revenue cannot take any objection.
Reasoning of Judgment: - The Tribunal held that Notification No. 32/2004-ST, dt.03.12.04 provided for abatement of 75% of the gross amount charged from the customer for the purpose of calculating the liability of service tax subject to the condition that the no CENVAT Credit has been availed and benefit of Notification No. 12/2003-ST, dt.20.06.03 has not been availed. The respondents were paying the service tax as per the reverse charge mechanism and the relevant notification whereby the service receiver is liable to pay the tax. The Board had clarified that the endorsement has to be made on the consignment note.
Further, the Tribunal noted the fact that the Notification, as such, does not stipulate any such condition. Notification requiring the receiver of the service to pay the tax and also does not stipulate any such condition. Therefore, the requirements prescribed by the Board as per circular cannot be mandatory and cannot be used for denying substantive rights. It is not the case of the Revenue that the appellants have not received the service or service tax has not been paid.
Therefore, the Tribunal found that the Commissioner's order is just and fair and does not require any interference. Further, it was held that in the absence of an appeal against the Tribunal's order, remanding the matter for verification of evidence, that order becomes final and Revenue cannot challenge the impugned order, ignoring the remand order. No merit in appeal.
Decision: - Appeal rejected.
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Case: - Thriveni Earthmovers (P) Ltd v/s Commr. of C. Ex. & S.T., Bhubaneswar-II
Citation: - 2010 (18) STR 630 (Tri.–Kolkata)
Issue: - Whether in a composite contract of mining, assessee liable for service tax under different categories of service separately?
Brief Facts: - Demand of service tax against the applicant was confirmed on the ground that the Applicant is providing Business Auxiliary Service and Cargo Handling Service. Against this order, the applicant is in appeal. Stay Petition for waiver of pre-deposit of the amount of Service Tax and equal amount of penalty is filed.
Appellant’s Contentions: - Applicant submitted that they had entered into a Contract for providing mining service to M/s. Tata Iron & Steel Co. The 'Mining Service' relates to excavation, transportation of material etc. within the mining area and the 'Mining Service' comes under the purview of Service Tax with effect from 01.06.2007 and the present demand is prior to that period. It was contended that the composite Contract had been entered into for mining service which is not liable for Service Tax prior to 01.06.2007 and the demand is accordingly not sustainable. Alternatively, it was contended that the activity of conversion of ROM to finished product of desired sizes amounts to manufacture. Hence they are not liable to pay Service Tax.
Applicant relied on the decision given in the case of Eastern Minerals vs. CCE [1994 (70) ELT 301], where the Tribunal had held that crushing and grinding of lumps of diaspore and prophylite into smaller sizes would amount to manufacture. Accordingly, it was contented that even at the Stay stage, the same may be considered as Business Auxiliary Service and the same is exempted in terms of Notification No. 8/2005-ST w.e.f. 01.03.05, as in this case, the semi-finished goods were supplied by the Applicant for processing and after processing, the same were returned back to M/s. Tata Iron & Steel Co. for use in or in relation to manufacture of the final products which were cleared on payment of duty. To this effect, necessary certificate is produced by the Applicant.
Respondent’s Contention: - Revenue contended that the Applicant had entered into a contract for providing Business Auxiliary Service to M/s. Tata Iron & Steel, which is liable to Service Tax. The Notification No. 8/2005-ST now claimed by the Applicant, was not before the Adjudicating Authority.
Reasoning of Judgment: - The Tribunal perused the terms & conditions of the contract of applicant with M/s Tata Iron & Steel Co. and held that it transpires that the Contract relates to excavation and transportation of Run of Nine (RON). It was held that the transportation of goods is within the mining area. Reliance was placed on the judgment in the case of CCE vs. B.K.Thakkar [2008(9) STR 542 Tri – Kolkata] wherein it was held that transportation within the mining area is part of mining activity and hence, the assessee is not separately liable to pay Service Tax.
In view of the terms and conditions of the Agreement, Tribunal found that there is prima facie a strong case in favour of the Applicant as the Contract is for mining, and 'Mining Service' comes under the scope of Service Tax w.e.f.01.06.2007 and the present demand is prior to this period. Accordingly, the pre-deposit of the amount of Service Tax, interest and penalty are waived and recovery of the same is stayed during the pendency of the Appeal.
Decision: - Stay Petition allowed.
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Case: - M/s Avaya Global Connect Ltd versus CCE, Ahmedabad
Citation: - 2010–TIOL–397–CESTAT–AHM
Issue: - Whether separate records are to be maintained if the assessee is not availing credit of the common inputs used for providing both exempted and taxable services?
Brief Facts: - Appellant is engaged in the manufacture of EPABX System and other similar goods. They also provide services of erection, commissioning and installation, maintenance and repairs, commercial training and coaching, consulting engineer, scientific and technical consultancy service. Service tax demand for the period from 01.09.2004 to 29.02.2008 was confirmed against the appellant on the ground that appellants had availed Cenvat credit in respect of services which are used in respect of services provided in J&K state and SEZ which were exempted during the relevant time and while paying the service tax they were required to utilize only 20% of the credit available for payment of service tax on the input service in accordance with the provisions of Rule 6(3)(c) of Cenvat Credit Rules, 2004. Penalty equal to the service tax demanded has been imposed and interest is also demanded. Appellant is therefore in appeal before the Tribunal.
Appellants Contention: - Appellant submits that Rule 6(3)(c) of Cenvat Credit Rules, 2004, is not applicable since they had not at all taken the credit in respect of ten common services which were utilized by them. They submitted a list of those ten services and also submitted that more than Rs.8.27 crores was available as credit in respect of these services but appellants have not taken the credit in respect of these services. It was submitted that once they have not taken credit on the common services, the question of maintenance of separate records does not arise. It was also submitted that according to the calculations made by them only in respect of one month there would be excess payment of service tax from the cenvat credit account if the calculation is made on the basis of total amount payable on all the five services provided by them and total amount of cenvat credit utilized by them during the month.
Further, it was submitted by relying upon the calculation sheet for the year 2008-2009 which shows that during the year they had paid more than Rs. 12 crores from PLA and more than Rs.5.9 crores from cenvat credit account, that even if it is accepted that there would have been accumulated credit because of non application of restriction of 20%, the whole amount would have got wiped out during the year 2008-2009 when these restrictions were taken out of the statute book. Therefore, the situation would be totally revenue-neutral.
Further, it was submitted that services provided to SEZs are not at all exempted and cannot be treated as an exempted service. In respect of J & K, it was not the appellants who provided the service but only sub contractors.
Respondents Contention: - Revenue submitted that as observed by Commissioner in his order appellants were required to maintain separate account even if they had not taken the credit of input services which are common. Further, it was submitted that calculation has to be service wise and the method adopted by the appellants of calculating the total service tax payable and utilizing the service tax credit available to the extent of 20% of the tax payable was not correct.
Reasoning of Judgment: - The Tribunal found considerable force in the argument of appellants that once a service tax paid on input services has not been taken at all, the provisions of Rule 6(3)(c) of Cenvat Credit Rules would not be applicable. However, the Tribunal also held that even though the appellants submitted a list of ten services and the credit available thereon which was not taken, no verification has been conducted to check whether the claim made by the appellant that they have not taken cenvat credit in respect of the common services and therefore they would not be required to maintain separate accounts is correct. The Tribunal did not agree with the Commissioner's view that even if cenvat credit on common input services is not taken, appellant is required to maintain separate accounts.
Referring to Rule 6 (2) the Tribunal observed that the very beginning of the Rule shows that only where a provider of output service avails cenvat credit in respect of input services and uses the same and he is engaged in providing exempted as well as taxable services then only he is required to maintain separate accounts for receipt, consumption and utilisation of input services.
However, in view of applicability of this Rule and the requirement of maintenance of separate accounts, the Tribunal agrees with the appellant that unless the department shows that appellants have availed credit of input services which have also been used for providing any of the exempted services, the demand cannot be sustained. For this purpose there is a need for verification of the claim made by the appellants that they have not taken credit of service tax paid on all the common input services and their number is only ten. Therefore, the matter is remanded for verification of the claim made by the appellants in respect of these ten services.
Decision: -Appeal allowed by way of remand.
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Customs Section
Case: - M/s Essar Oil Ltd v/s CC,
Citation: - 2010-TIOL-1071-CESTAT-AHM
Issue: - Whether the assessee can claim conversion of its free shipping bill into drawback shipping bill? Whether the commissioner has power of such conversion?
Brief Facts: - Appellants had imported goods under free shipping Bill. They sought conversion of the free shipping bill into drawback shipping bill. The Commissioner rejected the request of the appellants. The Tribunal allowed the appeals and directed the Commissioner to allow the conversion of free shipping bills into drawback shipping bills. Revenue filed an appeal before the High Court. The High Court set aside the order of the Tribunal and restored the matter to the Tribunal for fresh decision.
Appellant’s Contentions: - Appellant submitted that the Commissioner had relied upon the instructions contained in Circular no. 4/2004-Cus dated 16.01.2001 wherein it was stated that the power of Commissioner to grant exemption from observance of the provisions of Rule 12 (1) (a) for the purpose of availment of drawback shall only apply in respect of drawback claims pertaining to all industry rates of drawback and it would not apply to brand rate of duty drawback where rate is claimed in terms of Rule 6 or Rule 7 of Customs and Central Excise Duties Drawbacks Rules. It was submitted that the rule does not have any such restriction and therefore the reliance of the Commissioner on circular was misplaced.
It was also submitted that the appellants had claimed drawback under all industry rates vide Sl. No. 271002 but this was not allowed on the ground that the said entry is applicable only to supplies made by the DTA units to units under SEZ, thinking that no drawback is available, they filed free shipping bills but on approaching the directorate of drawback they were advised to go for brand rate procedure. It was also submitted that the item exported was furnace oil which is bulk cargo and therefore the Weighment is done in the presence of customs officers only and therefore there cannot be any issue with regard to the quantum of export.
Respondents Contention: - Revenue on other hand submitted that there is no provision in the law for conversion of shipping bills. The Board’s circular only clarifies the legal position according to which the Commissioner can consider a free shipping bill as a drawback shipping bill. It was submitted that under Rule 12 of Drawback Rules, Commissioner is not converting the shipping bill but only exempting observance of certain procedures and thereafter giving direction to allow drawback. It was submitted that the Assistant Commissioner of Customs sanctioned drawback and the Commissioner by relaxing the procedure not fixed by the Commissioner and therefore the clarification given by the Board that Commissioner cannot convert the shipping bill is correct.
Reasoning of Judgment: - Tribunal held that in there earlier order they had not mentioned any specific provision of the law which permits conversion. The circular issued by Board even though speaks of conversion of shipping bills, the discussion is entirely relating to the provisions of Rule 12 of Customs & Central Excise Duties Drawback Rules, 1995 (Drawback Rules). As per the circular, Rule 12 empowers the Commissioner to condone non observance of provisions of Rule 12 and allow drawback. The distinction made by the Board between all industry rate shipping bills and brand rate shipping bills is not supported by the provisions of Rule 12. Commissioner is empowered to condone non observance of procedure under Rule 12 irrespective of the claim for drawback on the basis of brand rate or all industry rates. The artificial distinction has been made only by the board in the circular and is not supported by law. In the case of Gokuldas Images Pvt. Ltd vs. CC,
The Tribunal observed that in the case of Gokuldas Images Pvt. Ltd the matter was remanded to the Commissioner since the commissioner had made a wrong observation that the appellants had claimed brand rate whereas the appellants had requested only all industry rate. In the case of Hero cycles Ltd also it is not cleared as to whether the conversion allowed by the Tribunal was from free shipping bill to brand rate drawback bill or not. Under the Circumstances Judicial Discipline requires that the decision of Hero Cycles Ltd should be followed unless a contrary decision of the superior authority is shown.
Considering the provisions of Rule 12(1)(a) the Tribunal held that the rule required an exporter to say on the shipping bill, the description, quantity and such other particulars as are necessary for deciding whether the goods are entitled to drawback, and if so, at what rate or rates and make a declaration on the relevant shipping bill that a claim for drawback is being made and in respect of duties paid on containers packing material etc. no separate claim for duty has been made. The Commissioner is empowered to allow drawback of shipping bills which may not contain any of these details. This is nothing but an amendment to shipping bills file or conversion. The Commissioner wrongly observed that he had no powers to convert free shipping into drawback shipping bill and was not supported by the Rule at all. Board circular goes beyond the rules. Section 149 of Customs Act clearly permits amendment of Shipping Bill.
The Tribunal held that in view of section 149 the amendment of shipping bill can be permitted even after the good have left the country if the basis for amendment is documentary evidence. The appellants had claimed that the documentary evidence was available with them showing necessary details requires for the purpose of considering brand rate. The Tribunal observes that the Commissioner had failed to take note of provisions of Section 149 which empowered him to consider amendment and if the amendment was to be made on the basis of document, the applicant would have been benefited. As the board circular is not clear on this point the Commissioner could have considered the request of the appellant. Since furnace oil according to appellant has been exported as bulk cargo, the quantity, description and other details would have been verified since the let export order is given in the case of Ships by the Customs Officers after loading takes place. No reason to differ with the decision in Hero Cycles Ltd. Direction given to Commissioner to allow conversion of shipping bills into Drawback shipping bills. However eligibility of appellants to drawback, amount of drawback etc, is to be decided in accordance with law by appropriate customs authorities.
Decision: - Matter disposed off accordingly.
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