Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/19

CASE LAWS

Prepared by:

Mayank Palgauta,

Parag Ghate, B. Com

Megha Jain and

Sukhvinder Kaur, LLB [FYIC]

Central Excise Section

Case: Commissioner of C. Ex., Chandigarh-I v/s Laxmi Engineering Works

Citation: 2010 (254) ELT 205 (P&H)

Issue: - Whether in the light of the private record which had been discovered during a raid, the Tribunal was right in holding that there was an attempt of clandestine production and removal of goods during the relevant period?

Brief Facts: - Revenue alleged that there was clandestine production and removal being done by the respondent. Raid was conducted and private record was recovered. The Tribunal held that there was no evidence of clandestine production and removal. Hence, Revenue is in appeal before the High Court.

Reasoning of the Judgment: - The High Court held that even if some records recovered during the raid and corroborated by some supportable evidence holding that there was an attempt of clandestine production and removal of the goods, then it is necessary to have the same positive evidence of clandestine production & removal of goods.

Decision: - Question answered in favour of the assessee.

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Case: CCE, Bangalore v/s M/s Shree Pla Pvt Ltd

Citation: 2010-TIOL-1114-CESTAT-BANG

Issue: - Whether penalty under section 25 of Central Excise Rules, 2002 is likely to be imposed on the account of non compliance of prescribed procedure (i.e. furnishing of the LUT) by the assessee in case when goods are cleared to SEZ units?

Brief Facts: - Respondent cleared goods to SEZ units under ARE-1 without payment of duty. The said ARE-1 was cleared by the Department Authorities. However, the respondent had not furnished LUT as required under Notification No. 42/2001-CE (NT) dated 26.06.2001 read with Rule 19 of the Central Excise Rules, 2002. Revenue initiated proceedings against the respondent proposing to impose penalty. The Adjudicating Authority imposed penalty under Rule 27 of the Central Excise Rules. Against this, Revenue has filed appeal for enhancement of penalties imposed on the respondents.

The Commissioner (Appeal) held that except for non-furnishing of LUT, all the other procedures prescribed for clearance of goods to SEZ units were complied with by the respondent. However, no case is made out that the endorsement on the ARE-1s by the Customs Authorities having admitted the goods in full in SEZ unit was wrong and there was error in confirming duty and interest. It was held that although there was violation of Rule 19 in non-furnishing of LUT but the same was a procedural violation. It was held that contravention should invite suitable penalty i.e. the penalty should be commensurate with the offence. Thus, it was held that the penalty imposed under Rule 27 was correct.

Against, this order Revenue is in appeal before the Tribunal. Cross objections have been filed by the respondent also.

Appellant’s Contention: - Revenue contended that respondent had cleared goods without payment of duty or without executing bond as required by the SEZ Rules, 2006. Reliance was placed on the provisions of Rule 30 of the SEZ Rules, 2002 wherein the procedure was prescribed for procurement of goods from DTA. It was contended that when an assessee intends to avail any benefit or exemption from payment of duty, it is required on his part to follow the procedure laid down in the relevant Rules and he should also fulfill the conditions laid down for such clearances. But in respondent’s case, conditions were not fulfilled and therefore, benefit could not be claimed by the respondent. It was contended that penalty under Rule 25 was required to imposed. The contravention was proved and the duty was demanded on the removal of excisable goods. It was submitted that the violation of statutory provisions was accepted by the respondent, thereby rendering themselves liable for penal action in terms of Rule 25 of CER, 2002.

Respondent’s Contention: - Respondent submitted that imposition of penalty under Rule 27 itself was not correct. No penalty was required to be imposed on them. It is submitted that the fact that the goods have been cleared to SEZ is not disputed and the supplies were made to SEZ immediately when the Rules in 2002 were introduced and hence duty could not be demanded for non-furnishing of LUT. Reliance was placed on the judgment given in MERRY v/s CCE, Mumbai-II [2008 (226) ELT 422 (Tri-Mum)], Eves Fashions v/s CCE, Delhi-I [2006 (205) ELT 619 (Tri-Del) and in IOC Ltd v/s CCE, Calcutta-II [2004 (178) ELT 834 (Tri-Kol)].

Reasoning of the Judgment: - The Tribunal held that it from facts it is clear that the goods had been cleared by the respondent under ARE-1 with the permission of lower Revenue authorities. It is also undisputed that the ARE-1s were warehoused as per the endorsement of the recipient of the ARE-1. This indicated that the goods cleared from the factory premises of the respondent reached the SEZ which is considered as an export. Thus, it was held that imposition of penalty of Rs. 5000/- under Rule 27 for not following the procedure was correct and required no interference. With regard to cross objections it was held that the arguments advanced by the respondent for not imposing any penalty were not convincing.

Decision: - Appeals dismissed. Cross Objections dismissed.

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Service Tax Section

Case: A. Sekar versus CCE, Trichy

Citation: 2010 (19) STR 82 (Tri. – Chennai)

Issue: Whether the process of laying the Pipelines attracts to Service Tax under the category of “Erection, Commissioning and Installation Service”?

Brief Facts: - Service Tax demand has been confirmed against the appellant and penalty imposed by holding that the activity of laying of pipelines amounts to “Erection, Commissioning and Installation Service” liable to tax. Against this order, appellant is in appeal before the Tribunal.

Reasoning of the Judgment: - Tribunal found that the issue in dispute has been considered in detail in Indian Hume Pipe Co. Ltd. Versus CCE – 2008 (12) STR 363 wherein it was held that laying of pipelines is not covered under the above mentioned service so as to attract service tax. This decision was not considered by the Adjudicating Authority on the ground that an appeal against the said decision has been filed.

The Tribunal observed that although appeal against the Tribunal’s decision in Indian Hume Pipe Co. Ltd is pending before the Apex Court but the operations of the Tribunal’s order has not been stayed. Since the issue stands covered by the earlier decision, impugned order set aside.

Decision: - Appeal allowed.

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Case: Plastronics versus CCE & ST, Mysore

Citation: 2010 (19) STR 60 (Tri. – Bang)

Issue: - The liability of paying service tax on Goods Transport Agency service has discharged by the transporter instead of the assessee. Whether demand of payment for the same service tax from the assessee is sustainable?

Brief Facts: - Appellant availed the services of Goods Transport Agency. Demand was raised against them on the ground that they had not paid service tax liability on GTA. Demand was confirmed. Appeal is filed against the said decision.

Appellants Contention: - Appellant contended that the service tax liability was not paid by them but was discharged by the Goods Transport Agencies. In this regard, they have produced various challans and certificate issued by the roadways.

Reasoning of Judgment: - On perusal of challans and certificate, the Tribunal held that it is satisfied that the service tax liability stands deposited with the authorities, hence, appellant has made out a prima facie case for the waiver of the pre–deposit of the amount of penalty and interest is allowed and recovery thereof is stayed, till the disposal of the appeal.

Decision: - Stay granted.

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Case: M/s Leela Scottish Lace Pvt Ltd v/s Commissioner of Customs, Bangalore

Citation: 2010 (19) STR 69 (Tri.–Bang)

Issue: - Can refund claim of service tax paid on CHA service be denied on the ground that these services are utilized after the goods arrived at port and thus have not been used in relation to the manufacture of excisable goods.

Brief Facts: - Appellant availed the services of CHA in export of goods during the period October 2007 to December 2007. They filed refund claim of service tax paid on CHA. Refund was denied by the Commissioner on the ground that the services involved were utilized after the goods reached the port area and that the services were not used directly or indirectly in relation to the manufacture of excisable goods. As the impugned activity was not carried out at the place of manufacture/place of removal, the impugned services could not be considered as input service. Against this order, Appellant is in appeal before the Tribunal.

Appellants Contention: - Appellants have placed reliance on the definition of ‘input service' in the Cenvat Credit Rules, 2004 and argued that the impugned services were used in relation to activity relating to the business of the appellant. Therefore, the impugned credit was legitimately admissible to them.

Respondents Contention: - Revenue submitted that services relating to business activities appearing in the definition of ‘input service' in the Cenvat Credit Rules encompassed only activities such as accounting, auditing, financing, etc and did not include any activity relating to physical handling of the manufactured goods.

Reasoning of Judgment: - The Tribunal held that as per the clarification issued by the CBEC vide Circular No.91/8/2007 dated 23.08.2007, “place of removal” appearing in the Cenvat Credit Rules covers the place at which the ownership of finished goods are transferred. In the instant case, the export goods were sold on FOB basis. The said service was availed prior to export of the goods. In view of the clarification of the Board, the appellants are entitled to credit of service tax paid under CHA services in respect of the excisable goods at the port area. Reliance was placed on the decision of the Tribunal in the case of CCE, Rajkot v/s Rolex Rings Pvt. Ltd. [2008 (230) ELT 569 (Tribunal.-Ahmd.)].

The Tribunal also found that in Final Order no. 1003/2009 dated 01.05.2009, a Division Bench of this Tribunal held that tax paid on services relating to business activities of a manufacturer was entitled to benefit of cenvat credit. The said order dealt with the services availed by the assessee in respect of the goods cleared on payment of duty and stored in its godown. In passing the said order, the Tribunal had followed the ratio of a decision of the Larger Bench of the Tribunal in CCE, Mumbai Vs. GTC Industries Ltd. [2008 (012) STR 0468 (Tribunal-LB)]. Following these decisions, the Tribunal held that the appellants were entitled to refund of service tax paid on CHA services used as input in the export of final products.

Decision: - Appeal allowed.

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Case: Commissioner of C. Ex., Chennai v/s Fourrts (I) Laboratories Pvt Ltd

Citation: 2010 (19) STR 86 (Tri.–Chennai)

Issue: - Whether an assessee is allowed to avail the Cenvat credit of service tax paid on Input services like dry cleaning service, CHA service and telephone service as they are related with the business manufacture?

Brief Facts: - Respondents were engaged in the manufacture of P & P medicaments and were availing Cenvat credit on inputs and input-service credit under the CCR, 2004. During the period November 2005 to March 2006, they had availed input-service credit on dry cleaning service, Customs House Agent's service and had also availed service tax credit for payment of telephone bills for telephones installed in their Head Office. Revenue contended that credit was not admissible to the respondent and issued show cause notice for recovery of wrongly availed CENVAT credit together with interest and proposing penal action. The Assistant Commissioner confirmed the demand of duty along with interest and imposed penalty. In appeal, the Commissioner (Appeals) accepted the contention of the respondent that the input services were essential in relation to the business and that they were eligible to credit. Hence Revenue has filed this appeal before the Tribunal.

Appellants Contention: - Revenue relied upon the decision of the Tribunal in Excel Crop Care Ltd. Vs. Commissioner - 2007 (7) STR 451 and which was followed in Nirma Ltd. Vs. Commissioner - 2009 (13) STR 64 holding that credit is not admissible on CHA service.

Reasoning of Judgment: - The Tribunal held that with regard to eligibility to credit of service tax paid on Customs House Agent's service, the issue has been settled in favour of the respondent-assessees by the decision given in Commissioner Vs. Rolex Rings Pvt. Ltd. - 2008 (230) ELT 569 and Commissioner Vs. Adani Pharmachemp Pvt. Ltd. - 2008 (12) STR 593. The decision of the Tribunal in Excel Crop Care Ltd. Vs. Commissioner - 2007 (7) STR 451 which has been relied upon by the Revenue and followed in Nirma Ltd. Vs. Commissioner - 2009 (13) STR 64 holding that credit is not admissible, has been distinguished in Rolex Rings case on the ground that the Excel Crop order did not consider the definition of input service or the CBEC Circular dated 23.8.2007 holding that all services availed by an exporter under the port area is required to be considered as input service as they are clearly related to business activities and activities relating to business are covered by the definition ‘input service' and admittedly CHA service relates to export of business. Following the ratio of the decisions in Rolex Rings and Adani Pharmachem, the Tribunal upheld the extension of CENVAT credit of service tax on Customs House Agents service.

As regards dry cleaning services, it was held that there was no dispute that wearing of clean uniforms/clothing is mandatory under Drugs and Cosmetics Act for personnel engaged in the manufacturing of medicaments or drugs. Therefore, dry cleaning services were clearly related to the business of manufacture of their final products. Hence respondent were entitled to CENVAT credit of service tax availed on dry cleaning service.

With regard to telephone service, it was held that since respondent were required to meet out day to day business activities, such services were also in relation to business falling within the scope of the definition of input service and therefore service tax credit on telephone service was admissible. Impugned order of the Commissioner (Appeals) was upheld.

Decision: - Appeal rejected.

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Case: Shree Agencies P. Ltd. v/s Commissioner of C. Ex., Jaipur–I

Citation: 2010 (19) S.T.R. 108 (Tri.–Del)

Issue: - Jurisdiction to adjudicate the issue of interpretation of Exemption Notification is with the decision of Division Bench.

Brief Facts: - Appellant-exporter has filed claim for refund of service tax paid on services relating to export of goods under Notification No. 40/2007-ST issued under Section 93 of the Finance Act, 1994. Revenue contending that benefit of refund under said Notification was no available on the services utilised by the appellant. Matter before the Tribunal.

Reasoning of the Judgment: - The Tribunal held that the issue involved in these appeals pertains to interpretation of exemption Notification therefore both these appeals must be decided by the Division bench as Single Bench is not competent to decide the same.

Decision: - Registry requested to list these appeals before Division Bench.

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Case: M/s Ador Fontech Limited v/s Commissioner of Central Excise, Nagpur

Citation: 2010-TIOL-1122-CESTAT-MUM

Issue: - If the value of the goods and materials sold by the assessee to the service recipient in the course of job work was not separately shown in the relevant invoice, whether the benefit of the Notification No. 12/03-ST is admissible to the assessee?

Brief Facts: - Appellant were undertaking jobwork of rebuilding of old worn-out rollers, liners, tyres and old worn out components of cement plants, steel plants etc during the period from July, 2003 to March 2008. Till 31.3.2005, they were paying the State Vat on approx. 70% of the total value of the contract and service tax on the rest of the value. From 01.04.2005, the assessee paid VAT on 80% of the contract value and service tax on 20% of the contract value. During the entire period, they remained registered with the department as providers of ‘maintenance and repair service’. They did not opt to get registered as providers of ‘work contract’ service which was introduced on 01.06.2007.

Show cause notice was issued on 7.10.2008 by invoking the extended period of limitation. Demand of differential service tax was raised on the ground that the appellant had not included the value of the goods and materials used in the aforesaid activities, in the taxable value of the taxable service for the period of dispute. It was also alleged that the value of the goods and materials so used were not separately shown in relevant invoices and, therefore, they were not entitled to claim the benefit of Notification no. 12/03-ST. Demand was confirmed by the Adjudicating Authority and the was upheld in appeal before the Commissioner (Appeal). Hence, the appellant is before the Tribunal. Application has been filed for waiver of pre-deposit and stay of recovery in respect of service tax demanded and also in respect of penalties imposed on them under various provisions of the Finance Act, 1994.

Appellant’s Contention: - Appellants submitted that though the value of goods and materials sold by them in the course of job work to the service recipient was not separately indicated in the relevant invoices, it was shown in a separate work sheet attached to the invoices. Also, the appellant have pointed out that the internal auditor of the Department had accepted their practice of payment of service tax on 20% of the total value of the contract for the period up to November 2006 and that, accordingly, whatever service tax found by the auditor to have been short paid by the assessee was paid by the latter. In this regard, appellant are relying on the Letter dated 16.12.06 of the Superintendent (Audit) and the statement annexed thereto indicating that for the period from July 2003 to November, 2006, an amount of Rs 1,23,757/- was found to have been short paid by the party. This amount was paid by the appellant. It was fairly pointed out that the subsequent audit done by the Superintendent was not in their favour. Reliance was placed on the decision given in Hindustan Aeronautics Ltd v/s Commissioner of Service Tax, Bangalore [2010 (17) STR 249 (Tri-Bang)], Wipro GE Medical Systems Pvt Ltd v/s Comm. of ST, Bangalore [2009 (14) STR 43 (Tri-Bang).

Respondent’s Contention: - Revenue submitted that the service in question was essentially repairs and maintenance service. It was submitted that had the appellant satisfied the conditions of the said Notification, its benefit would have been granted. It was submitted that the value of the goods and materials sold by the appellant to the service recipient in the course of job work was not separately shown in the relevant invoice, nor was it indicated in any separate work sheet. Reliance was placed on the decision given in Nizam Sugar Factory v/s CCE, Hyderabad [1999 (114) ELT 429 (Tri-LB).

Reasoning of the Judgment: - The Tribunal held that the appellant has not made out prima facie case on merits against the demand of differential service tax. They have not been able to adduce evidence of their consistent plea that value of goods and material sold by them to the service recipient in the course of the job work of repairs and maintenance of machinery during the period of dispute was separately indicated in work sheet. It is not in dispute that this value was not separately indicated in the relevant invoices. Tribunal have also seen a sample invoice depicted in the course of repairs and maintenance covered by the invoice. However, the worksheets were not produced before the Tribunal. It was held that Notification No. 12/03-ST granted exemption from inclusion of value of goods/materials sold by the service provider to the service recipient in the course of rendering of taxable service, in the taxable value of the service for the purpose of levy of service tax. The prime condition for this benefit was that the value of such goods and materials should be separately disclosed in the relevant invoice. This condition was apparently not fulfilled by the appellant and therefore, the benefit of the notification would prima facie be inadmissible to them. In other words, the appellant has failed to make out a prima facie case on merits.

However, the Tribunal held that from the facts it was clear that upto November 2006 the practice followed by the appellant was known to the Department and therefore, there was no suppression of material facts with intent to evade payment of service tax. However, upto March 2007, the appellant was led by the first audit report to believe that they could pay service tax upto 20% of the total value of service. However, after March 2007 the plea of limitation cannot be raised as the auditor had demanded a huge service tax amount vide letter dated 03.04.2007. Accordingly, appellant directed to deposit differential amount of service tax demanded for the period from April, 2007 to March, 2008.

Decision: - Pre-deposit ordered. Stay application disposed off.

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Customs Section

Case: M/s Pothys Cotton Products Pvt ltd

Citation: 2010 TIOL 111 CESTAT MAD

Issue: - When machinery is imported under EPCG and subsequently sifted to trading premises from designated place is considered to be inconsistency with procedure and liable to impose duty with interest and penalty.

Brief facts: - Appellant imported machinery under EPCG scheme. However, they shifted the machinery from the designated place to their trading premises. Revenue has raised the demand for duty with interest and has also proposed to impose penalty. Matter before the Tribunal.

Appellants Contention: - Appellants stated that they have paid duty amount on the impugned machinery imported under EPCG scheme which could not be installed at the designated place but was shifted out of compulsion to the trading premises of the appellants. They also undertook to pay the interest on the duty amount. However, they prayed for a lenient consideration in regard to redemption fine and the penalty imposed and also seeks waiver of the penalty imposed equal to the interest on the duty for which there is no provision in law.

Respondents Contention: - Respondent stated that the appellants were liable to penal action as there is proof of a deliberate attempt to divert the impugned goods.

Reasoning of Judgment: - The Tribunal found that the appellants have paid the duty amount which takes them out of the EPCG scheme. As the Appellants have undertaken to make good the interest on the duty, The Tribunal has taken a lenient view and reduced the fine to Rs. 30,000/- and the penalty the same amount. The separate penalty imposed at the rate of 25% equal to the interest on duty amount is set aside.

Decision: - Appeal partly allowed.

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