Case Law (13580)

Customs, Excise & Service Tax Appellate Tribunal
WEST ZONAL BENCH
MUMBAI

Appeal Involved: C/523/2010
[Arising out of Order-in-Original No. 2/2010-11/CC(1), JNCH dt.15.4.2010 passed by Commissioner of Customs (Import), Jawaharlal Nehru Customs House, Nhavasheva, Tal-Uran, Raigad Dist. Maharasthra.]

M/s. Hindustan Pulverising Mills, Azadpur, New Delhi – 110 033.
Appellant(s)

Versus

Commissioner of Customs (Imports) JNCH,Sheva,
Respondent (s)

Appeal Involved:  C/606/2010

[Arising out of Review Order No.2/2010-11 dated 16.7.2010 passed by the Commissioner of Customs, Mumbai Zone-II, Jawaharlal Nehru Custom House, Nhavasheva, Tal-Uran Dist. Raigad,
Maharashtra.]

Commissioner of Customs (Imports) JNCH,Sheva,
Appellant(s)

Versus

M/s. Hindustan Pulverising Mills, Azadpur, New Delhi – 110 033.
Shri Nikhil Aggarwal, Director, Marketing
Respondent(s)

Appearance:
Shri Jayant Kumar, Advocate For the Assessee
Shri P. V. Sekhar, Joint Commissioner (AR) For the Revenue

Date of Hearing: 21/06/2018
Date of Decision:12.10.2018

CORAM:
HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER
HON'BLE SHRI P. ANJANI KUMAR, TECHNICAL MEMBER

Final Order No. A/87651-87652/2018

PER: P. ANJANI KUMAR

M/s. Hindustan Pulverising Mills, the appellants, have imported the consignment of goods declared as plant extracts (bio fertilizer) and classified the same under CTH 3101 0099. No marking was found on the packing showing the impugned goods to be bio fertilizer. The representative sample was forwarded to the Regional Centre for Organic Farming, Nagpur who reported, vide report dated 20.02.2009 that the samples of Plant Extract (2 No) sent……are not Bio fertilizers; the Centre carried out the quality control testing of only biofertilizer samples like Rhizobium, Azotobacter, Axospirillum, PSB as per the fertilizer Control Order; samples do not come under the purview of bio fertilizers and that as such they are not able to analyze and sent the analysis report of the same.”

2. Vide letter dated 30.03.2009 National Centre for Organic Farming, Ghaziabad confirmed that the product does not confirm to any of the requirements of any bio fertilizer as per FCO; as per FCO 1985 ‘bio fertilizer’ means a product containing carrier based (solid or liquid) living microorganisms which are agriculturally useful in terms of nitrogen fixation, phosphorous solubilization or nutrient mobilization to increase the productivity of the soil or crop. The goods imported vide Bill of Entry No. 74088 dated 06.01.2009 were seized.

3. A show-cause notice dated 20.07.2009 was issued to the appellants proposing to classify the goods imported under CTH 1302 1990; demanding differential duty of Rs. 72,37,601/- and proposing to confiscate the impugned goods while seeking to impose fine in lieu of confiscation in respect of goods imported earlier under 5 Bills of Entry. Commissioner of Customs vide order dated 15.04.2010 has confirmed the finalization of assessment of Bill of Entry No. 740088 dated 06.01.2009 classifying the product under CTH 1302 1990 as ‘plant extract’. Aggrieved by the above, the appellants have filed Appeal No. C/523/2010. The Department has also filed an Appeal No. C/606/2010 praying that the Commissioner has erred in dropping all other charges; not confirming duty on a goods already cleared; not confiscating the goods and in not imposing penalty. Both the appeals have been taken together for decision.

4. Ld. Counsel for the appellant submitted that as per section notes or chapter notes CTH 31010099, there is no condition that the product needs to supply primary nutrients N,P,K and that it needs to be covered under Fertilizer Control Order (FCO); FCO does not define vegetable fertilizer as such; FCO is a piece of social legislation under Section 3 of the Essential Commodities Act, 1955 to regulate trade and prices of certain fertilizers for the benefit of farming community; products do not cease to be fertilizer merely because, it is not covered under FCO; it simply means that in respect of fertilizers not included in FCO the control mentioned in FCO cannot be exercised by government; only a subset of bio fertilizers and organic fertilizers has been included in Schedule III and IV of FCO to regular their market and prices.

4.1 Definition of fertilizer under FCO has a functional definition and a list specific definition; Under FCO, Fertilizer should satisfy two conditions which are joined by the conjunction ‘and’ in above definitions.

(i) It should be a substance used or intended to be used as a fertilizer of the soil and/or crop (basic functional definition); and

(ii) It should be specified in either Part A of Schedule I or Schedule III or Schedule IV. (Out of the fertilizers which qualify the functional definition, only the fertilizers which are listed in schedule shall be subjected to controls under FCO)

4.2 Dr. M.S. Kairon, an agricultural expert, gave an opinion that the product in question is a “Plant based fertilizer supplying nutrients to the crops; ‘Dealers and Farmers’ in an affidavit confirmed that they were using it as fertilizer to maximise crop yield.

4.3 So called “test reports” referred in para 19(2) of Order- in-Original are irrelevant to decide the issue of classification; Report of Regional Centre of Organic Farming Nagpur is basically not a test report; they have not tested anything and they have returned the sample saying that they test samples only in respect of fertilizer which are covered under FCO; It’s also not Appellant claim that the product is a bio fertilizer under FCO; As per Shriram Institute for Industrial Research, an ISO 9001:2000 certified institute, the product is a liquid organic fertilizer containing nitrogen, phosphate, potassium and other organic of amino acids having nutritional value for the crops; certificate of analysis submitted by them also states that the imported product contains 25% organic matter and 1.5% minerals; National Centre of Organic Farming (NCOF), Ghaziabad do not dispute the appellant’s submission that the product is an extract of various plants /herbs meant for use in agriculture; vide report No. 10(8)2007NCOF/3399 dated 21.05.2009, NCOF , Ghaziabad confirmed s that the product is a organic fertilizer derived from plants.

4.4 Supreme Court, in the case of O.K. Play (India) Ltd. V. CCE – 2005 (180) E.L.T. 300 (S.C), prescribed the following for determination of classification.

(i) HSN along with explanatory notes provide a safe guide for interpretation of an entry.

(ii) Rules of interpretation will decide preference for one heading over other

(iii) Functional utility, design, shape and predominate usage have also got to be considered.

4.5 Supreme Court, in the case of CCE & Cus Surat-II Vs Nirmala Dyechem – 2007 (207) E.L.T. 161 (SC), held that principal use of the product needs to be seen.to decide classification

4.6 Heading 1302 covers, by and large, extracts in purer form which are used as a raw material for preparation of end products down the line in products meant for human consumption either as a drug or medicine or in food preparations. Further the end products prepared from the raw material of these headings are not classified here rather they are classified in more specific entries based on their usage. The chapter note of Chapter 13 makes this abundantly clear that 13.02 covers only those plant extracts which are in the form of raw material and it does not cover end products made out of these raw materials; the impugned product is not a raw material but an end product itself to be used as a fertilizer and not going to be used as an input in any product meant for human consumption; therefore, cannot be covered under CTH 13.02; it is class apart from the products which are covered under CTH 13.02.

4.7 The six-digit entry 13021 at – level falling under “vegetable Saps and extracts” has been divided into following four entries at ---level which are mutually exclusive.

---extracts

---Cashew shell liquid (CNSL), crude

---Purified and distilled CNSL (Cardanol)

---Other (1302 1990)

4.8 Ld. Commissioner has confirmed the classification under the CTH 1302 1990 where a product will fall if and only if it is not a plant extract because 13021990 is a residual entry. Therefore as per the departmental understanding also, the product cannot be classified under CTH 13021990. The explanation given to entry 13.02 in HSN makes it clear that saps and extracts are covered under heading 1302, provided they are not specified or included in more specific headings of the nomenclature. It is also mentioned that vegetable saps and extracts of this heading (1302) are generally raw materials for various manufactured products.

4.9 Under Rule 3(a) of the General Rules for the Interpretation of Import tariff, it is provided that the heading which provides a specific description shall be preferred to a heading having a more general description. Plant extract appearing in 1302 is a more general description to encompass all sorts of plant extract, whereas the entry appearing in 31.01 is more specific and includes only a subset of plant extracts which are used as fertilizer. Therefore the entry 31.01 being more specific, the product in question must be classified under 31.01.

4.10 It is submitted that under Rule 3(c) of the General Rules for the Interpretation of Import tariff, it is provided that when goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4.11 It is submitted that under Rule 4 of the general rules for the interpretation of Import tariff, that Goods which cannot be classified in accordance with Rule 2 or Rule 3 shall be classified under the heading appropriate to the goods to which they are most akin. Since, the impugned goods are most akin to other organic fertilizers and are organic fertilizers they are classifiable under 31.01.

4.12 The show-cause notice does not propose classification under CTH 3808 and thus classification under 3808 is out of the scope of present appeal and thus ruled out. It is to be noted that product cannot be classified under Chapter 13 and thus Order-in- Original needs to be set aside. They further submitted as to why the product cannot go to CTH 3808 and why it should be classified under CTH 3101, as follows:

Fertilizers    Plant Growth Regulators

Tariff Heading
31.01: Animal or vegetable fertilizers, whether or not mixed together or chemically treated; fertilizers produced by the mixing or chemical treatment of animal or vegetable products.   

Tariff Heading
3808: Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant growth regulators, disinfectants and similar products, put up in forms or packings for retail sale or as preparation s or articles (for example, sulphus-treated bands, wicks and candles, and fly-papers) HSN Explanatory Notes

This heading covers:
(a) Animal or vegetable fertilizers, whether or not mixed together or chemically treated;
(b) Animal or vegetable products converted into fertilizers by mixing together or chemical treatment (other than bone superphosphates of heading 31.03)    HSN Explanatory Notes

The heading further covers anti-sprouting products and plant growth regulators intended to inhibit or promote physiological processes in plants …..
Plant Growth Regulators are applied to alter the life processes of a plant so as to accelerate or retard growth, enhance yield, improve quality or facilitate harvesting, etc….


Note: The products covered under chapter 31 are only intended for enhanced growth and not intended for adverse growth as in case of PGRs.

Note: The products covered under Chapter 38 are intended to inhibit or promote physiological changes in plants, i.e., altering or modifying the plant’s structure and life processes. PGRs particularly bring hormonal changes in the plants. PGRs effect both accelerated and retarded growth.


Chapter Note in CTA, 1975
This Chapter covers most products in general uses as natural or artificial fertilizers. On the other hand, the Chapter does not cover products which improve rather than fertilize the soil, such as: Note: Chapter Note to Chapter 31 states that it covers products used as natural or artificial fertilizers and does not cover products which improve soil rather than fertilizing the soil.    Chapter Note in CTA, 1975

This Chapter covers a large number of chemical and related products.
It does not cover separate chemically defined elements or compounds (usually classified in Chapter 28 or 29), with the exception of the following:

Note: Chapter note to Chapter 38 states that it covers only chemical products and chemical related products.

Dictionary Meaning

1. Illustrated Oxford Dictionary, OUP, 2003 defines fertilizer as:
“A chemical or natural substance added to soil to make it more fertile”

2. Wikipedia defines fertilizer as:
‘Fertilizer (or ertilizer) is any organic or inorganic material of natural or synthetic origin (other than liming materials) that is added to a soil to supply one or more plant nutrients essential to the growth of plants.”   

Dictionary Meaning
1. It is submitted that Kirk-Othmer “Encyclopedia of Chemical Technology” (3rd Edition – Volume 18) introduces PGRs as follows: “Plant-growth regulators, other than nutrients, usually are organic compounds. They are either natural or synthetic compounds and are applied directly to a plant to alter its life processes or structure in some beneficial way so as to enhance yield, improve quality, or facilitate harvesting. Plant hormones i.e., phyto- hormones, are plant-produced growth regulators and therefore, are naturally occurring plant substances,


1. Merriam Webster online Dictionary defines fertilizer as; “one that fertilizes; specifically: a substance (as manure or a chemical mixture) used to make soil more fertile”

Note: The fertilizers are usually natural substances used to improve the fertility of the soil by supplying nutrients.

Plant-growth regulators, however, apply to phytohormones as well as synthetic compounds.”

1. “Plant Physiology” (4th Edition) by Robert M. Devlin & Francis H. Witham gives the following description for Plant Growth Regulators:-

2. “Plant regulators are organic compounds other than nutrients that in small amounts promote, inhibit, or otherwise modify a physiological process in plants.”

Note: The PGRs do not provide nutrients to plants rather promote or inhibit growth of specific parts of plants.

From the above definitions, HSN Explanatory Notes, it can be said that the fertilizers help in overall growth of the plants. It is inferred that fertilizers provide nutrients to soil making it more fertile and thus provide overall growth of plants.

From the above definitions, HSN Explanatory Notes, it can be said that the PGRs help in selective growth of the plants. It is inferred that PGRs do not provide nutrients to the plants rather promotes or inhibits growth of a selected part of plants.

4.13 It is submitted that the difference between Fertilizers of Chapter 31 and Plant Growth Regulator of Chapter 38 is that products of Chapter 31 work by providing nutrients to the plant

for its overall growth while a Plant growth regulator works by physiologically affecting the plant so that there is a selective growth of a particular part of the plant compared to other part and that is why it is called Regulator. It is submitted that in Northern Minerals Ltd. [2001 (131) E.L.T. 355 (Tri.-Del.) further affirmed in [2003 (156) E.L.T. A161 (Supreme Court)], the Hon’ble CESTAT held that Plant Growth Regulators are natural or synthetic organic compounds other than nutrients and that they can promote, inhibit or alter physiological processes in plants. Therefore, for the purpose of classification of products as a plant growth regulator under the heading 3808, it is to be seen that the product has a functional ability to inhibit or alter or modify plant processes. Therefore in the line of the aforementioned judgment it can be said that the products should possess a functional ability of inhibiting or altering the plant processes to be classified under heading 3808. Since the products are natural fertilizers and are not plant growth regulators will be covered under a more specific heading 3101 in the nomenclature and they will not get covered under 3808 as plant growth regulators.

4.14 The impugned product provides nutrients to the soil to improve the fertility of soil and thereby helping overall growth of the plants. The impugned product neither affects any selective part of plants nor affects any specific structure or life processes of plants. It is therefore submitted that the impugned product falls under CTH 3101 as vegetable fertilizer.

5. Ld. Authorized Representative, for the revenue has reiterated the findings of OIO as far as the classification of impugned goods is concerned and the grounds of appeal as far as confiscability and penalty on the impugned goods are concerned. He submitted that Sri Ram institute from where the appellants have obtained test report is not a notified institution; the samples were not drawn legally and the test report was submitted after adjudication. Therefore cannot be relied upon. In view of the Chapter Note (b) the impugned goods do not fall under Chapter 31. He relied upon Weston components Ltd. vs. CC, New Delhi: 2000 (115) ELT 278 (SC) wherein it was held that redemption fine is imposable on goods even when they were provisionally released. He submitted copies of extracts of Chapter Notes, Section Notes and HSN Explanatory Notes.

6. Heard both sides and perused the records of the case. The brief issues for consideration before us are
(i) Whether the impugned goods are ‘plant extract’ classifiable Under CTH 13021990 or as ‘bio fertilizer’ under CTH31010099;
(ii) Whether the Ld. Commissioner erred in not imposing fine in lieu of confiscation and penalty.

6.1 We find that the appellants have classified the product under chapter 31. They have submitted that the impugned product is manufactured out of herbs like sopnora, fiavescnes, milleazevacarh, stemona, tuberos etc. which are collected during the typhoon period in China and crushed to get extracts which are further processed to get the product under consideration. They also submitted that the imported product helps healthy growth of plant free from diseases, thereby increasing the yield. These extracts of the herbs processed form liquid fertilizers for folic application in agriculture are in natural form and chemically untreated. After import the material is repacked without any processing in small containers of 100 ml. to 5 liters and are marketed by the importer under the brand name of ‘Nikku’ which is purchased by the farmers to use as nutrients/fertilizers for increasing their yield. The imported product in regard to manufacturing process, characteristics and composition is not different from the products classified under CTH 3101 as fertilizer.

6.2 Ld. Commissioner has given a finding that manufacturing process of the product, its characteristics and composition itself distinguishes it from the product covered under 3101, which inter alia includes excreta, dung, manure, waste, rotten vegetable products, residue, stabilized sewage sludge. He also found that Webster’s Dictionary of English Language defines “fertilizers” as any substance such as manure or a chemical compound used to enrich the soil. Accordingly, for a product to qualify as a fertilizer, it should contain primary nutrients like nitrogen, phosphorous, potassium etc. in various forms which would give nutrition to the plant by way of enriching the soil. The product under import judged from this yardstick is not a fertilizer. For a proper appreciation of the findings of the Commissioner, we need to have a look at the classification of the goods under Chapter 31.

31.01. Animal or vegetable fertilizers, whether or not mixed together or chemically treated; fertilizers produced by the mixing or chemical treatment of animal or vegetable products.

This heading covers:

(a) Animal or vegetable fertilizers, whether or not mixed together or chemically treated;
(b) Animal or vegetable products converted into fertilizers by mixing together or chemical treatment (other than bone superphosphates of heading 31.03).
However, these products fall in heading 31.05 when put up in the forms or packages described in that heading.

The heading includes, inter alia:

(1) Guano, which is an accumulation of the excreta and remains of sea birds, found in large quantities on certain islands and coasts. It is both nitrogenous and phosphatic, and is usually a yellowish powder with a strong ammoniacal odour.
(2) Excreta, dung, soiled fleece waste and manure, unsuitable for use other than as fertilizers.
(3) Rotted vegetable products, unsuitable for use other than as fertilizers.
(4) Disintegrated guano.
(5) Products resulting from the treatment of leather with sulphuric acid.
(6) Compost consisting of rotted waste vegetable and other matter where decay has been accelerated or controlled by treatment with lime, etc.
(7) Wool scouring residues.
(8) Mixtures of dried blood and bone meal.
(9) Stabilised sewage sludge from urban effluent treatment plants. Stabilised sewage sludge is obtained by screening the sewage effluent to remove large objects and settling out grit and heavy non-biological constituents; the remaining sludge is then allowed to air dry or is filtered. The Stabilised sludge so obtained contains a high proportion of organic matter and also contains some fertilising elements (e.g., phosphorus and nitrogen). However, such sludge containing other materials (e.g., heavy metals) at a high concentration, which make the Stabilised sludge unfit for use as fertilizers’, is excluded (heading 38.25).

6.3 From the above, it can be seen that the impugned product cannot be grouped under Chapter 31 due to the genesis of the product and characteristics. Moreover, the National and Regional Centre for Organic Farming have given a categorical report that the subject goods do not conform to any of the requirements of any biofertilizers listed under FCO. Therefore, the impugned products are not biofertilizers. We find that the Commissioner has correctly held that when there is a legal definition available on the subject defining an item, no other definition can be adopted in this regard to the same. Moreover, we find that the appellants themselves have mentioned the product to have been extracted from different plants grown in China. This being the case, one should have no hesitation or doubt in categorizing the impugned product as ‘Extracts’. We find that Chapter 13 refers to ‘Plant Extracts’ only. We find that HSN Note for 13021990 refers to “Others derived from vegetable products”. The arguments of the appellants that the ‘Extracts’ of Chapter 1302 are raw materials in nature for further processing for ultimate consumption or use by human beings, is not convincing. We find that nowhere in the Chapter Notes or the HSN Notes for Chapter 13 refer to the products being of edible nature. As it is not denied that the impugned product is an extract of plants, it is correct to classify the same under Chapter 13 of CTH. Moreover, as the goods were certified not to be biofertilizers, the classification claimed by the appellants under Chapter 31 is squarely excluded. Therefore, we find that Ld. Commissioner has a point in arriving at the conclusion that the impugned product is classifiable under CTH 13021990. The importer further contended that his previous consignments were cleared under CTH 31 and has similar goods are being cleared in other ports under same heading, the department cannot contend to classify the goods under Chapter 13. We find that there is no estoppel in taxation matters and that Revenue was well within its rights to revise the classification. The importer has raised the issue of classification under Chapter 38 vis-à-vis Chapter 31. However, as the impugned show-cause notice of the order has not raised the issue, we are not going to deal with the same.

6.4 Coming to the applicability of extended period, we find that the appellants have filed 5 Bills of Entry from 27.5.2008 to 6.1.2009. Out of which, Bill of Entry No.894541/01.07.2008 and 740088/6.1.2009 were provisionally assessed. The Revenue has taken a plea that the Bills of Entry were filed under the self- assessment regime, therefore, the onus to classify correctly was on the importer; the importer described the goods as ‘biofertilizers’ to mislead the department and to evade payment of duty; and as the importer has not declared the true nature of the goods and has not classified the goods correctly, extended period is invokable as the importer has suppressed the material fact. We find that of all the six Bills of Entry, the goods imported under 740088 dt.6.1.2009 were seized and provisionally released. Revenue claimed that the assessment was done by the importer himself and the Bills of Entry were cleared under RMS, department has no knowledge of the wrongful doings of the importer. However, we find that 894541 dt.1.7.2008 was provisionally assessed by the Group pending test report. Therefore, it is very clear that the department was very much aware of the impugned products and has sent for test. However, the results of such test reports are not forthcoming in the records. Having assessed that Bill of Entry provisionally, it was open to the department to keep an alert in the system to interdict subsequent Bills of Entry. Having failed to do so, department cannot allege suppression on the part of the importer. Therefore, the demand needs to be restricted to the normal period. We rely on ratio of the Tribunal’s decision in EID Parry (India) Ltd. vs. CCE vide Final Order No.42067 – 42073/2017 dated 15.9.2017.

6.5 The Revenue in their appeal contended that goods in respect of Bill of Entry 740088 dt.6.1.2009 were seized and were provisionally released and therefore, in view of the Hon’ble Supreme Court’s decision in the case of Weston Components Ltd. vs. CC: 2000 (115 ELT 78 (SC), the adjudicating authority should have imposed redemption fine. We find that the argument of the department is correct.

6.6 In view of the above, we find that:

(i) The demand be restricted to the normal period. The show-cause notice issued on 20.07.2009. Therefore, demand needs to be restricted for Bills of Entry filed on or after 21.7.2008. Therefore, the demand of differential duty of Rs.12,89,395/- in respect of Bill of Entry 846452 dt. 27.5.2008 is upheld.

(ii) The impugned order of the Commissioner is upheld so far as finalization of Bill of Entry No.740088 dt.6.1.2009 classifying the product under CTH
13021990 as ‘Plant Extract’ is concerned.

(iii) We impose a redemption fine of Rs.1,00,000/- on the goods imported by Bill of Entry No.740088 dt.6.1.2009.

7. In view of the above, both the appeals are partially allowed.

 

(Order was pronounced in open Court on 12.10.2018)

(P. ANJANI KUMAR)             (S.K. MOHANTY)
MEMBER (TECHNICAL)                 MEMBER (Judicial)

Additional Info

  • Date Range (yyyy-mm-dd) Friday, 12 October 2018
  • Court/Authority CESTAT
  • Tax Type Customs duty
  • Subject M/s. Hindustan Pulverising Mills, Azadpur, New Delhi – 110 033. Vs Commissioner of Customs (Imports) JNCH,Sheva & Commissioner of Customs (Imports) JNCH,Sheva, Vs M/s. Hindustan Pulverising Mills : Appeal Involved: C/523/2010 & C/606/2010
  • Petitioner/Appellant M/s. Hindustan Pulverising Mills, Azadpur, New Delhi – 110 033. Vs Commissioner of Customs (Imports) JNCH,Sheva & Commissioner of Customs (Imports) JNCH,Sheva, Vs M/s. Hindustan Pulverising Mills
  • Respondent M/s. Hindustan Pulverising Mills, Azadpur, New Delhi – 110 033. Vs Commissioner of Customs (Imports) JNCH,Sheva & Commissioner of Customs (Imports) JNCH,Sheva, Vs M/s. Hindustan Pulverising Mills
  • Appl no. or Appl year Appeal Involved: C/523/2010 & C/606/2010
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No. E/1694/2010
(Arising out of Order-in-Appeal No. SB(63)63/M-V/2010 dated 30.6.2010 passed by Commissioner of Central Excise (Appeals), Mumbai-I)

Amardeo Plastic Industries
Appellant

Vs.

Commissioner of Central Excise, Mumbai-V
Respondent

Appearance:
Shri S.K. Babaladi, Consultant, for appellant
Shri M.R. Melvin, Superintendent (AR), for respondent

CORAM:
Hon’ble Mrs. Archana Wadhwa, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical)

Date of Hearing: 8.10.2018
Date of Decision: 8.10.2018

ORDER No. A/87579/2018

Per: Sanjiv Srivastava

The appeal is directed against the order of Commissioner (Appeals) Central Excise Mumbai Zone-1 dated 30th June 2010. By the said order Commissioner (Appeal) has upheld the order of Deputy Commissioner Central Excise, Malad Divison, Mumbai V Commissionerate holding as follows:

“25. I confirm the demand of differential Central Excise duty amounting to Rs 2,46,296/- (Rs 2,40,390/- (Basic) + Rs 4,808/- (Education Cess) + Rs 998/- (Higher Education Cess)) 9rupees Two Lakhs Forty Six Thousand Two Hundred and Ninety Six only) on M/s Amardeo Plastic Inds under proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944.

26. I impose equal penalty amounting to Rs 2,46,296/- on M/s Amardeo Plastic Inds under Section 11AC of the Central Excise Act, 1944.

27. I do not propose to impose any penalty under Rule 25 of Central Excise Rules, 2002, since imposition o0f penalty under Section 11AC of Central Excise Act, 1944 meet the ends of justice.

28. The interest at appropriate rate is also recoverable under section 11AB of the Central Excise Act, 1944.”

2.1 During the course of preventive checks it was observed that the appellants were clearing the goods to their sister concern on payment of duty on the assessable value which is determined on rate reduced by Re 1 to Rs 2.50 per kg then the declared assessable value. The said value for clearance was agreed mutually and verbally without any written contract. Statements of the concerned persons in the unit, i.e. Shri Prabhat Singh, Partner, Shri Simon D Rodrigues an employee in the unit and Shri Panchdeo Singh Business Controller and Partner in M/s Indian Extrusions (sister concern) were recorded.

2.2 On the basis of the investigations undertaken it was alleged that the Appellants and their sister concern are interconnected units and hence related person for the purpose of Central Excise. Since the sister concern was captively consuming the goods, by application of Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, valuation of the said goods was sought to be done in terms of Rule 8, by applying the cost construction method.

2.3 Appellants contested the notice before the adjudicating authority stating that the their entire clearances were not made to their sister concern, but they were clearing the same goods to other buyer as well, thus in view of the specific wording of Rule 9, the valuation in their case needs to be done under Rule 10. However said contention of the appellants was not agreed to by the adjudicating authority and he confirmed the demand against them.

2.4 Matter was taken in appeal before the Commissioner (Appeal) who upheld the order of adjudicating authority, hence this appeal before us.

3.1 In the appeal filed appellants have assailed the order of Commissioner (Appeals) on grounds as follows:

i. The issue is in respect of 18% of their total clearances, made to their sister concern. Remaining 82% of the sales were made to independent buyers. Since all the sales were not made to or through related person Rule 9 of valuation rules shall not be applicable for determination of the assessable value of the goods cleared to related person.

ii. Further none of the authorities have held them and their sister concern to be related person in terms of Section 4(3)(b)(ii), (iii), (iv) or clause 41 of Section 2 of the Companies Act, 1956 (1 of 1956). Thus invoking the provisions of Rule 9, for determining the assessable value may not be justified.

iii. Both the authorities have failed to appreciate that Rule 9 of the Valuation Rules 2000, is applicable only when the goods are sold through related person. Rule 10 of the valuation rule specifically cover the situation when sales are to through interconnected undertakings and the sales were also made to independent buyers.

iv. Quantity discounts offered by them need to be allowed. It is not the case that quantity discounts on the list price were given only to their sister concern, but were also given to Marico Limited.

v. In the case of sale to their interconnected undertaking there is no favored treatment. Nothing has been brought on record that the price to their sister concern was a favoured price and there was any extra commercial consideration.

vi. In their view clearances to interconnected undertakings are covered by the provisions of Section 4(1)(b) read with Rule 10 of Central Excise Valuation (DPEG) Rules, 2000 and not by Rule 9 read with Rule 8 as have been held by the authorities below.

vii. Further the orders of authorities below is erroneous because even if the clearances made by them were to be valued in terms of Rule 9 read with Rule 8, then also the assessable value should be 110% of the value arrived on cost construction and not 110% of the invoice value.

viii. They have been following the same practice for clearance to the sister concern for last twenty years and they were under bonafide belief that Rule 8 is not attracted in their case as they were selling the goods to independent buyers too. There was no intention or motive top evade Central Excise duty and hence extended period of limitation has been wrongly invoked.

ix. Since demand itself is not sustainable imposition of penalty cannot be justified.

4.1 We have heard Shri S K Babaladi, Consultant for the Appellants and Shri M R Melvin, Superintendent Authorized Representative for the revenue.

4.2 Learned Consultant submitted that in the case of clearances made to interconnected unit, the valuation has to be done in terms of Rule 10 and not in terms of Rule 9 as has been held by the lower authorities. He submitted that this issue has been settled by the larger bench of tribunal in case of Ispat Industries [2007 (209) ELT 185 (T-LB)]. He submitted that in the case of interconnected units where, the goods are being sold to the interconnected unit and also to independent buyers, the valuation should have been done in terms of Rule 10 only.

4.3 Learned A R reiterated the order of adjudicating authority and the Commissioner (Appeal).

5.0 From the facts as stated the issue for consideration is in very narrow compass with regards to applicability of Rule 9 or Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Undisputed fact is that appellants have been clearing the goods to their interconnected unit as well as other independent buyers. The value of the goods for clearance to their interconnected unit was approximately lower by Rs 1 to Rs 2.5 per kg from the printed price list. They have offered quantity discounts to other bulk buyers namely M/s Marico Limited. In fact about 82% of the goods were being cleared to independent buyers and only 18% have been cleared to their sister concern (inter-connected unit)

5.1 For proper appreciation of law we reproduce Sub Section (3) of Section 4 of the Central Excise Act,1944 and Rule 8, 9 and 10 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, below:

“Central Excise Act, 1944

Section 4

(3) For the purpose of this section,-

(a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;

(b) persons shall be deemed to be "related" if –

(i) they are inter-connected undertakings;

(ii) they are relatives;

(iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or

(iv) they are so associated that they have interest, directly or indirectly, in the business of each other.

Explanation.- In this clause-

(i) “inter-connected undertakings” shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practice Act, 1969 (54 of 1969); and

(ii) "relative" shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956);

Central Excise Valuation (Determination of Price ofExcisable Goods) Rules, 2000

Rule 8.

Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods.

Rule 9.

When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub- clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail :

Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in rule 8.

Rule 10.

When the assessee so arranges that the excisable goods are not sold by him except to or through an inter- connected undertaking, the value of goods shall be determined in the following manner, namely :-

(a) If the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9.

Explanation. - In this clause "holding company" and "subsidiary company" shall have the same meanings as in the Companies Act, 1956 (1 of 1956).

(b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub- section (1) of section 4.”

5.2 From the plane reading of provision noted above, it is quite evident for the purpose determining the value in terms of Rule 9, the persons transacting should be related as per the clause (ii), (iii) or (iv) of sub section 3 to Section 4.

5.3 As per Para 7 of the Show Cause Notice, “In view of the above it is amply clear that, in legal terms, M/s Amardeo Plastic Industries and M/s Indian Extrusions are inter-connected undertakings. As such they should have considered the value of their products sold to M/s Indian Extrusions in terms of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and not the value which was verbally decided among them.”

5.4 Para 17 of the order in original states “Thus, it is quite clear that the department has strived to prove in the Show Cause Notice itself that since two partners in both the firms are common, both the firms are proved to be inter-connected undertakings and prices charged are favoured prices. The department has mentioned in the show cause notice all the relevant act and rules to prove their contentions. But assessee is not accepting the same simply stating that the same are allegations. Neither the assessee provides any proof nor refer to any law to prove that they are not inter-connected undertakings or that they do not have interest in each other’s business. Further, they are admitting in their reply that they are selling the said goods to other independent and non related buyers also on discounted prices, which means indirectly they are admitting that M/s Indian Extrusion is their sister concern or inter-connected undertaking.”

5.5 Further in Para 7 of Commissioner (Appeals) order, Commissioner (Appeal) records “ ……… Further the clause (g) of Section 2 of Monopolies and Restrictive Trade Practices Act, 1969 defines

"inter-connected undertakings" where the undertakings are owned by firms, if such firms have one or more common partners.


M/s Amardeo Plastics        M/s Indian Extrusions
Names of Partners (S/ Shri)        Names of Partners (S/Shri)
1    Amarnath H Singh        1    Amarnath H Singh, Karta
Amarnath H Singh, HUF
2    Panchdeo H Singh        2    Shail V Singh
3    Rahul A Singh        3    Manju R Singh
4    Prabhat B Singh        4    Panchdeo H Singh

As may be seen from above table there are one or more common partners and as such can definitely be called as “inter-connected undertakings.”

5.6 Thus it is quite evident the case of department is that the appellant and their sister concern fall within the definition of inter-connected undertakings and hence are related persons as defined under sub section (3) to Section 4 of the Central Excise Act, 1944. There appears to be no dispute that the supplier and recipients are inter-connected undertakings and hence are related in terms of clause (i) of said sub-section and not clauses (ii), (iii) and (iv).

5.7 Since the appellants and their sister concerns are related persons in term of clause (i) and not in terms of clause (ii), (iii) or (iv), for the purpose of valuation of goods cleared to sister concern the valuation cannot be done in terms of Rule 9 as the said rule is applicable only in cases where the units are held to be related person in terms of (ii), (iii) or (iv). Our view is the view as have been held by various authorities listed below:-

i. Handy Wires Pvt. Ltd. v. Commissioner of Central Excise, Nagpur – [2015 (329) E.L.T. 169 (Tri.-Mumbai)];

ii. South Asia Tyres Pvt. Ltd. v. Commissioner of Central Excise, Aurangabad [2003 (152) E.L.T. 434 (Tri.- Mumbai)];

5.8 Hon’ble Supreme Court has in case Commr. Of C. Ex., Aurangabad Versus Goodyear South Asia Tyres Pvt. Ltd [2015 (322)ELT 389 (SC)]

“14. No doubt that the assessee became the fully owned company of Goodyear, the relationship between the two would be that of related persons as they became “inter connected undertaking” and are covered by the provisions of amended Section 4(4)(3)(b) of the Act which provides that the person would be deemed to be “related” if :

“i. they are inter-connected undertakings, ii. they are relatives,
iii. Amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor, or

iv. they are so associated they have interest, directly or indirectly, in the business of each other.”

15. This position was not denied even by the assessee. However, their submission was that provisions of Rule 9 of the Valuation Rules are not attracted as this Rule applies only when assessee so arranges its affairs that the excisable goods are not sold by it except to or through a person who is related in the manner specified in either of the sub-clauses (ii), (iii) or (iv) of Section 4(3)(b) of the Act. [Rule 9 does not cover clause (i)].

16. This contention of the assessee is accepted by the CEGAT and the CEGAT is justified in adopting this course of action. It is clear that the two are companies and therefore, they are not relatives and therefore, clauses (ii) and (iii) are not applicable on the basis of it. Insofar as clause (iv) is concerned, what is to be shown is that they have interest, directly or indirectly, in the business of each other. The expression “each other” would signify the element of mutuality and we have already held above that this mutuality principle has not been satisfied in the instant case.

17. Apart from the above, it would be significant to mention that after taking over of the assessee company by Goodyear, more than 70 per cent of the sales by the assessee company are to the third parties. That apart, there was another contention of the assessee, viz., that the goods sold to the outsiders are at a lesser rates than sold to Goodyear. These two contentions have not been refuted by the Revenue. The case, therefore, would be clearly covered by a recent judgment of this Court in
‘Commissioner of Central Excise, Hyderabad v. M/s. Detergents India Limited and Another’ [2015 (4) SCALE 631 = 2015 (318) E.L.T. 559 (S.C.)] wherein it was held :

“We are of the view that the “arrangement” spoken of in the proviso must be something by which the assessee and the related person “arrange” that the goods are sold at something by which the assessee and the related person “arrange” that the goods are sold at something below the normal price, so that tax is either avoided or evaded by such arrangement. Secondly, the expression “generally” also shows that such goods must predominantly be sold by the assessee to or through the related person - in mathematical terms, sales that are to or through a related person must consist of at least 50% of the goods that are manufactured and sold. The expression “to or through a related person” again goes back to the “arrangement” and is another way of saying that such sale can be effected directly to or indirectly through such related person. It is only when all three considerations are cumulatively met that proviso (iii) can be said to be attracted.”

5.9 Further Hon’ble Supreme Court has in case of Commissioner Of C. Ex., Pune Versus Mahindra Ugine Steel Co. Ltd [2015 (318) ELT 592 (SC)] held as follows:-

3.The question before us, in the present appeal, is as to whether Rule 8 of the Central Excise (Valuation) Rules, 2000 (hereinafter referred to as ‘the Rules’) or Rule 11 thereof would apply in arriving at the valuation of the goods at the end of the respondent/assessee. As per the appellant/Department Rule 8 is applicable and therefore, the value has to be 115% of the cost of production. Rule 8 reads as under :

“RULE 8 : ………..”

4.On the face of it Rule 8 will have no application to the facts of the present case. It is rightly pointed out by the CEGAT that for the applicability of this Rule two requirements are to be fulfilled. The first is that the excisable goods that the assessee manufactures are not sold by him and the second requirement is that these goods must be used for consumption either by him or on his behalf in the production or manufacture of other articles. In the present case, first condition is undoubtedly satisfied as the goods are not sold by the respondent. However, second condition is not at all met or fulfilled inasmuch as the goods are not used by the assessee for consumption either by him or on his behalf in the production or manufacture of other articles. As stated above, these goods are supplied to the manufacturer of the motor vehicles.

5.Learned Counsel for the appellant, however, referred to Rule 9 and submitted that the proviso to the said Rule would attract the applicability of Rule 8 in the present case. In order to appreciate this argument, we take note of Rule 9 which is reproduced below :

“RULE 9 :…………”

6.In order to attract this rule, first requirement is that the assessee sells the excisable goods to or through a person who is related in the manner stated in S.4(3)(b) of the Act. There are four eventualities provided in sub- clause (i) to (iv) which such a person can be related.

Section 4(3)(b) : ………..

7.However Rule 9 mentions relationship that is visualised in sub-clauses (ii) to (iv) only and excludes clause (i).

8.Thus, this Rule would be applicable only in those cases that assessee is related in the manner specified in either of sub-clause (ii), (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act and not in those cases where the person is related in the manner as stated in clause (i) thereof. In those cases where Rule 9 is applicable, for the purpose of valuation, normal transaction value at which such goods are sold by the related person, is to be taken as the value of the goods. Proviso becomes applicable only when goods are not sold by the related person at all and used or consumed for home production. As there is no sale transaction by the related person, question of value thereof will not be available and therefore, to arrive at the value in such a situation one has to fall back on Rule 8.

9.However, if main Rule 9 is not attracted, question of applicability of proviso thereto does not arise.

10.In the present case what we found is that a specific finding is arrived at by the Assistant Commissioner himself that the respondent who has manufactured goods on job work basis for M/s. Mahindra and Mahindra is treated as related to Mahindra and Mahindra in terms of Section 4(3)(b)(i) of the Act. The Commissioner in this behalf stated as under in his order:

“I find that assessee have manufactured goods on job work basis for M/s. Mahindra & Mahindra and others. M/s. Mahindra & Mahindra are the related persons in terms of Section 4(3)(b)(1) a fact which the assessee has also admitted and others i.e. M/s. Ashok Leyland, M/s. Ameja & M/s. PSSL are not related.”

11.Such a relationship is excluded from Rule 9 as sub- clause (i) is conspicuously absent therefrom. On this ground alone proviso to the Rule 9 shall not be attracted at all. Therefore, from whatever angle the matter is looked with, Rule 8 would not apply here.

12.Once we come to the conclusion that Rule 8 is not applicable in the case of the respondent, it is Rule 11 only which becomes applicable as that is residuary provision for arriving at the value of any excisable goods which are not determined under any other rule.”

5.10 Thus in view of the specific decisions of the Hon’ble Supreme Court on the issue, the decision of Commissioner (Appeal) cannot be sustained.

6.0 The Appeal is allowed with consequential reliefs if any.

(Pronounced in court)

(Archana Wadhwa)
MEMBER (Judicial)

(Sanjiv Srivastava)
Member (Technical)

tvu

Additional Info

  • Date Range (yyyy-mm-dd) Monday, 08 October 2018
  • Court/Authority CESTAT
  • Tax Type Central Excise
  • Subject Amardeo Plastic Industries Vs Commissioner of Central Excise, Mumbai-V : APPEAL No. E/1694/2010
  • Petitioner/Appellant Amardeo Plastic Industries Vs Commissioner of Central Excise, Mumbai-V
  • Respondent Amardeo Plastic Industries Vs Commissioner of Central Excise, Mumbai-V
  • Appl no. or Appl year APPEAL No. E/1694/2010
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No. E/242/2010
(Arising out of Order-in-Appeal No. SB(92)82/MV/2009 dated 16.11.2009 passed by Commissioner of Central Excise (Appeals), Mumbai-I)

Hardcastle Restaurants Pvt. Ltd.
Appellant

Vs.

Commissioner of Central Excise, Mumbai-V
Respondent

Appearance:
Shri Dinesh Agarwal, C.A., for appellant
Shri A.B. Kulgod, Assistant Commissioner (AR), for respondent

CORAM:
Hon’ble Mrs. Archana Wadhwa, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical)

Date of Hearing: 10.10.2018
Date of Decision: 10.10.2018

ORDER No. A/87619/2018

Per: Sanjiv Srivastava

The appeal is directed against the order of Commissioner (Appeal) Central Excise Mumbai Zone -1 dated 16th November 2009. By the said order Commissioner (Appeal) has held as follows:

“I uphold the classification of the product under sub heading 16010000, the demand of Central Excise duty of rs 2,44,927/- under section 11A(1), interest under Section 11AB, penalty of Rs 2,40,124/= imposed under Section 11AC of the Central Excise Act, 1944, confirmed vide order in original No 86 to 88/19 to 21/AC/GDN dated 30.04.2008 passed by the Assistant Commissioner, Central Excise, Goregaon Div, Mumbai V, and reject the appeal.”

2.1 The fact of the case is that the appellants are operating Restaurants under the name and style of McDonald manufacturing and selling edible goods in retail namely Preparation of Meat, Preparation of Vegetable and Preparation of Chocolates, which were proposed to be classified under Chapter Sub-heading 1601.10, 2001.10 and 1803.00 respectively of the Central Excise Tariff Act 1985. Three show cause notices were issued, wherein it was alleged that the goods manufactured and sold by the various restaurants of the appellants are manufactured goods and classifiable under the chapter sub-heading as proposed above; that the goods are sold in the unit containers, which are bearing the brand name, logo and trade name of McDonald’s.

2.2 The adjudicating Authority decided the classification of preparation of meat under CSH 1601.10 and confirmed the demand of duty along with interest and penalty in respect of the clearance and sale of these products. He dropped the demand in respect of products under chapter 18.

2.3 Aggreived the appellants filed the appeal before the Commissioner (Appeal), who as indicated in para 1, upheld the order of adjudicating authority.

2.4 Aggrieved by the order of Commissioner (Appeal), Appellants have preferred this appeal.

3.0 Appellants have assailed the order of lower authorities stating that-

i. They do not undertake any activity in relation to preparation of these products, but are only engaged in heating the preparations and serving the same in wrappers/ trays to the consumers for consumption in the restaurant.

ii. Ratio of the decision in case of Venky’s Fast Foods [2000 (124) ELT 939 (T)] would not be applicable in the present case because that case concerned the various processes resulting into emergence of new product.

iii. They do not have any machinery or equipments to manufacture chicken/ meat patty. The only equipments they have are deep freezers to store and food warmer to warm the products for service to consumers.

iv. In any case the goods were not put up in unit containers for service and did not bear any brand.

v. The products received by them were in marketable form they had only served them to the consumers in their restaurant after warming them. Except for stray case these goods were consumed by their customers in their premises only.

vi. Since the goods served by them were not put up in unit containers the same were not leviable to Central Excise duty.

vii. All the activities were being carried out by them in open and not clandestinely or surreptitiously and hence they were undertaking all the activities in bonafide manner within the knowledge of department. Hence Commissioner (Appeal) was wrong in upholding 100% penalty against them.

4.1 We have heard Shri Dinesh Agarwal C A for the appellant and Shri A B Kulgod Assistant Commissioner, Authorized Representative for the revenue.

4.2 Arguing for the appellant learned C A submitted that-

i. Appellant are operating twenty three Restaurants in Maharashtra and Gujarat but the dispute of dutiability pertains to only three outlets. No dispute has been raised in respect of the other outlets even though activity is identical.

ii. Issue in the case is that the food preparation of Chapter 16 falling under Section IV of the Central Excise Tariff Act 1985, are subjected to excise duty only when the said goods are put up in unit container and bear a brand name. Appellants use butter paper, paperboard, tray, pouches, paperboard cones or any other paperboard boxes for serving the food to the customer, which do not qualify to be a unit container because it does not bear any indication of the quantity or weight of the goods and it cannot be treated as being designed to hold a pre-determined quantity as per the definition of Unit Container provided under Section Note 1 to Section IV of the Central Excise Tariff Act, 1985.

iii. The unit container should be designed to hold as pre-determined quantity or number of any goods, as has been held in following decisions:

a. G. Claridge and Company Ltd. Vs Collector of Central Excise [1991(52) ELT 341 (SC)]
b. Commissioner of Sales Tax VS Voltas Limited [1997(39) STC 409 (Bom)]
c. Commissioner of Central Excise Vs. Shalimar Super Foods [2007 (210) ELT 695 (Tri-Mumbai)].
d. Dodsal Corporation Pvt. Ltd. VS Commissioner of Central Excise [2011 (263) ELT 719 (Tri-Bang.)]
e. Prerna Fast Foods & Others vs Commissioner of Central Excise Mumbai [2011 (4) TMI 1101-CESTAT MUM]
f. Agro Food Punjab Ltd. Vs Commissioner of Central Excise [1990 (49) ELT 404 (Tribunal)].

iv. Butter paper, paperboard, tray, pouches, paperboard cones or any other paperboard boxes used by the appellant for serving the edible preparation are neither enclosed receptacle nor sealed nor meant to pack a pre-determined quantity or number and cannot be used for transportation or storage.

v. In the case of Commissioner of Central Excise VS Costa and Co. Pvt. Ltd. 2004 (173) ELT 394 Tribunal, tribunal held that packing used were unit containers as on the packing pouches the pre-determined weight/quantity were mentioned.

vi. Since the butter paper, paperboard, tray, pouches, paperboard cones or any other paperboard boxes used by the appellant do not qualify to be unit container, the demand raised against them is not sustainable.

4.3 Arguing for revenue learned Authorized Representative reiterated the findings of the impugned order. He also pointed out that tribunal has in case of appellants, for past period remanded the matter back to adjudicating authority to determine the issue of unit container. Accordingly he requested that this matter may also be remanded.

5.1 We have considered the matter and the submissions made during the argument of case. The prime issue for consideration is “whether the goods, “Non Vegetarian Burgers, McCurry pans, Non Vegetarian wraps etc, which are preparation of meat and served in the restaurant of appellants in butter paper, paperboard, tray, pouches, paperboard cones or any other paperboard boxes would merit classification under tariff heading 1601.10 and be subject to duty of excise or otherwise”

5.2 The relevant section note, chapter notes and chapter headings along with applicable rates are indicated below:

“SECTION IV

PREPARED FOODSTUFFS; BEVERAGES, SPIRITS AND VINEGAR; TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES NOTES
1. ………….

2. In this Section the expression, “unit container” means a container, whether large or small (for example, tin, can, box, jar, bottle, bag or carton, drum, barrel or canister) designed to hold a predetermined quantity or number. CHAPTER 16 Preparations of Meat, of Fish or of Crustaceans, Molluscs or Other Aquatic Invertebrates
1. ………..

2. …………

3. In relation to products of this Chapter, labeling or relabeling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.

4. In this Chapter, “brand name” means a brand name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.
Heading No/
Subheading No    Description of Goods    Rate
of
Duty
16.01    Preparation of meat, of fish orof crustaceans, molluscs or other aquatic invertebrates including sausages and similar products, extracts and juice, prepared or preserved fish and   


    caviar and caviar substitutes   
1601.10    Put up in unit containers and bearing a brand name    16%
1601.90    Others    Nil


5.2 There is no dispute in respect of the classification of the goods under the chapter 16 or elsewhere. The dispute is whether the goods in question are put up in a unit container and bearing a brand name so as to classify them under heading 1601.10 or under heading 1601.90. If the goods are held to be classifiable under heading 1601.10 then they will subject to Central Excise duty.

5.3 Commissioner (Appeal) has in para 13 of his order while deciding the classification under 1601.10, recorded as follows:

“13. Further as per the section note the “Unit Container”, means a container, whether large or small (for example, tin, can, box, jar, bottle, bag or carton, drum, barrel or canister) designed to hold a predetermined quantity. The goods are available in predetermined sizes. The customer does not have the option to order Non vegetarian Burgers, McCurry pans, Non Vegetarian Wrap of his desired size and weight and in fact selects the one only from the varieties offered by the appellant. All the products have standard weight viz Chicken McCurry Pan (190 gms), Chicken Maharaja Mac Burger (255 gms), McChicken Burgers 9172 gms), Chicken McGrill Burgers (140 gms), Filet-0-Fish Burgers 9145 gms). The customer does not have option to order these goods say 100 gms or 200 gms etc., the same will be refused. Further in their own case {Hard Castle Restaurants P Ltd vs CCE Mum-V 2007 (211) ELT 607 (T)] the Hon CESTAT while deciding in respect of same edible preparations viz Non Veg Burgers, Non Veg Curry, Curry Pan, Non Veg wraps, Pizza Puffs etc., has held that emergence of a distinctly known commodity from its ingredients are prima facie result of process of manufacture. As regards brand name the products are put up in unit cartons bearing the trade name, brand name and logo of M/s McDonalds Corporation USA and it is also not disputed. As informed by the applicant that they are joint venture Company owned by M/s McDonalds India Pvt Ltd. Which is again a 100% subsidiary of M/s McDonald Corporation of USA and as such the brand name logo is owned by M/s McDonald Corporation and not owned by the appellant.

14 Thus considering all above points it is absolutely clear the appellants’ product is rightly classifiable under Chapter sub heading 1601.10 of Central Excise Tariff Act, 1985 as claimed by the department and is put up in unit container as described above and as such liable for Central Excise duty.”

5.4 The reasoning and decision do not appear to be sound in as much as Commissioner (Appeal) has failed to take the note of the submission that the goods are being supplied to consumer for consumption in restaurant. In stray case the same may have been carried by the customer as per his option for consumption later on. Only the mode of supply for consumption in restaurant is by wrapping them in butter paper, paperboard, tray, pouches, paperboard cones or any other paperboard boxes. How the mode of such service is different from serving the same on crockery or plates has not been answered by the Commissioner (Appeal). If the reasoning and logic of Commissioner (Appeal) is accepted then service of food in restaurant/ hotel for consumption therein will have to be treated as service in unit container. Do really we say “a plate of Chicken Tikka” or a half plate of “Chicken Tikka” served in restaurant is service of the same in unit container. To make the things worse if some brand name is embossed on the said tableware/ crockery then as per commissioner appeal all the non vegetarian preparations served in the restaurants merit classification under Central Excise Tariff Heading 1601.10 and shall be levied to duty. Such a view neither will be logical or sustainable as it against the basic principle of levy of Central Excise duty, which is never levied on the retail consumption of goods. The basic purpose of the phrase “put up in unit containers” is that for whole sale clearance from the manufactory the goods have been packed in unit container. We are unable to agree with the reasoning of Commissioner (Appeal) as mode and manner of service in a restaurant cannot determine the leviability to duty.

5.5 The view take by us is in line with earlier decisions of this tribunal as follows:

Commissioner of Central Excise Mumbai Vs Shalimar Super Foods {2007 (210) ELT 695 (T-Mum)]

“3. We find that the goods are supplied in plastic bags showing brand name of the respondents. The quantity is not pre-printed on the bags which are also not sealed, as seen from the averment in the show cause notice and the finding of the authorities below. The adjudicating authority had classified the goods under C.E.T. sub- heading 1601.10 solely on the ground that the plastic bags were nothing but unit containers for the reason that a pre-determined quantity was packed in the plastic bags. However, unit container, as per the definitions contained in several dictionaries, is a container containing pre-determined uniform quantities of contents whereas the items cleared by the respondents were not of uniform quantities. For this reason, the goods in question which were cleared in plastic bags not sealed and not containing pre-printed quantities thereon, cannot be treated as unit containers for the purpose of classification of meat articles packed therein under C.E.T. sub-heading 1601.10.”

Dodsal Corporation Pvt Ltd. Vs Commissioner Central Excise Bangalore [2011 (263) ELT 719 (T- Bang)]

“16. For the period prior to 1-3-2005 duty was attracted only when such preparations of meat were ‘put up’ in unit containers bearing a brand name. For the subsequent period, such goods not put up in unit containers are exempted from payment of duty under Notification No. 3/05-C.E., dated 24-2-2005. We find that in the instant case, the paper carton bearing the logo of Pizza Hut is used mainly for packing and transportation of the pizzas from the outlet to the place where the pizza is consumed. Pizzas are packed in these cartons when pizzas are ordered by the customer for delivery at his residence or when the customer wishes to take away the pizza instead of consuming it at the eatery. The carton itself does not display the quantity in terms of weight or number of the contents. The carton can be used for packing different types of pizzas (not necessarily one in a pack). We find that the ‘unit container’ appearing in the tariff entry 160110 connotes packages of a predetermined quantity which is indicated on the container. The expression does not cover packages of relatively short life used to pack goods of any particular description and measure at the choice of the server or the customer for its transport from the restaurant to the residence of the customer. Therefore we find that the pizzas involved were not covered under the entry 160110 during the period prior to 1-3-2005 and were covered by Notification No. 3/05-C.E., dated 24-2-2005 post 1-3-05. In reaching the above finding, we are fortified by the decision of the Tribunal in the case of Shalimar Super Foods cited above. For the period from 1-3-2005, the Chapter Note 2 to Chapter 16 of the tariff provided that food preparations covered by Chapter 16 had to necessarily contain more than 20% by weight of sausages, meat, meat offal, blood, fish or crustaceans or other aquatic invertebrates or in combination. In all the cases, the weight to be considered is the weight of meat, fish etc. in the preparation at the time it is presented and not the weight of the products before cooking/preparation. We find that the impugned pizzas in respect of which demand has been confirmed are not found in the order to fulfil this condition in the order.”

Prerna Fast Foods & Others Vs Commissioner Central Excise Mumbai-1 [2011 (4) TMI 1101 – CESTAT Mumbai]

“7. On careful examination of the issue before us, we find that the said issue has been settled by this Tribunal in the case of Dodsal Corporation Pvt. Ltd. Vs. Commissioner of Central Excise, Bangalore 2011 (263) ELT 719 (Tri-Bang), wherein this Tribunal has held that Pizza cannot be brought under sub-heading 1601.10 for the reason that pizza has a topping of chicken along with other ingredients. It was held that paper carton bearing the logo of Pizza Hut is used mainly for packing and transportation of the pizzas from the outlet to the place where the pizza is consumed. Therefore, it was held that the pizza cannot be classified under Chapter 16 of the Central Excise Tariff Act, 1985. Same view was taken by this Tribunal in the case of CCE, Mumbai-V Vs. Dodsal Corporation Pvt. Ltd. vide Order No. A/124/2011/EB/C- II dated 1.2.2011. Therefore, we find that the issue is no more res integra. Hence, after waiving the requirement of pre-deposit, we took the appeal also for final disposal with the consent of the learned JDR.”

5.6 During course of arguments learned AR had referred to an earlier order of the this bench Order No A/88555-88558/17/DB pronounced on 20/07/2017 remanding the matter to original adjudicating authority for consideration of the issue of unit container. He had requested that this matter be also remanded back to be decided simultaneously. We are not remanding the matter back, for two reasons that-

i. The issue involved is pure question of law which has been settled by the earlier orders of this tribunal and do not require any fresh verification or consideration of facts;

ii. The earlier order remanding the matter back was pronounced on 20/07/2017, and even after lapse of more than a year, revenue has not been able to adjudicate the matter in remand proceedings. Thus by remanding the matter the issue which could be decided will be delayed to what extent is not known. Even otherwise matter is more than decade old.

6.0 In view of discussions as above the order of Commissioner (Appeal) is set aside and appeal allowed in favour of appellants.

(Pronounced in court)

(Archana Wadhwa)
MEMBER (Judicial)

(Sanjiv Srivastava)
Member (Technical)

tvu

Additional Info

  • Date Range (yyyy-mm-dd) Wednesday, 10 October 2018
  • Court/Authority CESTAT
  • Tax Type Central Excise
  • Subject Hardcastle Restaurants Pvt. Ltd. Vs Commissioner of Central Excise, Mumbai-V : APPEAL No. E/242/2010
  • Petitioner/Appellant Hardcastle Restaurants Pvt. Ltd. Vs Commissioner of Central Excise, Mumbai-V
  • Respondent Hardcastle Restaurants Pvt. Ltd. Vs Commissioner of Central Excise, Mumbai-V
  • Appl no. or Appl year APPEAL No. E/242/2010
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No. E/556/2010
(Arising out of Order-in-Appeal No. SB(113)113/MI/2009 dated 8.12.2009 passed by Commissioner of Central Excise (Appeals), Mumbai-I)

Shruti Art Pvt. Ltd.
Appellant

Vs.

Commissioner of Central Excise, Mumbai-I
Respondent

Appearance:
None for appellant
Shri D.S. Chauhan, Superintendent (AR), for respondent

CORAM:
Hon’ble Mrs. Archana Wadhwa, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical)

Date of Hearing: 10.10.2018
Date of Decision: 10.10.2018

ORDER No. A/87624/2018

Per: Sanjiv Srivastava

The appeal is directed against the Order in Appeal No SB(113)113/MI/2009 dated 8.12.2009 of Commissioner (Appeals) Mumbai Zone-1. By the said order Commissioner (Appeal) upheld the order of Joint Commissioner Central Excise Mumbai 1, confirming the demand of duty of Rs 13,85,222/- and also imposed a penalty of the same amount under Section 11AC of the Central Excise Act, 1944.

2.1 Appellants are manufacturers of table diaries and other printed materials. Search was undertaken in their premises on 17-07-2007. On the basis of the documents recovered during the search it was observed that the appellants are manufacturing goods falling under Chapter Heading 48 & 49 of the Central Excise Tariff. They had claimed the benefit of exemption under notification No 8/2003-CE dated 01.03.2003 during the period of 2006-07.

2.2 It was also found that the appellants had cleared branded diaries of Life Insurance Corporation without payment of duty. Since these diaries have logo of LIC printed on them, the exemption under notification No 8/2003-CE was not available in respect of these products. Investigations revealed that raw material for printed diary was supplied by M/s LIC and appellants had charged labor charge of Rs 6.25 per diary and VAT  @ 4% .

2.3 On the basis of investigations carried at the appellants end and at the end of LIC, duty due on diaries supplied to LIC, was determined as Rs 13,85,522/-[Rs 13,58,355/- (Basic Duty)+Rs 27,167/- (Education Cess)] and the appellant paid the same during the course of investigation. A show cause notice was issued to appellant on 31.03.2008, demanding the above amount under Section 11A along with interest under section 11AB of the Central Excise Act, 1944. Show Cause Notice also proposed penalty under section 11AC and Rules 25 and 26 of Central Excise Rules, 2002. Amount already deposited was also proposed to be appropriated against the demand made.

2.4 The show cause notice was adjudicated confirming the duty demanded along with interest and penalty. Against the said order Appellants filed the appeal before Commissioner (Appeal) who upheld the order of Joint Commissioner. Against the said order of Commissioner (Appeal) party is in appeal before us.

3.0 In their appeal appellants have assailed the impugned order on various counts, including, that they have rightly availed the exemption under notification No 8/2003-CE as amended, as LIC is neither manufacturer nor trader of diaries. Since the logo of LIC printed on the diaries do not establish any connection between the diaries and them. Further they have printed the said logo as required by LIC. Further LIC is also not in trade of selling the diaries, but is organization engaged in the business of insuring the life of people. Thus the logo of LIC printed on diary cannot be termed as brand name, but is only a house mark of LIC embossed on the diaries. Further there is no suppression of facts and hence larger period of limitation is not applicable in the present case.

4.0 Appellants were not present for hearing despite the notice, we have heard Shri D S Chauhan, Superintendent Authorized Representative for the revenue.

5.1 Para 4 of Notification No 8/2003-CE, provides that “exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or no, of another person, except in the following cases:-

(a) ….. (b) ….. (c) …..”

Admittedly the case of appellants do not fall within (a), (b), or (c). Hence the said clauses have not been reproduced. In respect of Notification No 1/93-CE, predecessor notification to the one under consideration Board has clarified the position by the Circular No 71/71/94-CX. For ease of reference the said circular is reproduced below:

Circular No. 71/71/94-CX, dated 27-10-1994

From F.No. 341/45/94-TRU Government of India
Ministry of Finance (Department of Revenue) Tax Research Unit

Subject : Clarification regarding brand name provision in the general SSI Scheme under Notification No. 1/93.

I am directed to refer to paragraph 4 of Notification No. 1/93 which provides that under this notification, exemption would not apply if the goods in question bear a brand name or trade name of another person. In this context certain doubts have been raised following examples have been cited and clarifications have been sought whether the benefit of notification No. 1/93 would be available under such circumstances.

Illustration I
2. It has been represented that in the case of castings, there is a trade practice under which the SSI units produce the castings as per the design supplied by the customers and such castings may bear the brand name/design/logo as required by the users of castings. Such castings are finally used in the manufacture of other machinery like diesel engines. It has been represented that such castings are not traded as such in the open market and they are made for use by specific users. In such cases, the brand name which is put on the castings is the brand name of the machinery manufacturer, and thus putting the brand name is only to suit the manufacturing needs of the customer. Consequently, in such cases, the benefit of SSI exemption should not be denied.

Illustration II
3. There are certain SSI units which produce goods on behalf of another person and names of both the manufacturer and the person on whose behalf the goods are manufactured are reflected in the finished goods. For example, in the case of electricity meter covers, the name of the manufacturer as well as the name of the electric company who supplies such electricity meter covers to the consumers are both indicated. Here also it is represented that the use of the brand name is not in the
‘course of trade".

4. The matter has been examined in the Board. The scope of brand name and trade name has already been clarified vide Ministry’s letter F.No. B. 40/12/94-TRU, dated the 1st September, 1994 (Circular No. 52/52/94- CX.)

5. As explained in paragraph 3 of the letter, to attract the mischief of the provisions relating to brand name, two conditions have to be satisfied.

(1) Such brand name must indicate a connection between the branded goods and some person using such brand name.

(2) Such connection should be in the course of trade.

6. Consequently if there is no “trade” of such goods, the brand name provision would not apply.

7. Coming to the first illustration, castings are manufactured as per the specific requirement of the customers and the brand name which the small scale unit puts on such castings is meant for use of the customer only for further manufacture. Castings having such brand name are not sold in the market as castings as such, because it will be of no use to another person. It is felt that when such castings are not “traded” but only sold to a particular manufacturer for his own use, the embossing of the brand name of the customer on the castings would not amount to using brand name so as to deny the benefit of Notification No. 1/93. Of course if it is found that such branded castings are traded in the market as such, it will amount to use of such castings in the course of trade and the benefit of exemption notification will not be available. In other words, so long as the branded castings are being supplied to the customer for further manufacture, and are not otherwise “traded”, the benefit of small scale exemption in such cases should not be denied merely on the ground that it contains brand name of another unit. Whether such supply is in the course of trade or not, of course, will be a matter of fact and has to be ascertained from the nature of transaction between the small scale unit and the brand name owner. So long as they are made to order as per the design and specification of a particular manufacturer and sold to that manufacturer for his own use, the benefit of Notification No. 1/93 cannot be denied.

8. As regards the second illustration, the Collectors Conference held at Chandigarh on 17th June, 1994 had already taken a view that in such cases the use of names of the user like electricity boards etc. are embossed on the goods to guard against theft or misuse of public property and are not meant for sale by State Electricity Boards. Use of the brand name in such cases will not attract the mischief of para 4 of Notification No. 1/93, and the benefit of notification No. 1/93 cannot be denied under such circumstances. The Board agrees with the view taken in the Conference as here also the element “in the course of trade” is absent.

5.2 From plain reading of the said Notification and Circular referred above it is evident that the use of brand name should in the course of trade in the goods under consideration. If the same is not in the course of trade then benefit of the exemption contained in this notification cannot be denied. In the present case LIC Logo printed on diaries do not establish any connection between the goods and the logo, hence the same cannot be said to be in the course of trade. Further it cannot be said that LIC is in trade of selling the LIC diaries. Thus without establishing such connection between the goods and logo printed on the diaries benefit of exemption under Notification No 8/2003-CE cannot be denied.

5.3 Same view has been expressed by the tribunal in case of,-

Electrohms (P) Ltd vs Commissioner Central Excise Bangalore [2000 (116) ELT 265 (T)]

“5. On a careful consideration of the rival submissions and records of the case, we find that in this case the fixation of the words ‘Indian Railways’ on the name plate of the product in question, does not amount to use of a brand name of non-SSI unit, as is contemplated under the notification noted above, because of a simple reason that the said words are only indicating the owner of the goods, which are not even traded but only used by ‘Indian Railways’ for captive consumption. In the case of Astra Pharmaceuticals (P) Ltd. (supra) the Hon’ble Apex Court had held that merely a few alphabetical words of monograph do not constitute the brand name, even if the goods are otherwise traded with that monographs. In the appellants case, we find that their position is stronger inasmuch as that not only such a monograph does not amount to the use of brand name, but the goods themselves are not traded. We, therefore, find that the impugned Order-in-Original needs to be set aside by applying the ratio of the aforesaid noted decision of the Hon’ble Supreme Court. Ordered accordingly. The appeal is allowed with consequential relief, if any, as per law.”

Commissioner Central Excise Chandigarh Vs Hemkunt Builder [2002 (141) ELT 376 (T-Del)]

“4. We have considered the submissions of both the sides. It is not the case of the Department that the concrete cement slabs which bear the mark ‘ESSAR’ are being sold by the persons, on whose behalf these have been manufactured by the respondents, in the market and, therefore, the question of identifying such poles with any person, in the course of trade does not arise. As per Explanation to Notification No. 16/97, brand name means brand name, that is to say, a name or mark which is used in relation to any specific goods for the purpose of indicating or so as to indicate a connection during the course of trade. As concrete cement slabs are not being traded it cannot be said that the name is used for indicating the connection during the course of trade. Accordingly, the mischief of para 4 of the Notification No. 16/97 is not attracted. This was the view held by the Tribunal in both the decisions, relied upon by the ld. Advocate for the respondents. Following the ratio of these two decisions, we reject the appeal filed by the Revenue.”

6.0 We find that that the issue is also squarely covered by the decision of this tribunal reported in 2018-TIOL-563-CESTAT-MUM, wherein after analyzing the text of the notification No 8/2003-CE and Circular No 71/71/94-CX, the bench concluded “6. …, we find that it is admitted fact that the diaries manufactured by the appellant for LIC have not been traded by LIC. Accordingly, we hold that the appellant is entitled to exemption under Notification No. 8/2003-CE read with Circular No. 71/71/94-CX dated 27/10/1994…"

7.0 Following the above referred decisions we allow the appeal and set aside the impugned order of Commissioner (Appeals).

(Pronounced in court)

(Archana Wadhwa)
MEMBER (Judicial)

(Sanjiv Srivastava)
Member (Technical)

tvu

Additional Info

  • Date Range (yyyy-mm-dd) Wednesday, 10 October 2018
  • Court/Authority CESTAT
  • Tax Type Central Excise
  • Subject Shruti Art Pvt. Ltd. Vs Commissioner of Central Excise, Mumbai-I : APPEAL No. E/556/2010
  • Petitioner/Appellant Shruti Art Pvt. Ltd. Vs Commissioner of Central Excise, Mumbai-I
  • Respondent Shruti Art Pvt. Ltd. Vs Commissioner of Central Excise, Mumbai-I
  • Appl no. or Appl year APPEAL No. E/556/2010
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

Appeal No. E/85030/2018
(Arising out of Order-in-Appeal No. MKK/41/RGD/ APP/2017 dated 15.09.2017 passed by the Commissioner of Central Excise & Customs (A), Navi Mumbai)

M/s. I.G. Petrochemicals
Appellant

Vs.

CCE & ST, Raigad
Respondent

Appearance:
Shri Nikhil Wabla with Shri Rubina Dodhia, Advocate for the appellant
Shri Sanjay Hasija, Supdt. (AR) for the respondent

CORAM:
Hon’ble Dr. Suvendu Kumar Pati, Member (Judicial)

Date of hearing : 20.06.2018
Date of decision : 22.10.2018

O R D E R No: A/87732/2018

Availment of cenvat credit on common input services against trading of goods on high sea without bifurcation of inputs on common input services for dutiable and exempted goods is under challenge before this forum.

2. The factual backdrop of the case is that during the course of audit appellant company engaged in manufacturing and trading of “Phthalic Anhydride” was found to have engaged in sale of “Phthalic Anhydride” on high sea and without maintaining separate accounts for common input services, it had availed the credit on such trading which is covered under exempted service, as per definition contained in Rule 2(e) of Cenvat Credit Rules effective from 01.07.2002. The appellant was put to notice to pay 6% of duty on the total turnover as per Rule 6(3)(i).

3. Appellant replied to the show-cause notice denying the allegation and challenged the wrong application of rule to its case as well as errorness computation of amount inclusive of the month of March 2011, which was prior to the period when the trading was put under exempted service. Referring to the judicial decisions and statutory provisions, appellant claimed that sub-rule 3AA to Rule 6 of Cenvat Credit Rules inserted vide cenvat credit third amendment 2016 was applicable to its case and as per its provisions, appellant had recalculated the duty liability and reversed proportionate credit amount of Rs.20,294/- along with interest of Rs.9754/- for which appellant claims the duty demand was made under mistaken recalculation.

4. The adjudicating authority vide its order confirmed the duty demand along with interest and penalty by invoking the extended period and the same has also remained unaltered in the finding of the Commissioner (Appeals), who rejected the appellant’s contention on the ground that Rule 6(3AA) of 2016 has no retrospective application and hence the appeal to this Tribunal.

5. During the course of hearing of the appeal, ld. Counsel for the appellant reiterated the stand taken before the Commissioner (Appeals) while the ld. AR for the department supported the decision of the Commissioner (Appeals) and reiterated its findings. However, before going to scrutinise the duty liability of the appellant, it is imperative to have a look at the genesis of trading activity and its taxability in Indian scenario in order to give a reasoned finding on the prayer made in the appeal for setting aside the duty liability and rejecting the extended period invoked by the respondent department.

6. In order to ascertain whether trading is a service so that it can be brought into the definition of exempted service as found in Board circular no. 943/04/2011-CX dated 29.04.2011 under Sr. No. 7 its meaning is required to be ascertained. “Trade” is a transfer of ownership of goods and services from one person or entity to another by getting something in exchange from the buyer which is known as consideration amount and it is pure sale when the same relates to transfer of ownership of goods. “Goods” is defined under clause (25) of Section 65B of the Act means every kind of movable property other than actionable claim and money; and includes securities, growing crops grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. In the common parlance, trading is buying and selling of goods. If goods are bought and sold then sales tax is levied which later becomes value added tax and now being dealt under GST. The taxable event of service tax is the act of providing service while act of sale alone is covered under taxable event of sales tax. Therefore, to call trade as service is conceptually improper. Hon'ble Supreme Court, in the presidential reference made in 1962, gave its landmark verdict that has been reported in 1963 AIR SC 1760 that said, “in one case (excise), the imposition is on the act of manufacture or production while in other (sale tax) it is on the act of sale.”

6.1. It is a matter of different interpretation that sometimes there is marginal overlapping of case where goods and services are delivered together like service of food in restaurant, selling of news to agency etc. but these are in different parameters since the instant case is confined to the allegation made in the show-cause notice that there was high sea sale of “Phthalic Anhydride” which department claims to be a exempted service and appellant claimed to have not been covered under tax statute of the country in view of article 286 of Constitution of India.

7. Dispute relating to taxability on sale and levy of duty by the excise authority is not new in its origin and on many score matter had reached the apex court level that necessitated passing of the Constitution (Forty Sixth Amendment) Act, 1982 and going by its Statement of Object and Reason, it can be ascertained that in conformity to the judgment of Hon'ble Supreme Court passed in Ganon Dunkerley’s case (AIR) 1958 SC 560 whereby the sale of goods as used in entry of the 7th schedule to the constitution was treated to have carried the same meaning as in the Sale of Goods Act, 1930, coupled with subsequent decisions of the Hon'ble Supreme Court were the preludes to passage of such an amendment act that suitably amended tax on the sale or purchase of goods and included the same in Article 366 of the Constitution of India under a new Article (29A).

“Service” as defined under 65B (44) of the Finance Act,

1994 excludes (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution”

8. From a bare reading of the definition and provision reproduced above, it is apparently clear that a pure sale, unassociated with delivery of goods and services together, is not to be considered as service. Therefore what is contained in Section 66D of the Finance Act, 1994 dealing with negative list of services concerning trading of goods and the clarificatory circular referred above as well as inclusion of the same in the explanation appended to clause
2(e) of the Cenvat Credit Rules 2004 are mere clarificatory in nature since definition of service as contained in 65B(44) and exempted service in 66D are to be read conjointly and not in exclusion of each other. This being the statutory definition sale of goods, be it made in the high sea or within territorial boundary of India in which Finance Act, 1994 has its force, cannot be called a service to impose tax liability or deny the credit under Rule 6 of Cenvat Credit Rules.

9. The finding of the Commissioner (Appeals) is that such requantification of tax liability cannot be made retrospectively in exercise of provision contained under Rule 6(3AA) of the Cenvat Credit Rules is found to be not in conformity to the Rule. The said rule effective from
01.04.2016 reads as under:-

“(3AA) Where a manufacturer or a provider of output service has failed to exercise the option under sub-rule (3) and follow the procedure provided under sub-rule (3A), the Central Excise Officer competent to adjudicate a case based on amount of CENVAT credit involved, may allow such manufacturer or provider of output service to follow the procedure and pay the amount referred to in clause (ii) of sub-rule (3), calculated for each of the months, mutatis-mutandis in terms of clause (c) of sub-rule (3A), with interest calculated at the rate of fifteen per cent. per annum from the due date for payment of amount for each of the month, till the date of payment thereof.

(3AB) Assessee who has opted to pay an amount under clause (ii) or clause (iii) of sub-rule (3) in the financial year 2015-16, shall pay the amount along with interest or take credit for the said financial year in terms of clauses (c), (d), (e), (f), (g), (h) or (i) of sub-rule (3A), as they prevail on the day of publication of this notification and for this purpose these provisions shall be deemed to be in existence till the 30th June, 2016.”
Therefore his finding is not tenable for the reason that the said rule clearly permits central excise officer competent to adjudicate a case based on amount of cenvat credit  involved to allow manufacturers or provider of output service to follow the procedure and pay amount referred in clause (ii) of sub-rule (3), calculated for each of the month, mutatis mutandis in terms of clause (c) of sub-rule (3A) along with interest etc. who earlier had failed to exercise the option under sub-rule (3) and follow the procedure provided under sub-rule (3A). The language imported in Rule 6(3AA) is therefore very clear and unambiguous that at the time of adjudication such option can be permitted to the assessee to be exercised in respect of the duty liability and interest to be calculated per annum from the due date for payment of amount for each of those months. Further, Rule 6(3AB) provides that the assessee has the option to pay an amount under clause (iii) of sub-rule (3) in the financial year 2015-16 and the provisions shall be deemed to be in existence till 30.06.2016 which indicates its retrospectivity. Moreover, sub-rule (3A) under clause (9)(i) enables the assessee to intimate the date from which the option under this clause is proposed to be exercised. Needless to mention here that adjudication process commences at a subsequent stage pertaining to the period for which tax liability is not discharged. Therefore such an exercise can be done at a subsequent stage for the preceding period as has been contemplated in Rule 3AA, which accordingly was exercised by the appellant by way of payment of duty with interest. Hence the order –

10. Appeal is allowed and the order passed by the Commissioner (Appeals) vide Order-in-Appeal No. MKK/41/RGD/ APP/2017 dated 15.09.2017 confirming the duty demand along with interest and penalty is set aside.

(Pronounced in Court on 22.10.2018)

Dr. Suvendu Kumar Pati
Member (Judicial)

//SR

Additional Info

  • Date Range (yyyy-mm-dd) Monday, 22 October 2018
  • Court/Authority CESTAT
  • Tax Type Central Excise
  • Subject M/s. I.G. Petrochemicals Vs CCE & ST, Raigad : Appeal No. E/85030/2018
  • Petitioner/Appellant M/s. I.G. Petrochemicals Vs CCE & ST, Raigad
  • Respondent M/s. I.G. Petrochemicals Vs CCE & ST, Raigad
  • Appl no. or Appl year Appeal No. E/85030/2018
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

COURT No.

APPEAL No. ST/85496/2015
(Arising out of Order-in-Appeal No. PUN-EXCUS-003-APP-110- 14-15 dated 24.11.2014 passed by Commissioner of Service Tax (Appeals), Pune)

Multifilms Plastics Pvt. Ltd.
Appellant

Vs.

Commissioner of Central Excise, Kolhapur
Respondent

Appearance:
Shri N.S. Patel, Advocate, for appellant
Shri Dilip Shinde, Assistant Commissioner (AR), for respondent

CORAM:
Hon’ble Dr. D.M. Misra, Member (Judicial)
Hon’ble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 05.10.2018
Date of Decision: 05.10.2018

ORDER No. A/87543/2018

Per: Dr. D.M. Misra

This is an appeal filed against order-in-appeal No. PUN-EXCUS-003-APP-110-14-15 dated 24.11.2014 passed by Commissioner of Service Tax (Appeals), Pune.

2. Briefly stated the facts of the case are that during the period from 16.11.1997 to 1.6.1998, the appellant had availed the services of goods transport operators (GTO) and paid freight charges to the transporters.

However, since they failed to discharge service tax, a show cause notice was issued on 12.11.2002 without quantifying the amount of service tax payable during the said period. A revised show cause notice was again issued to them on 8.11.2004 also without mentioning the amount recoverable from the appellant. On adjudication, the proceeding initiated under the said notices were dropped. Aggrieved by the said order, Revenue filed appeal before the Commissioner (Appeals) who in turn set aside the order of the adjudicating authority and remanded the matter for quantification of the demand. Hence, the present appeal.

3. Learned Advocate for the appellant submits that the show cause notices were bad in law being vague as no service tax amount proposed to be recovered was not mentioned. Further, he submits that the issue is covered by the decision of the Larger Bench of the Tribunal in the case of Agauta Sugar & Chemicals vs. CCE, Noida – 2010 (19) STR 849 (Tri.-LB) and the judgment of this Tribunal in the case of Pandurang SSK Ltd. vs. CCE, Pune-III – 2011 (23) STR 300 (Tri.-Mumbai) and CCE, Aurangabad vs. Shetkari SSK Ltd. – 2011 (24) STR 412 (Tri.-Mumbai). Further, he has submitted that the demand issued without quantification, is also unsustainable, in law in view of the judgment of the Hon’ble Karnataka High Court in the case of Davangare Cotton Mills Ltd. – 1991 (55) ELT 295 (Kar.), JBA Printing Ink Ltd. – 1980 (6) ELT 121 (Bom.). Further, he has submitted that the Larger Bench decision of this Tribunal in the case of Bihari Silk & Rayon Processing Mills (P) Ltd. – 2000 (121) ELT 617 (Tri.-LB) is not applicable to the facts and circumstances of the present case since the said decision was rendered in the context of Section 11A of Central Excise Act, 1944 as it stood at the relevant time and the present notice is issued under the provisions relating to recovery of service tax under Section 73 of Finance Act, 1994.

4. Learned AR for the Revenue reiterated the findings of the learned Commissioner (Appeals). Learned AR for the Revenue heavily relied on the judgment of Bihari Silk & Rayon Processing Mills (P) Ltd. (supra) in arguing that there is no necessity of quantifying the demand in the show cause notice and by not specifying the amount recoverable, would not make the show cause notice untenable in law. Further, referring to the Larger Bench judgment of this Tribunal in the case of Agauta Sugar & Chemicals (supra), the learned AR submitted that service tax not paid on receipt of GTO services during the relevant period is recoverable from the appellant.

5. Heard both sides and perused the records.

6. We find that similar issue has been considered by this Tribunal in the case of Pandurang SSK Ltd. (supra). In the said case also, the demand related to the period 16.11.1997 to 1.6.1998 for availing of services of goods transport operator (GTO). The service tax since not paid on the freight charges, initially a show cause notice was issued in December 2001; later, a revised show cause notice was issued in February 2004 post amendment and insertion of Section 71 and Rule 7A in the Finance Act, 1994 and Service Tax Rules, 1994 respectively. After analyzing the issues at length, this Tribunal has observed as follows:-

“8. The learned SDR has vehemently argued about the legislative intent behind the relevant provisions of the Finance Act, 1994. It has been submitted that the intention was to authorize the Revenue to recover service tax dues from both categories, viz., service providers and recipients of GTO/C&F services. According to the learned SDR, the text of Section 73, as it stood prior to 10-9-2004, should be liberally construed so as to achieve the legislative purpose. In this connection, he has relied on CIT, Thiruvananthapuram v. Baby Marine Exports - 2007 (211) E.L.T. 12 (S.C.), Ponds India Ltd. v. CTT, Lucknow - 2008 (227) E.L.T. 497 (S.C.) and Directorate of Enforcement v. Deepak Mahajan - 1994 (70) E.L.T. 12 (S.C.)             (paragraphs 24 to 27). It has been argued that courts and tribunals must, if necessary, supplement the written word so as to give force and life to the intention of the legislature. The learned SDR means to say that Section 71A should also be read with Section 70 in the text of Section 73 of the Finance Act, 1994 in order to give effect to the legislative intent. If this suggestion is accepted, we think, we are doing violence to a basic tenet of law, according to which statutory provisions have to be strictly construed in accordance with the meaning of the words used therein. It is settled law that nothing can be added to a statute, nor can anything be deleted therefrom, by a court, whose function it is to interpret the expressions as they exist in the statute. There was no mention of Section 71A in the text of Section 73 of the Finance Act, 1994 right from the beginning. When the provisions were amended by Parliament under the Finance Act, 2000, the legislature did not add Section 71A to the text of Section 73. Again, the provisions of the Finance Act, 1994 were amended extensively under the Finance Act, 2003, but, this time also, the legislature did not consider it necessary to incorporate mention of Section 71A in the text of Section 73. It was only in September 2004 that a new Section 73 was substituted for the old one and, that too, with prospective effect only. The legislative intent is very clear from these facts and circumstances. We can only humbly try to understand the provisions made by Parliament. We have no power to add even a single word to the text of Section 73 of the Finance Act, 1994 as it stood prior to 10-9-2004. Therefore, the arguments of the learned SDR about legislative intent also do not make the Revenue’s case any better.

9. To summarize the results, we hold that the issue involved in all these cases is covered against the Revenue and in favour of the assessees by the Tribunal’s decision in L.H. Sugar Factories (supra) as affirmed by the Apex Court. Accordingly, the assessees’ appeals are allowed and the Revenue’s appeals are dismissed. “Cross objections” also stand disposed of for the record.”

7. Similar view has also been expressed in the case of Shetkari SSK Ltd. (supra) as under:-

“11. Heard both sides. On careful consideration of the submissions made by both sides, we find that the issue emerges before us is that whether the show-cause notices issued in the year 2001/2002 and thereafter corrigenda issued on 14-2-2004 to recover service tax alongwith interest for the period 16-11-97 to 1-6-1998 are valid or not. We have heard the ld. JCDR who relied on the decision of Gujarat Ambuja Cements Ltd. (supra) and we do agree with the arguments advanced by Ms. Aparna Hirandogi that while passing the order, the Hon’ble Apex Court has not considered the amendment to Section 73 on 10-9-2004. In fact, in 2004, Section 73 was substituted by Finance Act, 2004 with effect from 10-9-2004. Prior to that substitution, it applies to a case where return was to be filed under Section 70 but not to the case where it was to be filed under Section 71A. The substituted section said to cover Section 71A read with Rule 7 of the Service Tax Rules, 1994. As the respondents are to file return as per amended Section 73 with effect from 10-9-2004 and which was not considered by the Hon’ble Apex Court, therefore, the decision in the case of Gujarat Ambuja Cements Ltd. (supra) is not relevant to decide the issue. We have gone through the decision in the case of Mangalam Cement Ltd which was affirmed by the Larger Bench of the Tribunal in the case of Agauta Sugar & Chemicals (supra) wherein the Tribunal has observed as under :-

“In the present case, there is no dispute that the return which was filed as per the prescribed Form ST-3B under Rule 7A was not a periodic return, but a return which was required to be filed by the specified date, as contemplated by Section 71A read with Rule 7A. In sub- clause (c) of clause (i) of Section 73(6)(c) all other cases where no periodic return was involved, the date on which the service tax was to be paid was to be considered as the “relevant date. In the present case, the service tax was to be paid within six months from 13-11-2003 by filing the return in the prescribed Form ST-3B under Section 71A read with Rule 7A. The relevant date, therefore, in the present case for filing such return was 14-11-2003. Therefore, even if 14-11-2003 is considered and not 30-11-2003, which was the date extended by the Supreme Court, the show cause notices issued on 4-11-2004 were clearly within the prescribed period of one year.”

In that case also the Tribunal has taken note of the amended provision of Sec. 73 came into force on 10-9-2004 and within one year from that date if the show- cause notice is issued the same is valid and in that case particularly the show-cause notice was issued on 4-11-2004. Therefore, the said show-cause notice was well within the time. Admittedly, in all the cases before us, the show-cause notices as well as the corrigenda have been issued prior to 10-9-2004. Therefore, the decision in the case of Mangalam Cement Ltd., is not relevant to the facts of these cases. We have gone through the decision of the coordinate bench of this Tribunal in the case of Pandurang SSK Ltd & Ors vide Order No. A/83-94/11/CSTB/C.I., dated 15-2-2011 [2011 (23) S.T.R. 300 (Tri. - Mumbai)] on a similar set of facts, where the show-cause notices were issued in December, 2001 for the period from 16-11-1997 to 1-6-1998 for demand of service tax on the services availed by them from goods transport operators for transportation of materials to their factories and this Tribunal, considering the decisions in the case of Mangalam Cements Ltd. and Agauta Sugar & Chemicals, has observed that before 10-9-2004, Section 73 of the Finance Act could be invoked for recovery of service tax from a person who was liable to file returns under Section 70 of the Act but omitted/failed to do so. Section 71A, the provision under which recipients of GTO service, like the present assessees, were to filed returns for purposes of assessment under Section 71, was not a part of Section 73 of the Act prior to 10-9-2004. Admittedly, prior to 10-9-2004, the respondents are not liable to file return under Section 70 or Section 71A. Therefore, this Tribunal held that the show-cause notices/corrigenda to show-cause notices issued prior to 10-9-2004 are not in accordance with law. It was held that show-cause notices are not maintainable. Therefore, demands are not sustainable. As per judicial discipline, we are bound by the decision of the coordinate bench of the tribunal. Therefore, following the decision in the case of Pandurang SSK Ltd. & Ors (supra) we hold that as in these matters also the show- cause notices and corrigenda to the show-cause notices have been issued prior to 10-9-2004 before the amendment to Section 73 of the Finance Act, 1994, the show cause notices are bad in law, therefore, no demand is sustainable. Accordingly, impugned orders are upheld. Appeals filed by the Revenue are dismissed.”

We do not find any reason to deviate from the above judgments of the Tribunal.

8. In the result, the impugned order is set aside and the appeal is allowed.

(Pronounced in court)

(C.J. Mathew)
MEMBER (Technical)

(Dr. D.M. Misra)
MEMBER (Judicial)

tvu

Additional Info

  • Date Range (yyyy-mm-dd) Friday, 05 October 2018
  • Court/Authority CESTAT
  • Tax Type Service Tax
  • Subject Multifilms Plastics Pvt. Ltd. Vs Commissioner of Central Excise, Kolhapur : APPEAL No. ST/85496/2015
  • Petitioner/Appellant Multifilms Plastics Pvt. Ltd. Vs Commissioner of Central Excise, Kolhapur
  • Respondent Multifilms Plastics Pvt. Ltd. Vs Commissioner of Central Excise, Kolhapur
  • Appl no. or Appl year APPEAL No. ST/85496/2015
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

APPEAL NO: ST/85611/2015
[Arising out of Order-in- Appeal No: PUN-EXCUS-003-APP-115-14-15 dated 5th December 2014 passed by the Commissioner of Service Tax (Appeals), Pune.]

Saransh Ads
Appellant

Versus

Commissioner of Service Tax Pune
Respondent

Appearance:
Shri Makrand Joshi, Advocate for appellant
Shri Dilip Shinde, Assistant Commissioner (AR) for respondent

CORAM:
Hon’ble Shri C J Mathew, Member (Technical)
Hon’ble Shri Ajay Sharma, Member (Judicial)

Date of hearing: 06/09/2018
Date of decision: 31/10/2018

ORDER NO: A/87822 / 2018

Per: C J Mathew

M/s Saransh Ads is in appeal against the confirmation of tax liability of ₹ 17,10,110 that was held to have been evaded for the period from 2002-03 to 2005-06, along with appropriate interest, and penalty under section 78 of Finance Act, 1994 in order-in-appeal no. PUN-EXCUS-003-APP-115-14-15 dated 5th December 2014 of Commissioner of Service Tax (Appeals), Pune. This is the second round of appearance before the Tribunal and, on the former occasion, the matter had been remanded to the original authority with a direction to examine the various documents claimed to be in possession of the appellant as evidence of discharge of tax liability on accrual but sought to be recovered in the impugned proceedings on receipt basis and to consider the submission of the appellant that the tax liability reported in the statutory returns were an accurate reflection of the tax liability recorded in the books of accounts. In addition, the remand order directed a revisit of the tax held to be recoverable as provider of ‘business auxiliary service.’

2. It is seen from the proceedings as recorded by the two lower authorities that the specific direction of the Tribunal either was not, or could not be, complied with. It is contended by Learned Authorised Representative that, despite repeated intimations and reminders, representatives of the appellant failed to produce the original invoices or acceptable reconciliation statements that was claimed by them to be in their possession during the earlier round of litigation before the Tribunal. On the other hand, Learned Counsel for the appellant reiterated his earlier submission of being in possession of relevant records that had been submitted to the lower authorities but which was, steadfastly, ignored in the findings of the lower authorities. We perceive the same rigid obduracy on the part of both Revenue and the appellant in the proceedings before us but are unable to fathom the reasons. It would surely be in the interests of the appellant, notwithstanding their fervent submission that it was incumbent upon the jurisdictional service tax authorities to present definite, and supported, allegations against them, to produce documents claimed to be in their possession as proof of their compliance with discharge of tax liability under Finance Act, 1994. At the same time, we note a churlishness on the part of the adjudicating, and the appellate, authority in refusing to enumerate the documents submitted and the deficit therein that hindered compliance with the remand order of the Tribunal.

3. In this context, it would be worthwhile to recall some of the critical aspects of the proceedings initiated against the appellant. The appellant is registered as a provider of ‘advertising agency’ service under the Service Tax Rules, 1994 and claims to be exclusively discharging its role as an ‘accredited agency’ with the Indian Newspaper Society-a pivotal organisation for the print media of the country. It is not in dispute that the appellant had been discharging self-assessed tax liability during the period covered by the show cause notice leading to the impugned proceedings. It is the claim of the appellant that, though the legal provisions did require otherwise, they had been discharging the tax liability on the value of services rendered by them as and when invoices were raised on the recipients of service. According to Learned Counsel for appellant, the proceedings were initiated on the misconception that the tax liability, to be discharged on receipt, had not been. The dispute, therefore, appears to centre around this claim and the refusal of the tax authorities to acknowledge that a service provider would do so.

4. It was alleged that the appellant had received ₹ 88,55,932 from 19 clients in 2005-06 with tax liability of ₹ 10,83,966 but of which appellant did remit only ₹ 18,449 as tax and ₹ 6,169 as interest on 3rd January 2007, it is the claim of the appellant that this amount, paid in good faith, represented a consideration that they were unable to reconcile and was not admission of culpability as alleged. While admitting to receipt of Rs. 88,55,932 during 2005-06, it is contended that those were fortuitous recoveries of dues written off in earlier years, but, nonetheless, not liable to be included in the notice as tax liability had been discharged before the ‘write off’ in the relevant years. This was one aspect of the dispute in which attempted reconciliation was reported as having failed. We are unable to comprehend any difficulty in doing so. It should be easy enough to ascertain the claim of discharge of tax liability on accrual basis from the financial records. All that was required to be produced were the invoices pertaining to the payments received from these clients in 2005-06 and the corresponding challans for deposit in the relevant year coupled with the accounting entries of transfer of those very amounts to the ‘bad debt’ ledger.

5. The second unresolved aspect of the dispute is manifested in the demand of ₹ 2,66,604 allegedly short-paid as revealed from the remittance of service tax of ₹ 15,76,659 as ascertained from the returns for the period from 2002-03 to 2004-05 and the alleged liability of ₹ 18,43,263 ascertained by tax authorities from the ‘trial balance.’ Neither in the show cause notice nor in the proceedings before the lower authorities do we find any reference to the entry, or entries, in ‘trial balance’ from which the higher amount had been derived. We are not certain if the said amount has been shown as such in the ‘trial balance’ or if it has been computed by the application of the relevant rate of tax on the consideration reported therein. We can appreciate the angst of the appellant, articulated by Learned Counsel, in being asked to protest their compliance in the face of what, according to us also, appears to be sweeping incoherent allegation.

Indubitably, the appellant has not presented any reconciliation of the discrepancies between the computation derived from the ‘trial balance’ and the tax recorded as having been discharged in the statutory returns. At the same time, from the correspondence referred to in the orders of the lower authorities, it would appear that the show cause notice is sketchy on the nature of the allegation against the appellant. It should have been within the scope of the lower authorities, in the course of the reported correspondence, to throw light on the source of the computed figure on the basis of which the alleged deficit was formalised in show cause notice. It is but fair to expect the appellant to respond only thereafter.

6. Turning to the third aspect of alleged and unreported rendering of ‘business auxiliary service’ taxable under section 65(105) (zzb) of Finance Act, 1994 on the consideration received from the various newspaper establishments in which, as ‘accredited agency’ of Indian Newspaper Society, the appellant had placed advertisements as required by other advertising agencies lacking such accreditation, it would appear that the proceedings were initiated on the premise that this activity amounted to procurement of service for the client. In this context, a proper appreciation of the dispute can be formed from a narration of the role of ‘accredited agency’ in the media operations of the country. In such a vast, multicultural territory with a heritage of newspaper having contributed in the struggle for political independence and social reforms, the promotion of commercial interests among the citizenry fell to the fourth estate; it has a reach that other forms may find difficult to rival. Considering the scope for oligopolistic pricing in the circumstances, and the numerosity of registered newspapers, it is the symbiotic relationship between the ‘accredited agency’ and the members of the Indian Newspaper Society that ensures the balance between fair pricing and the commercial instincts of the industry. In the context of taxation of services, and more particularly ‘business auxiliary service’, the nature of the commercial arrangement between the advertiser, the ‘accredited agency’ and the publishing house would necessarily have to be scrutinised. It would appear from the records that the two lower authorities have failed to ascertain the relationship between the three entities and the identification of the client from whom, or on whose behalf, consideration has been received by the appellant. From a perusal, it would appear that it is newspaper establishment that pays the appellant for acting as its agent. If that be the indicator of recompense for provision of service, it would appear that the appellant is not the provider of the service to the other agencies which is contrary to the surmise, and conclusion, in the findings of the two lower authorities. From this factual matrix alone, we can deduce that the lower authorities have, in their findings, misdirected themselves, in the determination to fasten tax on the consideration without compliance of the pre-requisite to fit the activity within the framework of one of the taxable services. We see no reason to perpetuate this in the absence of some worthwhile reason to believe that a consummation that would stand the test of appeal exists. Much as Learned Authorised Representative would have us decide the matter in the context of the decision of the Hon’ble High Court of Madras in Adwise Advertising Pvt Ltd v. Union of India [2006 (2) STR 375 (Mad)], we find that the scope for application of the decision is patently non-existent on the available facts.

7. Considering the examination supra, we set aside the demands and the attendant detriments but remand the matter back to the original authority for a second time to enable the ascertainment of validity of the contention of the appellant on the discharge of tax liability. We do so reluctantly but are, nevertheless, compelled by the manner in which the lower authorities have avoided compliance with the directions of the Tribunal on the previous occasion. Hence, our specifically directed remand in this order.

8. Appeal is accordingly disposed off.

(Pronounced in Court on 31/10/2018)

(Ajay Sharma)
Member (Judicial)


(C J Mathew)
Member (Technical)

*/as24102510

Additional Info

  • Date Range (yyyy-mm-dd) Wednesday, 31 October 2018
  • Court/Authority CESTAT
  • Tax Type Service Tax
  • Subject Saransh Ads Vs Commissioner of Service Tax Pune : APPEAL NO: ST/85611/2015
  • Petitioner/Appellant Saransh Ads Vs Commissioner of Service Tax Pune
  • Respondent Saransh Ads Vs Commissioner of Service Tax Pune
  • Appl no. or Appl year APPEAL NO: ST/85611/2015
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

Appeal No. E/237/2011
(Arising out Order-in-Appeal No. AKP/289/NSK/2010 dated 29.10.2010 passed by the Commissioner of Central Excise (A), Nashik)

Kalpataru Papers Ltd.
Appellant

Vs.

CCE Nashik
Respondent

Appearance:
Shri Prasad Paranjape, Advocate for the appellant
Shri M.R. Melvin, Supdt. (AR) for the respondent

CORAM:
Hon’ble Mrs. Archana Wadhwa, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical)

Date of hearing : 11-10-2018
Date of decision : 11-10-2018

O R D E R No: A/87621/2018

Per: Archana Wadhwa

After hearing both sides, we find the appellant is a manufacturer of paper and paper articles in terms of Notification 4/2006-CE dated 01.03.2006, they were entitled to exemption in respect of first clearances up to 3500 MT. The appellant was availing the said exemption.

2. However, even though the appellant was clearing the final product without payment of duty in terms of said exemption Notification, they availed the cenvat credit to the extent of Rs.13,23,451/- during the period March 2008 and February 2009. Such availment of credit by them was being reflected in their returns filed with their Jurisdictional Central Excise authorities. Inasmuch as the appellant’s final product was exempted, the credit, though availed, was not being utilised by them and remained only as a paper entry. Subsequently, on being objected to by the revenue, they reversed the said credit entry in their records.

3. Further, though the appellant’s final product was exempt from payment of duty of excise, but the same attracted paper cess and education cess on such paper cess, which the appellant was not discharging under the belief that as their final product is exempted from payment of basic duty of excise, no levy of cess would be there.

4. On the above two grounds, proceedings were initiated against the appellant by way of issue of show-cause notice dated 22.01.2010 proposing to confirm the debit entry of cenvat credit availed during the period March 2008 to February 2009 as also confirmed the interest amount and imposed penalty upon them. Notice also proposed confirmation of paper cess and education cess to the extent of Rs.30,000/- approx.

5. On adjudication, the original adjudicating authority observed that since the credit availed by the appellant was being reflected by them in their ER1 returns, the revenue was aware of the said fact and as such no malafide can be attributed to the assessee so as to invoke the longer period of limitation. He accordingly, dropped the demand on the said count. However, in respect of paper cess and education cess, he observed that the same is liable to be paid by the appellant but in the order portion did not confirm it. As such original adjudicating authority vacated the entire show-cause notice.

6. The said order of the Jt. Commissioner was challenged by the revenue before the Commissioner (Appeals) who reversed the same and upheld the confirmation of denial of cenvat credit, interest on the same and imposition of penalty. Similarly in respect of paper cess and education cess he held that the demands are required to be confirmed against the appellant along with imposition of penalty under Section 11AC of the Act.

7. This said order of the Commissioner (Appeals) is impugned before us.

8. Ld. Advocate for the appellant is not contesting the confirmation of demand in respect of paper cess and education cess. However, he submits as regards penalty under Section 11AC of the Central Excise Act, there is no provision in terms of the said Act to impose penalty in case of short levy or non-levy of paper cess or education cess. Our attention stands drawn to the Hon'ble Jharkhand High Court in CCE Jamshedpur vs. Tata Motors Ltd. 2016 (336) ELT 208 (Jhar.) laying down to the same effect.

9. Apart from the fact that in terms of law declared by the Hon'ble Jharkhand High Court there is no provision for imposition of penalty in terms of 11AC, we also note that since the appellant’s final product was fully exempt from payment of duty, they could have entertained a bonafide belief that the same does not attract any duty also on account of cess or education cess. In the absence of any evidence to the contrary, no malafide can be attributed to them so as to impose any penalty. Accordingly, while confirming the said cess amount as not contested, we set aside the penalty imposed upon the appellant on the said count.

10. As regards the reversal of the cenvat credit, ld. Advocate fairly agrees that the same was not available to them as the final product was being cleared without payment of duty. He submits the same was being availed inadvertently and was a mistake on their part but as soon as the revenue pointed out the said mistake to them, they reversed the credit. However, he submits that even though they are not contesting the said reversal and are in agreement with the revenue that the credit availed by them has to be repaid but submits that the entire demand having been raised on the figures reflected by the assessee in the ER 1 returns, is barred by limitation, in which case the same has to be technically set aside as barred, thus not requiring any payment of interest. For the same reason no penalty will be imposable upon them.

11. We note that the original adjudicating authority has vacated the show-cause notice on the ground of limitation by observing the entire facts were placed before the Jurisdictional authority in ER 1 returns. Commissioner (Appeals) did not extend the benefit of the limitation on the ground that Notification no. was not mentioned in the returns. We find no merits in the above reasoning of the Commissioner (Appeals). Admittedly, the appellant was enjoying the exemption for the first clearance upto 3500 MT and this fact was in the knowledge of the revenue as also being reflected in the returns. Mere non mention of the Notification number would not make the assessee guilty of any suppression or misstatement with the malafide intention to evade taxes. Further, we note that even though the credit was being taken by them, but the same was not being utilised for the obvious reason that there was no scope for utilisation, their final product being exempted. As such it cannot be said that the said availment of credit was with any malafide intention. Accordingly, we are of the view the impugned order is required to be set aside and the appeal is to be allowed by restoring the order of the Jt. Commissioner.

12. At this stage, ld. Advocate makes a submission that the credit having been already reversed by them they would not claim refund of the same. We hold on the basis of above submission of the ld. advocate that only the interest and penalty is being set aside and the reversal entry already made by them is being upheld. We also note part of the demand is within the limitation period and ld. Advocate agrees to pay interest in respect of same. Accordingly, we hold the interest amount falling within the limitation period should be quantified by the adjudicating authority and would be recovered from the assessee. The appeal is, in the above terms, partially allowed and partially rejected.

(Dictated in Court)

(Sanjiv Srivastava)
MEMBER (Technical)

(Archana Wadhwa)
MEMBER (Judicial)

//SR

Additional Info

  • Date Range (yyyy-mm-dd) Thursday, 11 October 2018
  • Court/Authority CESTAT
  • Tax Type Central Excise
  • Subject Kalpataru Papers Ltd. Vs CCE Nashik : Appeal No. E/237/2011
  • Petitioner/Appellant Kalpataru Papers Ltd. Vs CCE Nashik
  • Respondent Kalpataru Papers Ltd. Vs CCE Nashik
  • Appl no. or Appl year Appeal No. E/237/2011
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI

APPEAL NO: E/86348/2018
[Arising out of Order-in-Appeal No: PK/334/ME/2017-18 dated 18.12.2017 passed by the Commissioner of CGST & Central Excise (Appeals-II) Mumbai.]

Larsen & Toubro Limited (EAIC)
Appellant

Versus

Commissioner of CGST, Mumbai East
Respondent

Appearance:
Shri Jitendra Khare, AGM with Shri Kishore Ahuja, AGM for appellant
Shri S.J.Sahu, Assistant Commissioner (AR) respondent

CORAM:
Hon’ble Dr. Suvendu Kumar Pati, Member (Judicial)

Date of hearing: 26/10/2018
Date of decision: 26/10/2018

ORDER NO: A/87789 / 2018

Imposition of penalty on ground of suppression of alleged availment of inadmissible credit even after subsequent reversal upon audit noting before issue of show cause is the subject matter of this appeal.

2. Brief fact of the appellant’s case is that it is a large tax payer which is subjected to CERA and EA-2000 audits every year. During EA audit conducted in the month of June 2016 it was brought to the notice of appellant that certain inadmissible Cenvat Credits were availed by the appellant for the period between Oct-11 to Mar-15 amounting to Rs.8,71,885/- and the same was immediately reversed on 30th June 2016 itself. But it was put to show cause vide notice dated 04.11.2016 to show reason as to why penalty under Section 11AC of Central Excise Act 1944 read with rule 15(2) of CENVAT Credit Rules, 2004 was not to be imposed for willful suppression of fact with intend to evade payment of duty as well as deliberate non disclosure of input services availed by the appellant. Reply of the appellant was found to be not satisfactory. Accordingly the first adjudicating authority had imposed penalty of the equalent amount of inadmissible Cenvat Credit and the same was unsuccessfully challenged before the Commissioner (Appeals) as he confirmed the finding of the adjudicating authority.

3. In its memo of appeal and during course of hearing of the same the Learned Counsel for the appellant submitted that there was no specific mode prescribed in the statute or rule for submission of Cenvat Credit documents or related information to the Excise Department and no such facilities available in the form prescribed for e-filing of returns. The appellant also contended that every year Excise Department had conducted audit of its records and verified the detail of Cenvat Credit availed by it but they had not raised any objection on previous occasions for which no mens rea can be inferred from the conduct of the appellant since entire allegedly erroneous credit is only 0.2% of the total availed of credit of Rs.45,37,57,775/- covering 72,266 numbers of invoices and error might have occured in handling such huge volume of data. The Learned Counsel for the appellant Shri Jitendra Khare & Shri Kishore Ahjuja further submitted that in the previous occasions, on similar situations, favourable Order-in-Originals had been passed in favour of appellant and the same may be treated as judicial precedent in setting aside the order.

4. In response to such submissions of the appellant, the Learned AR for the Department Shri S.J.Sahu supported the order of the Commissioner (Appeals) and the rationality of his findings. Referring to the discussion made by the Commissioner (appeals) at Para 40, he submitted that appellant had misstated the description of services as manpower salary, wages but the expenditure covered was towards reimbursement of travelling expenses, hotel bill of staff debited for after sale service or outsourced towards fulfillment of maintenance contract of the product supplied by the appellant company and those are in the nature of after sale service for which credit to the manufacture cannot be given. Appellant company being a large tax paying unit is well conversant with taxing statute and its procedure for which its conduct can never be said to be bonafide in availing inadmissible Cenvat Credit and therefore the interference by the Appellate Tribunal in the order passed by the Commissioner (Appeals) is uncalled for.

5. Heard from both the sides and gone through the case record as well as judicial decisions cited by both the parties which firm part of the appeal case record. Admittedly, appellant’s availment of Cenvat credit which was held by the audit party is inadmissible is not being questioned in this appeal about its legality. In his Order-in-Appeal the commissioner has distinguished the appellant’s case in respect of earlier decisions concerning the appellant on similar issue passed by the adjudicating authority and he hold that previous audit cannot be taken as a plea of non-suppression. To him audit is nothing but vouching a document in a selective and comprehensive way but it is not a complete checking of each and every document for which it cannot be said that there was no suppression or non disclosure of fact since it was appellant’s responsibility to bring facts of availment of credit which they failed to do. However, in order to find out the purpose of audit, reference is made by me to the Manual published by the Institute of Chartered Accountants of India in respect of EA audit and CERA audit. Under Chapter 17 it has been reflected that the idea behind such conduct of verification is to reasonably ensure that no amount, which under the central excise law is chargeable as duty, escapes taxation and the process of verification is always carried out in the presence of assessee. In the process, the auditor is required to discuss the matter with the assessee and advice him to follow correct procedure in future. It is also referred in the said manual that after such submission of audit report, in cases where the disputed amount has not already been paid by the assessee at the spot, demand notices are issued by the department for their recoveries. EA 2000 audit was therefore held to be participative audit. Likewise CERA audit is conducted by the Comptroller and Auditor General of India in respect of receipt and expenditure of the Government of India. It also discharges revenue audit which covers central excise, service tax and customs laws during which time the assessees were examined by CERA audit party to point out the deficiencies, leakage of revenue and non recoveries of dues by the Central Excise Department. Therefore it cannot be said that only because audit party had found some credit availed as inadmissible, suppression of fact is made out.

6. As found from the show cause notice as well as from the OIO and OIA, the credit was held to be inadmissible on the ground that after sale services credit should not go to the manufacture but nowhere it has been referred that sale was done by the third party other than the manufacturer itself but there is no point in discussing on the merit of admissibility of the credit since the same is accepted by the appellant and not challenged though there is a difference between acceptance of the direction of the executive authority and imposition of tax without compliance to Article 265 of the Constitution of India.

7. Appellant has placed heavy reliance on the case law reported in 2015-TIOL-223-SC-CX in the matter of Commissioner of Central Excise, Bangalore vs. Pragathi Concrete Products (P) Ltd. where in the Hon’ble apex court in Para 3 has observed as follows:

“It is also found as a matter fact, that the unit of the respondent was audited during this period several times and there were physical inspection by the Department as well. Therefore, there could not be any case of suppression. We are in agreement with the aforesaid view taken by the CESTAT. As a result, this appeal is dismissed.”

8. Section 11AC which deals with penalty on short levy or non levy of duty clearly indicates under 1(C) that such suppression of fact must have been done with intend to evade payment of duty and the intention of the appellant is found absent in the sense that its availment of allegedly inadmissible credit was previously subjected to scrutiny by the audit parties at least on three occasions as reveals from the audit report vide Exhibit (I), Exhibit (J) and Exhibit (K) of the period under dispute. Moreover, the alleged inadmissibility runs into lakhs, considering the largeness of tax payment by the appellant in crores, it comprised of only 0.2% of its total Cenvat Credit allegedly wrongfully availed. It is also found from the show cause and OIO that one to one co-relation of the credit availed is not a basic requirement of Cenvat Credit rules. Furthermore appellant had not only reversed the credit which was held by the audit party as inadmissible but had also intimated the fact of such reversal by e-mail to the competent authority. Audit being one of the ways by which departmental authorities can bring the fact of inadmissibility of credit to the knowledge of the assessee on verification of its document for which no specific mode is prescribed in the statute for suo moto submission of Cenvat Credit documents or related information to Excise Department and self assessment mechanism being introduced, it cannot be said that any suppression of fact has been established against the appellant. Hence the order.
9. The appeal is allowed and order passed by the Commissioner (Appeals) dated 18.12.2017 in appeal no. PK/334/ME/2017-18 is hereby set aside.

(Pronounced in Court on 26/10/2018)

(Dr. Suvendu Kumar Pati)
MEMBER (Judicial)

HK

Additional Info

  • Date Range (yyyy-mm-dd) Friday, 26 October 2018
  • Court/Authority CESTAT
  • Tax Type Central Excise
  • Subject Larsen & Toubro Limited (EAIC) Vs Commissioner of CGST, Mumbai East : APPEAL NO: E/86348/2018
  • Petitioner/Appellant Larsen & Toubro Limited (EAIC) Vs Commissioner of CGST, Mumbai East
  • Respondent Larsen & Toubro Limited (EAIC) Vs Commissioner of CGST, Mumbai East
  • Appl no. or Appl year APPEAL NO: E/86348/2018
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala

IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL,
WEST ZONAL BENCH AT MUMBAI

COURT NO. IV

APPEAL NO. ST/86872/2018
(Arising out of order-in-appeal no. CD/TR(Appeal)/MC/43/2017-18 dated 20th February 2018 passed by the Commissioner of CGST & Central Excise, (Appeals), Thane Rural, Mumbai.)

M/s Import Express India P Ltd.
Appellant

Vs.

Commissioner of CGST, Mumbai Central
Respondent

Appearance:
Shri Rajiv Luthia, Chartered Accountant for Appellant
Shri O M Shivdikar, Assistant Commissioner (AR) for Respondent

CORAM:
HON’BLE SHRI AJAY SHARMA, MEMBER (JUDICIAL)

Date of Hearing: 04.10.2018
Date of Decision: 10.10.2018

ORDER NO. A/87580/2018

Per: Ajay Sharma

The instant appeal has been filed from the Order-in-Appeal No. CD/TR(Appeal)/MC/43/2017-18 dated 20th February 2018.

2. The appellant herein is 100% subsidiary of SHOP YOUR WORLD PTE LTD, SINGAPORE (hereinafter referred as “Parent Company”). The Parent Company sells their products to their customers in India. A Service Agreement dated 18th August 2010 was entered into between the Appellant and its Parent Company. The Appellants are providing various services categorised under “Business Auxiliary Services” to their Parent Company, such as collecting of payments from their customers on behalf of the Parent Company, co-coordinating with Courier Company, customer support service etc. and for the said services they are being paid service charges in the form of commission by their Parent Company as per Clause 4 of the service agreement. The said Clause 4 of the service agreement is extracted as under:

“Clause 4. Compensation for Services

The Company shall pay to Import Express compensation for the services as follows:

The service provided in Annexure ‘A’ shall be the cost incurred by Import Express for providing these services plus 4%

Import Express shall invoice the Company on a monthly basis. All such payments shall be made by the Company within 7 days from the date of the receipt of such invoice. The amount owed for services rendered by Import Express on behalf of the company may be netted off against the receivables of the company collected by Import Express on behalf of the company.”

3. Although the customers made online payment to the Parent Company for the products purchased by them but many times they made payment for the Parent Company’s products to the Appellant in India and the appellant in turn after deducting their service charge/commission in term of Clause 4 of the Service Agreement, transfer the remaining amount to the Parent Company at Singapore through banking channel. In other words, the Appellant remits the net charge to the Parent Company after deducting its service charges/commission. For the period from July, 2011 to September, 2011 the Appellant had filed refund claim of ₹5,09,803/- under the Export of Service Rules, 2005 for rebate of Service Tax paid on export of services. The same was rejected by the Adjudicating Authority vide Order-in-Original dated 19th January 2016. On appeal, the Learned Commissioner GST & Central Excise, Thane (Rural), Mumbai vide the impugned order dated 20th February 2018, also dismissed the same.

4. I have heard Learned Chartered Accountant for the Appellant and Learned Authorised Representative for the Revenue and perused the record. According to the Learned Chartered Accountant, the appellant recovered consideration of sale of goods from local customers of the Parent Company and thereafter remits the net consideration to its Parent Company after deducting their service charges. He further submitted that had the entire amount received from the customer of Parent Company been remitted to Parent Company, the service charges due to Appellants in foreign exchange would have been paid by Parent Company from abroad. But instead of going by this lengthy process the Appellant paid only the net consideration in foreign exchange to the Parent Company and therefore in a way the Appellant has saved the foreign exchange. In other words, it is deemed that the Appellant has received entire consideration for their service charges in convertible foreign exchange as required by the Export of Service Rule, 2005. He also relied upon the decision of the Tribunal (Principal Bench, Delhi) in the matter of National Engineering Industries Ltd. Vs. CCE, Jaipur (2008) TIOL 939 wherein this Tribunal has held that receipt of consideration received in Indian Rupees in lieu of foreign exchange is eligible for benefit of exemption under Export of Service Rules, 2005. The above mentioned decision has also been followed by this Tribunal in the matter of Pam Pharma & Allied Machinery Co. Pvt. Ltd. Vs. CST, Mumbai – (2015)             (7) TMI 755 in which this Tribunal while holding that the Appellant has complied with conditions of Export of Services Rules, 2005, granted refund to the appellant. He also relied upon the decision of Chennai Bench of this Tribunal of in the matter of Arafaath Travels Pvt. Ltd. Vs. CST, Chennai reported in 2017 (7) GSTL 437 (Tri.-Chennai) in which it has been held that procedure of retaining the serviced charge/commission amount and only remitting the remaining portion of the proceeds will have to be necessarily treated as saving of foreign exchange and by implication is akin to receipt of monies in convertible foreign exchange. The service rendered by the Appellant to the foreign recipient will be nothing but export of "Business Auxiliary Services" which are exempted from liability to service tax.

5. The Learned Authorised Representative on behalf of the Revenue reiterates the finding in the impugned order and submitted that the appeal filed by the Appellant deserves to be dismissed.

6. According to me, since out of the total payment to be made by the Appellant in India to its Parent Company at Singapore, the same was reduced to the extent of his service charges/commission and the remaining amount was remitted to the foreign Parent Company in foreign exchange, and since such Indian Rupees was obtained in lieu of foreign exchange, therefore the same will be deemed to be convertible exchange. The Hon'ble Supreme Court in the matter of J. B. Boda & Co. Pvt. Ltd. Vs. CBDT reported in 2002- TIOL-2578-SC-IT while interpreting convertible foreign exchange under the provisions of Income Tax Act has laid down that brokerage income retained by the assessee acting as agent of foreign reinsurer, out of the premium collected from the ceding insurance company in India and remitting the balance to the foreign insurer in foreign exchange, can be said to be the income in convertible foreign exchange and hence qualify for deduction under section 80-O of the Income Tax Act.

7. Rule 3[2] of Export of Service Rule, 2005 for the non-compliance of which, the Appellant’s claim has been rejected by the authorities below is stated as under:-

“Rule 3(2) of “Export of Services” Rule, 2005

“(2) the provision of any taxable service specified in sub-rule (1) shall be treated as export of service when the following conditions are satisfied namely:-

(a)             (****)

(b) Payment for such service is received by the service provider in convertible foreign exchange.”

8. Although Rule 3(2) requires the payments to be received by the service provider i.e. the Appellant herein, in convertible foreign exchange, but in view of the decision mentioned above and in particular the decision of the Hon'ble Supreme Court in the matter of J. B. Boda & Co. Pvt. Ltd. (supra) and the decision of the Tribunal in the matter of National Engineering Industries Ltd. (supra) and Arafaath Travels Pvt. Ltd. (supra), even the procedure of retaining the service charge/commission amount and only remitting the remaining portion of the proceeds in foreign exchange will have to be necessarily treated as saving of foreign exchange and by implication is akin to receipt of monies in convertible foreign exchange. It is nothing but saving of foreign exchange as the Appellant has retained that portion and not sent the same in foreign exchange to the Parent Company at Singapore along with other said proceeds. Outflow of foreign exchange has been reduced to the extent of commission/service charge retained by the Appellant within India. Such retention has to be necessarily treated as saving of foreign exchange. Therefore the appellant is entitled for refund and as a result, the appeal filed by the appellant is allowed.

(Pronounced in Court on 10.10.2018)

(Ajay Sharma)
MEMBER (Judicial)

Prasad

Additional Info

  • Date Range (yyyy-mm-dd) Wednesday, 10 October 2018
  • Court/Authority CESTAT
  • Tax Type Service Tax
  • Subject M/s Import Express India P Ltd. Vs Commissioner of CGST, Mumbai Central : APPEAL NO. ST/86872/2018
  • Petitioner/Appellant M/s Import Express India P Ltd. Vs Commissioner of CGST, Mumbai Central
  • Respondent M/s Import Express India P Ltd. Vs Commissioner of CGST, Mumbai Central
  • Appl no. or Appl year APPEAL NO. ST/86872/2018
  • Supreme Court Location Delhi
  • CESTAT Location Mumbai
  • AAR Location Delhi
  • Authority Supreme Court
  • AAR GST State Location Kerala
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