Reportable 

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3327 OF 2007 

COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI
…APPELLANT(S)
 
VERSUS

M/S. DILIP KUMAR AND COMPANY & ORS.
…RESPONDENT(S)
 
JUDGMENT 

 

N . V . RAMA NA , J .

 
1. This Constitution Bench is setup to examine the correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 [hereinafter referred as ‘Sun Export Case’ for brevity], namely the question is What is the interpretative rule to be applied while interpreting a tax exemption provision/notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied?

2. In Sun Export Case (supra), a threeJudge Bench ruled that an ambiguity in a tax exemption provision or notification must be interpreted so as to favour the assessee claiming the benefit of such exemption. Such a rule was doubted when this appeal was placed before a Bench of twoJudges.

The matter then went before a threeJudge Bench consisting one of us (Ranjan Gogoi, J.). The threeJudge Bench having noticed the unsatisfactory state of law as it stands today, opined that the dicta in Sun Export Case (supra), requires reconsideration and that is how the matter has been placed before this Constitution Bench.

3. Few facts necessary, to appreciate the issue involved are as follows the respondents imported a consignment of Vitamin – E50 powder (feed grade)  under Bill of Entry No. 8207, dated 19.08.1999.

They claimed the benefit of concessional rate of duty at 5%, instead of standard 30%, as per the Customs Notification No. 20/1999 and classified the product under Chapter 2309.90 which admittedly pertains to prawn feed. They relied on the ratio in Sun Export Case (supra) and claimed the benefit of exemption. The benefit of Customs Notification No. 20/1999 was, however, denied to the respondents on the plea of the department that the goods under import contained chemical ingredients for animal feed and not animal feed/prawn feed, as such, the concessional rate of duty under the extant notification was not available. The department classified the consignment under Chapter 29 which attracts standard rate of customs duty. The adjudicating authority, namely, the Assistant Commissioner of Customs, distinguished Sun Export Case (supra), while accepting the plea of the department to deny the concessional rate. The Commissioner of Customs (Appeals) reversed the order of the Assistant Commissioner and came to the conclusion that Sun Export Case (supra) was indeed applicable. The department then approached the Customs, Excise and Service Tax Tribunal (CESTAT), which affirmed the order of the Commissioner of Customs (Appeals). Aggrieved thereby, the present appeal is filed.

4. When the appeal was placed, as noticed earlier, before a Bench of twoJudges, the ruling in Sun Export Case (supra) was doubted, observing as follows4 “We have serious doubts as to whether the Bombay High Court judgment affirmed in Sun Export Corporation's case is correct. First and foremost, it is clear that the subsequent exemption Notification largely expanded the first Notification which referred only to animal feeds and nothing else. That being the case, it would be difficult to say that a large number of other categories which have subsequently been added would be clarificatory and therefore, retrospective. Further, we also feel that in view of the catena of judgments of this Court which have held that an exemption Notification has to be strictly construed (that is, if the person claiming exemption does not fall strictly within the letter of the Notification, he cannot claim exemption), have also been ignored by this Court in Sun Export Corporation's case in paragraph 13 thereof. Apart from this, the view of this Court in paragraph 13 that it is wellsettled that if two views are possible, one favourable to the assessee in matters of taxation has to be preferred is unexceptionable.

However, this Court was not concerned in that case with the charging Section of a taxation statute. It was concerned with the interpretation of an Exemption Notification which, as has been stated above, would require the exactly opposite test to be fulfilled.”

Further this Court found that the subsequent judgment in Collector of Customs and Central Excise, Guntur and Ors. V. Surendra Cotton Oil Mills and Fertilizers Co. and Ors., 2001 (1) SCC 578 [hereinafter referred as ‘Surendra Cotton Oil Mills Case’ for brevity], distinguished Sun Export Case (supra), which mandated this Court to take a relook at the proposition laid down by the earlier cases in the following manner“ We also find that in the subsequent judgment of this Court, Surendra Cotton Oil Mills's case, this Court has distinguished the Sun Export Corporation's case and held that it dealt with 'animal feed' which was large enough to include 'animal feed supplements' whereas the facts of Surendra Cotton Oil Mills's case showed that ingredients of animal feed could not be held to be included in 'animal feed'. In our opinion, this Court did not adequately deal with why Sun Exports Corporation's case which is a binding decision of a three Judges Bench should not be followed, apart from a specious distinction between 'ingredients' and 'supplements' which is logically speaking a distinction without a difference.

… This being the unsatisfactory state of law as it stands today, we feel that this matter should be placed before Hon’ble the Chief Justice of India to constitute an appropriate Bench to resolve the doubts pointed out by us in the body of this Order.”  (emphasis supplied)

5. We feel that the reference to Surendra Cotton Oil Mills Case (supra), may not be necessary as the distinction was drawn on a factual footing, which this Court may not concern itself with, as we are only concerned with the principle of law. With this, the Division Bench was of the tentative view that the opinion expressed in Sun Export Case (supra)
would require reconsideration, as the proposition laid down therein was unsatisfactory, and therefore placed before the Chief Justice of India for constituting an appropriate Bench.

6. When the matter was placed before a three Judge Bench presided over by one of us (Ranjan Gogoi, J.), the Bench reiterated the view for reconsideration of the Sun Export Case (supra) and again placed the matter, before Hon’ble the Chief Justice of India for constitution of an appropriate Bench, considering the fact that Sun Export Case (supra) was decided by a Bench comprising of three learned judges of this Court. Hence, this matter came to be placed before this Bench of Five Judges with following observations“ In paragraph 13 of the order of this Court in Sun’s case, views have been expressed with regard to the interpretation of an exemption notification to support the conclusion reached.

The same may require a reconsideration.

That apart, in the referral order it has been noticed that Sun’s Case (supra) has been distinguished in ‘Collector of Central Excise, Guntur vs. Surendra Cotton Oil Mills & Fert.  Co. The basis on which the said distinction has been drawn needs to be further pursued.

Having considered the matter at some length, we are of the tentative view, that the opinion expressed in Sun’s case (supra)  may require a reconsideration.

Being a coordinate Bench, we believe we ought not to proceed any further in the matter. Hence, we direct the Registry to lay the papers before the Hon’ble the Chief Justice of India for appropriate orders.”  (emphasis supplied)

7. The learned Additional Solicitor General, Ms. Pinky Anand, submits that a tax exemption statute or notification needs to be strictly interpreted. According to her, strict interpretation is literal rule of interpretation, which means that Court has to apply the provision reading the language therein and no interpretation is required if the language is clear. In the event of any ambiguity, according to her, the benefit has to be given to the revenue and that such ambiguity in tax exemption provision must not be interpreted to benefit the assessee who fails to demonstrate without any doubt that such assessee is covered by the tax exemption notification. She elaborated her arguments by relying on various judgments and contends that the ratio in Sun Export Case (supra), which was doubted in Surendra Cotton Oil Mills Case (supra), is not correct law. On merits of the case, she submitted that the artificial distinction created by Surendra Cotton Oil Mills Case (supra), in distinguishing the ingredients from supplements is not sound and may not be accepted by the Court.

8. Per contra, among others, Mr. Somnath Shukla, learned counsel appearing on behalf of the respondents would submit that the ratio and observations in Sun Export Case (supra) has to be considered holistically without giving any narrow meaning to the conclusion arrived therein. The rule of strict interpretation cannot be applied in abstract. It has to be applied keeping in view the interpretation to be used in relation to Customs Tariff Entry. According to the learned counsel, when the Customs Tariff Entry is interpreted broadly, the same should be adopted in interpreting exemption notification. Indeed, the learned senior counsel would contend that the rule of strict interpretation should be limited to the eligibility conditions of an exemption notification and while conferring the benefits to such exemption. He distinguished all the judgments relied on by the appellants and submits that “prawn feed supplements” would also be included under the head “prawn feed”, and the judgment of the Tribunal impugned in these appeals does not warrant any interference.

9. Sun Export Case (supra) was a case against the judgment of the High Court of Judicature, Bombay. It was concerned with the interpretation of tax exemption notification, being Notification No. 234/1982 – CE, dated 01.11.1982, issued by the Central Government under subsection (1) of Section 25 of the Customs Act.

The High Court considered the issue whether Vitamin AD3 mix (feed grade)/animal feed supplement could be included under the head ‘animal feed, including compound livestock feed’. The Bombay High Court decided, in the affirmative, in favour of the assessee.

The case then landed in this Court, which was persuaded to expand the meaning of ‘animal feed’ in the light of subsequent notification issued in 1984, which largely expanded the scope of exemption to the effect that ‘animal feed, including compound livestock feed, animal feed supplements and animal feed concentrates’.

This Court indeed countenanced the plea, namely, whenever there is ambiguity as to whether the subject matter was included or not, then the benefit of the same should be conferred on the assessee. The relevant portion in Sun Export Case (supra), reads as follows:

“13. We are in agreement with the above view expressed by the Bombay High Court. No doubt it was contended on behalf of the Revenue that the contrary view taken by the Tribunal has been challenged in this Court which was rejected in limine at the admission stage.

We do not think that dismissal at the admission stage can be relied upon as a binding precedent. Even assuming that there are two views possible, it is well settled that one favourable to the assessee in matters of taxation has to be preferred.” (emphasis supplied)

10.There cannot be any doubt that the ratio in Sun Export Case (supra) that, if two views are possible in interpreting the exemption notification, the one favourable to the assesseee in the matter of taxation has to be preferred. This principle created confusion and resulted in unsatisfactory state of law. In spite of catena of judgments of this Court, which took the contra view, holding that an exemption notification must be strictly construed, and if a person claiming exemption does not fall strictly within the description of the notification otherwise then he cannot claim exemption.

11.About three years after Sun Export Case (supra), in the year 2000, this Court in Surendra Cotton Oil Mills Case (supra), expressed reservations as to the soundness of the dicta in Sun Export Case (supra), observing that Sun Export Case (supra) ignored catena of judgments of this Court expressing contra view. This Court prima facie came to the conclusion with regard to the principle that when two views are possible, one favourable to the assessee in matters of taxation has to be preferred, is unexceptionable when interpreting the charging section of a taxation statute, but the opposite principle would be applicable in interpretation of exemption notification. The threeJudge Bench in the referral order further observed that the views expressed in Sun Export Case (supra) with regard to interpretation of exemption notification to support the conclusion, required reconsideration.

12.We may, here itself notice that the distinction in interpreting a taxing provision (charging provision) and in the matter of interpretation of exemption notification is too obvious to require any elaboration. Nonetheless, in a nutshell, we may mention that, as observed in Surendra Cotton Oil Mills Case (supra), in the matter of interpretation of charging section of a taxation statute, strict rule of interpretation is mandatory and if there are two views possible in the matter of interpretation of a charging section, the one favourable to the assessee need to be applied. There is, however, confusion in the matter of interpretation of exemption notification published under taxation statutes and in this area also, the decisions are galore1.

13.We may passingly, albeit, briefly reiterate the general principles of interpretation, which were also adverted to 1 See: Sun Export Corporation, Bombay v. Collector of Customs, Bombay and Anr., (1997) 6 SCC 564;  Commissioner of Central Excise, Pune v. Abhi Chemicals and Pharmaceuticals Pvt. Ltd., (2005) 3 SCC 541; Collector of Central Excise, Bombay1 and Anr. v. Parle Exports (Pvt.) Ltd., (1989) 1 SCC 345;  Commissioner of Customs (Import), Mumbai v. Konkan Synthetic Fibres, (2012) 6 SCC 339; Collector of Customs, Bombay v. Swastic Wollens (Pvt.) Ltd. And Ors., (1988) Supp. SCC 796; Commissioner of Customs (Preventive), Gujarat v. Reliance Petroleum Ltd., (2008) 7 SCC 220. by both the counsel. In his treatise, ‘Principles of Statutory Interpretation’ Justice G.P. Singh, lucidly pointed the importance of construction of statutes in a modern State as under:

“Legislation in modern State is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the Legislature based on information derived from past and present experience. It may also be designed by use of general words to cover similar problems arising in future. But, from the very nature of things, it is impossible to anticipate fully the varied situations arising in future in which the application of the legislation in hand may be called for, and, words chosen to communicate such indefinite ‘referents’ are bound to be, in many cases lacking in clarity and precision and thus giving rise to controversial questions of construction.”

14.An Act of Parliament/Legislature cannot foresee all types of situations and all types of consequences. It is for the Court to see whether a particular case falls within the broad principles of law enacted by the Legislature.

Here, the principles of interpretation of statutes come in handy. In spite of the fact that experts in the field assist in drafting the Acts and Rules, there are many occasions where the language used and the phrases employed in the statute are not perfect. Therefore, Judges and Courts need to interpret the words.

15. In doing so, the principles of interpretation have been evolved in common law. It has also been the practice for the appropriate legislative body to enact Interpretation Acts or General Clauses Act. In all the Acts and Regulations, made either by the Parliament or Legislature, the words and phrases as defined in the General Clauses Act and the principles of interpretation laid down in General Clauses Act are to be necessarily kept in view. If while interpreting a Statutory law, any doubt arises as to the meaning to be assigned to a word or a phrase or a clause used in an enactment and such word, phrase or clause is not specifically defined, it is legitimate and indeed mandatory to fall back on General Clauses Act. Notwithstanding this, we should remember that when there is repugnancy or conflict as to the subject or context between the General Clauses Act and a statutory provision which falls for interpretation, the Court must necessarily refer to the provisions of statute.

16.The purpose of interpretation is essentially to know the intention of the Legislature. Whether the Legislature intended to apply the law in a given case; whether the Legislature intended to exclude operation of law in a given case; whether Legislature intended to give discretion to enforcing authority or to adjudicating agency to apply the law, are essentially questions to which answers can be sought only by knowing the intention of the legislation. Apart from the general principles of interpretation of statutes, there are certain internal aids and external aids which are tools for interpreting the statutes.

17.The long title, the preamble, the heading, the marginal note, punctuation, illustrations, definitions or dictionary clause, a proviso to a section, explanation, examples, a schedule to the Act etc., are internal aids to construction. The external aids to construction are Parliamentary debates, history leading to the legislation, other statutes which have a bearing, dictionaries, thesaurus.

18. It is well accepted that a statute must be construed according to the intention of the Legislature and the Courts should act upon the true intention of the legislation while applying law and while interpreting law. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the Legislature. In this connection, the following observations made by this Court in District Mining Officer vs. Tata Iron and Steel Co., (2001) 7 SCC 358, may be noticed:

“… A statute is an edict of the Legislature and in construing a statute, it is necessary, to seek the intention of its maker. A statute has to be construed according to the intent of them that make it and the duty of the Court is to act upon the true intention of the Legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the Legislature. This task very often raises the difficulties because of various reasons, inasmuch as the words used may not be scientific symbols having any precise or definite meaning and the language may be an imperfect medium to convey one’s thought or that the assembly of Legislatures consisting of persons of various shades of opinion purport to convey a meaning which may be obscure.

It is impossible even for the most imaginative Legislature to forestall exhaustively situations and circumstances that may emerge after enacting a statute where its application may be called for.

Nonetheless, the function of the Courts is only to expound and not to legislate.

Legislation in a modern State is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the Legislature based on information derived from past and present experience. It may also be designed by use of general words to cover similar problems arising in future. But, from the very nature of things, it is impossible to anticipate fully the varied situations arising in future in which the application of the legislation in hand may be called for, and, words chosen to communicate such indefinite referents are bound to be in many cases lacking in clarity and precision and thus giving rise to controversial questions of construction. The process of construction combines both literal and purposive approaches. In other words the legislative intention i.e., the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed…”

19.The well settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences.

If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the Legislature. In Kanai Lal Sur v.  Paramnidhi Sadhukhan, AIR 1957 SC 907, it was held that if the words used are capable of one construction only then it would not be open to the Courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act.

20. In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes.

Nevertheless, if the plain language results in absurdity, the Court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose.2 Not only that, if the plain construction leads to anomaly and absurdity, the court having regard to the hardship and consequences that flow from such a provision can even explain the true intention of the legislation. Having observed general principles applicable to statutory interpretation, it is now time to consider rules of interpretation with respect to taxation.

21. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocent might become victims of discretionary decision making. Insofar as taxation statutes are concerned, Article 265 of the Constitution3 2 Assistant Commissioner, Gadag SubDivision, Gadag v. Mathapathi Basavannewwa, 1995 (6) SCC 355.

3 265. Taxes not to be imposed save by authority of lawNo tax shall be levied or collected except by authority of law. prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature.

22.At the outset, we must clarify the position of ‘plain meaning rule or clear and unambiguous rule’ with respect of tax law. ‘The plain meaning rule’ suggests that when the language in the statute is plain and unambiguous, the Court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase “cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio”. Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule4, though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilize strict interpretation in the event of ambiguity is selfcontradictory.

23.Next, we may consider the meaning and scope of ‘strict interpretation’, as evolved in Indian law and how the higher Courts have made a distinction while interpreting a taxation statute on one hand and tax exemption notification on the other. In Black’s Law Dictionary (10th Edn.) ‘strict interpretation’ is described as under:

Strict interpretation. (16c)
1. An interpretation according to the narrowest, most literal meaning of the words without regard for context and other permissible 4 Mangalore Chemicals Case (Infra para 37).
meanings.
2. An interpretation according to what the interpreter narrowly believes to have been the specific intentions or understandings of the text’s authors or ratifiers, and no more.Also termed (in senses 1 & 2) strict construction, literal interpretation; literal construction; restricted interpretation; interpretatio stricta; interpretatio restricta; interpretatio verbalis.
3. The philosophy underlying strict interpretation of statues.Also termed as close interpretation; interpretatio restrictive.

See strict constructionism under constructionism. Cf. large interpretation; liberal interpretation (2).

“Strict construction of a statute is that which refuses to expand the law by implications or equitable considerations, but confines its operation to cases which are clearly within the letter of the statute, as well as within its spirit or reason, not so as to defeat the manifest purpose of the legislature, but so as to resolve all reasonable doubts against the applicability of the statute to the particular case.’ Willam M. Lile et al., Brief Making and the use of Law Books 343 (Roger W. Cooley & Charles Lesly Ames eds., 3d ed. 1914).

“Strict interpretation is an equivocal expression, for it means either literal or narrow. When a provision is ambiguous, one of its meaning may be wider than the other, and the strict (i.e., narrow) sense is not necessarily the strict (i.e., literal) sense.” John Salmond , Jurisprudence 171 n. (t) (Glanville L. Williams ed., 10th ed. 1947).

24.As contended by Ms. Pinky Anand, learned Additional Solicitor General, the principle of literal interpretation and the principle of strict interpretation are sometimes used interchangeably. This principle, however, may not be sustainable in all contexts and situations. There is certainly scope to sustain an argument that all cases of literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation.

The decision of this Court in Punjab Land Development and Reclamation Corporation Ltd., Chandigarh v. Presiding Officer, Labour Court Chandigarh and Ors., (1990) 3 SCC 682, made the said distinction, and explained the literal rule“ The literal rules of construction require the wording of the Act to be construed according to its literal and grammatical meaning whatever the result may be.

Unless otherwise provided, the same word must normally be construed throughout the Act in the same sense, and in the case of old statutes regard must be had to its contemporary meaning if there has been no change with the passage of time.”

That strict interpretation does not encompass strictliteralism into its fold. It may be relevant to note that simply juxtaposing ‘strict interpretation’ with ‘literal rule’ would result in ignoring an important aspect that is ‘apparent legislative intent’. We are alive to the fact that there may be overlapping in some cases between the aforesaid two rules. With certainty, we can observe that, ‘strict interpretation’ does not encompass such literalism, which lead to absurdity and go against the legislative intent. As noted above, if literalism is at the far end of the spectrum, wherein it accepts no implications or inferences, then ‘strict interpretation’ can be implied to accept some form of essential inferences which literal rule may not accept.

25.We are not suggesting that literal rule de hors the strict interpretation nor one should ignore to ascertain the interplay between ‘strict interpretation’ and ‘literal interpretation’. We may reiterate at the cost of repetition that strict interpretation of a statute certainly involves literal or plain meaning test. The other tools of interpretation, namely contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. Indeed, it is well settled that in a taxation statute, there is no room for any intendment;
that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption.

Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute.

26. Justice G.P. Singh, in his treatise ‘Principles of Statutory Interpretation’ (14th ed. 2016 p. – 879) after referring to Re, Micklethwait, (1885) 11 Ex 452;  Partington v. A.G., (1869) LR 4 HL 100; Rajasthan Rajya Sahakari Spinning & Ginning Mills Federation Ltd. v. Deputy CIT, Jaipur, (2014) 11 SCC 672, State Bank of Travancore v. Commissioner of Income Tax, (1986) 2 SCC 11 and Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, summed up the law in the following manner“ A taxing statute is to be strictly construed. The wellestablished rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY AND LORD SIMONDS, means: ‘The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words. In a classic passage LORD CAIRNS stated the principle thus: “If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute. VISCOUNT SIMON quoted with approval a passage from ROWLATT, J. expressing the principle in the following words: “In a taxing Act one has to look merely at what is clearly said.

This is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

It was further observed:

“In all tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities is given a benefit which is specifically stated in the Act, does not mean that the benefit can be extended to legal entities not referred to in the Act as there is no equity in matters of taxation….”

Yet again, it was observed:

“It may thus be taken as a maxim of tax law, which although not to be overstressed ought not to be forgotten that, “the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax on him”, [Russel v. Scott, (1948) 2 All ER 1]. The proper course in construing revenue Acts is to give a fair and reasonable construction to their language without leaning to one side or the other but keeping in mind that no tax can be imposed without words clearly showing an intention to lay the burden and that equitable construction of the words is not permissible [Ormond Investment Co. v. Betts, (1928) AC 143]. Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity [Mapp v. Oram, (1969) 3 All ER 215]. It has also been said that if taxing provision is “so wanting in clarity that no meaning is reasonably clear, the courts will be unable to regard it as of any effect [IRC v. Ross and Coutler, (1948) 1 All ER 616].”

Further elaborating on this aspect, the learned author stated as follows:

“Therefore, if the words used are ambiguous and reasonable open to two interpretations benefit of interpretation is given to the subject [Express Mill v.  Municipal Committee, Wardha, AIR 1958 SC 341]. If the Legislature fails to express itself clearly and the taxpayer escapes by not being brought within the letter of the law, no question of unjustness as such arises [CIT v. Jalgaon Electric Supply Co., AIR 1960 SC 1182]. But equitable considerations are not relevant in construing a taxing statute, [CIT, W.B. v. Central India Industries, AIR 1972 SC 397], and similarly logic or reason cannot be of much avail in interpreting a taxing statute [Azam Jha v. Expenditure Tax Officer, Hyderabad, AIR 1972 SC 2319]. It is well settled that in the field of taxation, hardship or equity has no role to play in determining eligibility to tax and it is for the Legislature to determine the same [Kapil Mohan v. Commr. of Income Tax, Delhi, AIR 1999 SC 573]. Similarly, hardship or equity is not relevant in interpreting provisions imposing stamp duty, which is a tax, and the court should not concern itself with the intention of the Legislature when the language expressing such intention is plain and unambiguous [State of Madhya Pradesh v. Rakesh Kohli & Anr., (2012) 6 SCC 312]. But just as reliance upon equity does not avail an assesse, so it does not avail the Revenue.”

The passages extracted above, were quoted with approval by this Court in at least two decisions being Commissioner of Income Tax vs. Kasturi Sons Ltd., (1999) 3 SCC 346 and State of West Bengal vs. Kesoram Industries Limited, (2004) 10 SCC 201 [hereinafter referred as ‘Kesoram Industries Case’ for brevity]. In the later decision, a Bench of seven Judges, after citing the above passage from Justice G.P. Singh’s treatise, summed up the following principles applicable to the interpretation of a taxing statute:
“(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of Legislature’s failure to express itself clearly”.

27.Now coming to the other aspect, as we presently discuss, even with regard to exemption clauses or exemption notifications issued under a taxing statute, this Court in some cases has taken the view that the ambiguity in an exemption notification should be construed in favour of the subject. In subsequent cases, this Court diluted the principle saying that mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such exemption notification can be condoned if there is sufficient compliance with the main requirements. This, however, did not in any manner tinker with the view that an ambiguous exemption clause should be interpreted favouring the revenue. Here again this Court applied different tests when considering the ambiguity of the exemption notification which requires strict construction and after doing so at the stage of applying the notification, it came to the conclusion that one has to consider liberally.

28.With the above understanding the stage is now set to consider the core issue. In the event of ambiguity in an exemption notification, should the benefit of such ambiguity go to the subject/assessee or should such ambiguity should be construed in favour of the revenue, denying the benefit of exemption to the subject/assessee? There are catena of case laws in this area of interpretation of an exemption notification, which we need to consider herein. The case of Commissioner of Inland Revenue vs. James Forrest, [(1890) 15 AC 334 (HL)] – is a case which does not discuss the interpretative test to be applied to exemption clauses in a taxation statute – however, it was observed that ‘it would be unreasonable to suppose that an exemption was wide as practicable to make the tax inoperative, that it cannot be assumed to have been in the mind of the Legislature’ and that exemption ‘from taxation to some extent increased the burden on other members of the community’. Though this is a dissenting view of Lord Halsbury, LC, in subsequent decisions this has been quoted vividly to support the conclusion that any vagueness in the exemption clauses must go to the benefit of the revenue. Be that as it is, in our country, at least from 1955, there appears to be a consistent view that if the words in a taxing statute (not exemption clause) are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and it does not matter if the taxpayer escapes the tax net on account of Legislatures’ failure to express itself clearly (See the passage extracted hereinabove from Kesoram Industries Case (supra)).

29.The first case with which we need to concern ourselves is the case in Union of India v. The Commercial Tax Officer, West Bengal and Ors., AIR 1956 SC 202. It may be noted that this case was dealt with by five learned Judges of this Court resulting in two different opinions; one by the then Chief Justice of India, S.R. Das for the majority, and Justice B.P. Sinha (as His Lordship then was) rendering minority view. The question before this Court was whether the sale of goods made by one private mill to the Government of India, Ministry of Industries and Supplies were to be deducted as taxable turnover of the mill for the exemption given under Section 5 of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941). The exemption under Section 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941 provided for exemption ‘to sales to the Indian Stores Department, the Supply Department of the Government of India, and any railway or water transport administration’. The Court was to interpret the aforesaid provision in order to ascertain whether the sale to the Government of India, Ministry of Industries and Supplies would be covered under the Section.

30.The majority was of the view that the Government of India, Ministry of Industries and Supplies was not similar to those mentioned in the exemption notification. The majority extensively relied on the history and origin of Ministry of Industries and Supplies and concluded that the functions of the aforesaid Ministry were different from the erstwhile departments mentioned under the exemption provision. The majority reasoned that the exemption being the creation of the statute itself, it should have to be construed strictly and the interpretation cannot be extended to sales to other departments. We might find some clue as to the content of a strict construction also. It was canvassed before the Court that the object of Section 5(2)(a)(iii) of the relevant statute, was to give exemption not to the particular departments but to the sale of such goods to those departments and, therefore, sale of those goods made to any Departments of the Government of India, which came to be charged with the duty of purchasing those goods should also come within the purview of the exemption. The Court while repelling the aforesaid interpretation, reasoned as under:

“We are unable to accept this line of reasoning. This interpretation will unduly narrow the scope and ambit of the exemption by limiting it to sales of only those goods as, at the date of the Act, used to be sold to those two departments and sales of other goods even to those two departments, however necessary for the prosecution of the war, would not get benefit of the exemption.

Such could not possibly be the intention of the Legislature as expressed by the language used by it in framing the Section.”

31.The aforesaid placitum is suggestive of the fact that the Courts utilized the rule of strict interpretation in order to decipher the intention of the Legislature and thereafter provide appropriate interpretation for the exemption provided under the provisions of the Act which was neither too narrow nor too broad. It may be noted that the majority did not take a narrow view as to what strict interpretation would literally mean; rather they combined legislative intent to ascertain the meaning of the statute in accordance with the objective intent of the Legislature.

32.On the contrary, the minority opinion of Justice B.P.  Sinha (as His Lordship then was) provided a purposive interpretation for Section 5(2)(a)(iii) of the Act, which is clear from the following passage:
“The judgment under appeal is based chiefly on the consideration that the exemption clause in question does not in terms refer to the newly created department which now goes by the name of the Ministry of Industry and Supply.

But this department in so far as it deals with industry, is not concerned with the main purchasing activities of the Government of India. The exemption was granted in respect of the purchasing activity of the Government of India and that function continues to be assigned to the Supply Department which has now become a wing of the newly created department of the Government. The question therefore arises whether in those circumstances the Government of India could claim the benefit of the exemption.

The High Court in answering that question in the negative has gone upon mere nomenclature. It has emphasized the change in the name and overlooked the substance of the matter.”

33.The minority construed ‘strict interpretation’ to be an interpretation wherein least number of “determinates in terms of quantity” would fall under the exemption. The minority referred to an old English case of Commissioner of Inland Revenue v. James Forrest, (1890) 15 AC 334. It may be relevant to note that the minority could not find the justification to apply strict interpretation as the exemption notification was broad enough to include exemptions for commodities purchased by the Government of India. The Court was of the opinion that the strict interpretation provided by the majority was uncalled for as there was no additional burden on others by giving such exemptions. The relevant observations are as follows“ The High Court referred to the observations of Lord Halsbury in the case of Commissioner of Inland Revenue v. James Forrest (1890) 15 AC 334, to the effect that exemptions from taxation should be strictly construed because otherwise the burden of taxation will fall on other members of the community. Those observations, in my opinion, have no relevance to the facts and circumstances of the present controversy, because we know that the exemption was granted to the Government of India in the department dealing with purchase of certain commodities and articles without reference to quantity. As already pointed out, the Indian Stores Department was concerned with purchase of stores for public services on behalf of all Central Departments of Government and local Government, etc., and the Government of Bengal as then constituted was one of the provinces of India which have been receiving subsidies and subventions to make up the deficit in their budgets. As a matter of fact, as stated on behalf of the Bengal Government the concession was granted in order to enable business communities within the province of Bengal to compete on favourable terms with others outside Bengal in the matter of supplying the needs of the Government.

Hence, there is no question of liberal construction of the exemption resulting in throwing a greater burden on other citizens.

On the other hand, the larger the sales in the province of Bengal as it used to be, the greater the benefit to the business community doing business within that province. It was therefore stated at the Bar that though the present case involved taxes amounting to less than Rs.10,000, the question arising for determination in this case affected much larger amounts because such sales within the province amounted to several crores. I should have thought that the business community in the province of Bengal having had the advantage of the transactions of sale, the Government of Bengal in all fairness should have allowed the purchasing agency of the Government of India the benefit of the exemption until that benefit was in terms withdrawn sometimes in the beginning of 1949.”

34. In Hansraj Gordhandas v. H.H. Dave, Asst. Collector of Central Excise & Customs, Surat and Ors., AIR 1970 SC 755 = (1969) 2 SCR 253 [hereinafter referred as ‘Hansraj Gordhandas Case’ for brevity], wherein this Court was called upon to interpret an exemption notification issued under the Central Excise Act. It would be relevant to understand the factual context which gave rise to the aforesaid case before the Court.

The appellant was sole proprietor who used to procure cotton from a cooperative society during the relevant period. The society had agreed to carry out the weaving work for the appellant on payment of fixed weaving charges at Re.0.19 np. per yard which included expenses the society would have to incur in transporting the aforesaid cotton fabric. In the years 1959 and 1960, the Government issued an exemption notification which exempted cotton fabrics produced by any cooperative society formed of owners of cotton power looms, registered on or before 31st March, 1961. The question before the Court was whether the appellant who got the cotton fabric produced from one of the registered cooperative society was also covered under the aforesaid notification. It may be of some significance that the revenue tried to interpret the aforesaid exemption by relying on the purposive interpretation by contending that the object of granting the above exemption was to encourage the formation of cooperative societies which not only produced cotton fabrics but also consisted of members, not only owning but having actually operated not more than four power looms during the three years immediately preceding their having joined the society.

The policy was that instead of each such member operating his looms on his own, he should combine with others by forming a society to produce clothes. It was argued that the goods produced for which exemption could be claimed must be goods produced on his own and on behalf by the society. The court did not countenance such purposive interpretation. It was held that a taxing legislation should be interpreted wholly by the language of the notification. The relevant observations are:

“It is wellestablished that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the taxpayer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different, but that is not the case here. In this connection we may refer to the observations of Lord Watson in Salomon vs. Salomon & Co., (1897) AC 22):

‘Intention of the Legislature is a common but very slippery phrase, which, popularly understood may signify anything from intention embodied in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it. In a Court of Law or Equity, what the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication.’ It is an application of this principle that a statutory notification may not be extended so as to meet a casus omissus. As appears in the judgment of the Privy Council in Crawford v. Spooner.

‘… we cannot aid the Legislature’s defective phrasing of the Act, we cannot add, and mend, and, by construction, make up deficiencies which are left there.’ Learned Counsel for the respondents is possibly right in his submission that the object behind the two notifications is to encourage the actual manufacturers of handloom cloth to switch over to power looms by constituting themselves in cooperative Societies. But the operation of the notifications has to be judged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent.”

35. In the judgment of two learned Judges in Union of India v. Wood Papers Limited, (1990) 4 SCC 256 [hereinafter referred as ‘Wood Papers Ltd. Case’ for brevity], a distinction between stage of finding out the eligibility to seek exemption and stage of applying the nature of exemption was made. Relying on the decision in Collector of Central Excise vs. Parle Exports (P) Ltd., (1989) 1 SCC 345, it was held “Do not extend or widen the ambit at the stage of applicability. But once that hurdle is crossed, construe it liberally”. The reasoning for arriving at such conclusion is found in para 4 of Wood Papers Ltd. Case (supra), which reads“… Literally exemption is freedom from liability, tax or duty. Fiscally, it may assume varying shapes, specially, in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principles requires it to be construed strictly. Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it.

When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject, but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction…” (emphasis supplied)

36. In Mangalore Chemicals & Fertilizers Ltd. vs. Dy.  Commissioner of Commercial Taxes, (1992) Supp. 1 SCC 21 [hereinafter referred as ‘Mangalore Chemicals Case’ for brevity], the facts of the case were that the State Government issued a notification in exercise of power under Section 8A of the Karnataka Sales Tax Act, 1957, providing certain incentives to entrepreneurs starting new industries in the State pursuant to State’s policy for “rapid industrialization”. The notification contains a package of reliefs and incentives including one concerning relief from payment of sales tax with which the case was concerned. There was no dispute that the appellant was entitled to the benefit of the Notification dated June 30, 1969. There was also no dispute that the refunds were eligible to be adjusted against sales tax payable for respective years. The only controversy was whether the appellant, not having actually secured the “prior permission” would be entitled to adjustment having regard to the words of the Notification of August 11, 1975, that “until permission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds”. The contention of the appellants therein was that the permission for the three years had been sought well before the commencement of the respective years but had been withheld for reasons which were demonstrably extraneous. Therefore, contention was that if, in these circumstances, the Deputy Commissioner could withold the permission.

37.This Court while accepting the interpretation provided by the appellant, observed on the aspect of strict construction of a provision concerning exemptions as follows:

“… There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other unexempted class of tax payers and should be construed against the subject in case of ambiguity. It is an equally well known principle that a person who claims an exemption has to establish his case.

… The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in Union of India v. Wood Papers Ltd.  [(1990) 4 SCC 256 = 1990 SCC (Tax) 422 = JT (1991) SC 151]” Three important aspects which comes out of the discussion are the recognition of horizontal equity by this court as a consideration for application of strict interpretation, subjugation of strict interpretation to the plain meaning rule and interpretation in favour of exclusion in light of ambiguity.

38.We will now consider another Constitution Bench decision in Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal, (2011) 1 SCC 236 [hereinafter referred as ‘Hari Chand Case’ for brevity].

We need not refer to the facts of the case which gave rise to the questions for consideration before the Constitutional Bench. K.S. Radhakrishnan, J., who wrote the unanimous opinion for the Constitution Bench, framed the question, viz., whether manufacturer of a specified final product falling under Schedule to the Central Excise Tariff Act, 1985 is eligible to get the benefit of exemption of remission of excise duty on specified intermediate goods as per the Central Government Notification dated 11.08.1994, if captively consumed for the manufacture of final product on the ground that the records kept by it at the recipient end would indicate its “intended use” and “substantial compliance” with procedure set out in Chapter 10 of the Central Excise Rules, 1994, for consideration? The Constitution Bench answering the said question concluded that a manufacturer qualified to seek exemption was required to comply with the preconditions for claiming exemption and therefore is not exempt or absolved from following the statutory requirements as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas Case (supra), to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows61 “The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved.

If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, thought at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the noncompliance of which would not affect the essence or substance of the notification granting exemption.”

39.The Constitution Bench then considered the doctrine of substantial compliance and “intended use”. The relevant portions of the observations in paras 31 to 34 are in the following terms – “31. Of course, some of the provisions of an exemption notification may be directory in nature and some are mandatory in nature.

A distinction between the provisions of a statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in there nature, on the other, must be kept clearly distinguished… Doctrine of substantial compliance and “intended use” 32. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the “essence” or the “substance” of the requirements. Like the concept of “reasonableness”, the acceptance or otherwise of a plea of “substantial compliance” depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleased if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance.

Substantial compliance means “actual compliance in respect to the substance essential to every reasonable objective of the statute” and the Court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed.

33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important.

Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the noncompliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive noncompliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted.

34. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the “substance” or “essence” of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the “essence” of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance with those factors which are considered as essential.”

40.After considering the various authorities, some of which are adverted to above, we are compelled to observe how true it is to say that there exists unsatisfactory state of law in relation to interpretation of exemption clauses.

Various Benches which decided the question of interpretation of taxing statute on one hand and exemption notification on the other, have broadly assumed (we are justified to say this) that the position is well settled in the interpretation of a taxing statute: It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue – and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. Presumably for this reason the Bench which decided Surendra Cotton Oil Mills Case (supra) observed that there exists unsatisfactory state of law and the Bench which referred the matter initially, seriously doubted the conclusion in Sun Export Case (supra) that the ambiguity in an exemption notification should be interpreted in favour of the assessee.

41.After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State.

42. In Govind Saran Ganga Saran v. Commissioner of Sales Tax, 1985 Supp (SCC) 205, this Court pointed out three components of a taxing statute, namely subject of the tax; person liable to pay tax; and the rate at which the tax is to be levied. If there is any ambiguity in understanding any of the components, no tax can be levied till the ambiguity or defect is removed by the legislature [See Mathuram Agrawal v. Sate of Madhya Pradesh, (1999) 8 SCC 667; Indian Banks’ Association vs. Devkala Consultancy Service, (2004)  4 JT 587 = AIR 2004 SC 2615; and Consumer Online Foundation vs. Union of India, (2011) 5 SCC 360.] 43.There is abundant jurisprudential justification for this.

In the governance of rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the Courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualizing different situations. For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the revenue has established conditions before raising and justifying a demand. Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax. That is why it is often said that subject is not to be taxed, unless the words of the statute unambiguously impose a tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, we may emphatically reiterate that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee.

But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue, the aforesaid conclusions are expounded only as a prelude to better understand jurisprudential basis for our conclusion. We may now consider the decisions which support our view.

44. In Hansraj Gordhandas Case (supra), the Constitutional Bench unanimously pointed out that an exemption from taxation is to be allowed based wholly by the language of the notification and exemption cannot be gathered by necessary implication or by construction of words; in other words, one has to look to the language alone and the object and purpose for granting exemption is irrelevant and immaterial.

45. In Parle Exports Case (supra), a bench of two Judges of this Court considered the question whether nonalcoholic beverage base like Gold spot base, Limca base and Thumps Up base, were exempted from payment of duty under the Central Government notification of March, 1975. While considering the issue, this Court pointed out the Strict interpretation to be followed in interpretation of a notification for exemption. These observations are made in para 17 of the judgment, which read as follows:

“How then should the courts proceed?

The expressions in the Schedule and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur. The words used in the provision, imposing taxes or granting exemption should be understood in the same way in which these are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. It is, however, necessary to bear in mind certain principles.

The notification in this case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act. The notification must be read as a whole in the context of the other relevant provisions.

When a notification is issued in accordance with power conferred by the statute, it has statutory force and validity and, therefore, the exemption under the notification is as if it were contained in the Act itself. See in this connection the observations of this Court in Orient Weaving Mills (P) Ltd. v. Union of India, 1962 Supp 3 SCR 481 = AIR 1963 SC 98. See also Kailash Nath v. State of U.P., AIR 1957 SC 790. The principle is well settled that when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment. But in this connection, it is well to remember the observations of the Judicial Committee in Coroline M. Armytage v. Frederick Wilkinson, (1878) 3 AC 355, that it is only, however, in the event of there being a real difficulty in ascertaining the meaning of a particular enactment that the question of strictness or of liberality of construction arises. The Judicial Committee reiterated in the said decision at page 369 of the report that in a taxing Act provisions enacting an exception to the general rule of taxation are to be construed strictly against those who invoke its benefit. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided.”

In the above passage, no doubt this Court observed that “when two views of a notification are possible, it should be construed in favour of the subject as notification is part of fiscal document”. This observation may appear to support the view that ambiguity in a notification for exemption must be interpreted to benefit the subject/assessee. A careful reading of the entire para, as extracted hereinabove would, however, suggest that an exception to the general rule of tax has to be construed strictly against those who invoke for their benefit. This was explained in a subsequent decision in Wood Papers Ltd. Case (supra). In para 6, it was observed as follows:

“… In Collector of Central Excise v.  Parle Exports (P) Ltd., (1989) 1 SCC 345, this Court while accepting that exemption clause should be construed liberally applied rigorous test for determing if expensive items like Gold Spot base or Limca base of Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held ‘that it should not be in consonance with spirit and the reason of law to give exemption for nonalcoholic beverage basis under the notification in question’. Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit.”

46.The above decision, which is also a decision of twoJudge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are to be invoked at different stages of interpreting it. The question whether a subject falls in the notification or in the exemption clause, has to be strictly construed. When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification by giving full play bestowing wider and liberal construction. The ratio of Parle Exports Case (supra) deduced as follows:

“Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed, construe it liberally”.

47.We do not find any strong and compelling reasons to differ, taking a contra view, from this. We respectfully record our concurrence to this view which has been subsequently, elaborated by the Constitution Bench in Hari Chand Case (supra).

48.The next authority, which needs to be referred is the case in Mangalore Chemicals (supra). As we have already made reference to the same earlier, repetition of the same is not necessary. From the above decisions, the following position of law would, therefore, clear.

Exemptions from taxation have tendency to increase the burden on the other unexempted class of tax payers. A person claiming exemption, therefore, has to establish that his case squarely falls within the exemption notification, and while doing so, a notification should be construed against the subject in case of ambiguity.

49.The ratio in Mangalore Chemicals Case (supra) was approved by a threeJudge Bench in Novopan India Ltd. v. Collector of Central Excise and Customs, 1994 Supp (3) SCC 606. In this case, probably for the first time, the question was posed as to whether the benefit of an exemption notification should go to the subject/assessee when there is ambiguity. The threeJudge Bench, in the background of English and Indian cases, in para 16, unanimously held as follows:

“We are, however, of the opinion that, on principle, the decision of this Court in Mangalore Chemicals – and in Union of India v. Wood Papers, referred to therein – represents the correct view of law. The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee – assuming that the said principle is good and sound – does not apply to the construction of an exception or an exempting provision, they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State….”

50. In Tata Iron & Steel Co. Ltd. v. State of Jharkhand, (2005) 4 SCC 272, which is another twoJudge Bench decision, this Court laid down that eligibility clause in relation to exemption notification must be given strict meaning and in para 44, it was further held – “The principle that in the event a provision of fiscal statute is obscure such construction which favours the assessee may be adopted, would have no application to construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of exemption (See Novopan India Ltd v. CCE and Customs).”

51. In Hari Chand Case (supra), as already discussed, the question was whether a person claiming exemption is required to comply with the procedure strictly to avail the benefit. The question posed and decided was indeed different. The said decision, which we have already discussed supra, however, indicates that while construing an exemption notification, the Court has to distinguish the conditions which require strict compliance, the noncompliance of which would render the assessee ineligible to claim exemption and those which require substantial compliance to be entitled for exemption. We are pointing out this aspect to dispel any doubt about the legal position as explored in this decision. As already concluded in para 50 above, we may reiterate that we are only concerned in this case with a situation where there is ambiguity in an exemption notification or exemption clause, in which event the benefit of such ambiguity cannot be extended to the subject/assessee by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must receive a construction favouring the assessee.

Both the situations are different and while considering an exemption notification, the distinction cannot be ignored.

52.To sum up, we answer the reference holding as under ( 1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.

(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.

(3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands overruled.

53.The instant civil appeal may now be placed before appropriate Bench for considering the case on merits after obtaining orders from the Hon’ble Chief Justice of India.

…………………………..J.
(Ranjan Gogoi)

…………………………..J.
(N.V. Ramana)

…………………………..J.
(R. Banumathi)

…………………………………..J.
(Mohan M. Shantanagoudar)

…………………………..J.
(S. Abdul Nazeer)


New Delhi
July 30, 2018  

In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad

 


Represented by:
For Appellant: Mr. Ishan Bhatt & Rahul Gajera (Advocate) For Respondent: Mr. S.K. Shukla (AR)

CORAM:
HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL)
HON’BLE MR. RAJU, MEMBER (TECHNICAL)

Date of Hearing/Decision:28.03.2019

Final Order No. A / 10612-10621 /2019

Per: Ramesh Nair

Sh. Ishan Bhatt & Rahul Gajera Ld. Counsel appearing on behalf of the appellant’s submit that the issue involved is Renting of Immovable Property Service. This matter has been referred to the Larger Bench in the case of Mineral Area Development Authority and others Vs. Steel Authority of India Ltd.-2011 (4) SCC 450 & Union of India Vs. UTV News Ltd.-2018 (13) GSTL
3 (SC).

2. Considering the submission made by Ld. Counsel, we are of the view that there is no purpose to keep the matter pending with this Tribunal when the final decision can be taken only after the outcome of the judgment of the Larger Bench of the Hon’ble Supreme Court.

3. Accordingly, we set aside the impugned order and remand the matter to the Adjudicating Authority to pass a fresh order after the judgment of Hon’ble Supreme Court Larger Bench (supra).

(Dictated and pronounced in the open court)


(Raju)                     (Ramesh Nair)
Member (Technical)             Member (Judicial)

Prachi

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad

Appeal No. E/383/2010-DB
(Arising out of OIA No. 463-2013-CUS-COMMR-A—KDL dated 15/07/2013 passed by Commissioner of CUSTOMS-KANDLA)

C.C.E, Ahmedabad-ii -
Appellant

Vs.

Maize Products -
Respondent

Represented by:
For the appellant : Shri T.G. Rathod, Jt. Commr. (AR)
For the respondent : Shri Amal Dave (Advocate)

CORAM:
HON’BLE Mr. Ramesh Nair, Member (Judicial)
Hon’ble Mr. Raju, Member (Technical)

Date of Hearing: 29.11.2018

ORDER NO. A/10004/2019

Date of Decision: 02.01.2019

Per: Raju

This appeal has been filed by Revenue against Order of Commissioner dropping Show Cause Notice issued to M/s Maize Products, Ahmedabad. M/s Maize Products is engaged in manufacture of various products and availing CENVAT credit. The appellant are also manufacturing certain exempted, or chargeable to nil rate of duty, excisable goods namely Maize starch powder, Maize Oil, Hydrol, etc. The appellants were issued Show Cause Notice demanding an amount to be reversed in terms of condition B of sub rule 3 of Rule 6 of Cenvat Credit Rules, 2004 along with interest. Penalty was also sought to be imposed under Rule 15(1) of the CENVAT Credit Rules, 2004. The proceedings against the appellant were dropped by the Commissioner relying on the decision of the Tribunal in the appellant’s own case having order no. A/2470/WZB/AHD/08 dated 19/11/2008. The Commissioner observed that the appellant has reversed the credit at the rate of 25% on the quantity of product attributed to the exempted goods, dropped the demand relying on the order in the appellants own case. Revenue filed the appeal against the said order on the strength of the decision of the Hon’ble High Court of Bombay in the case of M/s Nicholas Piramal (India) Ltd. 2009 (244) ELT 321 (Bom.)

2. Ld. AR reiterates the grounds of the appeal.

3. Ld. Counsel for the respondent pointed out in their own case, Tribunal relying on the decision of Hon’ble High Court of Allahabad in the case of Hello Mineral Water (P) Ltd 2004 (174) ELT 422(All.) granted them benefit in the identical circumstances. He further pointed out that in their own case in similar circumstances, Hon’ble High Court of Gujarat upheld the decision of the Tribunal granting them relief reported in 2009 (234) E.L.T. 431 (Guj). He further pointed that the SLP filed by the Revenue against thesaid order has been dismissed by Hon’ble Apex Court on 20.11.2009.

4. We have gone through rival submissions. We find that the issue has been settled in appellant’s own case by the decision of Tribunal upheld by Hon’ble High Court of Gujarat as reported in 2009 (234) ELT 431 (Guj.). The SLP against said decision has also been dismissed by Hon’ble Apex Court.

4.1 Moreover, it is seen that in 2010, Govt. of India introduced a retrospective amendment in section 73 of the Finance Act, 2010 to Rule 6 which granted relief to such cases. In case of ICMC Corporation Ltd., Hon’ble High Court of Madras took node of the said amendment and granted relief in similar circumstances be observed as follows:

“4. We find from a reading of the amendment made to Rule 6 under Section 73 of the Finance Act, 2010 that the procedure of the Cenvat Credit Rules under Rule 6 was brought in with retrospective effect from September, 2004 by insertion under Rule 6(6), which reads as under :



As per Section 73 sub-section (2) of the Finance Act, 2010 the assessee has to make an application to the Commissioner of Central Excise along with documentary evidence and a Certificate from the Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods within a period of six months from the date on which the Finance Bill, 2010 received the assent of the President.

5. Considering the fact that the assessee had reversed the credit even prior to the amendment and the order of the Tribunal is in fact no different from what is contemplated under the Finance Act, 2010, we do not find anything survives further for this Court to consider the merits of the case pleaded by the Revenue.

Relying on the aforesaid decision and on subsequent retrospective amendment, we find no merit in the appeal filed by the Revenue and the same is dismissed.

(Pronounced in the open Court on 02.01.2019)

(Raju)                                    (Ramesh Nair)
Member (Technical)             Member (Judicial)

DS

Customs, Excise & Service Tax Appellate Tribunal 
SOUTH ZONAL BENCH
BANGALORE

Appeal(s) Involved: ST/21953/2018-SM
[Arising out of Order-in-Appeal No. MLR-EXCUS-000-APP- MSC-132-2018-19 dated 14/09/2018 passed by Commissioner of Central Tax , BELGAUM (APPEALS) ]

M/s New Mangalore Port Trust Panambur
Appellant(s)

Versus

C.E, S.T-Commissioner Of Central Excise & Central Tax, Mangalore Commissionerate
Respondent(s)

Appearance:
M.S. NAGARAJA, ADVOCATE, M/S. T.RAJESWARA SASTRY & ASSOCIATES, BANGALORE For the Appellant
Mrs. Kavita Podwal, Superintendent, AR For the Respondent

Date of Hearing: 12/03/2019
Date of Decision:14/03/2019

CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER

Final Order No. 20262/2019

Per : S.S GARG

The present appeal is directed against the impugned order dated 14.09.2018 passed by the Commissioner (A) whereby the Commissioner (A) has rejected the appeal of the appellant.

2. Briefly the facts of the present case are that the appellants are providing ‘Port Services’, ‘Renting out of Immovable Property Services’ and ‘Mandap Keeper Services’ and are availing CENVAT credit facility under CCR, 2004. During the course of the Audit, it was noticed that they have availed CENVAT credit of Rs.30,34,650/- on ‘Rent a Cab’ and Rs.74,681/- on ‘Insurance of Vehicles’ which are not eligible. Further, they have availed CENVAT credit on certain services which were used/consumed in their facilities outside the registered premises such as NMPT colony, school etc. Therefore, a SCN dated 25.05.2017 issued to the appellant demanding for CENVAT credit of Rs.57,95,788/- along with interest and imposition of penalty. The Additional Commissioner, Central Excise & Service Tax, Mangaluru vide his Order-in-Original dated 22.12.2017 confirmed the demand of total Service Tax of Rs.42,98,250/- along with interest and imposed penalty of Rs.42,98,250/- under Rule 15(3) of the CCR, 2004 read with Rule 78(1) of the Finance Act, 1994. Also the credit reversed of Rs.30,16,763/- and Rs.3,85,839/- paid was appropriated against the demand. Aggrieved by the Order-in-Original, appellant filed appeal before the Commissioner (A) who rejected the same. Hence, this appeal.

3. Heard both sides and perused the records.

4. Learned Counsel for the appellants submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law and binding judicial precedents. He further submitted that the SCN dated 25.05.2017 was issued on the basis of Audit proposing to deny CENVAT credit on various input services viz. Rent a Cab, Insurance, Works Contract, Electrical Works, Pest Control, Event Management, Hiring of Tugs etc. The SCN proposed to disallow and demand CENVAT credit of Rs.57,95,788/- along with interest and impose penalties and appropriate the amount of Rs.34,02,602/- and interest of Rs.5,85,931/- voluntarily paid before the issue of SCN. The Learned Counsel further submitted that the adjudicating authority in Para 12 of the Order-in-Original has referred only to eligibility for CENVAT credit in respect of (i) Works Contract (ii) Electrical Works (iii) Hiring of Tugs. The credit on Hiring of Tugs was allowed and credit on other services was disallowed including those services in respect of which there is no finding. The amount voluntarily paid along with interest was appropriated. He further submitted that the Commissioner (A) in the impugned order has merely reiterated the findings of the Additional Commissioner without examining the legal position. The Learned Counsel in their written submission has given the details of the CENVAT credit demanded in the SCN, amount of CENVAT and interest paid before the issue of SCN dated 25.05.2017 and appropriated and the disputed input services in a tabular form which is reproduced herein below.

4.1. Learned Counsel further submitted that it is an admitted fact in the SCN that the appellant had paid CENVAT of Rs.34,02,602/- and interest of Rs.5,85,931/- towards Rent-a-Cab service and other services as tabulated above before the issue of SCN on 25.05.2017 and the said amounts stand appropriated in the adjudication order. He further submitted that in terms of Section 73(3) of the Finance Act, 1994, the Revenue ought not to have issued SCN to the extent of the CENVAT of Rs.34,02,602/- and interest already paid. He further submitted that it is a settled law that when the Service Tax and interest are paid and intimated to the Central Excise Officer, the SCN shall not be issued in respect of the amounts so paid in terms of Section 73(3) of the Finance Act, 1994 and Section 11A (2A) of the Central Excise Act,
1944 and in case of short payment, the Central Excise Officer shall initiate proceedings only to the extent of the amount short paid. For this submission, he relied upon the following decisions:

⦁    CCE & ST, LTU, Bangalore v. Adecco Flexione Workforce Solutions Ltd, 2012 (26) STR 3 (Kar.).
⦁    CST, Bangalore v. Master Kleen, 2012 (25) STR 439 (Kar.).
⦁    CCE, Nagpur v. Galaxy Construction Pvt Ltd, 2017 (48) STR 37 (Bom.).
⦁    CCE & ST, Pune-III v. Venkateshwara Hatcheries Pvt Ltd, 2016 (42) STR 565 (T)
⦁    Bhoruka Aluminium Ltd v. CCE & ST, 2017 (51) STR 418 (T- Bang).

4.2. He further submitted that with regard to other services for which the CENVAT credit has been denied fall in the definition of ‘input service’ but the Additional Commissioner in the Order-in- Original has considered only three services viz. Works Contract, Electrical Works and Hiring of Tugs and there is no discussion or decision in respect of the other services. Learned Counsel also submitted that all the input services on which CENVAT has been denied fall in the definition of ‘input service’ and has been held to be input service by various decisions of the Tribunal and the High Court and in his written submission, he has referred to various decisions for each input service.

5. On the other hand, Learned AR defended the impugned order.

6. After considering the submissions of both the parties and perusal of the material on record, I find that the appellant has paid CENVAT of Rs.34,02,602/- and interest of Rs.5,85,931/- towards Rent-a-Cab service and other services before the issue of SCN and the same has been appropriated in the adjudication order. Further, I find that the appellants are not contested the payment of CENVAT towards Rent-a-Cab service and interest thereon and has only prayed that under Section 73(3) penalty should be dropped. The contention of the Learned Counsel has a force and in view of the various decisions relied upon by the appellant cited supra, I hold that once the appellant has paid the CENVAT of Rs.34,02,602/- and interest of Rs.5,85,931/- towards Rent-a-Cab service and other services, the Revenue should not have issued the SCN as there was no suppression of fact with intent to evade payment of Service Tax. Therefore, I set aside the imposition of penalty equal to the CENVAT credit of Rs.34,02,602/- along with interest of Rs.5,85,931/- which is paid before the issue of SCN. As far as other input services are concerned, I find that the adjudicating authority has only considered three service viz. Works Contract, Electrical Works and Hiring of Tugs for decision on their eligibility for CENVAT credit. Further, I find that the original authority have not considered the material furnished by the appellant to prove that the said services fall in the definition of ‘input service’. Further, I find that with regard to the Pest Control service, Advertising service and Event Management service, Electrical Works, Erection, Commissioning and Installation of DG Set service, there is no finding by both the authorities. The Commissioner (A) has merely confirmed the Order-in-Original without considering the submissions of the appellant and the various case laws relied upon by the appellant in support of their submission. In view of all these, I am of the considered view that this case needs to be remanded back to the original authority for passing a de novo order with regard to all the services except Rent-a-Cab service which is not being contested and CENVAT has been paid by the appellant. Consequently, the appeal is allowed by way of remand to the original authority with direction to pass a de novo order after considering all the submissions of the appellant. The original authority will pass a reasoned order after complying with the principles of natural justice. Before passing the order, the original authority will consider the various case laws relied upon by the appellant in support of their submission. Consequently, the appeal is allowed by way of remand.

(Order was pronounced in Open Court on 14/03/2019)


S.S GARG
JUDICIAL MEMBER

PK...

In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad

Appeal No. ST/202/2010-DB
[Arising out of OIA-13/2010-BVR-/HKJ/COMMR-A-/AHD dated 25.01.2010 passed by Commissioner of Central Excise, Customs and Service Tax-BHAVNAGAR]

M/s J J Transport
Appellant

Vs

C.C.E. & S.T.,- Bhavnagar
Respondent

Represented by:
For Appellant: Shri S.J. Vyas (Advocate)
For Respondent: Shri S.N. Gohil (AR)

CORAM:
HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL)
HON’BLE MR. RAJU, MEMBER (TECHNICAL)

Date of Hearing: 04.03.2019
Date of decision: 13.03.2019

Final Order No. A/ 10495 /2019

Per: Raju

This appeal has been filed by M/s. J J Transport against confirmation of demand of service tax on cargo handling service provided by them by invoking extended period of limitation.

2. Ld. Counsel, for the appellant pointed out that extended period of limitation has been invoked without any justification in the SCN. He pointed out that this SCN merely alleges that the appellant had not taking registration and failed to file ST-3 return, he argue that is not a sufficient ground of invoking extended period of limitation. He relied on the decision of Hon’ble Apex Court in the case of Kaur & Singh-1997 (94) ELT 289 (SC). He also relied on the decision of Hon’ble Apex Court in the case of HMM Limited 1995 (76) ELT 497 (SC). He further pointed out that the appellant were in the nature of sub contractor and, therefore, the bonafide belief that the main contractor would have paid the service tax. He further concedes that they have no evidence that the main contractor had paid the service tax. He further argued that the activity of cargo handling is for the purpose of export cannot be charge to tax as it is not a taxable service. He pointed out that part of the activity pertains to export of cargo and therefore, not taxable service. He, however, could not produce any evidence of this specific assertion made before lower authority.

3. The next issue raised in the proceeding is relates to demand of duty under cargo handing agent service on hire of equipment. He pointed out that the appellant were giving equipment on hiring which was being used for the purpose of cargo handling. He pointed out that in many cases, they have provided terex loader which was used in the client premises. He pointed out that some time they have provided the terex loader on per hours basis or sometime the billing was done on per Metric Ton of the material handled. He argued that such hiring of terex loader does not amount to cargo handling service.

4. Ld. AR relied on the impugned order. He pointed out that the contract for hiring had actually the following description, in case of M/s. Saurashtra Cement:

“Expenses incurred for the cement clinker unloading at plot from the plot and transportation charges, etc.” (Service charges)

However, the ledger account corresponding to this Bill reads as:

“Dumper-Terex Hire Income” (Hire income)

He pointed out that this make it the activity was of cargo handling as it involved loading and un-loading of the material and movement of the same from the plot to plot. Ld. Counsel also pointed out that no documents in the support of the claim that some of the activity undertaking by the appellant related to export of goods. He argued that without any evidence that the cargo handling activity was in relation to export of goods, no benefit of the same can be extended to the appellant.

5. Ld. Counsel at this point pointed out that it is onus of establishing that the service provided by the appellant fell under the description of cargo handling service was on revenue. He argued that unless revenue was able to establish that the service provided by the appellant was not in relation to export, no SCN could have been issued to them.

6. We have gone through the rival submissions. We find that the appellant were undertaking the certain services. They have not denied that part of the services were cargo handling service. The appellant had not filed ST-3 return nor had they taken service tax registration. In these circumstances, it is apparent that the appellant had suppressed vital information from revenue. Ld. Counsel has relied on decision of Hon’ble Apex Court in the case of Kaur & Singh (Supra) and in the case of HMM Limited (supra). In the case of Kaur & Singh (Supra), Hon’ble Apex Court had observed that the appellant were not notified as to what was the allegation against the notice. In the instant case, the show cause notice clearly raised the issue that the appellant had not filed service tax return nor taken service tax registration. The facts of these two cases are significantly different. Similarly, in the case of HMM Ltd (Supra), Hon’ble Apex Court had pointed out that the Revenue should have informed the noticee about various commissions and omissions which related to invocation period of limitation. It is seen that in the instant case, revenue has clearly pointed out that the appellant had not filed ST-3 Returns and not taking service tax registration and thus, in the instant case, the extended period of limitation has rightly been invoked. It is seen that the appellant had been operating for almost period of 5 years. It is apparent that the appellant were aware of provision of law, since in the current competitive field, it is natural to keep tab on all laws.

7. Second issue relates to the claim of the appellant that they have exported part of the consignment. On perusal of the proceeding before lower authority, it is seen that no such claim was made by the appellant. First time this issue has been raised in Tribunal. Even in the appeal before Tribunal, there is no assertion to the effect that they are ready to produce any documents. It is seen that the appellant are not denied that the part of the service provided by them are not related to export. It is settled law that the onus of establishing of fact which is an exclusive knowledge of any person, is with that person. In the instant case, the evidence of having provided service in respect of export is solely available with the appellant, thus the onus of establish, the fact is on the appellant. Since they have not done, so no benefit on this count can be allowed to the appellant.

8. The next issue relates to the service tax demand on so called income earned from the hire charges. It is seen that impugned order relies on sample bills raised by noticee to the service recipient namely, Saurashtra Cement is as under:

“Expenses incurred for the cement clinker unloading at plot from the plot and transportation charges, etc.” (Service charges)

However, the ledger account corresponding to this Bill reads as:

“Dumper-Terex Hire Income” (Hire income)

Ld. Counsel had shown us two different kinds of invoices raised by the appellant in description of the job, the 2 invoices are as follows:




9. It is seen that when the loader is provided on per hour basis it would amount to supply of loader on hire, whereas when the charges are made on per metric ton basis, these are the charges for the cargo handling. Consequently, the demand in respect of supply of terex loader and the provision of cargo handling service thereby needs to be revised so as to exclude the demand raised in respect of supply of terex loader on per hour basis treating the same as hiring of terex loader.

10. Consequently, the impugned order is set aside. The matter remanded to original adjudicating authority to re-calculate the demand as well as penalties on above terms. Appeal is allowed by way of remand.

(Pronounced in the open court on 13.03.2019)

(Raju)                                            (Ramesh Nair)
Member (Technical)                         Member (Judicial)

Seema

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.2, R.K. PURAM,
NEW DELHI-110066
BENCH-DB

COURT – IV

Excise Appeal No. E/54520 & 54187/2014 [DB]
[Arising out of Order-in-Original No. 10/2014-15 dated 30.06.2014 passed by the Commissioner of Central Excise, Delhi-II]

M/s. Sand Plast (India) Ltd.
Rajesh Gupta, M.D.
Appellant

Vs.

C.C.E., Delhi – II
Respondent

Present for the Appellant : Mr. A.K. Prasad &Ms. Priyanka Goel, Advocates
Present for the Respondent : Mr. R.K. Mishra, A.R.

CORAM:
HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)
HON’BLE MRS. RACHNA GUPTA, MEMBER (JUDICIAL)

Date of Hearing : 08.01.2019
Pronounced on : 20.03.2019

FINAL ORDER NO. 50402-50403/2019

PER: RACHNA GUPTA

The appellants having their factory at Ring Road, New Delhi are interalia engaged in the manufacture of Sand Lime Fly Ash Bricks. Shri Rajesh Gupta is the Managing Director of the appellant company. The departmental officers carried out searches at the factory premises of the appellants on 22.10.2012 and apart from seizing some records, they also seized 1,96,160 pieces of the said Sand Lime Fly Ash Bricks valued at Rs. 7,84,640/- holding the goods to be classifiable in tariff head at 68159910 and denying the benefit of General Exemption Notification No. 48 and that of Notification 1/2011- CE dated 01.03.2011. That the confiscation of these bricks alongwith penalty upon company was proposed vide SCN No.
1206 dated 18.04.2013. The said proposal has been confirmed vide Order-in-Original No. 10 dated 30.06.2014 holding that the bricks manufactured by the appellants are known as Fly Ash Bricks (68159910) in common trade parlance. Being aggrieved, the appellant is before this Tribunal.

2. We have heard Mr. A.K. Prasad & Ms. Priyanka Goel, Ld. Advocates on behalf of the appellant and Mr. R.K. Mishra, Ld. AR on behalf of the Department.

3. It is submitted on behalf of the appellant that the bricks manufactured by the appellants acquire their essential character from the Sand and Lime used in their manufacture. Fly Ash is used in these bricks as a statutory requirements as per notification issued by the Ministry of Environment & Forest under the relevant Environment Protection Laws. The said bricks can be manufactured even without the fly ash, but there cannot be manufactured without the sand and lime. The fly ash is procured free of cost by the appellants from nearby Thermal Power Plant. To be classified as Fly Ash Bricks the product should contain more than 50% of fly ash by weight. It is on record that in a brick manufactured by the appellants weighing 2600 gms, Sand and Lime together weigh 1170gms, the Fly Ash content is 910 gms and Moisture is of 520 gms. Since, the fly ash content in the brick is less than 50% by weight, in any case the bricks cannot be considered as fly ash bricks. Since the Sand and Lime used in the appellant’s bricks give the essential character, the bricks will be covered under heading 681011 of the Central Excise Tariff. The HSN for heading under 6810 supports this. The demand is also alleged to be time barred upto the period August 2012 since the SCN demanding duty have been issued on 01.10.2013. It is clearly an interpretation issue for which the allegation of mis- declaration or suppression of facts with intent to evade duty cannot be upheld. Appeal is accordingly prayed to be allowed.

4. Department on the other hand has submitted that as per description of brick itself, it is fly ash brick, irrespective that sand and lime are the constituents. It is clearly classified as fly ash brick having specific entry in tariff as 68159910. The same has rightly been considered to be known so in common trade parlance as held by adjudicating authority. The Order is accordingly justified and Appeal is prayed to be dismissed.

5. After hearing both the parties and perusing the entire record, we observe and hold as follows:
5.1 The disputed article is admittedly a brick. Whether the appellant has rightly classified as other sand and lime brick under tariff heading 6810 precisely 68109990 and has rightly claimed the benefit of Notification No. 1/2011 or it is fly ash brick under tariff entry 6815 precisely 68159910, is to be adjudicated. For the purpose, relevant tariff entries are as follows:



Department has alleged the impugned bricks are classifiable under 68159910 where there is no mention of sand and lime.

5.2 Admittedly the impugned brick’s components are sand and lime and fly ash as well. Thus, description of goods herein seems to be overlapping in two categories. Hence, it is necessary to understand the Rules of Interpretation. The same reads as follows:

“„THE FIRST SCHEDULE —EXCISE TARIFF
(See section 2)

GENERAL RULES FOR THE INTERPRETATION OF THIS SCHEDULE

Classification of goods in this Schedule shall be governed by the following principles:

1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions.

2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.

3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.”

5.3 From the record specifically the statements recorded during the investigation it is apparent, without any denial of department, that appellant company was initially engaged in manufacturing of mechanised autoclaved sand and lime bricks. However, from 1990 fly ash products were sought to be strongly promoted both by Government and the Hon’ble Supreme Court and the High Court to address the twin concerns of tackling a huge environmental pollutant menace of fly ash that various GOI/MOEF Extra Ordinary Gazettes were issued making the use of fly ash products mandatory for all construction activities. To ensure implementation of these directives, Government has also been giving various incentives to promote fly ash products apart from various coercive actions, including waiving off of excise duty etc. It is thereafter that with lot of R&D and after investment of lot of resources appellant developed technology to add fly ash to their basic product i.e. mechanised autoclaved sand lime bricks and started producing mechanised autoclaved sand lime fly ash bricks. Thus, their major raw materials used in the manufacture were Sand and Lime and Fly Ash was only added  in their product as a filler that too in compliance of statutory mandate. It is also apparent from record that the average weight of the finished brick was about 2600 grams which contains the raw materials and moisture as follows:-


1.    Sand & Lime    1170 grams
2.    Fly Ash    910 grams
3.    Moisture    780 grams
----------------------------------------
Total 2600 grams

5.4 Applying above rules of Interpretation to these facts we observe that Chapter 68 [Articles of stone, plastic, cement, asbestos, mica or similar material] is applicable to the impugned bricks, sand and lime being the stone/plaster. Since fly ash was added later to sand lime composition of bricks that Rule 3 (b) of the interpretation rule is most applicable. From the composition of bricks, as above, fly ash being used in least quantity, essential material for impugned bricks remain is sand and lime. Thus, the impugned bricks, to our opinion qualify for being classified under tariff entry 6810 precisely 68109990.

5.5 Tariff entry 6815 (68159910) is not applicable because the above facts are sufficient to hold that impugned bricks can be manufactured without fly ash, as it used to be earlier but not without sand and lime. The notification 1/2011 specifically mentions bricks of sand and lime. Hence, we are of opinion that appellants have rightly availed the benefit of exemption therein. No question of confiscation at all arises. Otherwise also the onus of establishing that goods are classifiable under a particular tariff entry lies upon the Revenue. If onus not discharged by Department, evidence adduced by assesse even if rejected still appeal of the assessee is to be allowed as per Section 35C of the Central Excise Act, 1944 and Rule 173B of the Central excise Rules, 1944 as was held in Hindustan Ferodo Ltd. Vs. Collector of Central excise, Bombay reported in 1997 (89) E.L.T. 16 (S.C.).

6. In view of entire above discussion, we hereby set aside the Order under challenge. Resultantly, the Appeal stands allowed.


[Pronounced in the open Court on 20.03.2019 ]


(C.L. MAHAR)                        (RACHNA GUPTA)
Member (TECHNICAL)             MEMBER (JUDICIAL)

D.J.

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Appeal Nos.: ST/650 & 651/2012
[Arising out of Order-in-Original Nos. LTUC/271 &272/2012-C dated 30.08.2012 passed by the Commissioner, Large Taxpayer Unit, Anna Nagar, Chennai.]

M/s. Sundaram Finance Ltd., Chennai
Appellant

Versus

The Commissioner of C.Ex. & Service Tax, Large Taxpayer Unit, Chennai
Respondent

Appearance:-
Shri. P. C. Anand, Consultant For the appellant
Shri. K. Veerabhadra Reddy, ADC (AR) For the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing: 26.02.2019
Date of Pronouncement: 18.03.2019

Final Order Nos. 40530-40531 / 2019

Per Bench :

Brief facts are that the appellant is a Non-Banking Financial Company and is into the business of financing purchase of commercial vehicles, cars, houses and also provide services of software solutions, business process outsourcing, hire-purchase and leasing including equipment leasing, etc. The appellants thus mainly provide the service of “Banking and other Financial Services” for which they have inter alia obtained registration. They were allotted Large Taxpayer Unit Registration in 2012.

2.1 Financial Leasing Services including equipment leasing and hire-purchase by a body corporate was included as a taxable service under the category of Banking and Other Financial Services under Section 65(10) of the Finance Act, 1994 from 16.07.2001 vide Notification No. 04/2001-ST dated 09.07.2001. Subsequently, on introduction of new definition and re-alignment of Section 65 of the said Act, “Banking and other Financial Services” are now defined by Section 65(12) of the Finance Act, 1994.

2.2 Immediately, Writ Petitions were filed by the Association of Leasing and Financial Services Companies before the Hon’ble High Court of Madras against the levy of service tax on leasing/hire purchase transactions, as being ultra vires the provisions of Articles 14, 19(1)(g), 265, 366, (29A), Entry 54, List-II, Schedule VII of the Constitution of India and also being beyond the legislative competence of Parliament. The Writ Petition was admitted and the Hon’ble High Court had granted a stay. The Equipment Leasing Association (India), of which the appellant is a member, filed similar petitions and were granted stay by the Hon’ble High Court. Hence, the appellants neither declared the taxable value of the hire- purchase and leasing services nor did they pay the appropriate service tax.

2.3 Subsequently, the prayers in all the related Writ Petitions were disposed of by a common Order dated 09.06.2009 by dismissing the Writ Petitions. Against such decision of the Hon’ble High Court, the appellants filed SLP (C) No. 23161 of 2009 before the Hon’ble Supreme Court along with a Stay Petition. The Hon’ble Supreme Court vide Order dated 26.10.2010 upheld the constitutional validity of the levy. After the aforesaid decision of the Hon’ble Apex Court, the appellants paid applicable service tax of Rs. 8,17,11,538/- on hire- purchase and leasing transactions. They also filed ST-3 returns in April 2011.

3.1 However, it is the case of the Department that even though the appellants have discharged their service tax liability on Financial Leasing activities, the appellants did not discharge service tax on certain leasing transactions which they claim to be Operating Lease transactions. That they did not reflect the said income received from Operating Leasing transactions in their ST-3 returns.

3.2 Instead, letter dated 29.03.2010 was issued by the appellants stating that Financial Lease is different from Operating Lease and that Operating Lease would not fall within the meaning of Financial Leasing Services as defined in the Finance Act, 1994.

3.3 The Department was of the view that there was no difference in respect of Financial Lease and Operating Lease offered by the appellant as per the terms of contracts except for the clause relating to return of the asset to appellant at the end of the tenure in the case of Operating Lease. Further, whatever risks and rewards clause were built into the leasing contracts were the same for Financial and Operating Leases. It therefore appeared that the Operating Lease entered into by the appellant is only a misnomer and that they are actually Financial Leases, which are subject to levy of service tax.

4. Show Cause Notices were issued proposing to demand service tax along with interest and also for imposing penalties. After due process of law, the Original Authority confirmed the demand along with interest and also imposed penalty. Aggrieved, the appellants are now before the Tribunal.

5.1 On behalf of the appellant, Ld. Consultant Shri. P.C. Anand appeared and argued the matter. He submitted that the appellants had discharged the entire service tax liability on Financial Leases.

The present demand is in respect of Operating Lease and no service tax is leviable on such activities. He adverted to the definition of Banking and Other Financial Services for the period from 16.07.2001 to 09.09.2004, as amended from 10.09.2004 to 30.06.2007 as well as the period after 01.07.2007. In all these definitions, there is no levy on the activity of Operating Lease transactions; there is a clear difference between Financial Lease and Operating Lease.

5.2 He explained that in order to treat a lease agreement as a Financial Lease, it should satisfy all the four sub-clauses to the Explanations in the definition of “Banking and Other Financial Services” after 01.07.2007. Since the lessee under the lease agreements does not have either the right or option to own the asset at the end of the lease period, the fourth sub-clause of the Explanation would not apply to the disputed transactions, which are in the nature of Operating Lease.

5.3 Further, the Accounting Standards (AS-19) issued by the Chartered Accountants of India defines the term “Financial Lease” as “a lease that transfers substantially all the risks and rewards incident to ownership of an asset.” The difference between the two types of leases was summarized by the Ld. Consultant, as under :




5.4 The intention of the legislature was to tax only those Financial Leasing Services which satisfy all the four conditions cumulatively and not any other financial transaction relating to a moveable asset. The lease agreement would clearly show that the transactions are in the nature of Operating Lease, which fall outside the definition. In the case of Operating Lease, the lessee sometimes such as executives using the car, offers to buy the asset and the appellants consider effecting sale to them. Such buyers obviously do not stand in the shoes of the lessee who had originally taken the asset on lease. He relied upon the High Court decision in the case of M/s. Association of Leasing & Financial Service Companies Vs. Union of India – 2010 (20) S.T.R. 417 (S.C.) wherein the two concepts of Financial Lease and Operating Lease have been discussed and it was held that only Financial Leasing activity would be liable to service tax.

5.5 Leasing activity as entered into by the appellant is in the nature of Operating Lease and therefore there is no liability to pay service tax. To support his arguments, he relied upon the decision in the case of C.C.E. & S.T., New Delhi Vs. M/s. Lease Plan India Ltd. - 2018-TIOL-550-CESTAT-DEL.

5.6 Countering the allegation of the Department that all the leases are actually in the nature of Financial Lease and is merely stated to be Operational Lease by the appellant, Ld. Consultant submitted that the accounts maintained would clearly show the difference between Financial Lease and Operating Lease. He referred to the financial statements of the appellant-company and submitted that the Financial Leases are shown as current assets whereas Operational Lease is shown under the category of fixed asset. This is because in Operational Lease the ownership of the equipment/machinery/vehicle leased out is retained by the appellant-company. After the lease period, the moveable property has to be returned to the appellant, who has the right to sell the same to third parties. Occasionally, the lessee himself, as stated earlier, approaches to buy the moveable property and even then, it is sale to a third party since such person, after termination of the lease, is no longer a lessee. In the case of Financial Lease, after the lease period, when the payments have been made fully, the lessee is entitled to own the vehicle.

5.7 He referred to the Master Lease Agreement and submitted that Clause 21 of the agreement refers to the residual value in the case of Financial Lease agreement, while in the case of Operating Lease agreement, it refers to delivery of equipment on termination of the lease. In the Financial Lease, the residual value is fixed at the time when the lease agreement is signed while in the Operating Lease, in as much as the equipment will be sold to the person as chosen by the lessor, the lessee is directed to return or deliver the goods to the lessor in good condition. That the agreement would establish that the transactions on which demand has been raised are in the nature of Operating Lease.

6.1 Ld. AR Shri. K. Veerabhadra Reddy appearing on behalf of the respondent supported the findings in the impugned Order. He submitted that the definition of “Banking and Other Financial Services” when introduced with effect from 16.07.2001 itself, included the activity of Financial Leasing Services. The amendment brought forth with effect from 10.09.2004 mentioned the words “Financial Leasing Services including equipment leasing and hire- purchase”. After 01.07.2007, an Explanation was added in the definition so as to give clarity to the term “Financial Leasing”. It was stated therein that if four Clauses of the Explanation are satisfied, the lease would be a Financial Lease. In the transactions impugned in the Show Cause Notices, the fourth Sub-Clause of the Explanation is present. The said Sub-Clause states that “the lessee is entitled to own or has the option to own the asset at the end of the lease period after making the lease payment.”

6.2 From paragraph 22 (2.1) of the impugned Order wherein the Master Lease Agreement has been examined by the Original Authority, it is evident that the transactions are in the nature of Financial Leasing. In paragraph 27 of the impugned Order, the Commissioner has correctly analyzed the issue. In all the agreements, it is seen that the risk is with the lessor. This Clause of ‘risk’ is similar in the case of Financial Lease agreements as well as the disputed Operating Lease agreements. Therefore, the lease transactions are in the nature of Financial Lease and not Operating Lease.

7. Heard both sides.

8. The appellant, as a Non-Banking Financial Company, has been entering into agreements in the nature of leasing of equipment, vehicles, etc. It is not disputed that they have discharged their entire tax liability on the lease agreement, which they believed to be Financial Leases. The present dispute is with regard to the Show Cause Notices with respect to the agreements/transactions which according to the appellant fall under the category of Operating Leases. Thus, our main endeavor would be to find out the nature of leasing in such transactions.
9.1 Before appreciating the facts, it would be relevant to extract the definition of “Banking and Other Financial Services” as amended with effect from 01.07.2007, which contains the Explanation as to what is a Financial Lease :

“[(12) “Banking and Other Financial Services” means —

(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate [or commercial concern], namely :—

(i) financial leasing services including equipment leasing and hire- purchase;

[Explanation. — For the purposes of this item, “financial leasing”
means a lease transaction where —
(i)contract for lease is entered into between two parties for leasing of a specific asset;
(ii) such contract is for use and occupation of the asset by the lessee;
(iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and
(iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment;]

(ii) to (ix) …………………………………………………………………”

(Emphasis added)

The first three Clauses are almost common to both Financial Leasing as well as Operating Leasing. The arguments revolve around the fourth Clause.

10.1 The Hon’ble Apex Court in the case of M/s. Association of Leasing & Financial Service Companies (supra) has analyzed the difference between Financial Lease and Operating Lease. The relevant portion of the said judgement is reproduced as under :

“21. To sum up, NBFCs essentially are loan companies. They basically conduct their business as loan companies. They could be in addition thereto in the business of equipment leasing, hire purchase finance and investment. Because NBFCs are basically loan companies, they are required to show the assets leased as “receivables” in their balance sheets. That, the activities of hire- purchase finance/equipment leasing undertaken by NBFCs come under the category of “para banking”. That, in substance a finance lease, unlike an operating lease, is a financial loan (assistance/facility) by the lessor to the lessee. That, in the bailment termed “hire” the bailee receives both possession of the chattel and the right to use it in return for remuneration. On the other hand, equipment leasing is long term financing which helps the borrower to raise funds without outright payment in the first instance.

Here the “interest” element cannot be compared to consideration for lease/hire which is in the nature of remuneration (consideration) for hire. Thus, financing as an activity or business of NBFCs is different and distinct from operating lease/hire-purchase agreements in the classical sense. The elements of the finance lease or loan transaction are quite different from those in equipment leasing/hire-purchase agreements between owner (lessor) and the hirer (lessee). There are two independent transactions and what the impugned tax seeks to do is to tax the financial facilities extended to its customers by the NBFCs under Section 66 of the 1994 Act (as a men d ed ) a s th ey co me u n d er “ba n k ing an d oth er fin a n cial services”under Section 65(12) of the said Act. “The finance lease” and “the hire- purchase finance” thus squarely come under the expression “financial leasing services” in Section 65(12) of the Finance Act, 1994 (as amended).” (Emphasis supplied)

Earlier the same judgement of the Hon’ble Supreme Court accepted the accounting methodology as propounded in the Accounting Standards (AS-19) of the Institute of Chartered Accountants of India:

“18. The Institute of Chartered Accountants of India (ICAI) has also issued AS-19 “Accounting for Leases”. It is mandatory in respect of financial leases executed on or after April, 2001. It inter alia provides for capitalization of finance lease assets in the books of the lessee instead of lessor. The lessor [NBFC] is required to show the assets leased only as receivables in its balance sheet instead of as fixed assets. The implication of the above AS-19 for the NBFC prescribed by RBI vide amendments to the 1998 Directions is that all financial leases would now be accounted like hire-purchase transactions [See Manual of NBFCs 9th Edition Page 268]. Similarly, under the RBI Guidelines dealing with accounting for investments, NBFCs having not less than 60% of the total assets in lease and hire purchase and deriving not less than 60% of their total income from such activities can be classified as hire purchase/equipment leasing companies. All these circulars and guidelines issued by RBI are relied upon only to show that equipment leasing and hire-purchase are activities undertaken as business by NBFCs which are regulated as para banking activities by the RBI under the provisions of the 1934 Act. They are regulated not only to protect depositors but also customers [See Section 45-I(c)(iii)(i)]. The above activities are financing activities encompassed under Section 45-I(c)(i) which in turn constitutes “rendition of services to its customer(s)” which is the taxable event under Section 65(105)(zm) of the Finance Act, 1994 (as amended). Apart from NBFCs, even banks through their subsidiaries with the approval of RBI can undertake equipment leasing, hire-purchase business and financial services. These are not direct lending activities. However, RBI treats them as services or facilities. The financial facilities are extended by way of equipment leasing or hire-purchase finance subject to approval of RBI.

.
.
.

20. According to Sale of Goods Act by Mulla [6th Edition] a common method of selling goods is by means of an agreement commonly known as a hire- purchase agreement which is more aptly described as a hiring agreement coupled with an option to purchase, i.e., to say that the owner lets out the chattel on hire and undertakes to sell it to the hirer on his making certain number of payments. If that is the real effect of the agreement there is no contract of sale until the hirer has made the required number of payments and he remains a bailee till then. But some so-called hire-purchase agreements are in reality contracts to purchase, the price to be paid by instalments and in those cases the contract is a contract of sale and not of hiring. It depends on the terms of the contract whether it is to be regarded as a contract of hiring or a contract of sale. A hire- purchase agreement partakes of the nature of a contract of bailment with an element of sale added to it. However, if the intention of the financing party in obtaining the hire-purchase and the allied agreements is to secure the return of the loan advanced to its customer the transaction would be merely a financing transaction. [See page 75]. The point which needs to be re-stated is that the funding activity undertaken by the financing party which could be in the form of loan or equipment leasing or hire- purchase financing, would be exigible to service tax if such activity falls in the category of “banking and other financial services” under Section 65(12) of the Finance Act, 1994. The financial transaction was earlier out of the tax net. In the process there are two different and distinct transactions, viz., the financing transaction and the equipment leasing/hire-purchase transaction. The former is exigible to service tax under Section 66 of Finance Act, 1994 (as amended) whereas the latter would be exigible to local sales tax/VAT. Funding or financing the transaction of equipment leasing and hire-purchase covers two different and distinct transactions. The activity of funding or financing by NBFC who is in the business of financing by giving loans, or equipment leasing or hire-purchase finance falls in the category of financial services rendered by NBFCs to their customers. It is an activity in relation to the hire-purchase or lease transaction. In this connection, as and by way of illustration we need to give an illustration which brings out the distinction between a “finance lease” and “operating lease”. A finance lease transfers all the risks and rewards incidental to ownership, even though the title may or may not be eventually transferred to the lessee. In the case of “finance lease” the lessee could use the asset for its entire economic life and thereby acquires risks and rewards incidental to the ownership of such assets. In substance, finance lease is a financial loan from the lessor to the lessee. On the other hand an operating lease is a lease other than the finance lease. Accounting of a “finance lease” is under AS-19, which as stated above, is mandatory for NBFCs. It is a completely different regime. According to Chitty on Contract, a hire-purchase agreement is a vehicle of instalment credit. It is an agreement under which an owner lets chattels out on hire and further agrees that the hirer may either return the goods and terminate the hiring or elect to purchase the goods when the payments for hire have reached a sum equal to the amount of the purchase price stated in the agreement or upon payment of a stated sum. The essence of the transaction is bailment of goods by the owner to the hirer and the agreement by which the hirer has the option to return the goods at some time or the other [See para 36.242, 36.243]. Further, in the bailment termed “hire” the bailee receives both possession of the chattel and the right to use it in return for remuneration to be paid to the bailor [See para 32.045]. Further, under the head “equipment leasing”, it is explained that it is a form of long-term financing. In a finance lease, it is the lessee who selects the equipment to be supplied by the dealer or the manufacturer, but the lessor [finance company] provides the funds, acquires the title to the equipment and allows the lessee to use it for its expected life. During the period of the lease the risk and rewards of ownership are transferred to the lessee who bears the risks of loss, destruction and depreciation or malfunctioning. The bailment which underlies finance leasing is only a device to provide the finance company with a security interest [its reversionary right]. If the lease is terminated prematurely, the lessor is entitled to recoup its capital investment [less the realizable value of the equipment at the time] and its expected finance charges [less an allowance to reflect the return of the capital] [para 32.057]. In the case of hire-purchase agreement the periodical payments made by the hirer is made up of :

(a) consideration for hire

(b) payment on account of purchase.”

10.2 With this background of the legal provisions and precedents, let us now examine the facts. The lease agreement is produced before us. The relevant clauses are reproduced as under :

“Lease 3. The Lessor hereby lets on lease to the Lessee and the Lessee takes on lease from the Lessor, from the commencement date, the equipment described in the Schedule hereto/in the Schedule to the supplemental agreement.

(i)The Lessee shall be solely responsible for taking/obtaining delivery and possession of the equipment leased under this agreement/supplemental agreement from the Manufacturers/Suppliers in accordance with the relative purchase orders, at the place specified therein.
.
.
.

Ownership 8. The Lessee acknowledges, confirms and declares that it holds the equipment as a mere ballee of the Lessor and that it shall not have any proprietary right, title or interest in the equipment or any part thereof and shall at all times, protect and defend as ballee/licencee of the equipment the Lessor’s absolute and permanent ownership right and title thereto and that he shall not at any time, advance or make any claim adverse to or in derogation of the Lessor’s absolute and permanent ownership right and title. The Lessee further agrees and covenants that he shall not claim any benefits under the Tax Laws associated with the ownership of the equipment such as depreciation, investment
allowance, etc.
.
.
.
21. DELIVERY OF EQUIPMENT ON TERMINATION OF THE LEASE :

a) Upon determination of the lease of the equipment granted hereunder, by efflux of time, unless a renewal is granted or agreed to, the Lessee shall, at its cost, forthwith, such determination, deliver or cause to be delivered to the Lessor at the place to be notified by the Lessor to the Lessee, the equipment in good order and condition (ordinary wear and tear being excepted).

b) Compliance with proper use: If anytime during the continuance of the lease, it appears to the lessor from the inspection carried out pursuant to Clause 14 hereof that the use to which the equipment/vehicle is being put is excessive, improper or unauthorized in terms of the lease, then it shall be lawful for the lessor to give notice to the lessee that the reasonable resale value of the equipment/vehicle is being prejudiced by such use of the equipment/vehicle by the lessee beyond the terms permitted under the lease and in such event, the lessor is entitled to increase the rentals payable by the lessee to the lessor or to demand and recover from the lessee a lump-sum amount which the lessee agrees to pay to the lessor, without demur to ensure that the resale value is not prejudiced. The lessor shall also be entitled to prescribe a minimum sale price which the equipment/vehicle shall fetch on determination of the lease and any shortfall in the realization of the sale price occasioned by excessive, improper or unauthorized use as aforesaid shall be payable by the lessee without demur.”

10.3 The above Clauses, in particular Clause 8, shows that the ownership rests with the lessor (the appellant herein). Similarly, in Clause 21 it is stated that upon determination of the lease, the lessee has to deliver the equipment/vehicle to the lessor at the place notified. Thus, after determination of the lease in an Operating Lease, the lessee has to return the equipment/vehicle to the lessor. The lessee is not entitled to own or does not have an option to own the asset at the end of the lease period, which is the distinguishing feature between an Operating Lease and a Financial Lease.

11. Ld. Counsel for the appellant has also produced the financial statements of the appellant-company during the period 2010-11. As per Accounting Standards (AS-19), the Financial Lease is shown as current assets. Further, the Operating Lease is shown under the category of fixed assets. This is because, the equipment which are given on lease under the category of Operating Lease always remain in the ownership of the lessor (appellant-company).

12. We are therefore convinced that as per the documents, the transactions fall under the category of Operating Lease only. The allegation of the Department that the agreements are actually Financial Lease and that Operating Lease is only a misnomer, is factually wrong.

13. The issue as to whether Operating Lease is subject to levy of service tax has been analyzed by the Tribunal in the case of M/s. Lease Plan India Ltd. (supra). Following the said decision as well as after appreciating the facts, we are of the opinion that the allegation that the lease agreements are in the nature of Financial Leasing, is incorrect and hence, the demand cannot sustain. The impugned Order is set aside.

14. The appeals are allowed with consequential reliefs, if any, as per law.


(Pronounced in open court on 18.03.2019)


(Madhu Mohan Damodhar)                 (Sulekha Beevi C.S.)
Member (Technical)                            Member (Judicial)


Sdd

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Application No.: ST/Misc[CT]/41172/2017
Appeal No.: ST/41068/2014
[Arising out of Order-in-Appeal No. 46/2014 (M-ST) dated 30.01.2014 passed by the Commissioner of Cus., C.Ex. and S.Tax (Appeals), Nungambakkam, Chennai]

M/s. Kavithalaya Builders, Chennai
Appellant

Versus

The Commissioner of G.S.T. & Central Excise,Chennai South Commissionerate
Respondent

Appearance:-
Shri. S. Ramachandran, Consultant For the appellant
Shri. S. Govindarajan, AC (AR) For the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing/Decision: 18.03.2019

Final Order No. 40562 / 2019

Per Bench :

Brief facts are that the appellants are registered with the Department for providing Construction of Residential Complex Services. They filed a refund claim for Rs. 12,73,278/- on the ground that they were not liable to payment of service tax under the said  category as per the CBEC Circular No. 108/02/2009-ST dated29.01.2009.

2. The Department was of the view that the Circular does not apply to the appellant and that the service tax has been correctly paid by them. After due process of law, the refund claim was rejected by the Refund Sanctioning Authority. In appeal, the Commissioner (Appeals) upheld the same. Hence, this appeal.

3.1.1 On behalf of the appellant, Ld. Consultant Shri. S. Ramachandran appeared and argued the matter. He submitted that based on certain investigations done by the Department, it was pointed out by the Department that the appellants had indulged in the construction of 13 residential units and therefore, was covered under the service of ‘Construction of Residential Complex’. The appellants had then paid up the entire service tax along with interest. No Show Cause Notice was issued by the Department for recovery of the said amount. The appellant had discharged the service tax, as pointed out and calculated by the Officers of the Department.

3.1.2 Later, the appellant realized that as per Circular No. 108/02/2009-ST dated 29.01.2009., the appellants are not liable to pay the service tax. The subsequent Circular No. 151/02/2012-ST dated 10.02.2012 also clarified the same. The appellants are therefore not liable to pay the service tax during the impugned period. The same was paid only on the insistence of the Departmental Officers.

3.2 Further, the service tax was not collected from the customers. This is very much clear from the fact that the officers, while arriving at the quantum of service tax, have given the benefit of cum tax value. Thus, the refund is not hit by unjust enrichment. Also, the Department ought to have granted the refund.

3.3 It is also argued by the Ld. Consultant for the appellant that the Tribunal vide the decision in the case of M/s. Real Value Promoters Pvt. Ltd. Vs. Commissioner of G.S.T. & Central Excise, Chennai & Ors. reported in 2018-TIOL-2867-CESTAT-MAD had held that the demand of service tax under the category of Construction of Residential Complex Service cannot sustain for the period after 01.06.2007. Also, in the case of contracts involving both supply of materials and provision of labour, the Construction of Complex Services undertaken by the appellant are in the nature of composite contracts. Therefore, even though it is argued by the

Department that the Circulars are not applicable, the decision in the case of M/s. Real Value Promoters Pvt. Ltd. (supra) would squarely apply to the present case. Therefore, the appellant is eligible for the refund.

4.1 Ld. AR Shri. S. Govindarajan appearing on behalf of the respondent supported the findings in the impugned Order. He argued that the appellant had provided Construction of Residential Complex Services. They are not covered under the Circulars and therefore, the authorities below have rightly rejected the refund.

4.2 It is further pointed out by him that the appellant has not established that the refund is not hit by unjust enrichment. The appellant has shown the refund in their Books of Account as expenditure. This would tantamount to indirectly passing on the liability to a third person. In the case of Union of India Vs. M/s. Solar Pesticide Pvt. Ltd. reported in 2000 (116) E.L.T. 401 (S.C.), it was held by the Hon’ble Apex Court that the expression “incidence of duty” in relation to its being passed on to another person would take within its ambit not only the passing of the duty directly to another person, but also cases where it is passed on indirectly. The appellant having not established that the incidence of tax has not been passed on to another, the refund has been rightly rejected.

5. Heard both sides.

6. The appellant has filed the refund claims basing on the clarifications given by the Board Circular dated 29.01.2009 as well as Circular dated 10.02.2012. Ld. Counsel for the appellant has furnished the details of the Circular as given in the table below :



7.1 It is not disputed that the appellant had constructed 13 flats and had entered into construction agreement with 13 separate buyers. It is submitted by the Ld. Counsel for appellant that the appellant had provided service of design, planning and construction and thereafter, handed over such residential units for the personal use of the buyers. All the flats had enjoyed common facilities and therefore, the Department was of the view that the Construction would fall under Construction of Residential Complex Service as the individual units are more than twelve in number.

7.2 Apart from these Circulars, we take note of the fact that the Tribunal in the case of M/s. Real Value Promoters Pvt. Ltd. (supra) has held that in case of composite contracts, the activity cannot be subjected to levy of service tax under the category of Construction of Residential Complex Service (CRCS)/Commercial or Industrial Construction Service (CICS)/Construction of Complex Service (CCS).

8.1 Even if the activity/service is not subject to levy of service tax, it has to cross the hurdle of not being hit by unjust enrichment. In the present case, the Department has alleged that the appellants have shown the said refund amount in their Books of Account as expenditure. This apart, the appellant has not raised any invoices.

Thus, it is not forthcoming from the records whether the appellants have passed on the burden of tax to another person or not. It is submitted by the Ld. Consultant for the appellant that they had paid the service tax on the workings/calculations given by the Officers of the Department. That such workings/calculations are after giving the appellant the benefit of cum-tax. This has to be verified.

8.2 For the purpose of verifying as to whether the demand is hit by unjust enrichment, we are of the opinion that the issue requires to be remanded to the adjudicating authority, who shall verify the same. We make it clear that the question as to whether the services are subject to levy of service tax is covered by the decision of the Tribunal in the case of M/s. Real Value Promoters Pvt. Ltd. (supra). In the remand proceedings, the adjudicating authority need only look into the issue of unjust enrichment. Needless to say, in case the burden of tax has not been passed on to another, the appellant would be eligible for refund.

9. From the foregoing, the matter is remanded to the adjudicating authority, who shall look into the issue of unjust enrichment and also consider the pleas put forward by the appellant with regard to cum-tax benefit.

10. The appeal is allowed by way of remand. The Miscellaneous Application filed by the Department for change of cause title is allowed.


(Operative part of the order was pronounced in open court)


(Madhu Mohan Damodhar)             (Sulekha Beevi C.S.)
Member (Technical)                        Member (Judicial)

Sdd

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO 36 OF 2006

State of Rajasthan
Appellant

Versus

Bheru Lal
Respondent

J U D G M E N T

Dipak Misra, J.

The present appeal is  directed  against  the  judgment  of  acquittal dated 9.4.2004 passed by the learned single  Judge  of  the  High  Court  of Judicature of Rajasthan in S.B. Criminal Appeal No. 659 of 2002  whereby  he has reversed the judgment of conviction and order of sentence passed by  the learned Special Judge, NDPS cases, Chittorgarh  on  7.8.2002  and  acquitted the respondent of  the  offences  punishable  under  Sections  8/18  of  the Narcotic Drugs and Psychotropic Substances Act, 1985 (for short “the Act”).


2. The broad essential facts leading to trial of  the  respondent  are that on 4.4.2001 about 5.45 p.m. Parveen Vyas, temporary  in-charge S.H.O., Police Station Chittorgarh,  received  information  from  a reliable informer that the respondent would come with illegal opium on his Hero Honda  Motor  Cycle  No.  5902  from  Phkhliya  towards Chittorgarh and would sell it to some person.  The information  was entered into Daily Diary at report No. 146 and dispatched to higher officers through Constable  Davender  Singh.   Thereafter,  Parveen Vyas, along with other police officials and independent  witnesses, namely, Abdul Kareem and Haider Ali laid a  trap  at  Sarhad  Kheri Road and when the respondent came to the spot with a  plastic  bag, he was informed about his  right  to  be  searched  by  a  gazetted officer or a Magistrate and, thereafter, after  proper  search  two polythene bags containing 3 Kgs. opium in  each  bag  were  seized.
Following  due  procedure,  the  samples  were  sent  for  chemical analysis and, after completing the investigation, charge-sheet  was placed for the offences punishable under Sections 8/18 of the Act.


3. The accused denied  the  charges,  pleaded  false  implication  and claimed to be tried.


4. The prosecution to bring home the charges examined Abdul Raheem, PW- 1, Parveen Vyas, PW-2, Rais Mohammad, PW-3,  Narayan,  PW-4,  Madan Lal, PW-5, Arjun  Lal,  PW-6,  Mithu  Lal,  PW-7,  RodSingh,  PW-8, Rameshwar Prasad, PW-9, Davender Singh, PW-10, and Kailash,  PW-11.
The accused examined Bheru Lal, DW-1, and Shanti Lal, DW-2.


5. The learned trial Judge, analyzing the evidence and other  material brought on record, and considering the contentions  raised  by  the learned counsel for the prosecution and defence, found the  accused guilty of the offence punishable under Sections 8/18 of the Act and sentenced the accused to  undergo  rigorous  imprisonment  for  ten years and to pay a fine of  rupees  one  lakh  and  in  default  of payment of fine, to suffer further rigorous  imprisonment  for  one year.


6. Challenging the conviction and sentence an appeal was preferred  by the respondent before the High  Court.   The  principal  contention that was raised in appeal was that Parveen Vyas was not  authorised under Section 42 of the Act to search, seize or arrest a person and hence, the whole  trial  was  ab  initio  void.   The  High  Court, scanning the statutory provision and the notification issued by the Government, came to hold that Parveen  Vyas  was  not  the  Station House Officer of Police Station, Chittorgarh, as  Rameshwar  Prasad was the only Station House Officer and hence, Parveen Vyas did  not have the authority to conduct any search, seizure and  arrest  and, therefore, the whole trial was vitiated.  Being of this  view,  the learned single Judge  dislodged  the  judgment  of  conviction  and acquitted the accused.


7. We have heard  Dr.  Manish  Singhvi,  learned  Additional  Advocate General for the State of Rajasthan, and Mr. Atul  Agarwal,  learned counsel appearing for the  respondent.   It  is  submitted  by  Dr. Manish Singhvi that the High Court has  failed  to  appreciate  the language employed in the Section 42 of the Act and the notification issued by the State of Rajasthan in that behalf as a consequence of which the ultimate conclusion of the High Court has  become  wholly unsustainable.  It is urged by him that Rameshwar  Prasad,  Station House Officer of the police station, had gone out of police station and handed over the charge to Parveen Vyas,  Sub-Inspector  and  he had conducted the search and seizure and, therefore, there has been substantial compliance of the provision in view of the Constitution Bench decision in Karnail Singh v. State of Haryana[1].


8. Mr. Atul Agarwal, learned counsel for the respondent, would  submit that the High Court has correctly interpreted the provision and  as per the notification only those Sub Inspectors of  Police  who  are posted as Station House Officers are authorised to  carry  out  the search and seizure and Praveen Vyas, not being the permanent S.H.O.
could not have carry out the search and  seizure,  and  hence,  the judgment of acquittal cannot be flawed.


9. To appreciate the rival  submissions  raised  at  the  Bar,  it  is necessary to refer to the ununamended Section 42 of the Act as  the said provision was applicable at the relevant time.   The  original Section 42 of the Act has been substituted by Act 9  of  2001  with effect from 2.10.2001.  Prior to the amendment Section 42  read  as follows: - “42. Power of entry, search, seizure and  arrest  without  warrant  or authorization. – (1) Any such officer (being an  officer  superior  in rank to a peon, sepoy or constable)  of  the  departments  of  central excise,  narcotics,  customs,  revenue  intelligence  or   any   other department of the Central Government or of the Border  Security  Force as is empowered in this behalf by general  or  special  order  by  the Central Government, or any such officer (being an officer superior  in rank to a peon, sepoy or constable) of  the  revenue,  drugs  control, excise, police or any other department of a  State  Government  as  is empowered in this behalf by general or  special  order  of  the  State Government, if he has reason to believe  from  personal  knowledge  or information given by any person and taken down in  writing,  that  any narcotic drug, or psychotropic  substance,  in  respect  of  which  an offence punishable under Chapter IV has been committed or any document or other article which may furnish evidence of the commission of  such offence is kept or concealed in any building, conveyance  or  enclosed place, may, between sunrise and sunset, -

a) enter into and search any such building, conveyance or place;

b) in case of resistance,  break  open  any  door  and  remove  any obstacle to such entry;

c) seize such drug or substance  and  all  materials  used  in  the manufacture thereof and any other  article  and  any  animal  or conveyance which he has  reason  to  believe  to  be  liable  to confiscation under this Act and any document  or  other  article which he has reason to  believe  may  furnish  evidence  of  the commission of any offence punishable under Chapter  IV  relating to such drug or substance; and d) detain and search, and if he thinks proper,  arrest  any  person whom he has reason to believe  to  have  committed  any  offence punishable under Chapter IV relating to such drug or substance:

Provided that if such officer  has  reason  to  believe  that  a search warrant or authorization cannot be obtained  without  affording opportunity for the concealment of evidence or facility for the escape of an offender, he may enter and search such building,  conveyance  or enclosed place at  any  time  between  sun  set  and  sun  rise  after recording the grounds of his belief.

(2)   Where an officer takes down any information in writing under sub- section (1) or records  grounds  for  his  belief  under  the  proviso thereto, he shall forthwith send  a  copy  thereof  to  his  immediate official superior.”


10. In pursuance of the aforesaid Section the State  of  Rajasthan  had issued a notification No. F.1(3) FD/Ex/85-1 dated 16.10.1986, which reads as follows: - “S.O. 115.   In exercise of the powers conferred by Section 42 of  the Narcotic  Drugs  and  Psychotropic  Substances  Act,  1985  the  State Government  hereby  authorise  all  Inspectors  of  Police,  and   Sub Inspectors of Police posted as Station House Officers, to exercise the powers mentioned in Section 42 of the said Act with immediate effect:

Provided that when power is exercised by  Police  Officer  other  than Police Inspector of the area concerned such officer shall  immediately hand over the person arrested and articles  seized  to  the  concerned Police Inspector or SHO of the Police Station concerned.”


11. On a perusal of the aforesaid notification it is manifest that  the Sub Inspectors of Police, posted as Station  House  Officers,  were authorised by  the  State  of  Rajasthan  to  exercise  the  powers enumerated in Section 42 of the Act.  There is cogent and  reliable evidence on record  that  Rameshwar  Prasad  had  left  the  police station for certain length of time and at  that  juncture,  he  had given charge of the Station House Officer to  Parveen  Vyas,  PW-2.

The learned single Judge has  accepted  that  he  was  handed  over temporary charge of the Station House Officer by Rameshwar  Prasad, PW-9.  However, he had taken note of  the  fact  that  he  was  not posted as Station House Officer at the police station  and  by  the time the search and  seizure  had  taken  place  about  8.00  p.m., Rameshwar Prasad had already returned to the  police  station.   As far as the timing is concerned, we are  not  at  all  impressed  as there are circumstances to negative such a conclusion.  However, as far as charge is concerned, there is no difficulty in holding  that he was in-charge Station House Officer.  The question that emanates for consideration is whether he could have carried out the  search, seizure and arrest or there has been violation of the  requirements as contained in Section 42 of the Act  by  which  the  whole  trial becomes ab initio void.


12. In Karnail Singh (supra) the Constitution  Bench  was  required  to resolve the conflicting opinions expressed regarding the scope  and applicability of Section 42 of the Act in the matter of  conducting search, seizure and arrest without warrant or  authorization.   The larger Bench analysed the ratio laid down in Abdul  Rashid  Ibrahim Mansuri v. State of  Gujarat[2]  and  Sajan  Abraham  v.  State  of Karala[3] and opined that Abdul  Rashid  did  not  require  literal compliance with the requirements of Sections 42(1)  and  42(2)  and similarly in Sajay Abraham’s case it was not held that requirements of Sections 42(1) and 42(2) need not  be  fulfilled  at  all.   The Constitution Bench in  paragraph  34  of  the  report  observed  as follows: -

“34. The advent of cellular phones and wireless services in India  has assured certain expectation regarding  the  quality,  reliability  and usefulness of the instantaneous messages. This  technology  has  taken part in the system of police administration  and  investigation  while growing consensus among the policymakers about it. Now  for  the  last two decades police investigation has gone through a  sea  change.  Law enforcement officials can easily access any information anywhere  even when they are on the move and not physically  present  in  the  police station or their respective offices. For this change of circumstances, it may not be possible all the time to record the information which is collected through mobile phone communication in  the  register/records kept for those purposes  in  the  police  station  or  the  respective offices of the authorised officials in the Act if the emergency of the situation so requires. As a result, if the statutory  provision  under Sections 41(2) and 42(2) of the Act of writing down the information is interpreted as a mandatory provision, it will disable the haste of  an emergency situation and may turn out to be in vain with regard to  the criminal search and seizure. These provisions should not be misused by the  wrongdoers/offenders   as   a   major   ground   for   acquittal.

Consequently, these provisions should  be  taken  as  a  discretionary measure which should check the misuse of the Act rather than providing an escape to the hardened drug peddlers.”


13. After so observing, the Constitution Bench stated in  seriatim  the effect of  the  two  earlier  decisions.   Paragraph  35(d),  being relevant for the present purpose, is reproduced below: - “(d) While total non-compliance with requirements of sub-sections  (1) and (2) of  Section  42  is  impermissible,  delayed  compliance  with satisfactory explanation about the delay will be acceptable compliance with Section 42. To illustrate, if any delay may result in the accused escaping or the goods or evidence  being  destroyed  or  removed,  not recording in  writing  the  information  received,  before  initiating action, or non-sending of a copy of such information to  the  official superior forthwith, may not be treated as violation of Section 42. But if the information was received when the police  officer  was  in  the police station with sufficient time to take action, and if the  police officer fails to record in writing the information received, or  fails to send a copy thereof, to the official superior, then it  will  be  a suspicious circumstance being a clear violation of Section 42  of  the Act.  Similarly,  where  the  police  officer  does  not  record   the information at all, and does not inform the official superior at  all, then also it will be a clear violation  of  Section  42  of  the  Act.
Whether there is adequate or substantial compliance with Section 42 or not is a question of fact to  be  decided  in  each  case.  The  above position got strengthened with the amendment to Section 42 by Act 9 of 2001.”


14. Though the principle was stated in a  different  context,  yet  the dictum laid down therein is clear as crystal that there  cannot  be literal interpretation of Section 42(1) of the Act.  The  provision employs the words “empowered in this behalf by general  or  special order of the State Government.” The notification  has  stated  “any Sub Inspector posted as Station House Officer”.  The High Court has acquitted the respondent solely on the ground that Rameshwar Prasad was posted as the Station House Officer and not Parveen  Vyas,  who conducted the search, seizure  and  arrest.   It  is  the  accepted position that Parveen Vyas, PW-2, was given temporary charge of the Station  House  Officer  at  the  relevant   time.    He   received information from the reliable source.  He complied with  the  other necessary requirements and  proceeded  to  the  spot  to  trap  the accused.  Any delay would have allowed the accused to  escape.   As per the notification a Sub Inspector of Police  can  be  posted  as Station House Officer and at the relevant time PW-2  was  in-charge Station  House  Officer.   There  is  no  justification  to   place unnecessary importance on the term “posted”.  He was, in fact,  in- charge of the post of Station House Officer at that  juncture.   In our considered view, such a literal and  technical  approach  would defeat the principle laid down by the Constitution Bench in Karnail Singh’s case.  Therefore, the search, seizure  and  arrest  carried out by him would not make the trial  ab  initio  void.   Thus,  the irresistible conclusion is that the  High  Court  has  fallen  into grave error by opining that  Section  42(1)  of  the  Act  was  not complied with as the entire exercise was carried out by an  officer who was not authorised.


15. In view of the aforesaid  analysis,  the  appeal  is  allowed,  the judgment passed by the High Court is set  aside  and  the  judgment rendered by the learned trial Judge is restored.  The learned trial Judge is directed to take steps for arrest  of  the  respondent  so that he can undergo rest of the sentence.


…………………………….J.
[Dr. B.S. Chauhan]

….………………………….J.
[Dipak Misra]

New Delhi;
May 28, 2013.

-----------------------
[1] (2009) 8 SCC 539
[2] (2000) 2 SCC 513
[3] (2001) 6 SCC 692

REPORTABLE

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 2302 of 2010

Gian Chand & ORs.
…Appellants

Versus

State of Haryana
…Respondent


J U D G M E N T

Dr. B.S. Chauhan, J.

1.    This appeal has been filed against the judgment and order  dated 4.11.2008 passed by the High Court of Punjab and Haryana at Chandigarh in Criminal Appeal No. 392-SB of 2001, by which it  has  affirmed  the judgment and order dated 2.2.2001 passed by the trial court, Sirsa  by which the appellants were convicted under the provisions of Section 15 of Narcotic Drugs and Psychotropic Substances Act,  1985  (hereinafter referred to as the ‘Act’).  By that  order,  they  were  sentenced  to undergo RI for a period of 10 years each and to pay a fine of rupees 1 lakh each, and in default of payment of fine, to  undergo  further  RI for a period of one year.


2.    Facts and circumstances giving rise to this appeal are that:
A.    On 5.9.1996, at about 2.15  a.m.,  Bhan  Singh,  ASI  of  Police Station, Rania alongwith other police officials  was  present  in  the village Chakka Bhuna in an official jeep. The police party saw a  jeep coming at high speed from the opposite direction and  asked  the  said jeep to stop.  However, instead of stopping,  the  driver  accelerated the speed of the jeep. This created suspicion  in  the  minds  of  the police officials. Thus, they chased the jeep.  The  occupants  of  the jeep took a U-turn and in that process the jeep struck the wall  of  a house in the village.  The three occupants of the jeep  tried  to  run away but they were caught by the police.   The  said  three  occupants were later identified as the appellants. They were asked whether  they would like to be searched before a Gazetted officer or  a  Magistrate, however, they chose the former. The Deputy  Superintendent  of  Police was called and a search was conducted in his presence. The vehicle had 10 bags containing 41 kg poppy  husk  each.   The  police  party  took samples of 200 grams of poppy husk from each  bag  and  the  same  was sealed by the Dy.S.P.
B.    On the basis of same, an FIR was lodged on  5.9.1996  itself  at 3.15 a.m. at the Rania Police Station against the  appellants-accused.
After investigation, a chargesheet was  filed  against  them  and  the appellants claimed trial. Hence, the trial commenced.
C.    The prosecution led the evidence in support of its case and also produced the case property in the court alongwith the damaged jeep  in which the appellants were carrying 410 kg. poppy  husk.   In  the  FSL report all positive results were shown.  Appellants did not  lead  any evidence in defence and pleaded that they had falsely been  implicated in the crime.
D.    After conclusion of the trial, the appellants were convicted and sentenced as referred to hereinbefore vide judgment  and  order  dated 2.2.2001, and the said judgment and order has  been  affirmed  by  the High Court vide its judgment and order dated 4.11.2008.
Hence, this appeal.


3.    Mr. J.P. Dhanda, learned counsel appearing  for  the  appellants has  submitted  that  no  independent  witness  was  examined  by  the prosecution in the case, though a large number of people had  gathered at the place of the alleged incident  which  led  to  the  appellants- accused being apprehended. No  independent  witness  was  involved  in preparation of the panchnama of the recovered substances. Further, the prosecution failed  to  prove  that  the  appellants-accused  were  in conscious possession of the contraband material.   This  incriminating circumstance had not even been put  to  the  appellants-accused  while recording their statements under  Section  313  of  Code  of  Criminal Procedure, 1973 (hereinafter referred to as ‘Cr.P.C.’). The appellants have already served about  8  years  of  sentence.  Thus,  the  appeal deserves to be allowed.


4.     Per  contra,  Mr.  Brijender  Chahar,  learned  senior  counsel appearing for the State has opposed the appeal contending that even if some persons  had  gathered  at  the  place  of  occurrence  when  the appellants were apprehended, nobody was willing to become  a  witness.
Therefore, the prosecution could not examine any independent  witness.
The case of the prosecution does not deserve to get disbelieved simply because police officials themselves are the witnesses,  nor  there  is any requirement in law that  in  every  case  an  independent  witness should be examined. Further all incriminating material was put to  the appellants-accused while recording their statements under Section  313 Cr.P.C. Once it is established that an accused  is  in  possession  of contraband  substance, the burden to prove that he had no knowledge of the same, shifts to the accused to  prove   the  same.  More  so,  the accused is supposed to explain his conduct while making his  statement under  Section  313  Cr.P.C.  particularly  where  there  are  certain presumptions against him under Section  35  of  the  Act.   There  are concurrent findings of fact recorded by the  courts  below.  Thus,  no interference is called for and the appeal is liable to be dismissed.


5.    We have considered the rival submissions made by learned counsel for the parties and perused the record.


6.    No dispute has been raised regarding the  poppy  husk  recovered from the jeep or the damaged jeep.  Further, the  appellants  did  not challenge the result shown in the FSL report wherein  the  qualitative tests  in  respect  of  Meconic  Acid,  Morphine,  Codeine,  Thebaine, Papaverine and Narcotine had all been shown as positive.


7.    All three occupants, i.e. the appellants abandoned  the  vehicle just after it dashed against the wall and made a desperate attempt  to escape but were apprehended by the  police  party.   The  Trial  Court examined the matter elaborately and after appreciating the evidence of the witnesses, came to the conclusion that there were no discrepancies in the statements of the three officials, i.e. prosecution  witnesses.
Their statements inspired tremendous confidence and thus, there was no reason for  the  court  to  discard  the  testimony  of  the  official witnesses.  The grievance had also been raised before the Trial  Court that the chit carrying contents of case property was not available  on the bags.  However, this did not give any benefit to  the  accused  as there was overwhelming evidence on record to prove that the seizure of ten bags had  actually  been  made  from  the  accused.   Further  the contents of the samples  sent  for  chemical  analysis  gave  positive results on analysis in the laboratory.


8.    The High  Court  dealt  with  the  issue  elaborately  regarding knowledge i.e. conscious possession, and held as under:
“There were only three occupants in the jeep,  at  the  relevant time.  As many as 10 bags, each containing 41 kgs.  Poppy  husk, were lying in the jeep.  It was not a small  quantity  of  poppy husk,.….and could escape the notice of the accused.   It  was  a big haul of poppy husk, ……The accused were having special  means of knowledge, with regard to the bags,  containing  poppy  husk, lying in the jeep.  It was for the accused to explain, as to how the bags, containing poppy husk, were  being  transported.   Not only this, the conduct of the accused, is also relevant, in this case.  They instead of stopping the jeep, when  the  signal  was given, by the policy party, accelerated the  speed  thereof  and sped away towards Village Keharwala.   It  was  only  after  hot chase, given by the members of the police party, in their  jeep, that the driver of the jeep  got  nervous,  could  not  properly negotiate the turn and lost control, as a  result  whereof,  the said jeep struck against the wall and stopped.  In  case,  there was no contraband, in the jeep, and the accused were not in  the knowledge of the same then what was the  necessity  of  speeding away  the  jeep,  was  for  them  to  explain.   This   material circumstance goes against them.  Under these  circumstances,  it could be said that they were in possession of,  and  in  control over the bags, lying in the jeep.
Once the possession of the accused, and their control  over the contraband, was proved,  then  statutory  presumption  under Section 54 and 35 of the Act, operated against them,  that  they were in conscious possession thereof.  Thereafter,  it  was  for them, to rebut the statutory presumption, by leading cogent  and convincing evidence.  However, the  appellants, failed to  rebut the  said  presumption  either  during  the  course  of   cross- examination of the prosecution witnesses, or by leading  defence evidence.”
(Emphasis added)


9.    Further, in their  statement  under  Section  313  Cr.P.C.,  the appellants took the plea of false implication only and the  appellants miserably failed to  rebut  the  statutory  presumption,  referred  to above. The High Court further held as under:-
“In the instant case, no plea  was  taken  up  by  the  accused, during the course of trial or in their statements, under Section 313 Cr.P.C. that they were not the occupants of  the  jeep.   No plea was taken by the accused that they were not  aware  of  the contents of the bags, lying in the jeep.  No plea was  taken  up by the  driver  of  the  jeep  that  he  was  taking  the  bags, containing poppy husk,  as  per  the  directions  of  the  owner thereof, and did not know, as to what was contained in the bags.
No plea was taken up, by the other occupants, of the jeep, that they were merely labourers engaged for loading and unloading the bags, containing poppy husk, at the destination.   No  plea  was taken up by the accused, other than the driver, sitting  in  the jeep, that they  only  took  lift  therein,  and  as  such  were passengers.  They did not take up the plea, that the  driver  of the jeep knew them earlier and since they  could  not  find  any public transport, for going to their villages, he gave them lift therein on friendly basis.  The facts of the cases, relied  upon by the Counsel for the appellants,  and  referred  to,  in  this paragraph, being distinguishable, from the facts of the  instant case, no help can be drawn by the  counsel  for  the  appellants therefrom.  In this view of the matter, the  submission  of  the counsel for the appellants, being without merit, must fail,  and the same stands rejected.”


10.   So far as the condition of the property is concerned, the  court observed that “as the witnesses have been examined  after  four  years from the date of recovery.  The case property remained  lying  in  the malkhana.  On account of shortage of space, in the malkhanas, the case properties cannot be stacked properly and the bags,  containing  poppy husk, underwent the process of decay, however, did not mean  that  the case property produced in the court, did not  relate  to  the  instant case.”  There was nothing  on  record  to  show  that  the  said  case property had been tampered with.


11.   The effect of not cross-examining  a  witness  on  a  particular fact/circumstance has been dealt with and explained by this  Court  in Laxmibai (Dead) Thr. L.Rs. & Anr. v. Bhagwanthuva (Dead) Thr. L.Rs.  & Ors., AIR 2013 SC 1204 observing as under:
“31. Furthermore, there cannot be any dispute with  respect  to the settled legal proposition, that if a party wishes  to  raise any doubt as regards the  correctness  of  the  statement  of  a witness, the said  witness  must  be  given  an  opportunity  to explain his statement by drawing his attention to that  part  of it, which has been objected to by  the  other  party,  as  being untrue.  Without  this,  it  is  not  possible  to  impeach  his credibility. Such a  law  has  been  advanced  in  view  of  the statutory provisions enshrined in Section 138  of  the  Evidence Act, 1872, which enable the opposite party  to  cross-examine  a witness as regards  information  tendered  in  evidence  by  him during his initial examination in chief, and the scope  of  this provision stands enlarged by Section 146 of  the  Evidence  Act, which permits a witness to be questioned, inter-alia,  in  order to test his veracity. Thereafter, the unchallenged part  of  his evidence is to be  relied  upon,  for  the  reason  that  it  is impossible for the witness to  explain  or  elaborate  upon  any doubts as regards the same, in the absence of questions  put  to him with respect to the circumstances which  indicate  that  the version of events provided by him, is not fit  to  be  believed, and the witness himself, is unworthy of credit. Thus, if a party intends  to  impeach  a  witness,  he  must   provide   adequate opportunity to the witness in the witness box, to  give  a  full and proper explanation. The same is  essential  to  ensure  fair play and fairness in dealing with witnesses.”
(emphasis supplied)

(See also: Ravinder Kumar Sharma v. State of Assam & Ors., AIR 1999 SC 3571; Ghasita Sahu v. State of Madhya Pradesh, AIR 2008 SC  1425;  and Rohtash Kumar v. State of Haryana, JT 2013 (8) SC 181)


12.   The defence did  not  put  any  question  to  the  Investigating Officer in his cross-examination in respect of missing chits from  the bags containing  the  case  property/contraband  articles.   Thus,  no grievance could be raised by the appellants in this regard.


13.   The appellants were found travelling in a jeep at odd  hours  in the night and  the  contraband  material  was  found.  Therefore,  the question arises whether they can be held to have conscious  possession of the contraband substances.
This Court dealt with this issue in Madan Lal & Anr. v. State of Himachal Pradesh AIR 2003 SC 3642, observing that Section 20(b)  makes possession of contraband articles an offence. Section  20  appears  in Chapter IV of the Act which relates  to  offences  and  penalties  for possession of such articles. Undoubtedly, in order to bring  home  the charge of illicit possession, there must be conscious possession.  The expression ‘possession’ has been held to be a polymorphous term having different meanings in contextually different  backgrounds.  Therefore, its definition cannot be put  in  a  straitjacket  formula.  The  word ‘conscious’ means awareness about a particular fact. It is a state  of mind which is deliberate or intended. Possession in a given case  need not be actual physical possession and  may be constructive i.e. having power and control over the article in  case  in  question,  while  the person to whom physical possession is given holds it subject  to  that power or control. The Court further held as under:
“Once possession is established the person who  claims  that  it was not a conscious possession has to establish it, because  how he came to be in possession is  within  his  special  knowledge.
Section 35 of the Act gives  a  statutory  recognition  of  this position because of presumption available in law. Similar is the position in terms  of  Section  54  where  also  presumption  is available to be drawn from possession  of  illicit  articles….It has not been shown by the accused-appellants that the possession was not conscious in the logical background of Sections  35  and 54 of the Act.”                                (Emphasis added)


14.   From the conjoint reading of the provisions of Section 35 and 54 of the Act, it becomes clear that if the accused is  found  to  be  in possession of the contraband article, he is presumed to have committed the offence under the  relevant  provisions  of  the  Act   until  the contrary is proved. According to Section 35  of  the  Act,  the  court shall presume the existence of mental state for the commission  of  an offence and it is for the accused to prove otherwise.
Thus, in view of the above, it is a  settled  legal  proposition that once possession of the contraband articles  is  established,  the burden shifts on the accused to establish that he had no knowledge  of the same.


15.   Additionally, it can also be held that once  the  possession  of the contraband material with the accused is established,  the  accused has to establish how he came to be in possession of the same as it  is within his special knowledge and therefore, the case falls within  the ambit of the provisions of Section  106  of  the  Evidence  Act,  1872 (hereinafter referred to as `the Act 1872’).


16.   In State of West Bengal v. Mir Mohammad Omar & Ors.  etc.  etc., AIR 2000 SC 2988, this Court held that if the fact is specifically  in the knowledge of any person, then the burden of proving that  fact  is upon him. It is impossible for the prosecution to prove certain  facts particularly within the knowledge  of  accused.  Section  106  is  not intended to relieve the prosecution of its burden to prove  the  guilt of the accused beyond reasonable doubt. But the Section would apply to cases where the prosecution has succeeded in proving facts from  which a reasonable inference can be drawn regarding the existence of certain other facts, unless the accused by virtue  of  his  special  knowledge regarding such facts, failed to  offer  any  explanation  which  might drive the Court to draw a different  inference.  Section  106  of  the Evidence Act is designed to meet certain exceptional cases, in  which, it would be impossible for the prosecution to establish certain  facts which are particularly within the knowledge of the accused.
(See also: Shambhu Nath Mehra v. The State of Ajmer AIR 1956  SC  404;
Gunwantlal v. The State of Madhya Pradesh AIR  1972  SC  1756;   Sucha Singh v. State of Punjab AIR  2001 SC 1436;  Sahadevan @ Sagadevan  v.
State rep. by Inspector of Police, Chennai  AIR  2003  SC  215;  Durga Prasad Gupta v. The State of Rajasthan thr. CBI,  (2003) 12  SCC  257;
Santosh Kumar Singh v. State thr. CBI, (2010) 9 SCC 747; Manu  Sao  v.
State of Bihar (2010) 12 SCC 310; Neel Kumar alias Anil Kumar v. State of Haryana (2012) 5 SCC 766).


17.      Learned counsel for the appellants has placed  much  reliance upon the judgment of this Court in State of Punjab  v.  Hari  Singh  & Ors., AIR 2009 SC 1966, wherein  placing  reliance  upon  the  earlier judgment in Avtar Singh & Ors. v. State of Punjab,  AIR 2002 SC  3343, it was held  that  if  the  incriminating  material  i.e.,  the  issue relating to possession had not been put to the accused  under  Section 313 Cr.P.C. the principles of natural justice stand violated  and  the judgment stands vitiated.


18.   So far as the judgment in Avtar Singh (supra) is  concerned,  it has been considered by this Court in Megh Singh v. State of Punjab AIR 2003 SC 3184. The Court held  that the circumstantial flexibility, one additional or different fact may make a world  of  difference  between conclusions in two cases or between two accused in the same case. Each case depends on its own facts and a close similarity between one  case and another is not enough because  a  single  significant  detail  may alter the entire aspect. It is more pronounced in criminal cases where the backbone of adjudication is fact based.  In Avtar  Singh  (supra), the contraband articles were being carried  in  a  truck.  There  were several persons in the truck. Some of them fled and it  could  not  be established by evidence that anyone of them had conscious  possession.
While the accused was examined under Section 313 Cr.P.C.  the  essence of accusations was  not  brought  to  his  notice,  particularly  with respect to the aspect of possession. It  was  also  noticed  that  the possibility of the accused persons being labourers of  the  truck  was not ruled out by evidence. Since the decision was rendered on  special consideration of several peculiar factual aspects specially noticed in that case, it cannot be of any assistance in all the cases.


19.   Therefore, it is evident that Avtar Singh (supra) does  not  lay down the law of universal application as it had been  decided  on  its own facts.


20.   So far as Section 313 Cr.P.C.  is  concerned,  undoubtedly,  the attention of the accused must specifically be  brought  to  inculpable pieces of evidence to give him an opportunity  to offer an explanation if he chooses to do so.  A three-Judge Bench of this  Court  in  Wasim Khan v. The State of Uttar Pradesh,  AIR 1956 SC 400; and Bhoor  Singh & Anr. v. State of Punjab,  AIR 1974 SC 1256 held that every error  or omission in compliance of the provisions of Section  342  of  the  old Cr.P.C. does not necessarily vitiate trial.   The  accused  must  show that some prejudice has been caused or was likely to have been  caused to him.


21.   In  Asraf Ali v. State of Assam, (2008) 16 SCC  328,  a  similar view has been reiterated by this Court  observing  that  all  material circumstances appearing  in  the  evidence  against  the  accused  are required to be put to him specifically and failure to do so amounts to serious irregularity vitiating trial, if it is shown that the  accused was prejudiced.


22.   In Shivaji Sahebrao Bobade & Anr. v. State of  Maharashtra,  AIR 1973 SC 2622, a three-Judge Bench  of  this  Court  held  that  “basic fairness of a criminal trial may gravely imperil the validity  of  the trial itself, if consequential miscarriage  of  justice  has  flowed.”
However, where such an omission has occurred it does  not  ipso  facto vitiate the proceedings and prejudice occasioned by such defect,  must be established by the accused.


23.   In Paramjeet Singh @ Pamma v. State of Uttarakhand, AIR 2011  SC 200, after considering large number of cases on the issue, this  Court held as under:-
“Thus, it is evident from  the  above  that  the  provisions  of Section 313 Cr. P.C make it obligatory for the court to question the accused on the evidence and circumstances against him so  as to offer the accused an opportunity to explain the same. But, it would not be enough for the accused to show that he has not been questioned or examined on a particular circumstance, instead  he must show that such non-examination has actually and  materially prejudiced him and has resulted in the failure  of  justice.  In other words, in the event of an inadvertent omission on the part of the court  to  question  the  accused  on  any  incriminating circumstance cannot ipso facto vitiate the trial  unless  it  is shown that some material prejudice was caused to the accused  by the omission of the court” (Emphasis added)


24.   In the instant case the issue relating to non-compliance of  the provisions of Section 313 Cr.P.C. has not been raised before the  High Court, and it is raised for the first time before this Court.  Learned counsel for the appellants could not point out what prejudice has been caused to them if the fact of “conscious possession” has not been  put to them. Even otherwise such an issue cannot be raised in the existing facts and circumstances of the case wherein  the  burden  was  on  the accused to show how the contraband material came to be  found  in  the vehicle which was driven by  one  of  them  and  the  other  two  were travelling in that vehicle.


25.   The next question for consideration does arise as to whether  it is necessary to examine an  independent  witness  and  further  as  to whether a case can be seen with doubt where all the witnesses are from the police department.
In Rohtash v. State of Haryana  JT 2013 (8) SC 181,  this  court considered the issue at length and after  placing  reliance  upon  its earlier judgments came to the conclusion that where all witnesses  are from the police department,  their  depositions  must  be  subject  to strict scrutiny. However, the evidence of police officials  cannot  be discarded merely on the ground that they belong to the  police  force, and are either interested in  the  investigating  or  the  prosecuting agency. However,  as  far  as  possible  the  corroboration  of  their evidence on material particulars should be sought.  The Court held  as under:
“Thus, a witness  is  normally  considered  to  be  independent, unless he springs from sources which are likely  to  be  tainted and this usually means that the said witness has cause, to  bear such enmity against the accused, so as to implicate him falsely.
In view of the above, there can be no prohibition to the effect that a policeman cannot be a witness,  or  that  his  deposition cannot be relied upon.”
(See also: Paras Ram v. State of Haryana, AIR  1993  SC  1212;  Balbir Singh v. State, (1996) 11 SCC 139; Akmal Ahmad v. State of Delhi,  AIR 1999 SC 1315; M.  Prabhulal  v.  Assistant  Director,  Directorate  of Revenue Intelligence, AIR 2003 SC  4311;  and  Ravinderan  @  John  v.
Superintendent of Customs, AIR 2007 SC 2040).


26.   In State, Govt. of NCT of Delhi v. Sunil &  Anr.  (2001)  1  SCC 652, this Court examined a similar issue in a case where no person had agreed to affix his signature on the  document.   The  Court  observed that it is an archaic notion that actions of the police officer should be viewed with initial distrust. At any rate, the court  cannot  begin with the presumption that  police  records  are  untrustworthy.  As  a proposition of law the presumption should be the other way around. The wise principle  of  presumption,  which  is  also  recognised  by  the legislature,  is  that  judicial  and  official  acts  are   regularly performed. Hence, when a police officer gives evidence in court that a certain article was recovered by him on the strength of the  statement made by the accused it is open to the court to believe that version to be correct if it is not otherwise shown to be unreliable.  The  burden is on the accused, through cross-examination of witnesses  or  through other materials, to show that the evidence of the  police  officer  is unreliable.  If  the  court  has  any  good  reason  to  suspect   the truthfulness of such records of the police the court  could  certainly take into account the  fact  that  no  other  independent  person  was present at the time of recovery. But it is not  a  legally  approvable procedure to presume that police action is unreliable to  start  with, nor to jettison such action merely for the reason that police did  not collect signatures  of  independent  persons  in  the  documents  made contemporaneous with such actions.


27.   In  Appabhai & Anr. v. State of Gujarat AIR 1988  SC  696,  this court dealt with the issue of non-examining the independent  witnesses and held as under:
“The prosecution case cannot be thrown out or doubted on  that ground alone. Experience reminds us that  civilized  people  are generally insensitive when a crime is committed  even  in  their presence. They withdraw both from the victim and the  vigilante.
They  keep  themselves  away  from  the  Court  unless   it   is inevitable. They think that crime like civil dispute is  between two  individuals  or  parties  and  they  should   not   involve themselves. This kind of apathy of the general public is  indeed unfortunate, but it is  there  everywhere  whether  -in  village life, towns or cities. One  cannot  ignore  this  handicap  with which the investigating agency has to discharge its duties.”


28.   The principle of law laid down hereinabove is  fully  applicable to the facts of the present case.  Therefore, mere non-joining  of  an independent witness where the evidence of  the  prosecution  witnesses may be found to be  cogent,  convincing,  creditworthy  and  reliable, cannot cast doubt on the version forwarded by the prosecution if there seems to be no reason on record to falsely implicate the appellants.


29.   In the instant case at the time of incident some  villagers  had gathered there. The Investigating Officer in his cross-examination has made it clear that in spite of his best persuasion, none of them  were willing to become a witness.  Therefore,  he  could  not  examine  any independent witness.
Section 114 of the Act 1872 gives rise to the  presumption  that every official act done by the police was regularly performed and such presumption requires rebuttal. The legal maxim omnia praesumuntur rite it dowee probetur in contrarium solenniter esse  acta  i.e.,  all  the acts are presumed to have been done rightly  and  regularly,  applies.
When acts are of official nature  and  went  through  the  process  of scrutiny by official persons, a presumption arises that the said  acts have regularly been performed.

In view of the above,  the  submissions  of  the  learned counsel for the appellants in this regard, are held to be without  any substance.


30.   In view of the  above,  the  appeal  does  not  present  special features warranting any interference by this court. Appeal  is  devoid of any merit and is, accordingly, dismissed.


……………………………..........J.               

(DR.B.S. CHAUHAN)

……………..................................J.
(S.A.  BOBDE)

NEW DELHI;
July 23, 2013

IN SUPREME COURT OF INDIA
 

C.A. No.-004575-004576 / 1998


N. BALAKRISHNAN.
PETITIONER:
 
Vs.
M. KRISHNAMURTHY.
RESPONDENT:
 
DATE OF JUDGMENT: 03/09/1998

BENCH:
S.SAGHIR AHMAD, K.T. THOMAS.,
 
Thomas J.
 
Leave granted.
 
Explanation for the apparently inordinate delay in moving an application was accepted by the trial court under Section 5 of the Limitation Act, 1963, but the High Court in revision reversed the finding and consequently dismissed the motion. That order of the High Court has given rise to these appeals.

Facts barely needed for these appeals are the following:

A suit for declaration of title and ancillary reliefs filed by the respondent was decreed ex-parte on 28.10.1991. Appellant, who was defendant in the suit, on coming to know of the decree moved an application to set it aside. But the application was dismissed for default on 17.02.1993. Appellant moved for having that order set aside only on August 19, 1995 for which a delay of 883 days was noted. Appellant also filed another application to condone the delay by offering an explanation which can be summarized thus:

Appellant engaged an advocate (one Sri MS Rajith) for making the motion to set the ex-parte decree aside but the advocate failed to inform him that the application was dismissed for default on 17.2.1993. When he got summons from the execution side on 5.7.1995 hye approached his advocate but he was told that perhaps execution proceedings would have been taken by the decree holder since there was no stay against such execution proceedings. On the advice of the same advocate, he signed some papers including a Vakalatnama for resisting the execution proceedings, besides making a payment of Rupees Two Thousand towards advocate’s fees and other incidental expenses. But the fact is that the said advocate did not do anything in the court even thereafter - On 4.8.1995 the execution warrant was issued by the court and he became suspicious of the conduct of his advocate and hence rushed to the court from where he got the disquieting information that his application to set aside the ex-parte decry stood dismissed for default as early as 17.2.1993 and that nothing was done in the court thereafter on his behalf. He also learned that his advocate has left the profession and joined as legal assistant of MS Maxworth Orcheads India Limited. Hence he filed the present application for having the order dated 7.2.1993 set aside.

Appellant did not stop with filing the aforesaid application. He also moved the District Consumer Disputes Riderless Forum, Madras North ventilating his grievance and claiming a compensation of rupees on lakh as against his erstwhile advocate. The said forum passed final order directing the said advocate to pay a compensation of Rs. Fifty thousand to the appellant besides a cost of Rs. Five Hundred.

Though, the trial court was pleased to accept the aforesaid explanation and condoned the delay a single Judge of the High Court of Madras who heard the revision, expressed the view that the delay of 883 days in filing the application has not been properly explained. Hence the revision was allowed and trial court order was set aside.

An application for review was made, but that was dismissed.

Hence these appeals.

The reasoning of the learned single Judge of the High Court for reaching the above conclusion is that the affidavit filed by the appellant was silent as to why he did not meet his advocate for such a long period. According to the learned single Judge:

"If the appellant was careful enough to verify about the stage of the proceedings at any point of time and had he been misled by the counsel then oily it could have been said that due to the conduct of the counsel the party should not be penalised.”

Learned single judge then observed that when the party is in utter negligence, he cannot be permitted to blame the counsel. Learned single judge has further remarked that:

"A perusal of the affidavit does not reveal any diligence on the part of the respondent in the conduct of the proceedings. When already the suit has been decreed ex-parte, the respondent ought to have been more careful and diligent in prosecuting the matter further. the conduct of the respondent clearly reveals that at any point of time, he has not relished his responsibility as a litigant.”

Appellant’s conduct does not on the whole warrant to castigate him as an irresponsible litigant. What he did in defending the suit was not very much far from what a litigant would broadly do. Of course, it may be said that he should have been more vigilant by visiting his advocate at short intervals to check up the progress of the litigation. But during these days when everybody is fully occupied with his own avocation of life an omission to adopt such extra vigilance need not be used as a ground to depict him as a litigant not aware of his responsibilities, and to visit him with drastic consequences.

It is axiomatic that condonation of delay is a matter of discretion of the court Section 5 of the Limitation Act does not say that such discretion can be exercised only if the delay is within a certain limit.

Length of delay is no matter, acceptability of the explanation is the only criterion. Sometimes delay of the shortest range may be uncondonable due to want of acceptable explanation whereas in certain other cases delay of very long range can be condoned as the explanation thereof is satisfactory. Once the court accepts the explanation as sufficient it is the result of positive exercise of discretion and normally the superior court should not disturb such finding, much less in reversional jurisdiction, unless the exercise of discretion was on whole untenable grounds or arbitrary or perverse. But it is a different matter when the first cut refuses to condone the dela. In such cases, the superior cut would be free to consider the cause shown for the delay afresh and it is open to such superior court to come to its own finding even untrammeled by the conclusion of the lower court.

The reason for such a different stance is thus: The primary function of a court is to adjudicate the dispute between the parties and to advance substantial justice. Time limit fixed for approaching the court in different situations in not because on the expiry of such time a bad cause would transform into a good cause.

Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. the object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time.

A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause.

There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi Jain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749].

It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss.

In this case explanation for the delay set up by the appellant was found satisfactory to the trial court in the exercise of its discretion and the High Court went wrong in upsetting the finding, more so when the High Court was exercising reversional jurisdiction. Nonetheless, the respondent must be compensated particularly because the appellant has secured a sum of Rs. Fifty thousand from the delinquent advocate through the Consumer Disputes Riderless Forum. We, therefore, allow these appeals and set aside the impugned order by restoring the order passed by the trial court but on a condition that appellant shall pay a sum of Rupee Ten thousand to the respondent (or deposit it in this court within one month from this date.

The appeals are disposed of accordingly.
 

ITEM NO.104 COURT NO.5 SECTION III
S U P R E M E C O U R T O F I N D I A

RECORD OF PROCEEDINGS
CIVIL APPEAL NO(s). 641 OF 2001

M/S. KARTAR ROLLING MILLS
Appellant (s)

VERSUS

COMMNR. OF CENTRAL EXCISE, NEW DELHI
Respondent(s)

(With office report )

WITH
Civil Appeal NO. 642 of 2001
Civil Appeal NO. 643 of 2001
(With office report)

Date: 01/03/2006 This Appeal was called on for hearing today.

CORAM :
HON'BLE MR. JUSTICE ASHOK BHAN
HON'BLE MR. JUSTICE G.P. MATHUR

For Appellant(s) Mr. Rupesh Kumar, Adv. For Mr. Rajesh Kumar,Adv.
For Respondent(s) Mr. Saket Singh, Adv.
Ms.M.F.Humayunisa, Adv.
Mr. P. Parmeswaran,Adv.

UPON hearing counsel the Court made the following

O R D E R

Mr.Rupesh Kumar, Adv., who is appearing as a proxy counsel, states that the brother of Mr.
Rajesh Kumar, Advocate, counsel for the appellant has met with an accident in the morning and is
admitted in the ICU in a hospital. Prays for a short adjournment.

Not for this week.

( PARVEEN KR. CHAWLA )             ( KANWAL SINGH )
Court Master                                Court Master


IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Appeal No.: E/256/2011
[Arising out of Order-in-Appeal No. 01/2011(M-IV)(D) dated 09.02.2011 passed by the Commissioner of Central Excise (Appeals), Mahatma Gandhi Road, Chennai]

M/s. TVS Electronics Ltd., Chennai
Appellant

Versus

The Commissioner of G.S.T. & Central Excise, Chennai North Commissionerate
Respondent

Appearance:-
Shri. Raghavan Ramabadran, Advocate For the appellant
Shri. B. Balamurugan, AC (AR) For the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing: 20.02.2019
Date of Pronouncement: 18.03.2019

Final Order No. 40526 / 2019

Per Bench :

Brief facts are that the appellants are engaged in the manufacture of printers and assemblies thereof and are registered with the Central Excise Department. They filed a refund claim for Rs. 13,23,279/- in respect of goods cleared to their Kit Store (depot) stating that the value adopted at the time of removal from the factory gate was higher than the value prevailing at or about the same time at the depot for the same goods.

2. A Show Cause Notice was issued proposing to reject the refund claim alleging that the appellant has not adopted Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The appellants had revised their refund claim to Rs. 16,65,845/-. After due process of law, the Original Authority vide Order dated 31.10.2005, rejected the refund claim stating the reason that the appellant had not opted for provisional assessment. In appeal, the Commissioner (Appeals) vide Order-in-Appeal No. 56/2007 dated 31.05.2007 remanded the matter back to the Original Authority with directions. In such remand proceedings, the Original Authority vide Order dated 06.01.2009 sanctioned refund of Rs. 13,23,279/-.

3. Against such order of sanction of refund, the Department filed an appeal before the Commissioner (Appeals) and vide Order impugned herein, the Commissioner (Appeals) allowed the appeal filed by the Department, thus rejecting the sanction of refund. The appellant is thus before the Tribunal.

4. On behalf of the appellant, the Ld. Advocate Shri. Raghavan Ramabadran appeared and argued the matter. His arguments can be summarized as under :

1.1 Normally goods would be sold at the same price at the Kit Stores as that of the factory. The price of goods are revised periodically by the Head Office of the appellant. In such case, the goods are sold at such revised price and the excise duty is paid on the same. This exercise was being done periodically. The selling price of such Print Heads underwent a revision with effect from 20.01.2005. Due to communication gap, the fact of price reduction was not received by the factory. The result was that the goods were being cleared from the factory by adopting the price that existed prior to 20th  January, 2005 even though such price was higher than the revised price. However, the kit stores/depots implemented the price reduction and sold the goods at the reduced prices. This went on till 28.02.2005. On 01.03.2005, this error was identified and rectified. The revised reduced prices were implemented for the goods removed from the factory with effect from 01.03.2005. Consequently, the appellant preferred a refund claim on 15th April, 2005 for the excess duty paid at the factory gate during such period amounting to Rs. 13,23,279/-.

1.2 A Show Cause Notice dated 14.09.2005 was issued proposing to deny the refund claim on the ground that the refund claim is not in accordance with the provisions of Rule 7 ofthe Central Excise Valuation Rules, 2000. Prior to adjudication of the Notice, the appellant revised their refund claim as per the provisions of Rule 7. The claim of refund as per the revised computation worked out to Rs. 16,65,845/- i.e. higher than the initial claim of Rs. 13,23,279/-. The lower adjudicating authority vide Order-in-Original No. 35/2005 dated 31.10.2005 did not consider the revised refund claim and denied the original refund claim for Rs. 13,23,279/- on the ground that the workings were not in accordance with Rule 7. Against this order, the appellant preferred an appeal before the Commissioner (Appeals) who vide Order-in-Appeal No. 56/2007 dated 31.05.2007 remanded the matter back to the Original Authority with the limited scope of :

a) Examining the aspect that the appellant reduced the selling price of assemblies to be charged at Kit Stores with effect from 20.01.2004 and they continued to adopt the then prevailing selling price and effected clearances of assemblies to Kit Stores in which excise duty was paid on the higher value;

b) Examining the question of unjust enrichment;

1.3 The Assistant Commissioner vide Order-in-Original No. 01/2009 dated 06.01.2009 allowed the refund of Rs. 13,23,279/- on the following grounds :

a) The assessee has adopted higher value at the factory gate than the value of the goods cleared at the kit stores;
b) The refund eligible to the assessee is not barred by unjust enrichment;
c) The revised working with refund claim of Rs. 16,65,845/- cannot be considered as refund claim under Section 11B of the Central Excise Act and therefore, refund of Rs.13,23,279/- is allowed by way of credit in their CENVAT Credit account.

Consequent to the order, the appellant availed Credit of the refund. Against such availment, the Department has not issued any Show Cause Notice for recovery of erroneously granted refund;

1.4 Against such order of sanction of refund, the Department preferred an appeal before the Commissioner (Appeals) who has set aside the Order-in-Original dated 06.01.2009 and denied the refund claim on the ground that the value of goods adopted by the appellant in their refund worksheet is not in consonance with Rule 7 and therefore, the Order sanctioning refund is incorrect.

2.1 The appellant, upon clearance of the assemblies to the Kit Stores, paid excise duty in terms of Rule 7 of the Central Excise Valuation Rules. On subsequent sale to the customers from the Kit Stores, the commercial invoice was raised only for the gross value and the excise duty element was not passed on. Therefore, when the burden of duty has not been passed on to the customer, the refund otherwise eligible is not barred by unjust enrichment.

2.2 It is not in dispute that the appellant had filed an initial refund claim for Rs. 13,23,279/-. After the issuance of the Show Cause Notice and before its adjudication, the appellant filed a revised refund claim for Rs. 16,65,845/- as per Rule 7 of the Valuation Rules. The remand order dated 31.05.2007 was for the limited purpose of checking whether there was :

a) An actual difference between the sale price of the assemblies at the factory and the sale price at the Kit Stores;

b) The refund is barred by unjust enrichment.

The Order-in-Original dated 06.01.2009 on remand examined both the issues and granted the refund. However, the impugned Order has gone beyond the scope of remand to deny the refund on the ground that the appellant has not satisfied Rule 7. Therefore the appellant submits that the impugned Order is beyond the scope of remand and on such score, merits to be set aside.

2.3 The appellant submits that the reduction in prices of the assemblies happened at the Kit Stores on 20.01.205. Accordingly, the appellant filed a refund claim for all clearances made from the factory on or after 20.01.2005. This is evident from the refund claim worksheet, both original and revised, filed by the appellant with the Department. Therefore, the finding in the impugned Order is factually incorrect and on this score also, merits to be set aside.
2.4 The appellant has availed the refund as Credit consequent to the order of the Ld. Assistant Commissioner dated 06.01.2009. The Department has not issued a Show Cause Notice seeking to recover the alleged erroneously granted refund. It is a settled principle that an appeal under Section 35E and a Show Cause Notice to recover the erroneously granted refund under Section 11A will have to be cumulatively satisfied in order to recover the refund sanctioned. In this regard reliance is placed on the following case laws :

C.C.E. Vs. Pricol Ltd. – 2015 (320) E.L.T. 703 (Mad.)
Golden Plast Rigid PVC Pipes Vs. C.C.E. – 2018 (13) G.S.T.L. 321 (Tri.– Chennai).

In this case, since no Show Cause Notice for recovery has been issued, the entire proceedings fail.

5. On behalf of the Department, Ld. AR Shri. B. Balamurugan appeared and argued the matter. He supported the findings in the impugned Order. It was emphasized by him that the Original Authority while sanctioning the refund had not gone into the question of unjust enrichment and therefore, the matter requires to be remanded.

6. Heard both sides.

7. The appellant had filed a revised refund claim of R. 16,65,845/- However, in the second round of adjudication vide Order dated 06.01.2009, the Original Authority had sanctioned the refund claim of Rs. 13,23,279/- only. The appellants having not preferred any appeal against the non-sanction of the balance amount, the dispute in this appeal is confined to the amount of Rs. 13,23,279/- only.

8.1 The main ground on which the Commissioner (Appeals) has disallowed the refund claim is that the appellant has not followed Rule 7 of the Central Excise Valuation Rules, 2000. However, on perusal of the earlier Order-in-Appeal No. 56/2007 dated 31.05.2007 it is seen that after considering the issue in detail, the Commissioner (Appeals) has remanded the matter to examine the aspect as to whether the appellant reduced the selling price of the goods at the depots with effect from 20.01.2005 or not and also the issue of unjust enrichment. The relevant portion of the said Order, passed by the Commissioner (Appeals) dated 31.05.2007, is reproduced as under :

“…In the interest of justice, it will be appropriate to remand the matter to the original authority to examine the aspect that the appellant reduced the selling price of assemblies to be charged at the kit stores with effect from 20th January 2005 and they continued to adopt the then availing selling prices and effected clearances of assemblies to kit stores in which excise duty was paid on the higher value in spite of the fact that the company had effected reduction in the selling price with effect from 20.01.2005 without raising the issue of provisional assessment since the provisional assessment or no provisional assessment does not make any difference as the appellant filed the refund at the initial stage and the revised amount within the time limit prescribed under Section 11AB of the Central Excise Act, 1944. Accordingly, the case is remanded back to the Original Authority for deciding the matter afresh in aforesaid terms in accordance with law, by observing the principles of natural justice. Needless to say, the question of unjust enrichment should also be examined in case the refund is found to be admissible. The appellant shall render all cooperation to the Department and furnish all required documents to the lower adjudicating authority for deciding the question of unjust enrichment. Accordingly, the impugned order in original is set aside and the Department’s appeal is allowed by way of remand.”
(Emphasis supplied)

8.2 The two points of remand as examined by the adjudicating authority in Order-in-Original dated 06.01.2009 and the discussions regarding these points are reproduced as under :

“16. The Appellate Authority, the Commissioner (Appeals) has, while remanding the case, directed that :

(i) The Original Authority to examine the aspect that the appellant reduced the selling price of assemblies to be charged at the Kit Stores with effect from 20th January, 2005 and they continued to adopt the then prevailing selling price and effect clearance of assemblies to Kit Stores in which excise duty was paid on the higher value in spite of the fact that the company had effected reduction in the selling price with effect from 20.01.2005 without raising the issue of Provisional Assessment, since
the Provisional Assessment or no Provisional Assessment does not make any difference as the appellant filed the refund at the initial stage and the revised amount within the time limit prescribed under Section 11AB of the Central Excise Act, 1944.
(ii) The question of unjust enrichment should also be examined in case the refund is found to be admissible.

As far the first direction is concerned, the assessee filed the refund claim on 15.04.2005, well within the one year period stipulated in Section 11B of the Central Excise Act, 1944 and from the records, it is seen that the assessee adopted higher value at factory gate than the value of the goods cleared at the Kit Stores. As far as the second direction is concerned, I find from the invoices submitted by the assessee that the goods are cleared from the Kit Stores under commercial invoices and the value represents the Gross value of the product and no other charges are collected from the customers on the invoice towards duty incidence. Moreover, M/s. TVS Electronics Kit Stores is not a registered dealer for clearances of goods manufactured and supplied by M/s. TVS Electronics Ltd. Chennai. Since no excess duty is collected from their customers as inferred from the documents, I conclude that, in view of the above position M/s. TVS Electronics Ltd. are eligible for refund.”

9. It can be seen that the adjudicating authority had gone into the question as to whether the appellant had adopted a higher value at the factory gate than the value of goods cleared at the Kit Stores. After perusing the invoices, the said issue was found to be in favour of the appellant. The issue of unjust enrichment was also examined by the adjudicating authority. Thus, after complying with the remand direction, the adjudicating authority has sanctioned the refund of Rs. 13,23,279/-. Hence, the conclusion arrived by the Commissioner (Appeals) in the impugned Order that the adjudicating authority had not examined the aspect of Rule 7 of the Central Excise Valuation Rules, 2000, etc., is beyond the scope of remand.

10. Moreover, it is submitted by the Ld. Counsel for the appellant that the refund has been sanctioned to the appellant and the appellant has availed Credit of the said amount. There has been no Show Cause Notice issued till now by the Department for recovery of the erroneous refund. In such circumstances, the entire exercise of analyzation by a further remand, as requested by the Ld. AR for the Department, is futile.

11. We therefore find that the sanction of refund by the adjudicating authority is right and proper. The Order passed by the Commissioner (Appeals) rejecting the sanction of the refund cannot sustain in the eyes of law. The same is set aside.

12. The appeal filed by the appellant is allowed with consequential reliefs, if any, as per law.


(Pronounced in open court on 18.03.2019)


(Madhu Mohan Damodhar)                 (Sulekha Beevi C.S.)
Member (Technical)                            Member (Judicial)


Sdd

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
CHENNAI

Appeal No. ST/41881/2014
(Arising out of Order-in-Appeal No. 266/2013 dated 24.1.2013 passed by the Commissioner of Central Excise (Appeals), Madurai)

M/s. Shri Shanmuga Services
Appellant

Vs.

Commissioner of GST & Central Excise,Tirunelveli
Respondent

Appearance
Ms.D. Naveena, Advocate for the Appellant
Shri B. Balamurugan, AC (AR) for the Respondent

CORAM
HON’BLE Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing / Decision: 18.03.2019

Final Order No. 40532 / 2019

Per Bench

The appellants are engaged in providing taxable services under the category of Customs House Agent. During the course of audit, it was noticed that there was difference between the taxable values shows in the periodical returns in form ST-3 returns and the quantum of service charges charged and collected as reflected in the balance sheet for the period 2010 –11. Show cause notice was issued proposing to demand the short-paid service tax along with interest and also for imposing penalty. After due process of law, the original authority confirmed the demand of Rs.1,42,389/- along with interest and imposed penalty under section 76 of Finance Act, 1994. In appeal, Commissioner (Appeals) upheld the same. Hence this appeal.

2. On behalf of the appellant, ld. counsel Ms. D.Naveena submitted that the demand was confirmed by the adjudicating authority under Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 which has been held to be ultra vires by the Hon'ble Supreme Court in the case of Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 (10) GSTL 401 (SC). That therefore the demand under this provision is unsustainable. The appellant had contended before the Commissioner (Appeals) that after excluding the reimbursable expenses, the value of taxable services amounting to Rs.10,14,593/-, the service tax has been discharged by the appellant on this amount during the financial years 2011 – 12 and 2012 – 13. This submission was however dismissed by the Commissioner (Appeals) on the ground that sufficient evidence was not furnished by the appellant. She prayed that the appellants may be given an opportunity to prove the same before the lower authority. She also prayed that the penalty imposed under section 76 be set aside.

3. The ld. AR Shri B. Balamurugan supported the findings in the impugned order. He submitted that before the lower authorities the appellant had not contended that the entire amount is reimbursable expenses. They had submitted that part of the amount falls under consideration received for services is subject to levy of service. Therefore, he prayed that no interference is required in the impugned order.

4. Heard both sides.

5. Show Cause Notice has been issued stating that the appellant have not included an amount of Rs.13,82,406/- in the total taxable value for the returns filed for the year 2010 – 11. In para 3.4 of the Show Cause Notice, it is alleged that where any expenditure or costs are incurred by the service provider, the same also has to be included in the total taxable value for discharging the service tax. However, this provision contained in Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 has been set aside as ultra vires by the decision of the Hon'ble Supreme Court cited supra. Thus, it is settled law that reimbursable expenses cannot be subject to levy of service tax during the disputed period. From the records, it is seen that the appellants have raised a contention that they have discharged the service tax on the value of Rs.10,14,593/- which was the amount after exclusion of reimbursable expenses. So even though it is stated to be expenses and costs incurred for providing services, the appellant admits that the amount raised in the Show Cause Notice includes certain amount which is not reimbursable expenses and has to be included in the taxable value. Taking note of this aspect and also the request of the appellant seeking for an opportunity to furnish evidences to establish their case, we are of the opinion that it is fit to remand the matter to the adjudicating authority for reconsideration of the issue. In case, the entire amount raised in Show Cause Notice falls under the category of reimbursable expenses, the demand cannot sustain as per the decision of Apex Court in Intercontinental Consultants & Technocrats Pvt. Ltd. (supra).

6. The ld. counsel has also prayed to set aside the penalty imposed under section 76. They have discharged the service tax on the amount which according to them is not reimbursable expenses. The issue whether reimbursable expense was subject to levy of service was contentious for a long time and the matter travelled upto Apex Court. Taking these facts into consideration and that the issue is wholly interpretational one, we are of the considered opinion that the appellant has put forward reasonable cause for not paying service tax. This is a fit case for invocation of section 80. Therefore, penalty under section 76 is set aside. The Hon'ble High Court in Commissioner of Central Excise & Service Tax, Coimbatore Vs. Ganga Medical Centre & Hospital – 2019 (20) GSTL 216 (Mad.) has upheld the waiver of penalties even though matter was remanded.

7. From the foregoing discussions, the impugned order is modified by setting aside penalty and the matter is remanded to the adjudicating authority for limited purpose of considering the fact whether the amount raised falls within the category of reimbursable expenses or not. The appeal is allowed by way of remand.


(Dictated and pronounced in open court)


(Madhu Mohan Damodhar)             (Sulekha Beevi C.S.)
Member (Technical)                      Member (Judicial)

Rex

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH
REGIONAL BENCH AT HYDERABAD
BENCH - DB

COURT - I

Appeal(s) Involved:
ST/2107/2010-DB, ST/2108/2010-DB, ST/23178/2014-DB, ST/294/2011-DB
(Arising out of Order-in-Appeal No. 05-2010 dated31/05/2010 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals) Hyderabad-III)
(Arising out of Order-in-Appeal No. 09-2010 dated31/05/2010 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals) Hyderabad-III)
(Arising out of Order-in-Appeal No. HYD-EXCUS-003-COM- 017-14-15 dated 30/06/2014 passed by Commissioner Of Customs & Central Excise (Appeals), HYDERABAD-III )
(Arising out of Order-in-Appeal No. 20-2010 dated 25/10/2010 passed by Commissioner of Central Excise and Service Tax (Appeals), HYDERABAD-III )

Lurgi India International Services Pvt Ltd
Appellant(s)

Versus

Commissioner of Central Excise, Customs And Service Tax Hyderabad
Respondent(s)

Appearance:
R. Murlidhar, Adv for the Appellant.
Mr Guna Ranjan. A.R. for the Respondent.

CORAM:
HON’BLE Mr. M.V.Ravindran, MEMBER (JUDICIAL)
HON'BLE Mr. P. Venkata Subba Rao, MEMBER (TECHNICAL)

Date of Hearing: 18/03/2019
Date of Decision: 18/03/2019

Final Order No. A/ 30368-30371 / 2019

[Order per: M.V.Ravindran. ] .

All these appeals are taken up for disposal as the issue involved in these appeals is the same and in respect of the very same assessee.

2. Heard both sides and perused the records.

3. On perusal of records, it transpires that the appellant herein is a manufacturer of Air and Gas separation plants on turnkey basis, got technical knowhow form M/s L’ Air Liquide, France for which appellant were paying royalty of 5% of domestic sales and 8% of export sales to such company in France. The period involved in this case is from 10.09.2004 to March 2013; wherein on verification of balance-sheets, department issued a show-cause notice dated 02.03.2009 by invoking extended period for the demand of the duty under the category of IPR services holding that appellant is liable to discharge service tax liability under reverse charge mechanism. After following due process of law, service tax liability is confirmed along with interest and penalties imposed.

4. Learned counsel submits that the entire issue is no more res integra. It is undisputed that appellant received technical knowhow and paid royalty charges to the upcountry person which is for the technical know-how provided to them and such technical know-how is not registered under Indian laws. He would submit that for the payment of service tax liability under reverse charge mechanism for the period prior to 17.04.2006, the entire tax liability is not sustainable as per the law settled by the judgement of the Hon’ble High Court of Bombay in the case of Indian National Ship Owners Association Vs UOI [2009(17)STR J 57 (SC)] which has been affirmed by the Apex court as reported at 2010 (17)STR J 57 wherein it was held that in view of the charging Sections 66A of the Finance Act came into effect from 18.4.2006 and recipient of the services cannot be fastened with the service tax liability for the earlier period. As regards post 17.04.2006, he would submit that the agreement which has been entered into by the appellant is in the year 2002 and clearly indicates that licensors (the upcountry person) to give them technical know-how which may or may not be patented by them. He would submit that Intellectual Property Rights services under which the demand has been raised has been interpreted by the Tribunal in the case of Reliance Industries Ltd Vs CCE & ST, LTU Mumbai [2016(44) STR 82 (Tri-Mum)] and has been followed by the Tribunal in the case of Chambal Fertilizers & Chemicals Ltd Vs CCE Jaipur [2016(45)STR 118 (Tri-Del) and Munjal Showa Ltd Vs CCE & ST Delhi [2017(5) GSTL 145 (Tri-Chan)]. He would submit that on limitation also the matter is blatantly hit by time bar in the 1st show-cause notice as the issue of taxability under reverse charge mechanism was being agitated before various higher judicial forums.

5. Learned A.R. on the other hand submits that the lower authorities have recorded findings that appellant has to discharge the service tax liability under reverse charge mechanism pre and post 18.04.2006. He would reiterate the findings of the lower authorities.

6. On a careful consideration of the submissions made, we find that the issue of charging the service tax on the recipient of the service tax under reverse charge mechanism under Section 66A of the Finance Act 1944 and it came into effect from 18.04.2006. Prior to 18.04.2006, no tax liability arises under reverse charge mechanism is the law settled by the Apex court in the case of Indian National Ship Owners Association (supra). It is undisputed in the facts of this case that the demand raised on the appellant is under reverse charge mechanism. Accordingly for the period prior to 18.04.2006, no demand arises on the appellant. We hold it so.

7. As regards post 18.04.2006, we find that the demand has been raised under the category of Intellectual Property Rights services under the Finance Act 1994, by recording that the said technical knowhow which has been given by the Foreign Company is their proprietary interest, and though it is not registered under Indian Patents Act 1970, the service tax liability arises on interpretation of definition of intellectual property services.

8. We find that the issue is no more res integra as the Tribunal in the case of Reliance Industries Ltd (supra) (wherein one of us Shri M.V. Ravindran was a Member) in paragraph No 2 to 12 was considering the very same issue and held that in order to fasten the service tax liability, the person providing the technical know-how has to be registered with the Patents Authority in India. If the IPR is registered in any foreign country but is not registered in India, the same will not attract the service tax, demand under reverse charge mechanism, is the ratio. We find that the said ratio is squarely applicable in these appeals post 18.04.2006. The same view has been expressed by the Tribunal in the case of Chambal Fertilizers and Chemicals Ltd and Munjal Showa Ltd (supra). Since the issue is no more res integra, we hold that the impugned orders are unsustainable and liable to be set aside and we do so.

9. For the foregoing reasons, impugned orders are set aside and the appeals are allowed.


(Order pronounced and dictated in open court)


P. Venkata Subba Rao
MEMBER (TECHNICAL)

M.V.Ravindran
MEMBER (JUDICIAL)

Neela Reddy

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

APPEAL NO: C/422/2011
[Arising out of Order-in-Appeal No: 158(GR.VI)/2011(JNCH)/IMP-118 dated 11th April 2011 passed by the Commissioner of Customs (Appeals), Nhava Sheva, Mumbai – II.]

Yusuf Chasmewala
Appellant

versus

Commissioner of Customs (Import) Nhava Sheva
Respondent

Appearance:
Shri Anil Balani, Advocate for appellant
Shri Manoj Kumar, Assistant Commissioner (AR) for respondent

CORAM:
HON’BLE Shri C J Mathew, Member (Technical)
HON’BLE SHRI Ajay Sharma, Member (Judicial)

Date of Hearing: 19/02/2019
Date of decision: 19/03/2019

ORDER NO: A/85517 / 2019

Per: C J Mathew

In this appeal of Shri Yusuf Chasmewala against order-in- appeal no. 158(GR.VI)/2011(JNCH)/IMP-118 dated 11th April 2011 of Commissioner of Customs (Appeals), Nhava Sheva, Mumbai – II, challenge is to the duty liability, as determined by the original authority, arising from enhancement of assessment value to Rs.13,16,550/-, confiscation of the imported goods that was allowed to be redeemed on payment of fine of Rs. 3,50,000/- and the penalty imposed.

2. It is the contention of Learned Counsel for appellant that the enhancement of assessable value was not in compliance with Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

3. Narrating the background, Learned Counsel informs that a container imported against bill of entry no. 62 9910/30.09.2008 by M/s Mize International was, upon investigation, alleged to have been arranged by the present appellant. According to him, the imported goods should have been subject to Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 only after establishing that the declared value was unacceptable and, thereby, liable to proceed under the Rules. He points out that the show cause notice proceeds on the assumption that rule 7 of the said Rules was liable to be invoked directly and, that too, despite not being in consonance with the prescription of the time period contained therein. He contends that the market survey was undertaken more than six month after the import of the goods against the time-frame of three months prescribed therein. He relies upon the decision of the Tribunal in Akash Stone Industries Ltd v. Commissioner of Customs (Import), Mumbai [final order no. A/87002/2018 dated 30th July 2018 in appeal no. C/179/2009]. He also places reliance on the decision of the Tribunal in Kanhaiyalal & Co v. Commissioner of Customs, Pune [2004 (163) ELT 33 (Tri.Mumbai)], Om International v. Commissioner of Central Excise, Kanpur [2014 (299) ELT 245 (Tri.- Del.)], Imperial Lites v. Commissioner of Central Excise, Kanpur [2013 (298) ELT 228 (Tri.Del.)] and Armstrong World Industries (I) Pvt Ltd v. Commissioner of Customs (I) Pvt Ltd [2015 (317) ELT 324 (Tri.-Mumbai)]. Learned Authorised Representative submits that the decision of the first appellate authority cannot be faulted as is evident from the manner in which the findings have been recorded.

4. We find that the imported goods are said to be unbranded and, therefore, devoid of any scope for comparison with prices of identical or similar goods. We also found that the lower authorities have held, without being controverted by the importer, that the goods in question were ordered by, and belong to, the present appellant whereas the documents were filed by another entity. In these circumstances, the declared value is undoubtedly in breach of the parameters that govern acceptance of transaction value in section 14 of Customs Act, 1962 mandating recourse to Customs Valuation (Determination of Value of Imported Goods) Rules 2007. It is also clear that the absence of any comparable data is also beyond question. The appellant has also not brought forth any evidence of existence of such data.

5. The first appellate authority has upheld the order of the original authority which has placed reliance on rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 which is not restricted to a time-frame of three months. Consequently, the reliance placed on the market survey cannot be disputed. Recourse to the best judgment that appears to have led to this re-determination was not under challenge in the grounds of appeal or oral submissions as recorded. Accordingly, we hold that the appellants had not made out a case for discarding of the best judgment value adopted in the order of the lower authority and accepted by the first appellate authority. A challenge in that direction at the second appeal stage is not tenable.

6. For the above reason we find no merit in the appeal which is dismissed.


(Pronounced in Court on 19/03/2019)


(Ajay Sharma)
Member (Judicial)

(C J Mathew)
Member (Technical)

*/as190221020308

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

APPEAL NOS: C/101 & 102/2012
[Arising out of Order-in-Original CAO No: 73/2011/CAC/CC/BKS dated 24th October r2011 passed by the Commissioner of Customs (Adjudication), Mumbai.]

Parikh Clearing Agency Pvt Ltd
Rupin Parikh
Appellants

versus

Commissioner of Customs (Adjudication) Mumbai
Respondent

Appearance:
Shri Anil Balani, Advocate for appellants
Ms Trupti Chavan, Assistant Commissioner (AR) for respondent

CORAM:
HON’BLE Shri C J Mathew, Member (Technical)
HON’BLE SHRI Ajay Sharma, Member (Judicial)

Date of Hearing: 11/02/2019
Date of decision: 20/03/2019

ORDER NO: A/ 85544-85545/2019

Per: C J Mathew

The present appeals challenge the penalties imposed on M/s Parikh Clearing Agency Pvt Ltd and Shri Rupin Parikh, Director of M/s Parikh Clearing Agency Pvt Ltd, for having filed bill of entry for the import of mobile accessories, viz., battery charger, housing, etc, following which proceedings were initiated against the importers, along with a number of other noticees, for undervaluation by manipulation of documents.

2. The primary contention of Learned Counsel for appellants is that the alleged organizer of the modus operandi, involving M/s Max Enterprises, Mumbai at Air Cargo Complex, Ahmedabad and JNCH, Shri Jaywant Thakar, and that the contents of his statements, having been denied by Shri Rupin Parikh, could not be the basis for any detriment. It was also pointed out by him that in proceedings against a live consignment, initiated at the same time as the consignments impugned herein, the first appellate authority dropped the penalties. It is also contended that statements relied upon lacked validity without subjecting them to cross-examination as prescribed in section 138B of Customs Act, 1962.

3. Learned Counsel relies upon the decision of the Tribunal in Natvar Parik & Co Pvt Ltd v. Commissioner of Customs, Chennai [2012 (281) ELT 116 (Tri.-Chennai)] which has held that there is no bar on the custom house agent being contacted by logistic companies and that action against custom house agent was not sustainable without sufficient evidence and contends that the Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise, Kolhapur [2015 (324) ELT 641 (SC)] as well as the Hon’ble High Court of Delhi in Basudev Garg v. Commissioner of Customs [2013 (294) ELT 353 (Del.)] disapproved of proceedings in which untested statements were relied upon.

4. Learned Authorised Representative narrated the course of events and the recovery of material that established foreknowledge on the part of the appellants.

5. We find from the impugned order that the request for cross- examination was denied on the ground that such could be allowed only after examination-in-chief and that the denial of permission for cross-examination does not violate the principles of natural justice. Impliedly, it was held that such cross-examination is mandated only when reliance is placed on a departmental witness. The provisions in section 138B of Customs Act, 1962 are amply clear as enunciated in the two decisions cited by Learned Counsel for appellants. In the absence of credibility assignable to these statements which are not substantiated by facts and circumstances, validation through cross- examination is essential. It is clear that in the findings, the appellants were held liable to penalty under section 112 of Customs Act, 1962 on the basis of statements of Shri Jaywant Thakar, whose statement has been taken at face value by the adjudicating authority in the absence of retraction and their alleged role in some other imports. The finding that the

‘the defence taken by the two noticees is without substance, and, therefore, of no consequence and of no help to the noticees.’

does not appear to be based on any sound footing.

6. Differential duty has been demanded from M/s Max Enterprises, the importer on record. The appellants were, undisputedly, concerned with the import of goods to the extent of filing the necessary documentation. There is no evidence on record that the appellants were aware of the quality and the value of the goods; indeed, unless any person, other than importers, are clearly brought on record as having participated in the conspiracy from the placement of the order, the charge on such person will not succeed.

Mere filing of documentation that may contain wrong details, unless established as deliberate act on the part of the customs house agent, cannot be held against them. Accordingly, we find that the evidence against the appellants are insufficient to establish that any act of theirs had rendered the goods liable for confiscation and, therefore, liable to penalty.

7. The appeals are allowed in consequence.


(Pronounced in Court on 20/03/2019)


(Ajay Sharma)
Member (Judicial)

(C J Mathew)
Member (Technical)

*/as120213021403

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Appeal No.: ST/41070/2013
[Arising out of Order-in-Appeal No. 049/2013 dated 20.02.2013 passed by the Commissioner of Customs, Central Excise & Service Tax (Appeals), Coimbatore]

M/s. Banu Engineering Contractor, Coimbatore
Appellant

Versus

The Commissioner of G.S.T. & Central Excise, Coimbatore Commissionerate
Respondent

Appearance:-
Ms. Kanthai Visalakshi, Advocate For the appellant
Ms. T. Usha Devi, DC (AR) For the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing: 21.03.2019
Date of Pronouncement: 25.03.2019

Final Order No. 40593 / 2019

Per Bench :

Brief facts are that the appellants are holding Service Tax Registration under the category of “Manpower Recruitment or Supply Agency Service”.

2.1 During the period from October 2010 to September 2011, the  appellants collected service charges along with service tax from their service recipients, but failed to pay the same to the Government within the prescribed time. They failed to file the statutory ST-3 returns as required under Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994.

2.2 A Show Cause Notice was issued proposing to demand the short-paid service tax along with interest and also for imposing penalties. After due process of law, the Original Authority confirmed the demand of Rs. 4,79,080/- along with interest and imposed equal penalty under Section 78 of the Act. In appeal, the Commissioner (Appeals) upheld the same. Hence, this appeal.

3.1 On behalf of the appellant, Ld. Counsel Ms. Kanthai Visalakshi appeared and argued the matter. She submitted that the appellant is not contesting the appeal on merits and is confining the contest only to the penalties imposed.

3.2.1 She submitted that the appellant was under much financial constraints as their customers did not pay up the amount within the period. They were unable to discharge their service tax liability as they did not receive the same from their service recipients.

3.2.2 Further, the proprietor, who was managing the business, was not well versed with the day-to-day matters concerning accounts and taxation. The accounts were entrusted to an Accountant who was only a part-time worker and did not continue in the service for long and left the assignment without giving any proper guidance or information with regard to the service tax. Further, the clients were releasing the amounts in instalments or in a phased manner and that the same was just to meet the salary and other incidental expenses including the day-to-day expenses.

3.3 The deduction of TDS was hampering the financial position of the appellant. The unit was running on a profit margin and there was no profit received on account of the TDS deduction. In such a scenario, they were unable to set apart any amount for service tax. There was no intention to avoid payment of service tax. It was only due to financial constraints. She relied upon the decision of the Tribunal in the case of M/s. Jayem Automotive Ltd. Vs. C.C.E., Coimbatore vide Final Order Nos. 42481-42482/2018 dated 18.09.2018 and M/s. Sri Kalki Enterprises Vs. Commissioner of G.S.T. & Central Excise, Chennai vide Final Order Nos. 42768-42769/2018 dated 23.10.2018.

3.4 It is submitted by her that apart from a bald allegation that the appellant has suppressed facts, the Department has not adduced any evidence to show that the appellant has committed any positive act of suppression with intention to evade payment of service tax.

4.1 Ld. AR Ms. T. Usha Devi appeared and argued the matter on behalf of the respondent. She submitted that this is a case wherein the appellant has collected the tax and has not paid the same to the Government. This is a clear case of suppression of facts. The appellant would not have paid up the amount but for the interference of the Department.

4.2 She argued that the contention that the appellant could not pay the service tax due to financial constraints is not a reasonable cause for failure to pay the service tax.

5. Heard both sides.

6. Ld. Counsel for the appellant has submitted that the appellant is contesting only the penalties imposed. Equal penalty under Section 78 of the Act has been imposed by the adjudicating authority, which has been upheld in the impugned Order. Ld. Counsel for the appellant has been at pains to argue that the appellant was undergoing much financial constraints as the service recipients were not paying up the amounts. It is also submitted that the entire service tax demand has been paid up by them.

7. On perusal of records, we find that other than the allegation that the appellants collected service tax and failed to remit the same to the Government, there is no positive act of suppression alleged in the Show Cause Notice and established by the Department. Various courts have held that the word “suppression” is qualified by the word “wilful” and therefore, there should be some positive act of suppression with an intention to evade payment of service tax. Mere collection and delay to remit to the Government cannot be considered as an act of suppression.

8. Further in the decisions relied upon by the Ld. Counsel for the appellant, the Tribunal has set aside the penalties imposed in similar situations. The Hon’ble jurisdictional High Court in the case of C.S.T., Chennai Vs. M/s. Lawson Travel and Tours (I) Pvt. Ltd. – 2015 (38) S.T.R. 227 (Mad.) held that when the assessee faced financial crisis due to criminal breach of trust committed by their sub-agent and thereafter paid the service tax voluntarily, the penalties imposed should have been rightly set aside by invoking Section 80 of the Act.

9. From the foregoing discussions, we are of the opinion that the penalty imposed under Section 78 ibid is unwarranted and requires to be set aside, which we hereby do. The penalty imposed under Section 77 ibid, however, is not interfered with. The impugned Order is modified to the extent of setting aside the penalty imposed under Section 78 ibid only without disturbing the demand of service tax, interest or the penalty imposed under Section 77 ibid.

10. The appeal is partly allowed in above terms.


(Pronounced in open court on 25.03.2019)


(Madhu Mohan Damodhar)             (Sulekha Beevi C.S.)
Member (Technical)                       Member (Judicial)


Sdd

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

APPEAL NO: C/532/2010
[Arising out of Order-in-Original No: CC-MJ/04/2009 Adj.ACC dated 30th January 2010 passed by the Commissioner of Customs (Import), ACC, Mumbai.]

Dhiru A Shah
Appellant

versus

Commissioner of Customs (Import) ACC, Mumbai
Respondent

Appearance:
Shri Anil Balani, Advocate for appellant
Shri R Kumar, Assistant Commissioner (AR) for respondent

CORAM:
HON’BLE Shri C J Mathew, Member (Technical)
HON’BLE SHRI Ajay Sharma, Member (Judicial)

Date of Hearing: 20/02/2019
Date of decision: 20/03/2019

ORDER NO: A/85551 / 2019

Per: C J Mathew

The challenge to order-in-original no. CC-MJ/04/2009

Adj.ACC dated 30th January 2010 of Commissioner of Customs (Import), Air Cargo Complex, Mumbai is in dispute before us for the second time and the appellant, Shri Dhiru A Shah, contends that the impugned order is flawed in not having taken their submissions into consideration while adjudicating the notice.

2. Proceedings were initiated against M/s Pearl Impex, M/s AK Traders and M/s Mufema Enterprises who imported three consignments, of ‘artificial flowers’ and ‘key chains’, that were found to contain ‘computer parts’, ‘button cells’ and ‘electronic goods’ upon interception before bills of entry could be filed and which were, thereafter, ordered to be confiscated under section 111 of Customs Act, 1962 with the option to be redeemed on payment of fine. Penalties under section 112 of Customs Act, 1962 were also imposed and two of those individuals filed appeals before the Tribunal which remanded the matter back to the original authority on their submission that the cross-examination of the customs house agent and of the alleged financier, the first of whom claimed to have received documents for clearance from the appellant and the latter of whom claimed to have been connected to the importer through the appellant, was essential. Though it is contended by the Learned Counsel that the issues on merit had also been noted by the Tribunal on the former occasion, we do not observe such findings on that score in the remand order which was limited to rehearing of the appeal with direction to decide on the plea of cross-examination before a final order is passed.

3. We have heard Learned Authorised Representative.

4. We find that proceedings were initiated against the goods even before bills of entry were filed, i.e. before an importer could be identified with the import, and that role of the present appellant were established through various evidences. Considering the criticality of these evidences, and the lack of credibility arising from the untested status of those, the Tribunal had, on the last occasion, remanded the matter to ensure such compliance on the specific plea of the appellant. Implicitly, it was the bounden obligation of the appellants therein to participate in the proceedings and make full use of the lifeline afforded to them. Failure on their part to participate is not only recorded in the impugned order but also not denied in the present proceedings.

5. It is now claimed by Learned Counsel that the opportunities afforded were very restrictive and that the co-accused was held to be beyond the pale of such cross-examination which rendered the decision of the Tribunal inoperative. We cannot find fault with the ruling of the original authority that co-accused could not be subject to cross-examination by another noticee. The appellant, however, had not taken advantage of the proffered chance to cross-examine the other individual and chose to absent himself from the proceeding. It is not open for the appellant to claim now that only one opportunity had been given; especially as the non-availment of the opportunity is not justified by any submission whatsoever. Clearly, there is a lack of respect for the adjudicating authority, the adjudicating process and the appellate process.

6. It is not open to the appellant to plead for a relief that was granted and, upon failure to avail of that relief, to claim a different ground for assailing the first order now. The original order has ceased to exist insofar as the appellant is concerned and the substituted order did not have to proceed in merit in view of the failure of the appellant to participate in the proceedings as directed in the remand order of the Tribunal to subject the evidence to test. By failure to participate in the cross-examination, there is an implicit admission of the relevancy of these statements.

7. In these circumstances, we find ourselves unable to grant any relief to the appellant and the appeal is dismissed.


(Pronounced in Court on 20/03/2019)

(Ajay Sharma)
Member (Judicial)

(C J Mathew)
Member (Technical)


*/as270228021503

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench

Court – I

Appeal No.    Appellant(s)        Respondent(s)    Order-In-Original
E/512/2011    India Extrusion        Hyderabad-III    No. 07/2010- Adjn(Commr)CE dated 23.12.2010           passed by Commissioner, Hyderabad
E/658/2011    T. Venkateshwara Rao    Hyderabad-IV   
E/694/2011    Somakanth Multi Tech Pvt Ltd.,    Hyderabad-IV   

Appearance
Shri R. Muralidhar & Shri Paresh V. Sheth, Advocates for the Appellant.
Shri Arun Kumar & Shri AVLN Chary, ARs for the Respondent.

CORAM:
HON’BLE Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL)
Hon’ble Mr. P.V. SUBBA RAO, MEMBER (TECHNICAL)

Date of Hearing: 19.03.2019
Date of Decision: 19.03.2019

FINAL ORDER No. A/

[Order per: M.V. Ravindran]

1. These appeals are directed against Order-in-Original No. 07/2010- Adjn(Commr) dated 23.12.2010.

2. The issue involved in this case is regarding availment of ineligible CENVAT Credit and clandestine removal for which demands have been raised and confirmed by the adjudicating authority.

3. Learned Counsel appearing for the appellants at the outset submits that before going into merits, it has to be noticed that they had sought cross-examination of various people and was not granted further the provisions of Section 9D of Central Excise Act, 1944 has to be followed before arriving at a conclusion.

4. Learned DR on the other hand, submits that appellants argued the matter and adjudicating authority has arrived at a conclusion after following due process of law. It is his submission that the matter is decided based upon the records available in the file.

5. On consideration of the submissions made by both sides and perusal of records, we find that the issue involved in this case is regarding clandestine removal and availment of ineligible CENVAT Credit. The findings of the adjudicating authority indicate that he has relied upon various statements of the individuals, as also some records available in the file. The law on the point of reliance to be placed on statements is now well settled by the Hon’ble High Court of Punjab & Haryana in the case of Jindal Drugs Pvt Ltd., Vs UoI [2016 (340) ELT 67] wherein their lordships clearly laid down that provisions of Section 9 D of the Central Excise Act,1944 needs to be followed in its letter and spirit and they have also laid down the directions for the same. In our view, law needs to be followed as per provisions of Section 9D of Central Excise Act, 1944 before coming to the conclusion. Accordingly, we set aside the impugned order, remit the matter back to the adjudicating authority to reconsider the issue afresh after following the law as laid down by the Hon’ble High Court of Punjab & Haryana. Since the matter is of 2006, it would be desirable that the adjudicating authority completes the denovo proceedings within a period of three months from the receipt of the order.

6. Appeals stands disposed of as indicated herein above.


(Order dictated & pronounced in open court)


(P.VENKATA SUBBA RAO)             (M.V. RAVINDRAN)
Member (TECHNICAL)                 MEMBER (JUDICIAL)

Jaya…
 

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI

PRINCIPAL BENCH
COURT NO.-1

Service Tax COD Application No. 50020 of 2019
(on behalf of appellant)
In
Service Tax Appeal No. 50045 of 2019
(Arising out of Order-in-Appeal No. 723-CRM-ST-JDR-2018 dated 05/07/2018 passed by theCOMMISSIONER OF CGST & CENTRAL EXCISE-JODHPUR)

Kamal Builders
Appellant

Versus

Commissioner of Central Goods & Service Tax Customs & Central Excise,
Jodhpur-I Respondent

(None appeared for appellant)
(Rep. by Shri Sanjay Jain, Authorised Representative)

CORAM:
Hon’ble Justice Shri Dilip Gupta, President
Hon’ble Shri Bijay Kumar, Member (Technical)

Date of Hearing/Decision: 15.03.2019

FINAL ORDER NO. 50400/2019

Justice Dilip Gupta

This appeal was filed on 31 December, 2018 with an application for condoning the delay. Notice was sent to the appellant by speed post on 8 February, 2019 intimating that the application for condoning the delay would be taken on 15 March, 2019. The said notice was delivered on the appellant on 15 February, 2019 as is clear from the track consignment report enclosed by the office. However, no one has appeared to press the application.

2. We have examined the application. All that has been stated is that though the copy of the order dated 5 July, 2018 was received by the appellant on 13 July, 2018, but it escaped the attention the management because of the absence of the concerned staff. This explanation, in our opinion, is not a good explanation for condoning the delay in filing the appeal. The application is, accordingly, rejected. As the application has been rejected, the appeal stands dismissed.


(Justice Dilip Gupta)
President


(Bijay Kumar)
Member (Technical)

Tejo

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Application No.: C/EH/42149/2018
In: C/42771/2018

M/s. Trade Wings Logistics India Pvt. Ltd., Chennai – 600 006
Appellant

Versus

The Commissioner of Customs (Chennai-VIII),
Respondent

Appearance:-
Shri. S. Murugappan, Advocate For the appellant
Ms. T. Usha Devi, DC (AR) for the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing/Decision: 22.03.2019

Misc. Order No. 40204 / 2019

Per Bench :

The above Miscellaneous Application has been filed by the appellant seeking early hearing of the appeal.

2. Ld. Advocate Shri. S. Murugappan appearing on behalf of the appellant/applicant submitted that the issue involved is revocation of licence of the Customs House Agent and that the livelihood of the appellant has been affected by the revocation. Hence, he prayed that the appeal may be taken up and heard out-of-turn.

3. Ld. AR Ms. T. Usha Devi appearing on behalf of the respondent strongly opposed the application.

4. After hearing both sides, we find that the issue involved is revocation of licence of CHA. Since the decision affects the livelihood of the appellant, we are of the considered opinion that the appeal has to be taken up out-of-turn. The Miscellaneous Application for early hearing of the appeal is allowed. Registry is directed to list the appeal for hearing on 24.05.2019.


(Dictated and pronounced in open court)


(Madhu Mohan Damodhar)             (Sulekha Beevi C.S.)
Member (Technical)                     Member (Judicial)

 

Sdd

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Application No.: C/ROA/41564/2018
In: C/42508/2014

M/s. Hitachi Home & Solutions (India) Ltd., Chennai
Appellant

Versus

The Commissioner of Customs, Chennai
Respondent

Appearance:-
Shri. K.S. Murugan, Regional Accounts Manager For the appellant
Ms. T. Usha Devi, DC (AR) for the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing/Decision: 22.03.2019

Misc. Order No. 40205 / 2019

Per Bench :

The above Miscellaneous Application has been filed by the appellant seeking to restore the appeal dismissed by the Tribunal vide Final Order No. 41446/2018 dated 08.05.2018.

2. On behalf of the appellant/applicant Shri. K.S. Murugan, Regional Accounts Manager submitted that they could not appear for the hearing on 08.05.2018 as they had not received any notice for the hearing. He submits that the non-appearance was unintentional and prays for restoration of the appeal.

3. Ld. AR Ms. T. Usha Devi appearing on behalf of the respondent opposed the application.

4. After hearing both sides, we find that the reason for non- appearance given by the appellant appears to be genuine. We therefore order restoration of the appeal. The Miscellaneous Application for restoration of appeal is allowed. Registry is directed to list the appeal for hearing on 24.06.2019.


(Dictated and pronounced in open court)


(Madhu Mohan Damodhar)             (Sulekha Beevi C.S.)
Member (Technical)                       Member (Judicial)

Sdd

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SZB, CHENNAI

COURT : Single Bench B1

E/40489/2018 & E/40705/2018
(Arising out of Order-in-Appeal No. 395/2017 (CTA-I) dated23.11.2017 passed by the Commissioner of GST & CE (Appeals), Chennai).

M/s. India Pistons Ltd.
Appellant

Vs.

The Commissioner of GST & CE Respondent
(Chennai North)

Appearance
FOR APPELLANT : Shri R. Suresh, Advocate
FOR RESPONDENT : Shri L. Nandakumar, AC (AR)

CORAM
Shri P.DINESHA, HON'BLE JUDICIAL MEMBER

Date of Hearing/Decision: 20.03.2019


FINAL ORDER No. 40558-40559/2019

Heard the Ld. Advocate Shri R. Suresh for the assessee and Ld. DR, Shri L. Nandakumar, AC, for the Revenue.

2. The short point involved is, whether the case of the assessee turns out to be unjust enrichment as alleged by the Revenue? Ld. Advocate explained that when some of the purchase orders were cancelled by its customers, such cancellations were duly reflected in its records and took me through the excel sheets, invoices, personal ledger account and credit notes and argued that they have not collected the amount from the customers towards billing. From the Order-in-Original, I find that though the adjudicating authority has mentioned about the assessee filing some of the above documents, still there is no finding nor is there any finding on the explanation given by the assessee. I therefore, deem it proper to send it back to the file of the adjudicating authority for denovo adjudication and the original authority shall pass a speaking order after considering all the documents and the explanations filed by the assessee. Appeals are allowed by way of remand.


(Order dictated and pronounced in the Open Court)


(P. DINESHA)
MEMBER JUDICIAL

BB

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

[COURT III : Division Bench B1]

Application No.: ST/COD/40008/2019
In: ST/42777/2018

The Principal Commissioner of G.S.T. & C.Ex., Chennai North Commissionerate
Appellant

Versus

M/s. Bharat Sanchar Nigam Ltd., Kilpauk, Chennai
Respondent

Appearance:-
Shri. S. Govindarajan, AC(AR) for the applicant
Shri. P. Kulasekaran, Advocate for the Respondent

CORAM:
Hon’ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon’ble Shri Madhu Mohan Damodhar, Member (Technical)

Date of Hearing/Decision: 20.03.2019

Misc. Order No. 40197 / 2019

Per Bench :

The above Miscellaneous Application has been filed by the Department seeking to condone the delay of four days in filing the appeal.

2. The delay of four days being nominal, the same is condoned. The Miscellaneous Application for condonation of delay filed by the Department is allowed.

3. Ld. Counsel for the assessee requested that the connected appeal filed by the assessee viz. Appeal No. ST/42715/2018 may be linked up with the present appeal. The above request is acceded to. Registry is directed to list these appeals in due course.

(Dictated and pronounced in open court)

(Madhu Mohan Damodhar)             (Sulekha Beevi C.S.)
Member (Technical)                 Member (Judicial)

Sdd

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.2, R.K. PURAM,
NEW DELHI-110066

BENCH-DB

COURT – IV

Service Tax Appeal No. ST/52514/2016 [DB]
[Arising out of Order-in-Appeal No. 144 (AK) ST/JPR/2016 dated 28.04.2016 passed by the Commissioner (Appeals), Customs, Central Excise & Service Tax, Jaipur]

Rajdhani Krishi Upaj Mandi Samiti
Appellant

Vs.

C.C.E. & S.T., Jaipur – I
Respondent

Present for the Appellant : Mr. Ankit Sharma, Advocate
Present for the Respondent: Mr. R.K. Majhi, DR

CORAM:
HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)
HON’BLE MRS. RACHNA GUPTA, MEMBER (JUDICIAL)

Date of Hearing : 21.12.2018
Pronounced on : 06.03.2019

FINAL ORDER NO. 50316/2019

PER: RACHNA GUPTA

Appellant is engaged in providing “Renting of Immovable Property Services” as defined under Section 65 (90a) of the Finance Act, 1994 and taxable service under Section 65(105)(zzzz) of the Finance Act, 1994 who have rented out / leased out mandi shops in the mandi premises to various firms and businessmen and received certain amount on account of rent, but they have neither obtained Service Tax Registration nor paid service tax leviable on account of rent for let out shops for the period from June 2007 to March 2013. Resultantly, a SCN No. 1996 dated 23.09.2013 was served proposing recovery of Rs. 13,60,975/- as service tax on amount of rent received during 2008-09 to 2012-13 alongwith interest at appropriate rate and proportionate penalty. The said demand was initially confirmed vide Order-in-Original No. 22 dated 27.03.2015. The Appeal thereof was rejected vide the Order-in-Appeal No. 144 dated 27.04.2016. Being aggrieved appellant is before this Tribunal.

2. We have heard Shri Ankit Sharma, CA for the appellant and Shri R.K. Majhi, Ld. DR for the Department.

3. It is submitted on behalf of appellant that Samiti has been constituted for the welfare of agriculturist and is governed by the parent body Rajasthan State Agricultural Market Board, the functions performed by it are statutory duties prescribed by the State and therefore it is not taxable under service tax. These services stand exempted from the whole of service tax w.e.f. 01.07.2012 after the introduction of negative list of services vide insertion of Section 66D(iv) and (vii) of the Finance Act, 1994. Order is accordingly prayed to be set aside and Appeal is prayed to be allowed.

4. Ld. DR on the other hand submitted that the service as that of Renting of Immovable Property is not statutory duty irrespective such service is rendered by Government body. It is further impressed upon that Commissioner(Appeals) has rightly relied upon Board’s Circular No. 89/7/2006-ST dated 18.12.2006 in this respect. There being no infirmity in the Order, Appeal is prayed to be dismissed.

5. After hearing both the parties and perusing the record, we are of the opinion as follows:

5.1 The appellants’ status as an authority created under Rajasthan State enactment is not in dispute. Their overall functions and the activities were regulated by the said enactment and the rules made thereunder is also an admitted fact. The appellant strongly pleaded that they are allotting land/shops to various traders in furtherance of their statutory functions for promoting welfare of agriculturists.

5.2 But we note here that the allotment of land/shops to the traders is not in terms of the Rajasthan Agricultural Produce Markets Act, 1961 or the rules made thereunder. In fact, allotments of land and shops were made by the appellants in terms of the Immovable Property Allotment Rules, 2005 and the fees are received for such allotments, thus, the arrangement for Renting of Immovable Property for a consideration. As such, we find the claim of the appellant that the allotment of shop or land to the traders cannot be considered as “renting of immovable property” is not tenable. We also do not agree with the submission of the appellant that such renting out of shop/land is a mandatory/sovereign function carried out by the appellant. There is no support for such assertion. As such, we find that the appellant are liable to Service Tax on the considerations received by them for renting out the shop/land to traders and others for activities of furtherance of commerce.

5.3 However, we note that with the introduction of Negative List Regime of Taxation w.e.f. 1-7-2012, the appellants’ services were excluded from the tax liability. The relevant provisions of Section 66D are as below :-

“66D. The negative list shall comprise of the following services, namely :-

(a) ----
(b) ----
(c) ----
(d)services relating to agriculture or agricultural produce by way of –

(i) ----
(ii) ----
(iii) ----
(iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
(v) ----
(vi) ----
(vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.”

5.4 It is clear that the appellants, being an Agricultural Produce Marketing Committee, is excluded from the tax liability in terms of the above provisions. Services relating to agricultural produce by way of storage or warehousing are in the negative list.

5.5 We have examined the scope of above entry in the negative list along with various clarifications issued by the Government. We find that including Circular No. 89/7/2006 dated 18.12.2006 no Service Tax liability on shops/sheds/platforms/land leased out in the notified market area for traders for temporary storage of agricultural produce traded in the market is leviable. However, in respect of shops, premises, buildings, etc., rented/leased out for any other commercial purpose other than with reference to agricultural produce (like bank, general shop, etc.), the same shall not be covered by the negative list and the appellants shall be liable to Service Tax. The appellant herein has admittedly rented out/ leased out mandi shops in mandi premises but to various firms and businessmen against consideration. Same being out of the scope of 66D(iv) and (vii) (as discussed above), the appellant is held liable to pay service tax.

6. We therefore, do not find any infirmity in the Order under challenge as far as the confirmation of demand alongwith the order of appropriation of amount as was deposited by the appellant under VESC Scheme is concerned. However, we also note that the tax entry “renting of immovable property service” itself was subject matter of serious litigation in various judicial forum. In fact, the Hon’ble Delhi High Court in the case of Home Solutions Retail Ltd. v. Union of India - 2011 (21) S.T.R. 109 (Delhi) held that the activity of the rent per se cannot be subjected to Service Tax levy, whereas the activities in relation to renting are liable to Service Tax. The decision of the Delhi High Court led to legislative changes including retrospective amendment of the concerned legal provisions in the Finance Act, 1994. In fact, for non-payment of Service Tax under this tax entry, special provision was made under Section 80(2) to waive the penalties. Considering these backgrounds and the status of the appellant as a Government Organisation, we find that the ingredients for invoking demand for extended period are not present in the present case. Accordingly, the demands raised shall be restricted to normal period only. On the same reasons, we hold that penalties imposed on the appellants are also liable to be set aside.

7. In view of entire above discussion, the Appeal stands partly allowed. Consequential benefit, if any, to follow.


[Pronounced in the open Court on 06.03.2019 ]


(C.L. MAHAR)                 (RACHNA GUPTA)
Member (TECHNICAL)             MEMBER (JUDICIAL) D.J.

In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad

Appeal No. E/11185,12091/2016-DB Appeal No. E/10162,10458,12185/2018-DB
[Arising out of OIO-AND-EXCUS-000-COM-017-15-16 dated 08/03/2016 passed by Commissioner of
Central Excise, Customs and Service Tax-ANAND]
[Arising out of OIA-VAD-EXCUS-003-APP-231-2016-17 dated 18/07/2016 passed by Commissioner of
Central Excise, Customs and Service Tax-VADODARA-I]
[Arising out of OIA-VAD-EXCUS-003-APP-175-2017-18 dated 03/07/2017 passed by Commissioner
(Appeals) Commissioner of Central Excise, Customs and Service Tax-VADODARA-I]
[Arising out of OIA-VAD-EXCUS-001-APP-305-2017-18 dated 11/08/2017 passed by Commissioner
(Appeals) Commissioner of Central Excise, Customs and Service Tax-VADODARA-I]
[Arising out of OIA-VAD-EXCUS-001-APP-089-2018-19 dated 21/05/2018 passed by Commissioner
(Appeals) Commissioner of Central Excise, Customs and Service Tax-VADODARA-I]

M/s Shri Ambica Polymer Pvt. Ltd
Appellant

Vs

C.C.E. & C.,- Anand Respondent
C.C.E. & S.T.-Vadodara-i

Represented by:
For Appellant: Shri S.R. Dixit (Advocate)
For Respondent: Shri K. J. Kinariwala (AR)

CORAM:
HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL)
HON’BLE MR. RAJU, MEMBER (TECHNICAL)

Date of Hearing: 03.01.2019
Date of decision: 15.03.2019

Final Order No. A/ 10529-10533 /2019

Per: Ramesh Nair

The fact of the case is that the Appellant is a 100% EOU. They were procuring goods from other 100% EOUs as well as SEZ units during the material period. The finished goods produced were exported as well as cleared in DTA. While removing goods in DTA, the Appellant had availed the benefit of Sr. No.3 to Notification No. 23/2003-CE dated 31.03.2003. Periodic demands were raised seeking to deny such concessional rate benefit, on the ground that when raw materials were procured from 100% EOU / SEZ units, the same amounts to “imports” for the purpose of procurement of goods by the Appellant and hence, ineligible for such benefit of Sr. No.3 to Notification No. 23/2003-CE dated 31.03.2003. The following appeals have been filed on this ground:


Sr. No    Appeal No.    Period Involved    SCN date    OIA No.& Date    Inputs procuredfrom    Amount of Duty Rs.
1    E/12091/2016    21.09.06 to20.03.10    02.09.2011    VAD- EXCUS003- APP-231-2016-17 dated18.07.16    SEZ, EOU and DTA units    10,71,187/-
2    E/10162/2018    2006-07 to2009-10    02.09.2011    VAD- EXCUS003-APP-175-2017-18 dated03.07.17    SEZ, EOUand DTAunits    10,71,187/-
3    E/11185/2016    2010-11 to2014-15    10.04.2015    AND- EXCUS000- COM-017-15-16 dated24.02.16    Only SEZ    59,66,121/-
4    E/10458/2018    1.10.15 to1.08.16    07.12.2016    VAD- EXCUS001- APP-305-2017-18 dated.11.08.17    Only SEZ    9,09,834/-
5    E/12185/2018    01.09.16 to30.06.17    07.11.2017    VAD- EXCUS001- APP-089-2018-19dated.31.05.18    Only SEZ    6,54,611.79/-


2. As regards Sr. No.1 and 2 above, the very same period and demand is involved, however, two separate appeals have been filed since in earlier round of litigation, the matter was remanded by the first appellate authority against which appeal No. E/12091/2016 was filed, however after re-adjudication, the matter once again travelled upto the CESTAT in form of appeal No. E/10162/2018.

3. We have heard Shri Saurabh Dixit, Ld. Counsel for the appellant and Shri. K.J. Kinariwala Ld. Assistant Commissioner (AR) for the Revenue who reiterated the findings of the Commissioner (Appeals). We find that in so far as issue of receipt of raw materials from other 100% EOUs is concerned, an identical issue on hand stands decided by this court in the case of Phthalo Colours & Chemicals India Ltd. vide its Final Order No. A/12537/2018 dt.5.11.18, wherein the demand had been treated as time-barred, considering the complex interpretational issue as well as CT-3/Procurement Certificates obtained and ER2 returns filed from time to time, which shows there is no suppression involved in the matter. That similar compliances were made by the Appellant just as in the case of Phthalo Colours (supra) and therefore in so far as the appeals involving receipt of inputs from other 100% EOUs are concerned, the same are allowed on the ground that the demand is time-barred.

4. As regards appeal No. E/12185/2018, we find that the first Appellate authority did not condone a minor delay of in filing the appeal. We find that there were sufficient reasons for the delay which ought to have been condoned. We therefore condone such delay and remand this appeal to first Appellate authority to decide the same in line with the outcome of the other appeals in the present order.

5. As regards raw materials received from SEZ units, it was argued at length by the Appellant that procurements from SEZ units are not excluded for claiming benefit of Sr. No.3 to Notification No.23/03-CE. We find merit in the submission that the definition of the terms “import” and “export” in Customs Act, 1962, SEZ Act, 2005 as well as FT (D & R) Act, 1992 clearly show that only the goods physically brought from outside India will be treated as imported goods. Since SEZ is located within India only, it cannot be assumed to be foreign territory. Even the deeming fiction created under Notification No.23/03-CE limits its scope to goods received from other 100% EOUs as well as certain deemed exports supplies under para 8.3(a) and (b) of the FTP. Such deeming fiction does not cover goods received from SEZ at all. That despite defining the term “DTA” in Notification No. 23/03-CE (Sr. No.3), the condition No.3 states that in order to claim benefit of concessional rate under Sr. No.3, “wholly from raw materials produced or manufactured in India”. The condition does not state that “wholly from raw materials produced or manufactured in DTA”, and such meaning therefore cannot be artificially assigned by revenue authorities. That the Hon’ble Gujarat High Court in the case of Gujarat Essar Steel Ltd 2010 (249) E.L.T. 3(Guj.) at Paras 41.1.2 to 41.1.4, 41.3.4, after having considered the issue at great length, held that SEZ is also a territory within India only and goods supplied to SEZ cannot be said to be exported out of India. Such view was also upheld by Hon'ble Apex court as reported at 2010(255) E.L.T. A115 (SC). A similar view was taken by the Hon'ble Andhra Pradesh High Court in the case of Tirupati Udyog Ltd 2011 (272) E.L.T. 209 (AP) more particularly at Paras 16, 21, 26 and thereof. The Hon'ble Karnataka High Court in the case of Wipro GE Healthcare Pvt. Ltd 2017 (356) E.L.T. 380 (Kar) dealt with this issue and held that goods produced/manufactured in another EOU/SEZ has to be treated as manufactured in India only and the recipient 100% EOU is eligible to claim cash refund of CST. That similar view was taken by the Hon'ble Calcutta High Court in the case of Mittal Technopat Pvt. Ltd 2017 (355) E.L.T. 3 (Cal) as also by the jurisdictional high court of Gujarat in the case of Asahi Songwon Colours Ltd 2017 (356) E.L.T. 532 (Guj). Following the ratio laid down by higher forums, since goods produced and supplied by SEZ unit to the Appellant are to be treated as produced in India only, the condition No.3 to Notification No. 23/03-CE can be said to be fulfilled in such circumstances. We thus set aside the impugned order and allow all the appeals with consequential reliefs, if any, except appeal No. E/12185/2018 which is remanded to the Ld. Commissioner (Appeals).


(Pronounced in the open court on 15.03.2019)


(Raju)                                  (Ramesh Nair)
Member (Technical)             Member (Judicial)

Seema


CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
NEW DELHI

COURT-II

Date of hearing/decision: 08.03.2019

Customs Appeal No.52524/2018-CU(SM)
[Arising out of Order-in-Original No.09/2018 dated 19.03.2018 passed by the Commissioner of Customs (Export), ICD, Tughlakabad, New Delhi]

M/s.Mita India Pvt. Ltd.
Appellants

Vs.

CC (Export), New Delhi
Respondent

Vice Versa


Appearance:
Present Shri B.L. Garg, Advocate
Present Shri P. Juneja, DR

CORAM:
Hon’ble Mr. Anil Choudhary, Member (Judicial)

Per Anil Choudhary:

Final Order No.50355/2019

Heard the parties.

2. The issue in this appeal is whether the Commissioner of Customs is justified by the impugned order-in-original, in denying the request of conversion of Free Shipping Bill to Drawback Shipping Bill.

3. Facts leading to present request for conversion of free shipping bill no.7255722 dated 25.04.2016 to a drawback shipping bill are as follows:-

i. Party has vide Shipping Bill no.5979666 dated 24.10.2011 exported certain goods to M/s Turk Tractor, VE Ziraat Makineleri A.S. Guvercin Yolu NO.111-112, Gazi, 06560, Ankara Turkey and claimed the benefit of DEPB.

ii.The goods so exported claiming benefit of DEPB required certain repairs and were re-imported by them through ICD Tughlakabad, New Delhi against Bill of Entry N.7683830 dated 12.12.2014, claiming the benefit of Sl.No. of Notification No. 158/1995-Cus dated 14.11.1995. As per the said exemption, the goods imported for repairs and subsequent re-export are exempt from payment of whole of basic duty of customs and additional duty of customs, against submission of re-export bond and bank guarantee. One of the conditions of the said notification is that the goods imported have to be re-exported after repairs within six months/one year of clearance of goods.

iii. Due to late intimation by the overseas company regarding scope of repair, longer time elapsed in clearance of the said goods. Nevertheless the goods were re-exported vide shipping bill no.7255722 dated 25.04.2016 through ICD Tughlakabad (Export), New Delhi i.e. after about nearly sixteen months from the date of clearance of goods on importation (12.12.2014). The goods were still under Bond.

4. As subsequent to the re-export made in April, 2016, the appellant was entitled to get released the bond and bank guarantee, which was submitted by the appellant to the Customs in terms of notification no.158/95-Cus.They approached the Customs Authorities by their letter dated 9.8.2016 claiming for releasing the bond and bank guarantee for Rs.13,24,903/-. In response thereto, the Asstt. Commissioner of Customs by letter dated 28.09.2016 pointed out that the appellant has not submitted (i) copies of AR-4s in respect of submitted shipping bills, (ii) copy of the letter by foreign company of Turkey regarding repair/restructuring of the defective goods or for any other purpose. Further, it has also been noticed that the import was made on 12.12.2014, however, the re-export has not been made within six months of import as required under the said notification no.158/95-Cus. The appellant in response, chose to deposit the customs duty, as applicable on the date of re-importation vide challan dated 13.4.2017 with interest. Thereafter, they applied for the conversion of shipping bill to draw back shipping bill under Section 74 read with Section 149 of the Customs Act, 1962 read with Re- Export of Imported Goods (Drawback of Customs Duties) Rules, 1995.

5. Section 149 of the Customs Act provides that the proper officer may, in his jurisdiction, authorize any document, after it has been presented in the custom house to be amended: provided that no amendment of a bill of entry or a shipping bill or bill of export shall be so authorized to be amended after the imported goods have been cleared for home consumption or deposited in a warehouse, or in the export goods have been exported, except on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be.

6. The ld. Counsel submits that the reasons for rejection of their request of conversion as given in the impugned order are –

 The shipping bill is not a drawback shipping bill and it does not declare that exporter would be claiming the drawback under Section 74 of the Customs Act, 1962.

Further observing that apart from these two conditions, the conditions with reference to production of import documents, etc. have been substantially complied with, as is evident.

7. Ld. Counsel assailing the reasons for refusal states that the appellant has made all other declarations indicating re-export of the goods on the shipping bill itself as also observed by the ld. Commissioner, and such compliance coupled with the exemption/waiver and the documentary evidence were very much in existence at the time of export, as required under proviso to Section 149 of the Customs Act, 1962 and accordingly, prays for appropriate orders.

8. Ld.AR has reiterated the impugned order.

9. Having considered the rival contentions, I find that the reasons given by the ld. Commissioner for rejection of conversion of Free Shipping Bill to Drawback Shipping Bill are not tenable as the appellant had re-exported the goods under bond, which was, at the relevant time, alive and has not been examined by the Customs. Further, the appellant has mentioned in body of the shipping bill, wherein under the Col. “description” , the appellant mentioned – Tractor Parts OCKSHAFT Assembly MC 750 CC SI + REMOTE /Re-Export against BOE No.7683830 dt.22/12/2014. Thus, the appellant has disclosed in the shipping bill that they have re-exported the goods, and all the information was on the record of the Customs Department, as is evident from the facts on record.

10. Further, at the relevant time, the bond had not been cancelled by the Department. The fact of re-export under bond is established.

11. In this view of the matter, I find that rejection of the request for conversion is not tenable. Accordingly, I set aside the impugned order and further, allow the conversion of the shipping bill to draw back shipping bill.

Thus, the appellant is allowed and the appellant is entitled to consequential benefit, in accordance with law.

12. Ld. Counsel also informed that the claim of draw back has been processed by the Dy. Commissioner and the same is rejected on the same grounds given by the ld. Commissioner in the impugned order. Accordingly, the order of rejection of the draw back claim passed by the Dy. /Asstt. Commissioner being order no.C.NO.VIII/ICD/TKD/DBK/Mita/Sec.74/M/07/2017 is set aside for dated 18.12.2018 granting the substantial benefit to the appellant. Accordingly, the Dy. Commissioner is directed to re-process the draw back claim of the appellant, in view of the order of this Tribunal.


[Order dictated & pronounced in open court]


(Anil Choudhary)
Member (Judicial)

Ckp.

Customs, Excise & Service Tax Appellate Tribunal
SOUTH ZONAL BENCH
BANGALORE

Appeal(s) Involved: ST/135/2008-DB
[Arising out of Order-in-Original No. 2/2008 dated 14/01/2008 passed by Commissioner of Central Excise and Service Tax, BANGALORE]

M/s. Atria Convergence Technologies Pvt Ltd., BANGALORE
Appellant(s)

Versus

The Commissioner of Central Excise and Service Tax, Bangalore Service Tax- I
Respondent(s)

Appearance:
Mr. M.S. SRINIVASA, Advocate, BANGALORE  For the appellant
Mr. Madhup Sharan, AR For the Respondent

Date of Hearing : 15/11/2018
Date of Decision :

CORAM:
HON’BLE MR. S S GARG, JUDICIAL MEMBER
HON’BLE MR. C J MATHEW, TECHNICAL MEMBER

Final Order No. /2019

Per : C J Mathew

This appeal lies against the order-in-original no. 2/2008 dated 14th January 2008 of Commissioner of Service Tax, Bangalore confirming demand of Rs. 2,25,71,987/- on M/s Atria Convergence Technologies Pvt Ltd for the period from May 2004 to June 2006 as provider of ‘cable operator service’, taxable under section 65(105)(zs) of Finance Act, 1994, besides imposing penalties under section 76,77 and 78 of Finance Act, 1994.

2. Contending that a limited aspect, which would have restricted the period of dispute and the quantification of demand, that had been submitted before the original authority had been ignored, the plea was for fresh adjudication. Elaborating upon the circumstances, Learned Counsel for the appellant submits that tax on services rendered by ‘cable operator’ was incorporated in the statute on 16th August 2002 with a smaller coverage that was enlarged subsequently to include ‘multi system operators’ in notification no. 25/2004-ST dated 10th September 2004  which also barred retrospective application to the tax payers added thereon. He contends that the notice leading to the impugned proceedings for the period from May 2004 to June 2006 should not have included services rendered prior to 10th September 2004 and that another proceeding for inclusion of services rendered by appellant between 18th August 2002 and 10th September 2004 had been dropped by Assistant Commissioner of Service Tax vide order dated 20th July 2005 affirming that the service provided by them was that of ‘multi system operator.’ He informed that this decision of the Assistant Commissioner was taken up in revision and, thereafter, the Tribunal in its order dated 11th May 2009, though subsequent to the order now impugned, had accorded a finality to the nature of their activities as ‘multi system operator’ which precluded a change of stance to tax them under the original definition of ‘cable operator’ for the period supra that is now sought by the appellant to be excluded for computation of demand. We find no reason to disagree with finality accorded by the Tribunal.

3. Learned Counsel, while admitting that the taxability itself is not being challenged, contends that the discharging of tax liability foreclosed the option of proceeding under proviso in section 73 of Finance Act, 1994 as well as the detrimental determination in the impugned order. This, along with the factum of earlier proceedings, is squarely covered by the decision of the Hon’ble Supreme Court in Nizam Sugar Factory v. Collector of Central Excise, AP [2006-TIOL-56- SC-CX]. He further draws attention to letter dated 25th April 2004 which, in the acknowledged copy, elaborates upon the reasons for the practice adopted by them and that after due interaction with the tax authorities, it was decided that, instead of going the unweildy route of registering numerous cable operators, M/s Atria Convergence Technologies Pvt Ltd would obtain registration and discharge the tax liability. By letter dated 20th February 2004, the registration of individual cable operators had been surrendered.

4. Learned Authorized Representative countered that the appellant had a joint venture with the distributor of programs to function as a cable operator which was evident from the subscriber card referred to in the impugned order.

5. We do not consider it proper that the issue of classification, once settled by the Tribunal, should be reopened in the absence of a contrary order from a judicial authority. Hence, for all practical purposes, the appellant is a ‘multi system operator’ and such operators were brought within the ambit of taxation only from 10th September 2004. The notice leading to the impugned proceedings has, in the light of the decision in re Nizam Sugar Factory Pvt Ltd, erred in seeking to recover tax beyond the normal period of limitation.

6. On behalf of the appellant, it is also contended that their entitlement to CENVAT credit, as recipients of input service, limited the tax liability only to such amount as had already been deposited by them and appropriated in the impugned order. It would appear from the records that the appellant had been receiving certain services that are liable to tax but denied as eligible to be availed on the ground that the input and output services could not be identical for which we are unable to discover any justification. It is not in dispute that the tax burden of input service had been discharged by the appellant and, in the absence of any specific bar, the entitlement for availment of CENVAT credit of such tax paid by the appellant cannot be denied. This would, doubtlessly, alter the quantum of demand on, as well as the complexion of the proceedings against, the appellant. In particular, the scope for applicability of section 73(3) of Finance Act, 1994 would need to be ascertained in the light of lack of ingredients for the invoking of the extended period of limitation.

5. In these facts and circumstances, the admission of taxability by the appellant and the discharge of duties before the issue of notice, we find that the impugned order is not sustainable. Accordingly, we set it aside and remand the matter back to the original outhority for a fresh determination of the final tax liability, with valid reasons, if any, for denial of CENVAT credit, quantification of differential tax and the imposition of penalty under section 76 of Finance Act, 1994. Needless to say, that the imposition of penalties under section 78 under Finance Act, 1994 is set aside.


(Order was pronounced in Open Court on )

(S S GARG)
JUDICIAL MEMBER

(C J MATHEW)
TECHNICAL MEMBER

Parveen...

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION 

CIVIL APPEAL NOS.6623 OF 2005 

COMMISSIONER OF CUSTOMS, AMRITSAR
APPELLANT(S)
 
Versus 

M/S. ESS KAY INTERNATIONAL

RESPONDENT(S)
 
O R D E R 

Show cause notice dated 25.11.1999 was issued to the respondent herein on the ground that while export of "knitted wollen shawls (Dyed)" as an obligation under the Advance Licence No.P/L/0021136 dated 08.05.1997, the respondent filed Shipping Bill No.4319 dated 22.05.1999 wherein there was a mis-declaration in respect of the quantity as well as description of the goods. The consignment was seized and taken into possession by the customs staff and action was taken against the respondent when it was found that there was a mis-declaration of goods. Since under the aforesaid Advance Licence, the respondent was also under the legal obligation to export knitted woollen shawls (Dyed) manufactured out of 5,000 kg. wollen yarn which was imported duty free, the appellant demanded excise duty.

In the appeal against the said order, the Customs Excise and Service Tax Appellate Tribunal, New Delhi (for short "CESTAT")  confirmed the findings of the Adjudicating Authority in so far as  they pertained to the mis-declaration in respect of quantity as well as description of the goods in the Shipping Bill No.4319 dated 22.05.1999. However, at the same time, the CESTAT also found that the export obligation was complemented by the respondent when another export consignment on 31.05.1999 which was cleared on 17.07.1999 vide Shipping Bill No.00325/99 dated 31.05.1999 at ICD, Chherata, Amritsar and, therefore, no duty could be demanded on the ground that the respondent had committed breach in the discharge of export obligation.

In so far as mis-declaration in respect of quantity as well as description of the goods in Shipping Bill No.4139 dated 22.05.1999 is concerned, after confirming the findings to that effect, the CESTAT reduced the redemption fine to Rs.3,00,000/- lakhs and personal penalty of Rs.2,00,000/-.

We are not inclined to interfere with the discretionary power exercised by the CESTAT in the given facts and circumstances of the case.

The appeal is accordingly dismissed.


 .........................,J
[A.K. SIKRI]


.........................,J
[ROHINTON FALI NARIMAN] 
New Delhi;
July 16, 2015.

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