CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SCO 147-148, SECTOR 17-C, CHANDIGARH-160017

DIVISON BENCH COURT NO.1

Appeal No. E/72,69/2015
[Arising out of the Order-in-Appeal No. JAL-EXCUS-000-COM-0012-14-15-16 dated 14.09.2015 passed by the CCE (Appeals), Ludhiana]

Date of Hearing/Decision: 31/08/2018

M/s Ambika Overseas
M/s Ambika Industries
Appellant

Vs.

CCE, Ludhiana
Respondent

Appearance
Shri. Jitin Singhal, Shri. Pravesh Bahuguna, Advocates- for the appellant
Shri. Tarun Kumar, AR- for the respondent

CORAM:
Hon’ble Mr. Ashok Jindal, Member (Judicial)
Hon’ble Mr. Anil G. Shakkarwar, Member (Technical)

FINAL ORDER NO: 62899-62900 / 2018

Per Ashok Jindal:

1. The appellants are in appeal against the impugned order wherein the duty has been demanded along with interest and penalty has been also imposed on both the appellants.

2. The facts of the case are that M/s Ambika Overseas ( In short „M/s AO‟) is engaged in the manufacture of Hand Tools falling under chapter 82 of the Central Excise Tariff Act, 1985. The partners of the M/s AO are having another unit in the name and style of M/s Ambika Industries, (In short „AI‟). M/s AI are also engaged in the manufacture of Hand Tools‟, especially „Spanners‟ and located in the state of Himachal Pradesh and availing benefit of area based exemption Notification No. 50/2003-CE dated 10.06.2003, as amended. On the basis of investigation, the DGCEI alleged that the appellants were indulged in evasion of Central Excise duty by way of (i) fraudulent availment of cenvat credit and (ii) fraudulent availment of area based exemption Notification No. 50/2003-CE dated 10.06.2003. The investigation was started on the premises that the goods manufactured by M/s AO has been shown on paper but the same has been manufactured and cleared by M/s AI without payment of duty. On the basis of that intelligence, the factory premises of both the appellants were visited on 17.05.2012 and certain documents/records were recovered. Various statements were recorded and on the basis of the investigation, the show cause notice was issued to the appellants on the following grounds:

(A) M/s AO has cleared finished goods to M/s AI in the guise of forgings and mis-used the exemption Notification No. 50/2003-CE.

(B) M/s AO has fraudulently availed cenvat credit of Rs. 55,48,523/- without actually receiving goods in its factory

(C) As M/s AO and M/s AI are related person and the M/S AO has undervalued its goods sold to M/s AI.

3. The matters were adjudicated and benefit of exemption Notification was denied. Consequently, the duty was demanded and cenvat credit sought to be denied on inputs received by M/s AO and it was also held that the clearance made by M/s AO to M/s AI has been undervalued, therefore, deferential duty has been demanded. Against the said order, the appellants are before us.

4. The ld. Counsel for the appellant submits that as M/s M/S AO is located in the state of Himachal Pradesh and cannot avail the benefit of area based exemption, therefore, the question of mis-use of exemption Notification by M/s AO does not arise. The case of the Revenue is that the M/s AO has cleared fully finished chrome plated spanners under the guise of forgings. It is his submission that there is no dispute, duty has been paid on forgings to M/s AI. As there is no allegation of clandestine removal, quantity of goods mentioned in RG-1 register has to be accepted. There cannot be any difference in the quantity so as to demand duty. He further submits that in RG 1 register and the quantity reflected in “Electroplating Production Reports‟ or Work Order progress Chart but which has been assumed that after Electroplating, the spanners were subject to clearance from factory, whereas after electroplating, the said spanners were subject to visual inspection for any crack/fault and electroplating fault. Go/no-go gauge test was also performed to check that the sizes of spanners in accordance with DIN/Turkish standards. The tests are possible only after electroplating as before that it is not possible to find any fault in the spanners due to its colour. In case of any visible fault, the spanners are sent back for repair/rectification of defects, if possible whereupon it again comes back for electroplating and in case the repair/rectification of defect was not possible, the same are scrapped and sold as waste and scrap. Similarly, spanners manufactured for export were subjected to salt spray test to check the quality of electroplating. In case, randomly selected spanner fails in test, the entire lot is rejected and sent back for repair/rectification of defects whereupon they again come back for electroplating. It was due to this reason that the quantity shown in the Electroplating Production Reports or Work Order Progress Chart are more than the quantity recorded in RG 1 register.

5. The fact regarding various types of test to be undertaken by M/S AO before clearing goods for export or in domestic market was brought to the notice of the ld. Commissioner by way of affidavits which are admissible in terms of decision of the Hon’ble Apex court in the case of Mehta Parikh & Co. v. CIT-AIR 1956 SC 554. But the adjudicating authority did not consider the same. It is his further submissions that the ld. Commissioner has mis-construed the expression CP as chrome plated spanner. In fact, CP stands for Cold Pressed and not Chrome Plate. These spanners were sent to M/s AI for further processing as “Nickel Chrome Plated” Hand Tools. To that effect, they filed affidavit and the same has not been considered and no cross objection was granted. It is his submissions that it has been alleged that forgings of spanners was also received at M/S AO and the same were also shown to have been cleared by M/s AI as fully finished spanners. It is submits that the ld. Adjudicating authority did not appreciate the fact that the M/S AO had transported the said forgings along with forgings manufactured by it to M/s AI and this procedure was adopted just to save transportation cost as transportation of small quantity of spanners was not economically viable. It is further submits that M/s AI was having electroplating plant as well as other machines required for manufacturing of spanners, were found installed during the course of search by the DGCEI officer. No reason why M/s AI would keep not to utilize its machines and, instead, get fully finished chrome plated spanners from M/s AO, especially when the product would be cheaper at M/s AI due to various subsidies and incentives offered by State and Centre Government. Further, it is submits that M/s AI had regularly filed its monthly returns with the jurisdictional Range. The said monthly returns have never been questioned and, were accepted by department. Therefore, without questioning the returns filed by M/s AI who had availed benefit of Area based exemption Notification, the present allegation is not sustainable.

6. With regard to fraudulently availed cenvat credit of Rs. 55,48,523/- without actually receiving goods in its factory, it is his submissions that the said allegation has been alleged that on the basis of statement given by one of the supplier M/s Jagannath Steels, who had stated that they had issued invoices only without supply of goods physically and with regard to other suppliers, they had supplied mild steel to M/s AO but did not know whether the goods supplied by them were got unloaded by M/s AO in its factory or somewhere else. One of the supplier has also stated that they have supplied rounds of mild steel of 12mm and it was alleged that rounds of 16mm onwards of steel grade 31CrV3 and EN8 only could be used by M/s AO and not rounds of mild steel of 12mm. One of the supplier had allegedly stated that proof of receipt from M/s AO was not taken when goods were unloaded by vehicle/driver so did know where goods were unloaded. Three suppliers have stated that they have manufactured goods out of ingots and mild steel.

7. With regard to above allegations, it is his submissions that no inquiry was conducted with the transporter who had delivered the goods to M/s AO and no opportunity of cross examination was afforded to M/s AO. The cross objection has also not been granted of Shri. Manjit Singh or M/s Jagannath Steel who has stated that he had merely issued invoices without physically selling goods especially whereas the said goods duly entered in their statutory records by the appellant for manufacture of their final goods. No efforts have been made, if the said goods were not received in the factory of the appellant, from where the appellant has procured the goods. It is his submissions that there is nothing on record in terms of statement of transporter regarding unloading of goods, buyer‟s details, money transaction etc., to substantiate the allegation of non receipt of goods in M/S AO‟s factory. Therefore, demands are not sustainable in the light of the decision of this Tribunal in the case of Century Metel Recycling Pvt. Ltd. reported in 2016 (333) ELT 483 (Tri. Del.) and A.R. Shanmugasundaram reported in 2016 (333) ELT (158) Tri. Chennai, wherein it has been held that charge of clandestine removal cannot be based merely on statement and private records unless corroborated by any other evidence.

8. He is further submits that for the invoice issued by M/s Atul Kumar Rohit Kumar, invoice issued by M/s K.J. Steel Rolling Mills , the goods were directly sent to the job worker or cleared as such upon payment of duty, therefore, cenvat credit cannot be denied.

9. In some of the case, cenvat credit sought to be denied on the ground that there was no entry in the private records but their entry is in the statutory records and the said goods has been used for manufacture of their final product. In that circumstances, it cannot be said that the goods has not been received. The statement recorded during the course of investigation never allowed for cross objection and merely on the basis of the statement, without any corroborative evidence, the statement cannot be relied upon.

10. On the issue of undervalued of its goods sold to M/s AI. It is his submissions that the appellants are clearing the said goods to independent buyers as well as to M/s AI. These facts has not been disputed, therefore, the Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2000 will not applied to the facts of this case. In that circumstances, the charge of undervalued is not sustainable.

11. To support this contention, he relied on the decision of this Tribunal in the case Of JMP Castings Ltd. vs. CCE, Jallandhar reported in 2017 (349) ELT 648 (Tri.).

12. On the other hand, the ld. AR reiterated the finding in the impugned order.

13. Heard the parties and considered the submissions.

14. On careful consideration submissions made by both the sides, we find that the demand has been raised against the appellants on the three issues:

(A) The appellant have mis-used the benefit of exemption Notification No. 50/2003-CE dated 10.06.2003 and availed benefit of the said Notification without manufacturing the goods.

(B) The appellant M/s AO has not received the inputs and availed cenvat credit without receipt of the goods.

(C) The clearance made by M/s AO to M/s AI have been undervalued.

15. All the issues are dealt separately:

(A) Regarding mis-used of Notification No. 50/2003-CE dated 10.06.2003, we find that the appellant has shown their process chart which has been extracted herein below:



It has been alleged against by the appellant is that the appellant had cleared fully finished chrome plated spanners under the guise of forgings to their sister unit. The appellant has explained that the manufacturing process which has been recorded here as under:

“After electroplating, the said spanners were subject to visual inspection for any crack fault and electroplating fault. Go/no-go gauge test was also performed to check that the sizes of spanners were in accordance with DIN/Turkish standards. The tests are possible only after electroplating as before that it is not possible to find any fault in the spanners due to its colour. In case of any visible fault, the spanners are sent back for repair/rectification of defects, if possible whereupon it against comes back for electroplating and in case the repair/rectification of defect was not possible, the same are scrapped and sold as waste and scrap. Similarly, spanners manufactured for export were subjected (by randomly selecting out of the export lt) salt spray test to check the quality of electroplating. In case, randomly selected spanner fails in test, the entire lot is rejected and sent back for repair/rectification of defects whereupon they again come back for electroplating. It was due to this reason that the quantity shown in the Electroplating Production Reports or Work Order Progress Chart are more than the quantity recorded in RG 1 register.”

It is above said explanation has been ignored by the ld. Commissioner. Further, the appellant has explained CP stands for “Cold Pressed‟ whereas it has been presumed by the adjudicating authority as “Chrome Plate‟ and explanation given by the appellant by way of affidavits has not been considered. In that circumstance, it cannot be presumed that CP is used for “Chorme Plates”, therefore, on that ground it cannot be held that the appellant M/s AO was cleared “Chrome Plate” spanners under the guise of forgings to M/s AI.

We also take a note of the fact that M/s AI is having facility of electroplating and installed the machinery in their factory. The same has been found installed by the authorities below. In that circumstances also, the benefit of doubt goes in favour of the appellants, therefore, the goods cleared from the premises of M/s AI are entitled under exemption of Notification No. 50/2003-CE dated 10.06.2003.

In view of the above, the demand cannot be raised on account of denial of benefit of exemption Notification No. 50/2003-CE dated 10.06.2003, therefore, the demand of Rs. 57,81,475/- is set aside.

(B) Fraudulently availment of cenvat credit.

We have gone through the records placed before us. On going through the said records, we find that the sole reason for denial the cenvat credit is based on the statement of the various suppliers that they have issued invoice and not supplied the goods or they are not knowing when the goods have been unloaded at the factory premises of M/s AO.

We find that all the allegations against the appellant M/s AO is that they have not received the goods are based on the various statements, no cross objection of the persons whose statements have been relied and granted and no other corroborative evidence has been produced on record by the Revenue in support of the allegation. We take note of the fact that the statements recorded during investigation were not tested in terms of Section 9D of the Act, the examination of Chief is required and thereafter, the cross objection is to offer as held by this Tribunal in the case of Kuber Tabbaco ltd. Reported in 2018 (338) ELT 113 (Tri. Del.). In these circumstances, it cannot be held that the appellants had not received any goods in the absence of any corroborative evidence and merely relying statements of the suppliers. Further, we find that no statements of the transporters has been recorded to substantiate the statements of the suppliers. In that circumstances, cenvat credit cannot be denied to M/s AO to the tune of Rs. 55,48,523/-.

(C) Undervaluation:

There is an allegation against M/s AO that they have cleared the goods to their sister unit had not paid duty in terms of Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2000, hence, have undervalued the goods.

We find that the fact on record that M/s AO is clearing the goods on the same price to M/s AI as well as to independent buyers, therefore, Rule 9 of the Valuation Rules, is not applicable to the facts of the case. The same view was taken in the case of M/s JMP Castings (Supra) wherein this Tribunal observed as under:

“7. It is admitted fact that the appellant is not clearing the 100% of the production to the related person and only 80% to 90% of the production was cleared to the related person, therefore, it is to be seen whether the provisions of Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2000 are applicable to this case or not?

For better appreciation of the provisions of Rule 10, Rule 9 and Rule 8 are extracted here below :

Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture or other articles, the value shall be 110% of the cost of production or manufacture of such goods.

Rule 9. When the assessee so arranges that the excisable goods are not sold by him except to or through a person who is related in the manner specified in either of sub-clause (ii) or (iii) or (iv) of clause (b) of sub section (3) of Section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail :

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

Rule 10. When the assessee so arranges that the excisable goods are not sold by him exempt to or through an interconnected undertaking, the value of goods shall be determined in the following manner, namely :

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

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

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

8. On going through the said rules, the said rules are applicable only in a situation where the appellant is clearing 100% of production through the person who is related.

Admittedly, the appellant is not clearing 100% of production through related person. In that circumstances, we hold that the provisions of Rule 9 read with Rule 8 of Valuation Rules, 2000, are not applicable to the facts of this case. Therefore, the charge of undervaluation. is not sustainable against the appellant.

9. In these terms, the impugned order deserves no merits, hence set aside. The appeal is allowed with consequential relief, if any.

16. In view of the above observations, we find that the charge of undervalued is not sustainable against the appellants.

17. In view of the above analysis, we do not find any merit in the impugned order, the same is set aside. The appeals are allowed with consequential relief.


(Dictated and pronounced in the open court)


Anil G. Shakkarwar             Ashok Jindal
Member (Technical)            Member (Judicial)

rt

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH : ALLAHABAD

COURT No. I

APPEAL Nos. ST/552 & 553/2012-CU[DB]
(Arising out of Order-in-Appeal No. 13/ST/ALLD/2012 dated 24/01/2012 (in Appeal No. ST/552/2012) & Order-in-Appeal No. 08/ST/ALLD/2012 dated 23/01/2012 (in Appeal No. ST/553/2012) passed by Commissioner of Central Excise & Service Tax (Appeals), Allahabad)

M/s Aakay Associates (in Appeal No. ST/552/20012) &
M/s S.S. Constructions (in Appeal No. ST/553/2012)
Appellant(s)

Vs.

Commissioner, Central Excise & Service Tax, Allahabad
Respondent(s)

Appearance:
Shri Anurag Mishra (Advocate ) & Ms Pragya Pandey (Advocate)
for Appellant(s) Shri Rajeev Ranjan (Addl. Commr.) AR for Respondent(s)

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

Date of Hearing : 17/09/2018
Date of Decision : 17/09/2018

FINAL ORDER NOs 72243-72244 / 2018

Per: Anil G. Shakkarwar

Both the appeals are being disposed of by a common order as the issue involved is identical. Both the appellants are contractors for M/s Hindalco Industries Ltd. and providing various services to them. The Revenue got the figures of payments made by M/s Hindalco to the appellant for various services provided by them. As there was a difference between the figures so received from Hindalco and the value of the services reflected by the appellants in ST-3 returns, Revenue raised demands on the said differential values. The show cause notices were issued by invoking the longer period of limitation. The said show cause notices stand culminated into an impugned order passed by the Original Adjudicating Authority confirming the demand of service tax of Rs.14,08,495/- along with imposition of penalties in the case of M/s Aakay Associates and confirmation of demand of Rs.10,68,687/- with equal penalty in the case of M/s S.S. Constructions.

2. Learned Advocated appearing for the appellant submits that the value difference between the consideration received by them from Hindalco and as reflected in ST-3 returns is on account of providing non-taxable services. He has placed a list of such non-taxable services provided by them to Hindalco before us today. As such, he submits that the Revenue has erred in considering the entire consideration as the value of the taxable services provided by them.

3. Learned Counsel further brought our attention to the Annexure-A to the show cause notice in both the cases where third column of the table indicates that the amount of PF and Bonus involved in providing of services has already been taken into consideration by the Revenue for issue of other show cause notices for recovery of service tax short paid for the same period for which present demand is raised.

4. Heard the learned AR who is submitted that on the basis of information received from service recipient and the difference between the consideration received by the appellant and reflected in the ST-3 return, demand are raised.

5. Having considered the submissions from both the sides we find from Annexure-A to the relevant show cause notices in both the appeals that the decision to reassess the service tax in respect of both the appellants for the period from April, 2005 to 31 March, 2010 is already exercised by Revenue by issue of other show cause notices in respect of consideration on account of amount of PF and Bonus. We find that the present show cause notices are reassessment of reassessment for the same period. We find that such authority is not available to Revenue. We note that Revenue should have taken all aspects of short levy into consideration when they issued demand on amount of PF and Bonus to the appellant. We, therefore, do not find present show cause notices to be sustainable. We, therefore, set aside the impugned orders and allow both the appeals with consequential relief, if any.

(Dictated & Pronounced in Court)

Sd/-
(Anil G. Shakkarwar)
Member (Technical)

Sd/-
(Anil Choudhary)

 Member (Judicial)

Ankit

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

Appeal No. ST/85707/2014
(Arising out of Order-in-Original No. 72-75/ST-II/RS/2013 dated 29.11.2013 passed by Commissioner of Service Tax, Mumbai)

M/s 3i Infotech Ltd.
Appellant

Vs.

Commissioner of Service Tax, Mumbai II
Respondent

Appearance:
Shri A.R. Krishnan, Advocate for appellant
Shri M.K. Sarangi, Jt. Commr (AR) for respondent

CORAM:
Hon’ble Mr. S.K.Mohanty, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical)

Date of Hearing: 10.05.2018
Date of Decision : 18.09.2018

FINAL ORDER NO. A/87362/2018

Per: Sanjiv Srivastava

This appeal is directed against order-in-original No. 72-75/ST-II/RS/2013 dated 29.11.2013 passed by Commissioner of Service Tax, Mumbai. Vide the impugned order the adjudicating authority has confirmed the service tax demand of Rs.86,41,89,809/- along with interest thereon and also imposed penalty under Sections 75, 76, 77 and 78 of the Finance Act, 1994.
2.1 The adjudication is in respect of three show-cause notices earlier remanded back by this Tribunal vide its order No. A/29/13/CSTB/C-I dated 14.01.2013. While deciding the matter in remand proceedings, the Commissioner has also adjudicated another show-cause notice on the same issue for subsequent period. Chronologically four show-cause notices under cover by the adjudication order are as follows:-




2.2 While remanding the matter back the Tribunal has in its earlier order observed as follows:-

“4. We have considered the submissions made by both the sides. We have also perused the impugned order. From the impugned order, it does not come out clearly how the Service Tax liability has been computed. If the appellant has purchased from third parties and sold the same on payment of VAT and also supplied hardware on payment of VAT, the same would not be liable to service tax. The liability to service tax would arise only in respect of software which the appellant has developed as per customer’s specifications and supplied to their customers. Therefore, there is a need to go through the agreements entered into with the clients, bills raised for the services rendered and the goods supplied and the payments made towards service tax liability under the category of ‘information technology service’. Only after going through all these documents, correct service tax determination can be done. Accordingly, we remand the matter back to the adjudicating authority to consider the matter afresh after taking into account all the documentary evidences which the appellant would submit in support of their claim that they have discharged the service tax liability correctly. The appellant is directed to co- operate with the department and produce all the

documentary evidences by way of sales invoices, contracts/agreements entered into with the clients and other necessary documents, and payment of service tax made in respect of the services rendered by them etc…..”


4. The demands confirmed against the appellant by the order-in-original can be classified in following categories:-




5. On the issue, learned Consultant appearing for appellant challenged the impugned order on the following grounds:-

(a) The SCN 1 was issued demanding Service Tax under the category of “Maintenance and Repair Services”, in the first round of adjudication Commissioner had confirmed the demand under the category of “Maintenance and Repair Services” uptil 15.05.2008 and from 16.05.2008 under the category Information Technology Software Services. In the remand proceedings Commissioner has confirmed the demand under the category of “Intellectual Property Right” services up till 15.05.2008 and from 16.05.2008 under the category of Information Technology Software Services. Since the adjudication order has in case of this show cause notice demanded the service tax under the category which were never in dispute in Show Cause Notice, the order is bad in law. [Mahakoshal Beverages Pvt Ltd. Vs, CCE (2006) 6 STR
148 (T-Bang)] & [Glass Fibres vs CCE (2010) 18 STR 726 (T-Bang)]

(b) The impugned order has gone beyond the scope and directions of the Tribunal in remand order dated 14.01.2013 for demand of service tax on sale of software and hardware. Hence, to the extent of Rs. 42,57,55,464/- for the period 01.04.2004 to 31.03.2012 is unsustainable. The tribunal earlier decision to this effect as it has not been challenged hence binding on the revenue authorities [CCE Vs Costa & Co Pvt Ltd (2015) 321 ELT 475 (T-Mum)], {Triveni Rubber Vs CCE (2017) 346 ELT 41 (ALL)] & [CCEVs Raj Leather Clothes Industries Pvt Ltd (2005) 186 ELT 332 (T-DEL] & [CBEC Circular No 81/2/2005 dated 7.10.2005]

(c) Show-cause notice No.2nd , 3rd and 4th (period 01.04.2009 to 31.3.2012) does not put forth any reasons why the revenues are liable for service tax. Therefore, the demand in respect of these three show- cause notices is not sustainable.

(d) On merits, sale of third party software charged to VAT and sale of in-house developed software (VAT exempt) are in the nature of ‘sale of goods’ hence are not liable to service tax. {TCS vs State of AP (2004) 178 ELT 22 (SC)] & [ Para 4 of the Order of Tribunal in their

own case while remanding the matter back to adjudicating authority)

(e) Software developed services are not liable to service tax prior to 16.05.2008 and hence entire demand prior to 16.05.2008 is not on any merits. The demand confirmed under IPR services not sustainable as IPR services, as IPR in software is copy right and copy right is excluded from IPR Services.

(f) Software development services has been categorically included under ITSS {Section 65 (105)(zzzze)], a new service taxable only from 16.05.2008 [Indian National Shipowners Association vs UOI (2009) 14 STR 289 (Bom)]

(g) They are paying service tax on software development services under category of ITSS post
16.05.2008, except for an amount of Rs 1,15,19,500/-

for the period 16.05.08 to 31.03.2009, which was omitted to be paid due to oversight in the initial period of levy. For this period the demand has been confirmed under the category of ITSS, contrary to the fact that demand was made under category of Management Maintenance and Repair Services.

{Aurobindo Pharma Ltd vs CCE (2208) 10 STR 611 (T- Bang)]

(f) Sale of hardware like servers, printers, computers, UPS, hard disks, etc. are not liable to service tax as these are goods chargeable to VAT. Further while demanding service tax in respect of these cases, order-in-original fails to specify any category of taxable service under which the tax has been demanded.

(g) In respect of the service provided to SEZ unit, the same are exempted under SEZ Act [section 26(1)(e) read with Section 51) which has an overarching effect over all other laws. Further exemption Notification No. 9/2009-S.T. dated 03.03.2009, also exempts the services provided to SEZ Unit/ Developer. [Intas Pharma Vs CST (2013) 32 STR 543 (Tri- Ahmd)], {M/s Reliance Port & Terminals Ltd vs CCE & ST [(2013) TIOL 1473 CESTAT-AHM] & Tata Consultancy Services Ltd Vs CCE & ST [(2013) 29 STR 393], Trimurthy Industrial Co- operative Society Ltd Vs CCE [2018 TIOL 206 CESTAT MUM} & DHL Lemuir Logistics Pvt. Ltd. Vs CCE 2017 (47) STR 309 (T-Mum)]

(h) In respect of Octroi charges in service tax is not demandable as these are essentially in relation to the sale of hardware. Octroi is a tax paid to bring goods into a state and is not in the nature of consideration for any services and hence not liable to tax.

(i) Services rendered in Jammu & Kashmir are rendered outside the taxable territory and hence are not liable to service tax.

6. Replying to the contentions of the appellant learned D.R. made submissions as follows:-

(a) In respect of show-cause notice No.1, though the show-cause notice has been issued under the category of ‘management, maintenance and repair service, demand has been confirmed under ‘Intellectual Property Services’ upto 15.05.2008 and thereafter under ‘Information Technology Services’., and the Appellant contention for challenging the said demand is on the basis that they were not put to notice in this regards.

(b) The said demand has been confirmed under the said categories after going through the “Full Use Program Distribution Agreement dated 17th May 2010 with Oracle India” as per which appellant have been granted non exclusive, non transferable right to distribute to the end user the programmes. They may order programs, learning credits and / or service from Oracle. All reselling criteria are subject to change at Oracles’ discretion. As per clause-D, the licensor

retains all ownership and intellectual property right to the programs and learning credits. As per clause-F, the appellant has to ensure that any distribution of programs, learning credits and / or service to end user is subject to a legally binding end user license agreement.

(c) As per Purchase Order dated 20.11.2009 (Annual Technical Support) for Oracle License with the purchaser namely Shriram General Insurance, they will get access right to Oracle Metalink site for software, version update software and patches on need basis which can be downloaded directly. The appellants will be providing value added services through their representative at Shriram.
(d) As per Software Order and Licensing agreement dated 18th June 2010 with Kotak Mahindra Bank, ‘software’ has been defined to mean computer software owned or distributed by Licensor including without limitation Oracle database software. As per clause, the software is licensed, not sold for use only under the terms and condition of the agreement. As per clause 2 having stipulated additional restriction not other rights have been granted while stating that all right, title and interest to software shall at all time remain with Licensor. The Licensee does not grant any right to assign or transfer to third party.

(e) As per software development agreement dated 06th May 2002 with ICICI Webtrade, it is providing hosting management service and additional services including software development, customization, maintenance of both in-house development and those procured from 3rd parties and support services.

(f) As per the earlier CESTAT order dated 14.01.2003, liability to service tax would arise only in respect of software which the appellant have developed as per customers’ specification and supplied to customer. Matter was remanded to AA for going through the agreement, bills raised and payment towards service tax liability under “Information Technology Services.” As per appellants’ reply dated 11.11.13 demand on account of sale of 3rd Party software is Rs 10.2 Crores, whereas demand on account of in house developed software, development and customization of software is Rs 51.37 Crores. As per them, sale of software is not provision of service. Further customization of software as per client’s specification is not “maintenance or repair service”. Software development (including up-gradation, implementation etc) has been included under ITSS wef 16.05.2008.

(g) As per Circular dated 07.10.2005 and 07.03.2006, software being goods, any service in relation to maintenance, repair or servicing of software will be liable under ‘Maintenance or repair service”.

(h) The decision of Hon’ble Supreme Court in the case of Tata Consultancy Services – 2004 (174) ELT 22 (SC) is not applicable in the present case as in that case the issue was whether canned software can be termed as goods and assessable to Sales Tax. In para 16 it referred to earlier decision as per which properties which are capable of being abstracted, consumed and used and/ or transmitted, transferred, delivered, stored or possessed are “goods” for the purpose of sales tax. In para 24 relying on the definition of goods in Article 366(12) of the Constitution of India it observed that copyright in software may remain with originator, but the moment copies are made and marketed, it becomes :goods: and susceptible to Sales Tax. The matter pertains to Tribunal order dated 12.12.1996 hence the changes made with reference to intangible property are not under discussion in the said case. Hence the said decision could not be relevant for the present controversy. In any case the decision is not relevant after 16.05.2008 since when software has been subjected to service tax. Even otherwise whether software is ‘goods’ or not is not relevant but as per the agreement, what is the intention of parties is relevant. It is not applicable for customized/ canned software.

(i) Hon’ble High Court of Madras has in the case of Infotech Software Dealer Association [2010 (20) S.T.R. 289 (Mad.)] considered “End User License Agreement” and held that software supplied to customer as per the said agreement is to be treated as service. It was held that when the goods as such are not transferred, question of deeming sale of goods under Article
366(29A) (d) does not arise, and the transaction would be only a service and not a sale.

(j) In the case of State v. IBM India Pvt. Ltd. – 2015- TIOL-2298-HC-KAR-VAT in similar situation pertaining to ERP software implementation service, it was held that they are not goods available in market and it is client specific, hence the demand of VAT was set aside. Earlier decision in case of Infotech Software Dealer Association was followed.

(k) In case of Mahyco Mosanto Biotech [2016 (44) S.T.R. 161 (Bom.)] Hon’ble Bombay High Court has held that mere inclusion of franchise under MVAT Act would not automatically make all franchise agreement liable to sales tax dealing with permissive use. It observed that the agreement refers to mere permissive use of defined intangible rights.

(l) From the agreements under consideration it is apparent that-

a. It does not show that software is sold through CD only. After software installation CD has hardly any value and Software needs periodic up- gradation.

b. In case of customization at client’s site, definition of goods is not relevant.

(m) In case of Safety Retreading [2017 (46) STR 97 (SC)], the facts were different in as much as Revenue wanted to charge tax on 100% value which includes material portion. From para 11, 12, & 13, it is clear that service portion 30% defined under local Act was never challenged in the SCN nor the invoice showing breakup of material and service portion was disputed in order and the affidavit filed before Court. It cannot be applied in present case.

(n) As appellant did not seek any clarification from department and there was failure to disclose position in ST-3 returns, there was suppression and hence extended period has been correctly invoked. For which reliance has been placed on CCE v. Reliant Advertising [2013 (31) STR 166 (Tri-Del) and Vodafone Digilink Vs CCE [2013 (29) STR 229 (Raj)].

(o) In case of demand of Service Tax under Section 73, it is not required to prove that the nonpayment of tax was with intent to evade as required under Central Excise Act, 1944 as held in Touraids Travels Vs CCE [2014 (35) STR 235 (ALL)]

(p) Further payment of VAT is not relevant factor for determining the liability to service tax as has been held by the Apex Court in case of IDEA Mobile. [2011 (23) STR 433 (SC)]

(q) It was also submitted that the sale of hardware as shown is not per se sale of hardware is nothing but sale of complete software solution to the issuance being passed by the clients its sale of hardware has to be seen in conjunction with the entire contract agreement and then it can be decided whether these are to be considered as sale of hardware per se for provisioning for sale liable to service tax.

8. The Chartered Accountant appearing on behalf of the Appellants after conclusion of the hearing sought liberty to file additional written submissions which in interest of justice was allowed by the bench. Accordingly the Chartered Accountant filed additional written submissions vide his letter dated 15.05.2018. In this submission he submitted that-

i. “Full use Program Distribution Agreement” dated 17.05.2010 with Oracle India, only indicates that they have the right to distribute Oracle Program, which is a copyrighted article.

ii. As per Purchase order dated 20.11.2009, of M/s Shriram General Insurance, three copies of “Oracle Database Enterprise Edition – Processor Perpetual Full Use” and three copies of “Internal Application Server Enterprise Edition - Processor Perpetual Full Use” are to be delivered within 4-6 weeks and Oracle Programme was to be installed by the Appellant.

iii. In respect of “Product Support” they have already paid the service tax.

iv. Software Order and Licensing Agreement dated 18.06.2010 with M/s Kotak Mahindra Bank, is transaction of sale of copy of appellant’s own branded software in CD Form. Reliance placed by revenue on clause 2.1 of agreement to state “The software is licensed, not sold, to Licensee for use only under the terms and conditions of this agreement ….” Is not correct as in the same agreement clause 2.2 provides “Delivery: Licensor shall deliver to the licensee 1 (one) copy of the software application and the associated programme documentation.”Thus clause 2.2 is clearly providing for the sale of copy of copyrighted software. The purpose of license agreement and clause 2.1 is to clearly demarcate that what is being sold is a copy of copyrighted article and not software along with the copyright. Since the appellants have transferred the right of ownership (i.e. sale) in the copy of computer programme to the customer for a consideration thus resulting in sale of the CD containing a software.

v. Software development agreement dated 6.05.2002 with ICICI Webtrade, is for development of customized Software development service and falls under the category of Information Technology Software Service (ITSS) after 16.05.2008 and liable to service tax. Since this service was notified as liable to service tax from 16.05.2008, they have paid the service tax in respect of these services with effect from that date.

vi. Apex Court decision in case of Tata Consultancy Services [2004 (178) ELT 22 (SC)] is relevant both prior to and after 16.05.2008 and the sale of copy of computer programme would still be sale of goods and not services.

vii. It is intention of the parties to sell a copy of the software so that the property in the copy passes to the buyer and hence it is sale.

viii. In view of the decision of Karnataka High Court in case of State of Karnataka Vs IBM India [2015-TIOL-2298-HC-KAR-VAT], and Infosys Ltd vs Dee Commissioner of Commercial Taxes [2015-TIOL-2106-HC-KAR-VAT],

a. sale of Third Party Standardized Software and sale of In-house Developed Standardized Software, will be sale liable to VAT;
b. Service Tax will be payable on pure service contract, software development services on which service tax is paid.

ix. By applying the principles laid down by the Bombay High Court in case Mahyco Monsanto Biotech (India) Pvt. Ltd. vs UOI [2011 (44) STR 161 (Bom)], since the copy of software is exclusively given to the customer, and he is free to use it, not to use it or even destroy it, and not to return the same except in case of termination of agreement due to breach of stipulated conditions, the transaction is that of sale, and will not be liable to service tax.

x. Madras High Court Decision in case of Infotech Software Dealers Association Vs Union of India [2010 (20) STR 289 (MAD)] also do not advances the case of the department.

xi. Even if the contention is accepted in respect of the sale of software on CD, then since the In-house Developed Standardized Software’s are always sold on CD, demand of Rs 9,33,33,326/- is required to be dropped.

xii. Show Cause Notice or Order in Original do not makes any distinction between sales of software on CD or by way of download hence making such a distinction at this stage would not be proper.

xiii. Service Tax under the category of “Information Technology Software Services (ITSS)” is not leviable on the sale of Third Party Standardized Software or on Sale of In-house Developed Standardized Software as these fall in the category of deemed sale under Article 366(29A)(d) of the Constitution of India.

xiv. Reliance placed by the revenue on the decision in case of Hong Kong Industries (P) Ltd Vs CCE & ST [(2017) 4 GSTL 257 (T-DEL)] and CST Vs Air Charter Services Pvt. Ltd. [2017-TIOL-2005-CESTAT-DEL] to argue that demand can be confirmed in order in original in category other than that alleged in show cause notice is not correct as in both the cases there was no difference in the category of service alleged in the show cause notice and the category in which demand was confirmed by order in original.

10. We have considered the submissions made by both the appellant as well as Revenue. The issues for consideration can be put across in four or five points.

10.1 Whether the order-in-original while confirming the demand raised by the first three show-cause notices have travelled beyond the scope of remand order or Commissioner was right in confirming the said demand as has been done by him. While remanding the matter back, the Tribunal has made observation which have been reproduced above in para 3. As per the said observation it is clear that the direction was to both the agreements entered into with the clients, bills raised for the service rendered and the goods supplied and the payment made towards service tax liability under the category of ‘Information Technology Service’. Only after going through all these documents, correct service tax determination was to be done and matter was remanded for taking into account of documentary evidences which would submit in support of their claim of having discharged of service tax liability. While passing the order, Commissioner has done the same. He has considered looking into agreements and has concluded what he deemed fit in respect of leviability of service tax. The remand order does not conclude anything in respect of the nature of the software supplied or to say that these could not have been leviable to service tax. Accordingly, the order of Commissioner cannot be faulted on this count.
10.2 In para 18 of his order, Commissioner had examined the agreement entered between the appellant and M/s Oracle on 17.05.2010. In para 20(ii), he had examined the purchase order from M/s Shriram, bearing No. PO- ETG/SOF/SI/00168/0-10 dated 25.11.2009 and other documents supplied by the noticee during the course of adjudicating proceeding. After considering the said agreement, the Commissioner has in para 23 and 24 concluded as follows:-

“23. The software programme developed by software developers like Oracle consists of various commands which enable the computer to perform a designated task. A programme containing instruction in computer language is subject-matter of a license, having value to the end user. Such programme is useful to the end user enabling him to obtain the desired results. The material evidence on record indicate that the impugned software developed by Oracle and other software developers supplied by the Noticee to the end user under a licensed agreement is not a packaged software sold off the shelf but a software designed to meet specific requirement of the end user and made available for use under a license. The terms of the agreement between the Noticee and Oracle, as mentioned above, clearly lay down that these software’s have to be distributed in conjunction with their value added package and have to be used only for the internal business operations of the end users. The agreement further stipulates that the ownership and intellectual property rights are with Oracle only. In case of packaged software designed and created for sale to more than one person for the use of large number of users on a variety of hardware, the intellectual property is incorporated on a media for purposes of transfer. However, in the instant case, the intellectual property of the software supplied by the Noticee is with the developer of the software, like Oracle. Thus, the Noticee is actually temporarily transferring the intellectual property right by way of selling the License to use the software developed by Oracle along with the support and update programs. If it is the case of purchase of packaged software sold off the shelf, then there is no need for the Noticee to enter into License Agreement.

24 It is thus observed that Oracle and other software developers only license the software for use by the end user subject to the terms and conditions of the agreement, thereby giving the right to use the software, which includes the right to install, run and get updates. As per the terms and conditions of the agreement, the end user is neither permitted to tamper / modify the software nor is allowed to sell the same, as the ownership and intellectual property rights remain with Oracle. Such right to use of the software does not amount to sale of software. There will be sale of software only if source code and entire property in software is transferred to buyer.”

10.3 The argument on merits advanced by the appellant is with regards to the decision of the Hon’ble Apex Court in the case of Tata Consultancy Services. Relying on the said decision they have argued that the third party software supplied by them are nothing but sale of copy righted article and hence sale of goods leviable to VAT hence cannot be leviable to service tax. There is no law which provides that levy of VAT bars to levy of service tax. On the contrary if authority to levy of service tax on a particular transaction can be traced back then no other levy cannot bar such a levy. It is the context that the decision of Madras High Court referred above needs to be examined. It is the submission of the party and is reproduced in reference to this argument:-




10.4 When the Hon’ble High Court has held that Section 65 (105) (zzzze) cannot be held unconstitutional as Parliament was having legislative competency to levy such tax. Levy of service tax in respect of these services cannot be followed just for the reason that these transactions would have been levied to VAT.

10.5 After examining various agreements, contract, invoices, the Commissioner has recorded the following in paragraph 21 of his order:-

“21. Further, from the documents produced by the Noticee it is seen that they had supplied Licenses to use the software developed by Oracle as well as other software developers, which they have categorized in the basket of ‘Product Taxable’. Some of the transactions are as under-

  • Vide Invoice No. MNV-MUM-10015 dated 22.04.2004, the Noticee had supplied a Integrated Treasury Management- Kastle, Additional 50 user License and application enhancements, to Federal Bank, Ernakulam.
  • Under invoice No. MNV-AHM-15064 dated 30.12.2004, the Noticee have supplied Microsoft Licenses to National Collateral Management Services Ltd.
  • Under Invoice No. MNV-MUM-19905 dated 30.04.2007, the Noticee had supplied Oracle software License to M/s. ICICI Bank Ltd.
  • Under Invoice No. MNV-MUM-19967 and MNV-MUM-20017, dated 09.05.2007 and 22.05.2007, respectively, the Noticee have supplied Citrix software License and Oracle software License to Kisan Group of companies.
  • Vide Invoice No. MNV-MUM-20902, dated 13.09.2007 and MNV-MUM-23048, dated 21.03.2008 the Noticee have supplied Oracle ASFU Standard One Edition Single Processor Base License to M/s. SISCO Research Laboratories Ltd. and M/s. Pratibha Industries Ltd.
  • Vide Invoice No. INV-MU&M-6100002769 dated 30.09.2008, the Noticee have billed M/s. Nippon Data Systems for supply of software License and Product support.
  • Vide Invoice No. INV-DEL-6100002853 dated 09.10.2008 and INV-DEL-6100002881 dated 10.10.2008 the Noticee have billed M/s. Softcell Technologies for supply of Hyperion Pre System 8.3.2 Intelligence Explorer with support.
  • Vide Invoice No. INV-MUM-6100003848, INV-MUM-6100003850, INV-MUM-6100003852, INV-MUM-6100003857, INV-MUM-61000072, INV-MUM-6100005281-84 and INV-MUM-6100005857 the Noticee have supplied Oracle Standard Edition software – 5 user Licenses.
  • Vide Invoice No. INV-MUM-6111001979 dated22.06.2010, one server license is sold to M/s. J.B. Chemicals & Pharmaceuticals Ltd.
  • Vide Invoice No. INV-BGL-6111002209 dated 25.06.2010, DMS Software service based with 20 concurrent License- Datascan.online is supplied to Bangalore Development Authority.
  • One Auto Deal software License is supplied to M/s. Nissan Motor India Pvt. Ltd. vide Invoice No. INV-MUM-6111003204 dated 27.07.2010.
  • One Orion ERP Software License is supplied to NET 4 India Ltd. vide invoice No. INV-MUM-6111004830 dated 13.09.2010
  • One Auto Deal software License is supplied to M/s. Nissan Motor India Pvt. Ltd. vide Invoice No. INV-MUM-6111009474 dated 29.03.2011.
  • An amount of Rs.1,40,000/- is billed vide invoice No. INV- MUM-6110002109 dated 28.07.2009 towards software License, implementation charges and packaging cost for Auto Deal.”

10.6 After examining the context of these agreements, Commissioner concluded that the transaction undertaken by the party in respect of third party software a nature of supply of services and hence leviable to service tax. Under the category of ‘Information Technology Software services’ from 16.05.2008. For period prior to 16.05.2008, the adjudicating authority has held that these transactions will be classified under the category of ‘Intellectual Property
Rights’.

10.7 It is settled law that software is nothing but an Intellectual Property of a person who has developed the said software. The right to use the software is something what gets transferred and not software has per se. Even if it is provided on a media such as CD or Hard Drive. Software cannot be altering, modified or reproduced by the user of the said software. He can only use the same for the purposes authorized by the rightful owner and in the manner authorized and this is further supported by the fact that in each case the recipient enters into an End User License Agreement (EULA) which is binding in nature before he can make use of the said software. The issue has been considered by the Commissioner in his order in paragraphs
45 to 53:-

“45. So far as the present case is concerned, there is no dispute about the fact that the software developers like Oracle had developed the software and given right to distribute such software to the end users on entering the end users license agreement. The intellectual property right in respect of the program remained with the said developer of software and the end user were only using the data contained in the software in furtherance of their business. In other words, the said software developers had only transferred the right to use the software temporarily. The Noticee acted as an intermediate on behalf of the software developers in transferring the intellectual property right. As such, the Noticee, being the ‘holder’ of the intellectual property right by way of the agreement entered by them with the software developers like oracle, are the provider of the ‘intellectual property services’, defined under Section 65(55b) of the Finance Act, 1994 read with Section 65(105)(zzr) ibid. Even in respect of the software developed in-house or customized software, as brought out in the above paras, the Noticee were only transferring the right to use the program contained in the software and the intellectual property rights and ownership of such software supplied to the customers, remained with the Noticee only. Thus, even in respect of the supply of software developed in- house or customized software, the services provided by the Noticee are classifiable under the category of the ‘intellectual property services’.

46. Information Technology Software Services, defined under Section 65(53a) of the Finance Act, 1994 was introduced with effect from 16.05.2008. The taxable service is defined under Section 64(105)(zzzze) ibid, which includes providing the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of an inclusion in other information technology software products. The taxable services also includes providing the right to use information technology supplied electronically. The CBEC too has clarified vide Circular DOF No. 334/1/2008-TRU, dated 29.02.2008 read with DOF No. 334/13/2009-TRU, dated 06.07.2009 that the Information Technology Software services includes providing the right to use IT software for commercial exploitation including right to reproduce, distribute and sell, software components for creation of and inclusion in other It software products and IT software supplied electronically.

47. Thus, the right to use the software programs has been later on covered separately under the ‘Information Technology Software Services’ with effect from 16.05.2008. Prior to 16.05.2008 transfer of right to use the programs contained in the software, being the intangible property, were covered under the ‘Intellectual Property Services’.

48. CBEC while communicating the changes made in the Union Budget for 2008-09 vide DOF No.334/1/2008-TRU, dated 29.02.2008, had clarified under para 3.4 as under – “3.4. Seven services are being separately defined as taxable services. Specifying as service separately as a taxable service does not necessarily mean or suggest that services falling within the scope of newly specified service were not earlier classifiable under any one of the existing taxable services. Grouping of services under a specific taxable service may change. The scope and coverage of a taxable service are to be determined strictly in accordance with the language of the relevant statutory provision existing during the material period.”

49. The Hon’ble Tribunals’ Order dated 30.10.2013 passed in the case of Sodexho Pass services India Pvt. Ltd. vs. commissioner of Service Tax, Mumbai, in Appeal No. Service Tax/156, 173/08-Mum, is also relevant here. The issue when a new entry is introduced covering a particular activity without amending the earlier entry, whether the earlier entry can cover the subsequently introduced entry, was examined by the Larger Bench of Tribunal, Mumbai, in this case. The Appellant contended that in such cases it cannot be said that the earlier entry covered subsequently introduced entry. Hon’ble CESTAT observed that this proposition may be true in certain situations and not in other situations. In this case demand of Service Tax was issued classifying the service provided under Business Auxiliary Service for the period 01.07.2003 to 31.12.2005. The assessee in this case had been paying Service Tax suo moto with effect from 01.05.2006 under Support Services of Business & Commerce. This service has been notified as a separate taxing service with effect from 01.05.2006. Hon’ble Tribunal held that the services provided by the assessee are covered under Business Auxiliary Service at the time when the Business Support Service was not in existence. The relevant portion of the CESTAT’s order are reproduced below-

“Para 12. Ld. Counsel has given a lot of emphasis and cited certain judgments to argue the point that once a new entry is introduced covering a particular activity without amending the earlier entry, it cannot be said that earlier entry covered the subsequently introduced entry. We are of the view that this proposition may be true in certain situations while in other situations, this may not be true.

After the introduction of Finance Act, 1994, practically every year new services were introduced in the Service Tax net. The introduction of new service did not bear any specific pattern or coverage to particular sector. In central Excise Tariff as also Customs Tariff, the classification is based upon various entries in the Service Tax, it is not unusual to find that a particular activity service may get covered by more than one entry/classification. In fact, Section 65A of the Finance Act, 1994 recognizes this fact. The said Section is reproduced below:-

65. Classification of taxable services

(1) For the purpose of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of Section 65.
(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows:-

(a) The sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) Composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion in applicable;
(c) When a service cannot be classified in the manner specified in clause (a) or clause
(d) It shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.

Para 13. It is obvious from the Section that the Act itself recognizes that service may be classifiable under two or more sub-clauses of clause (105) of Section 65. In view of the above provision, we are of the view that the proposition made by the ld. Counsel does not hold merit. Ld. Counsel has cited certain case laws in support of his contention. We have gone through the cited case laws. In the case of India National Shipowners Association vs. UOI reported in 2009 (14) S.T.R. 289 (BOM), the Hon’ble Mumbai High Court was considering the question whether marine logistics services- offshore support vessels, marine construction barges and harbor tugs provided to exploration and production companies would get covered under supply of Tangible Goods service from 16.05.2008 or under mining service prior to that date. It is in this context that they had made observation relating to the said two entries. In fact, in this case, the Supreme Court had observed that the nature of work that was required to be carried out could not be strictly said to be a service in relation to mining of mineral, oil or gas. It is in this context that the Court has made certain observation. Another case cited by the Ld. Counsel is Cameo Corporation Services Ltd. Vs. Commr. Of Service Tax, Chennai, reported in 2008 (11) S.T.R. 161 (Tri. Chennai). In this case, the issue before the Tribunal was, whether Share Transfer Agent service which was introduced with effect from 01.05.2006 could be covered under Business Auxiliary Service prior to that date. Share Transfer Agents are a separate category and they do the work of their own and registered with SEBI and it is in this context, the Tribunal held that this cannot be covered under Business Auxiliary Service and made certain observations. Similarly in the case of CCE vs. Trumac Engg. Co. Pvt. Ltd. reported in 2008 (10) S.T.R. 148 (Tri. Ahmd.) the issue was between the Consulting Engineering Service and Intellectual property service w.e.f. 10.09.2004. The fees and royalty paid for technical know- how was not to be covered under Consulting Engineer Service and in this context the Tribunal held that services are chargeable under Intellectual Property Service with effect from 10.09.2004 and are not covered under Consulting Engineer services prior to that date and observations are made in that context. Similarly, in the case of Glaxo Smithkline Pharmaceuticals Ltd. vs. CCE, Mumbai IV reported in 2005 (188) ELT 171 (Tri. Mum) the issue was whether the activities which are in the nature of executor services would be covered under Management Consultancy services. The executor services were held to be not covered under Management Consultancy services. In the case of IBM India Pvt. Ltd. vs. Commissioner of Service Tax, Bangalore reported in 2010 (17) S.T.R. 317 (Tri.Bang) the issue was relating to Management Consultant Service, software implementation which was executor in nature and it is in this context certain observation was made by the Tribunal. The facts in the present case are very different. As discussed earlier, we are of the view that the activity of the assessee helps in promoting the sale of goods and services of its affiliates and clearly covered by the specific entry under Business Auxiliary Service. Moreover, prima facie, we do not find that the said activity gets covered under Business Support services. In any case, since the activities are more specifically covered under Business Auxiliary Service as per Sec. 65A(2), the same would be covered under Business Auxiliary Service. The various observation made in various case laws cited are not applicable in the facts and circumstances of the present case.”

50. As can be seen in this case, the service of transfer of right to use the intangible property, i.e. the software was classifiable under the category of ‘Intellectual Property Services’ and were taxable in terms of Section 65(105)(zzr) of the Finance Act, 1994. In the Union Budget of 2008-09, a new service, viz. ‘Information Technology software’ service has been carved out and defined separately under Section 65(53a) and taxable in terms of Section 65(105)(zzzze) ibid, wherein such right to use the software has been specifically included in the aforesaid service, taxable with effect from 16.05.2008.

51. In view of the clarification of CBEC given vide the above said circular dated 29.02.2008, so far as first Show Cause Notice dated 19.10.2009 is concerned, the services provided by the Noticee in respect of the supply of the third party software and the software developed in-house or the customized software, wherein the Noticee had temporarily transferred the right to use the software to their clients for consideration, are classifiable under the category of ‘Intellectual Property Services’ for the period prior to 16.05.2008 and with effect from 16.05.2008 the said services are classifiable under the separately specified category of ‘Information Technology Software services’.

52. The show cause Notice dated 19.10.2009 has classified the impugned services provided by the Noticee under the category of ‘Management, Maintenance or Repair Services’ for the period from April 2004 to 16.05.2008. the classification rule says that the classification of a service should be done under the head which is more specific, viz., temporary transfer of right to use the software are found to be more appropriately classifiable under the category ‘ Intellectual Property Services’ and with effect from 16.05.2008 are specifically covered under the category

‘Information Technology Software services’. As regards the management, maintenance and repair services of computer hardware/ software provided by the Noticee either under the Annual Maintenance Contract (AMC) or otherwise, there is no dispute that the same are covered under the category of ‘Management, Maintenance or repair services’ only, which are defined under Section 65(64) of the Finance Act, 1994 and taxable under Section 65(105)(zzg) of the Finance Act, 1994, during the entire period of demand.

53. From the foregoing it is evident that the services under consideration provided by the Noticee, are classifiable under ‘Intellectual Property Services’ prior to 16.05.2008 and under

‘Information Technology Software Services’ with effect from 16.05.2008. However, the Noticee claims that the services provided by them are classifiable only under ‘Information Technology Software Services’ and only with effect from 16.05.2008 and not under ‘Intellectual Property Services’ prior to 16.05.2008. it is pertinent to mention that the change of classification of the impugned services from ‘intellectual property services’ or ‘information technology software services’, as applicable for the relevant period, would not have any bearing so far as the Service Tax demand is concerned as the applicable rate of Service Tax is same for both the services.”
10.8 All the issues under consideration have been the part of the deliberations in the Conference of “Committee of Experts on International Co-operation in Tax Matters” Fifteenth Session at Geneva from 17 to 20th October 2017. The paper presented at the said conference on “SOFTWARE PAYMENTS AS ROYALTIES UNDER ARTICLE 12 [E/C.18/2017/CRP.25]” has considered the treatment of the payments received for transaction in software’s. Most of the issues under consideration are aptly covered by the said paper and it also highlights the international practices in this regard. The relevant excerpts from the said paper are reproduced below:

“OECD History

Historically, the work for development of guidance in respect of application of Article 12 on software payments originally appears in a report titled “Software: An Emerging Industry” that was published by the OECD in 1985. The recommendations made in Appendix 3 of the “Software: An Emerging Industry” for changes in Commentary on Article 12 led to the insertion of the paragraphs 12 to 19 of the OECD Commentary on Article 12. These changes were the first major guidance included in the Commentary on Article 12 in respect of software payments.

2. The second set of further guidance that was subsequently incorporated and continues to remain as existing guidance was adopted on the basis of another report titled “The 2000 Update to the Model Tax Convention” adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, leading to modification of some of the paragraphs and insertion of paragraph 12, 12.1, 12.2, 13.1, 14, 14.1, 14.2, 14.3 and 14.4 in the OECD Commentary.

3. The third set of major changes in this guidance resulted from the recommendations made in the OECD report titled “Treaty characterization issues arising from E-Commerce” which was adopted by the OECD Committee on Fiscal Affairs on 7 November 2002, consequently leading to another report titled “The 2002 Update to the Model Tax Convention” adopted by OECD Council on 28 January 2003, which led to the paragraphs 11.1, 11.2 11.3, 11.5, 11.6, 17.1, 17.2, 17.3 and 17.4 of the OECD Commentary.

UN History

4. Article 12, paragraph 3, of the UN Model reproduces

Article 12, paragraph 2, of the OECD Model but eliminates equipment rental from this Article. Moreover, paragraph 3 of Article 12 includes payments for tapes and royalties which are not included in the corresponding provision of the OECD Model. The relevant portions of the OECD Commentary and Committee comments are attached in Annex I.

5. At the 11th session of the Committee in 2015, a Subcommittee was formed to investigate the issue of software-related payments under Article 12 of the UN Model. The Subcommittee mandate was to consider and report on possible improvements to both the UN Model and Commentary.

6. The issue of taxation of royalties under Article 12 was initially scheduled for the 12th session of the committee, but was deferred until the 14th session, after the royalties Subcommittee had had a chance to meet to consider the issues. The relevant paper was E/C.18/2017/CRP.5. The Subcommittee decided not to put forward any text regarding the characterization of royalty payments made for the acquisition of software, until other underlying issues are clarified. The Subcommittee proposed amendments to the commentaries of Article 12 of the UN Model at the 14th session. The proposal did not represent the Committee’s unanimous recommendation, but reflected the view of the majority of the members of the Subcommittee.

7. The Subcommittee also noted, and the Committee agreed, that it would like to request the next membership of the committee to reconvene the Subcommittee on royalties, so that it could conclude the term of its mandate by addressing the nature of software-related payments and apply corresponding changes to the UN Model and Commentary, as appropriate.

Annexure

Relevant parts of the UN Art. 12 Commentary (with quotations from the OECD Commentary)

“11.1 In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognized that the grantor is not required to play any part himself in the application of the formulae granted to the licensee and that he does not guarantee the result thereof.

11.2 This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7 or in the case of the United Nations Model Convention Article 14.

11.3 The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: Contracts for the supply of know-how concern information of the kind described in  paragraph 11 that already exists or concern the supply of that type of information after its development or creation and include specific provisions concerning the confidentiality of that information. In the case of contracts for the provision of services, the supplier undertakes to perform services which may require the use, by that supplier, of special knowledge, skill and expertise but not the transfer of such special knowledge, skill or expertise to the other party. In most cases involving the supply of know-how, there would generally be very little more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. On the other hand, a contract for the performance of services would, in the majority of cases, involve a very much greater level of expenditure by the supplier in order to perform his contractual obligations. For instance, the supplier, depending on the nature of the services to be rendered, may have to incur salaries and wages for employees engaged in researching, designing, testing, drawing and other associated activities or payments to subcontractors for the performance of similar services.

11.4 Examples of payments which should therefore not be considered to be received as consideration for the provision of know-how but, rather, for the provision of services, include: payments obtained as consideration for after-sales service, payments for services rendered by a seller to the purchaser under a warranty, payments for pure technical assistance, payments for a list of potential customers, when such a list is developed specifically for the payer out of generally available information (a payment for the confidential list of customers to which the payee has provided a particular product or service would, however, constitute a payment for know-how as it would relate to the commercial experience of the payee in dealing with these customers), payments for an opinion given by an engineer, an advocate or an accountant, and payments for advice provided electronically, for electronic communications with technicians or for accessing, through computer networks, a trouble-shooting database such as a database that provides users of software with non- confidential information in response to frequently asked questions or common problems that arise frequently.

14. In other types of transactions, the rights acquired in relation to the copyright are limited to those necessary to enable the user to operate the program, for example, where the transferee is granted limited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user’s computer hard drive or for archival purposes. In this context, it is important to note that the protection afforded in relation to computer programs under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer program. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer’s hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as commercial income in accordance with Article 7.

14.1 The method of transferring the computer program to the transferee is not relevant. For example, it does not matter whether the transferee acquires a computer disk containing a copy of the program or directly receives a copy on the hard disk of her computer via a modem connection. It is also of no relevance that there may be restrictions on the use to which the transferee can put the software.

14.2 The ease of reproducing computer programs has resulted in distribution arrangements in which the transferee obtains rights to make multiple copies of the program for operation only within its own business. Such arrangements are commonly referred to as “site licenses”, “enterprise licenses”, or “network licenses”. Although these arrangements permit the making of multiple copies of the program, such rights are generally limited to those necessary for the purpose of enabling the operation of the program on the licensee’s computers or network, and reproduction for any other purpose is not permitted under the license. Payments under such arrangements will in most cases be dealt with as business profits in accordance with Article 7

14.4 Arrangements between a software copyright holder and a distribution intermediary frequently will grant to the distribution intermediary the right to distribute copies of the program without the right to reproduce that program. In these transactions, the rights acquired in relation to the copyright are limited to those necessary for the commercial intermediary to distribute copies of the software program. In such transactions, distributors are paying only for the acquisition of the software copies and not to exploit any right in the software copyrights. Thus, in a transaction where a distributor makes payments to acquire and distribute software copies (without the right to reproduce the software), the rights in relation to these acts of distribution should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business profits in accordance with Article 7. This would be the case regardless of whether the copies being distributed are delivered on tangible media or are distributed electronically (without the distributor having the right to reproduce the software), or whether the software is subject to minor customization for the purposes of its installation.

15. Where consideration is paid for the transfer of the full ownership of the rights in the copyright, the payment cannot represent a royalty and the provisions of the Article are not applicable. Difficulties can arise where there is a transfer of rights involving:


exclusive right of use of the copyright during a specific period or in a limited

geographical area; additional consideration related to usage;

consideration in the form of a substantial lump sum payment.

16. Each case will depend on its particular facts but in general if the payment is in consideration for the transfer of rights that constitute a distinct and specific property (which is more likely in the case of geographically-limited than time- limited rights), such payments are likely to be business profits within Article 7 (or 14 in the case of the United Nations Model Convention) or a capital gain within Article 13 rather than royalties within Article 12. That follows from the fact that where the ownership of rights has been alienated, the consideration cannot be for the use of the rights. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in installments or, in the view of most countries, by the fact that the payments are related to a contingency.

17. Software payments may be made under mixed contracts. Examples of such contracts include sales of computer hardware with built-in software and concessions of the right to use software combined with the provision of services. The methods set out in paragraph 11 above for dealing with similar problems in relation to patent royalties and know- how are equally applicable to computer software. Where necessary the total amount of the consideration payable under a contract should be broken down on the basis of the information contained in the contract or by means of a reasonable apportionment with the appropriate tax treatment being applied to each apportioned part.

17.1 The principles expressed above as regards software payments are also applicable as regards transactions concerning other types of digital products such as images, sounds or text. The development of electronic commerce has multiplied the number of such transactions. In deciding whether or not payments arising in these transactions constitute royalties, the main question to be addressed is the identification of that for which the payment is essentially made.

17.2 Under the relevant legislation of some countries, transactions which permit the customer to electronically download digital products may give rise to use of copyright by the customer, e.g. because a right to make one or more copies of the digital content is granted under the contract. Where the consideration is essentially for something other than for the use of, or right to use, rights in the copyright (such as to acquire other types of contractual rights, data or services), and the use of copyright is limited to such rights as are required to enable downloading, storage and operation on the customer’s computer, network or other storage, performance or display device, such use of copyright should not affect the analysis of the character of the payment for purposes of applying the definition of “royalties”.

17.3 This is the case for transactions that permit the customer (which may be an enterprise) to electronically download digital products (such as software, images, sounds or text) for that customer’s own use or enjoyment. In these transactions, the payment is essentially for the acquisition of data transmitted in the form of a digital signal and therefore does not constitute royalties but falls within Article 7 or Article 13, as the case may be. To the extent that the act of copying the digital signal onto the customer’s hard disk or other non-temporary media involves the use of a copyright by the customer under the relevant law and contractual arrangements, such copying is merely the means by which the digital signal is captured and stored. This use of copyright is not important for classification purposes because it does not correspond to what the payment is essentially in consideration for (i.e. to acquire data transmitted in the form of a digital signal), which is the determining factor for the purposes of the definition of royalties. There also would be no basis to classify such transactions as “royalties” if, under the relevant law and contractual arrangements, the creation of a copy is regarded as a use of copyright by the provider rather than by the customer.”

10.9 From the above discussions it is quite evident that the approach of commissioner while dealing with the issues is in accordance with the international practices of treatment of the software related transactions. Thus the order of the Commissioner holding that these services are classifiable under the category of ‘Information Technology Software Services’ after 16.05.2008 and prior to that under the category of ‘Intellectual Proper Services’ cannot be faulted with.

10.10 In respect of sale of hardware, party has contended that these sale of hardware is nothing but sale of goods and hence they should not be leviable to service tax. After examining the invoices and the purchase orders the Commissioner in para 34 onwards have dealt with the issue. In paragraphs 36 and 37 he has observed as follows:-

“36. The installation of new computer system or its up- gradation/modification normally involves advice and assistance in selection of hardware and software, purchase of hardware and software, development of software as per the specifications are requirements, modification of software to suit the requirement, etc. Such jobs are comprehensive in nature. It is seen from the records submitted by the Noticee that they have supplied large number of computer systems, accessories and components to organizations like RBI, ICICI Bank Ltd., Indian Railways and may more. There is no documentary evidence to suggest that these organizations had given a standalone order for purchase of the computer hardware items supplied to them by the Noticee. The nature of the items supplied indicate that these computer hardware items were part and parcel of a comprehensive computer hardware and/or software solutions order. From the documents mentioned above it is apparent that the said Computer Hardware supplies were consumed while providing such comprehensive computer hardware and/or

software solutions/services by the Noticee to their clients. The Agreement is admittedly for providing a solution and not merely to supply goods. It is also not the case that there are two independent and stand alone agreements, one for supply of goods and another for provisions of service. The agreement is a single indivisible one. The agreement not being a agreement merely for sale of goods, will be obviously classifiable as service, notwithstanding the predominant nature of goods. Therefore, the Noticee’s contention that it is the case of sale of goods is not legally sustainable.

37. However, while charging the clients for the said services rendered, the Noticee have artificially split the costs, one towards materials consumed while providing the said services and the second towards the service charges. As mentioned above, there is nothing on record to show that the sale of Computer hardware items were stand alone transactions. On the contrary the material evidence on record, few of which have been discussed above, clearly show that these Computer Hardware items were consumed while providing the impugned services. Thus, the computer hardware items were essential for provision of the impugned services, which evidently have been consumed while providing the said services. Provider of taxable service is entitled to take credit of excise duty paid on excisable goods received for use in the provision of services.”
10.11 After examining the contentions raised by the party, it is the fact that the Commissioner has held that the hardware goods have not been provided as hardware but has a complete solution to the issues of up-gradation of the software etc., developed by them for a specific plants for specific projects. Since supply of the said software is in relation to the provision of the services, the issue is in reference to valuation of the said services and not the classification of such hardware as services. That being so the value of hardware provided in terms of Section 67 of the Finance Act, 1994 needs to be added to the value of the services provided by the appellant. Here also the contention of the appellant based on the fact that they have paid sales tax / VAT on the said would not impact the liability for payment of service tax. Hon’ble Supreme Court in the case of Idea Mobile Communication Ltd. v. CCE & Cus. Cochin – 2011 (23) STR 433 has held in para 19, which is reproduced below:-

“19. There cannot be any dispute to the aforesaid position as the appellant itself subsequently has been paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation. The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. Thus, it is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers. The Sales Tax authority understood the aforesaid position that no element of sale is involved in the present transaction.”

10.12 Thus, value of goods used for provision of the taxable service cannot be excluded from the gross amount charged as consideration for the services provided just for the reason that sales tax / VAT has been paid on such goods and value of goods is shown separately. However when the goods are sold as part of provision of service and are shown separately then will the abatement in respect of the same shall be admissible or not needs to be considered. Notification No 12/2003-ST provided for such abatement. While concluding the with regards to the hardware when commissioner has upheld that they are the part of taxable service and their value should be included in the value of taxable services provided, Commissioner needs to consider the argument in respect of the abatement of the value if admissible under rules or notification applicable at the relevant time.

10.13 In respect of Commissioner confirming the demand under the category of Intellectual Property Services for period prior to 16.05.2008 and under the category Information Technology Services from 16.05.2008 in respect of 1st show-cause notice party has relied upon the decisions in the following cases to argue that such confirmation of demand is not tenable:-

(i) Mahakoshal Beverages Pvt. Ltd. v. CCE, (2006) 6 STR 148 (Tri. – Bang.) affirmed by Karnataka High Court in CCE vs. Mahakoshal Beverages Pvt. Ltd(2014) 33 STR 616 (Kar)

(ii) Balaji Contractorv. CCE (2017) 52 STR 259 (Tri-Del.))]. (iii) Enpee Earthmovers vs. C.C.E., Goa(2012) 27 S.T.R. 48 (Tri. – Mumbai)

(iv) DHL Logistics Pvt. Ltd. vs. CST, Mumbai – I (2014) 36 S.T.R. 874 (Tri. – Mumbai)

(v) Marubeni India Pvt. Ltd v/s CST (2016) 45 STR 549 (Tri- Del) (vi) Warner Hindustan Ltd v/s CCE (1999) 113 ELT 24 (S.C.)

10.14 Relying on the above cases, the party had submitted that the demand cannot be made ahead which is not proposed in the show-cause notice. There is no dispute in that reference to the proposition made. It is settled principle in law to proceed against any person, the basic requirement is that he should be put to sufficient notice about his contravention and allowed to make proper defense. Since the first show cause notice dated 19.10.2009 has been issued demanding service tax under the category of “Management, Maintenance & Repair Service”, the confirmation of demand under any other category, namely “Intellectual Property Right Services” for the period prior to 16.05.2008 cannot be justified and the order to that extent is definitely not maintainable.

10.15 In the present case in three show-cause notices in respect of the same issue were proposed under Information Technology Software services and the party was having sufficient notice to answer the same under the said head in respect of the 1st show-cause notice dated 19.10.2009. When there is opportunity available to the extent, their stand in respect of a particular heading the order of Commissioner cannot be faulted with on that account. Even in the submission of the party they have claimed that they are paying service tax on the services provided by them under Information Technology Software services from 16.05.2008 onwards. The only issue which was to be considered was whether in respect of particular transactions the service tax is payable on that head or not. Accordingly, when sufficient notice has been given, it cannot be said that adjudicating authority has travelled beyond the scope of show cause notice while upholding the demand under the said head at least from 16.05.2008.

10.16 In the adjudication order, number of issues with regards to various services as provided to SEZ has been raised. It is settled law that the exemption in respect of supplies to SEZ has to be updated by way of refund. In the present case it is seen that during the period 01.09.2010 to
29.03.2011, the Notice have raised 44 invoices for a total amount of Rs.13,60,00,000/- on M/s. Geodesic Ltd., situated in SEEPZ, Mumbai, towards services names as ‘Maintenance Management Module’, ‘Inventory & Purchase Module’, ‘Sales & Marketing Module’, ‘Production Management Module’, ‘Quality Management Module’ and ‘Project Management Module’. Specifically these services are in relation to the software services and hence are leviable to service tax. In terms of Notification No. 9/2009-ST granted exemption to the specific services supplied to SEZ subject to condition that person liable to pay service tax shall pay service tax as applicable on the specified services provided to the developer or units of SEZ and SEZ shall claim refund of service tax on the services provided to the developer of SEZ. Notification No. 9/2009-S.T was substituted by Notification 17-2011-ST which provided exemption from service tax subject to condition specified therein. One of the conditions specified was that the exemption shall be provided by way of refund of service tax. Accordingly, during the entire period the service provider is not eligible for first stage exemption from payment of service tax. He was required to pay service tax and either SEZ developer or unit located in SEZ could have claimed the exemption by way of refund of service tax. Further in the present case, appellant has not produced any evidence to show that the services provided by them or only or partly consumed within the SEZ or outside. Thus, there is no dispute about the fact that said exemption or not available to the appellant during the relevant period. Since Commissioner has not considered the matter on this aspect the issue needs to be remanded back to him for consideration of the exemption in respect of services supplied to SEZ unit/ developer.

10.17 Octroi Charges are in nature of levy for transportation of good, they cannot be said to be the part of value of taxable services provided by the appellants. Since this issue has not been considered by the Commissioner, the matter should be remanded back to him for reconsideration of the evidences that will be produced by the appellants to establish that these amounts were paid towards octroi.

10.18 Services rendered in J & K.,certain invoices have been pointed that these services have been rendered in J & K. As per Finance Act, 1994, service tax is not payable in respect of the services rendered there. Accordingly, the demand in respect of such services cannot be confirmed. Commissioner should accordingly requantify the demand after factoring in the services provided to the Jammu & Kashmir

10.19 On the issue of limitation, Noticee have contended that the notice dated 19th October 2009 is barred by limitation as they were under bonafide belief that the amount received by them under these Acts were not leviable to service tax. The said argument with regards to bonafide belief cannot be allowed. During the entire period, noticee was aware about leviability of service tax on the said products and in case they had any doubt they could have sought clarification from the concerned authorities. Without seeking such clarification and on his own deciding not to pay the tax cannot be a bonafide reason. Even Column in the ST-3 returns whether the appellant was required to declare the gross amount for which they have issued bills/invoice, challan in respect of service provided / to be provided that they have not declared anything. Out of that in the column for claiming the amounts under exempted / not leviable to service tax have been left blank.

Thus they are only suppressed the information in respect of these amounts being calculated by them. When under no statute and obligation has been passed to disclose the entire amounts recovery and thereafter bifurcation in respect of exempted goods not taxable and taxable amounts not declaring of the same shall amount to suppression with intention to evade the taxes. Since the entire demand raised by the show cause notice prior to 16.05.2008 is not maintainable as no notice has been issued under the category in which this demand is sought to be made and confirmed, this ground loses relevance both for the appellant and respondents.
10.20 As the demand of taxes is liable to be confirmed for the period after 16.05.2008 appellant are required to pay the interest also. It is settled law that interest liability flow from the liability to pay tax if not paid in time as per the decision of the Hon’ble Supreme Court in the case of Commissioner of Trade Tax, Lucknow v. Kanhai Ram Thekedar – 2005 (185) ELT 3 (S.C.).

10.19 Now coming to the question of penalty that have been imposed. For contesting the penalty, the appellant has relied upon the decision of the Hon’ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa – 1972 (83) ITR 26 (SC). Then various other decisions to hold that for a penalty to be imposed there should be quasi criminal proceedings and it has to be shown that party has acted deliberately in defiance of law. Case of discharging the tax liability which is confirmed later on by way of notice and adjudication. In the present case the penalty imposed are mandatory penalties provided in law, they are to be held as civil liability accordingly. Reliance on Section 80 would be of no held in this case. Hon’ble Kerala High Court in the case of Commissioner of Central Excise vs. Krishna Poduval – 2006 (1) STR 185 (Ker.) has held as reproduced below:-

11. The penalty imposable under S. 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of S. 68 and the Rules made thereunder, whereas S. 78 relates to penalty for suppression of the value of taxable service. Of course these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service, the person liable to pay service tax fails to pay. Therefore, penalty can certainly be imposed on erring persons under both the above Sections, especially since the ingredients of the two offences are distinct and separate. Perhaps invoking powers under S. 80 of the Finance Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation of the said Section also. In any event we are not satisfied that an assessee who is guilty of suppression deserves such sympathy. As such, we are of opinion that the learned Single Judge was not correct in directing the 1st appellant to modify the demand withdrawing penalty under S. 76. Therefore, the judgment of the learned Single Judge, to the extent it directs the first appellant to modify Ext. P1 by withdrawing penalty levied under S. 76, is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs.

10.20 In view of the said judgment, imposition of penalties cannot be disputed. Appellant had contended that simultaneously under Section 76 and 78 cannot be imposed. If penalty under Section 78 is imposed, no penalty under Section 76 should have been imposed. For the said proposition, they have relied upon the decision of the Tribunal in the case of Commissioner of Central Excise v Pendharkar Constructions – 2011 (23) STR 75 (Tri. Mumbai). Commissioner should reconsider the issue of penalty afresh and determine whether the same can be imposed under section 78, in light of our observations in par 10.14 and 10.19.

11.0 Thus the appeals of the appellant are allowed and matter remanded back to the adjudicating authority for reconsideration of the matter for the period post 16.05.2008 in light of the observations made in para 10 above.


(Order pronounced in Court on 18.9.2018)


(S.K.Mohanty)
 Member (Judicial)



(Sanjiv Srivastava)
Member (Technical)

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH : ALLAHABAD

COURT NO. I

Appeal No. E/781/2012-EX[DB]

(Arising out of Order-in-Appeal No. 251-CE/LKO/2010 dated 13/09/2010 passed by Commissioner of Central Excise, Customs & Service Tax (Appeals), Lucknow)

M/s JBM Auto Ltd.
Appellant

Vs.

Commissioner of Central Excise, Lucknow
Respondent

Appearance:
Shri Rajesh Chhibber (Advocate) for Appellant
Shri Pawan Kumar Singh (Supdt.) AR for Respondent

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

Date of Hearing : 17/09/2018
Date of Decision : 17/09/2018

FINAL ORDER NO 72245 / 2018

Per: Anil G. Shakkarwar

After hearing both the sides duly represented by Shri Rajesh Chhibber, Learned Counsel for the appellant and Shri Pawan Kumar Singh, Learned Superintended, AR for the Revenue, we note that there are three issues involved in the present appeal. One issue is whether the refund claim under Rule 5 of Cenvat Credit Rules for the quarter of January to March, 2008 is time barred since the claim of refund was filed on 30th March, 2009. Another issue is whether refund claim in respect of consignment with let export order given on 02.04.2008 is admissible for the quarter from January to March, 2008 and third is whether the formula provided under Notification No. 5/2006 issued under Rule 5 of Cenvat Credit Rules is satisfied by the appellant. We note that in respect of appellant’s own case this Tribunal has decided through Final Order No. 71210-71214/2017 dated 29.03.2017 that when the claim has been filed quarterly the date of filing was to be computed from the last date of quarter. We find that last date of quarter in the present case is 31.03.2008 and the refund claim was filed on 30th March, 2009 and, therefore we hold that the refund claim is not time barred. We further note that in respect of one consignment where let export order was issued on 02.04.2008 the refund can be considered under the present appeal because the provision of filing quarterly refund is not substantial provision of law but it is provided for administrative convenience of claiming and granting of refund. Therefore, it is a very minor deviation and for such minor deviation substantive benefit cannot be denied. In so far as finding by Lower Authorities that the refund is hit by formula provided under the said Notification No. 5/2006 we note that the learned counsel for the appellant has submitted that the figure taken by Revenue to decide the same was not provided by them. Therefore, for that purpose we remand the matter to the Original Authority. We give freedom to both the sides to reconcile the figures from the record of the appellant and direct the Original Authority to decide the matter afresh

in respect of the issue of eligibility of appellant to the said refund in so far as the formula provided in the said Notification No.5/2006 is concerned. In above terms the matter is remanded to Original Authority by setting aside the impugned order. The appeal is allowed by way of remand.

(Dictated & Pronouncement in Court)

Sd/-
(Anil G. Shakkarwar)
Member (Technical)


Sd/-
(Anil Choudhary)
 Member (Judicial)

Ankit

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi,

Court No. II

Date of hearing/decision: 19.09.2018

Ex. Appeal Nos. 51093 - 51094 of 2018-SM
(Arising out of Order-in-Original No. RPR/EXCUS/000/COM/029/2018 dated 14.02.2018 passed by the Pr. Commissioner, Central GST, CE&C, Raipur).

M/s Shree Mahalaxmi Steel Structure Pvt. Ltd.
Sh. Sitaram Agrawal
Appellant

Vs.

CCE&ST, Raipur
Respondent


Appearance:
Sh. V. K. Puri, Advocate for the appellant
Sh. P. Juneja, AR for the Respondent

CORAM:
Hon’ble Sh. V. Padmanabhan,
Member (Technical)

Final Order Nos. 52999 – 53000/2018

Per: V. Padmanabhan:

The present appeals are filed against the Order-in-Original No. RPR/EXCUS/000/COM/ 029/2018 dated 14.02.2018. Vide the impugned order, the adjudicating authority confirmed the demand of Central Excise duty amounting to Rs. 44,24,997/- on the appellant and imposed penalty of Rs. 2,00,000/- on Sh. Sitaram Agarwal, Director. However, he dropped the Central Excise duty demand of about Rs. 8.89 crore.

2. The demand for Central Excise duty against the appellant culminated as a result of common investigation undertaken by the Central Excise officers. The demand raised is based on the entries found in a diary recovered from one Sh. S. K. Pansari, Prop. of M/s Monu Steel a consignment agent. The statement of Sh. S. K. Pansari has also been relied upon. Further, during the course of investigation, Revenue also recorded the statement of Sh. Sitaram Agarwal, Director. It is pertinent to record that the Director has not admitted to the clandestine clearance of the quantum of M.S. Ingots found mentioned in the diary of Sh. S. K. Pansari. Further, Sh. S. K. Pansari did not appear for cross examination before the adjudicating authority during the course of adjudication proceedings. However, in the impugned order, the adjudicating authority has proceeded to confirm the demands for Central Excise duty with the observation that the Director of the appellant has acknowledged the clearance of M.S. Ingots, found recorded in the diary of Sh. S. K. Pansari and such statements have not been retracted.

3. With the above background, heard Sh. V. K. Puri, ld. Advocate for the appellant as well as Sh. P. Juneja, ld. AR for the Revenue.

4. Ld. Advocate submitted that the case built by Revenue is exclusively on the basis of the third party documents as well as statement. Revenue has failed to bring any corroborative evidence on record. No evidence has been brought on record by Revenue which supports the charge of clandestine clearance on the part of the assessees.

4.1 Ld. Advocate further submitted that several cases were made by Revenue against various other manufacturers of M.S. Ingots also commonly on the basis of diary entries of Sh. S. K. Pansari. At the stage of the appeals before the Tribunal, all such appeals stand allowed on the ground that demand of Central Excise duty cannot be upheld only on the basis of third party evidence. In this connection, he relied on the following decisions amongst others.

i) Maa Banjari Ispat Pvt. Ltd & Ors (F.O. No. 52757-58/2018) decided on 10.08.2018.

ii) Pryash Steel & others (F.O. No. 51656-58/2018) decided on 26.04.2018).

5. Ld. AR justified the impugned order.

6. The charge of clandestine clearance has been raised by Revenue on the basis of the evidence in the form of diaries maintained by Sh. S. K. Pansari, Commission Agent (who is prop. of M/s Monu Steels). The statement recorded from Sh. S. K. Pansari further implicates the appellants. During the course of investigation, the Directors of the appellant have been interrogated and their statements recorded. But, it is seen that neither of the Directors have admitted to the correctness of the details found in Sh. S. K. Pansari’s diary. Nor have they admitted the charge of clandestine clearance.

7. The law i.e. as to whether the third party records can be adopted as an evidence for arriving at the findings of clandestine removal, in the absence of any corroborative evidence, is well established. Reference can be made to Hon’ble Allahabad High Court decision in the case of Continental Cement Company Vs. Union of India – 2014 (309) ELT 411 (All.) as also Tribunal’s decision in the case of Raipur Forging Pvt. Ltd. Vs. CCE, Raipur-I – 2016 (335) ELT 297 (Tri.-Del.), CCE & ST, Raipur Vs. P.D. Industries Pvt. Ltd. – 2016 (340) ELT 249 (Tri.-Del.) and CCE & ST, Ludhiana Vs. Anand Founders & Engineers – 2016 (331) ELT 340 (P&H). It stand held in all these judgements that the findings of clandestine removal cannot be upheld based upon only the third party documents, unless there is clinching evidence of clandestine manufacture and removal of the goods.

8. I have also perused the decisions of the Tribunal cited by the appellant in identical facts and circumstances. It is seen that the demands have been set aside and penalties also.

9. By following the above discussions, the impugned order is set aside and appeal allowed.


(Operative part of the order was pronounced in the open Court).

(V. Padmanabhan)
Member (Technical)

Pant

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi,

Court No. II

Date of hearing/decision: 14.09.2018

S.T. A.No.50870/2018-SM
(Arising out of Order-in-Original No. DLI-SVTAX-003-COM-92-16-17 dated 18.05.2017 passed by the Commissioner, Service tax, Delhi).

M/s Delhi Aviation Fuel Facility Private Limited
Appellant

Vs.

CCE, Delhi-III
Respondent

Appearance:
Ms. Sukriti Das, Advocate for the appellant
Sh. P. Juneja, AR for the Respondent

CORAM:
Hon’ble Sh. V. Padmanabhan, Member(Technical)

Final Order No. 52986/2018

Per: V. Padmanabhan:

The present appeal is against the Order-in- Original No. DLI- SVTAX-003-COM-92-16-17 dated 18.05.2017 passed by the Commissioner, Service tax, Delhi. The period of dispute is July, 2012 to September, 2013.

2. Brief facts of the present case are that the appellant is a (Special Purpose Vehicle) Company floated by M/s Indian Oil Corporation Limited, M/s Bharat Petroleum Corporation Limited and M/s Delhi

S.T. A.No.50870/2018-SM International Airport Pvt. Limited and engaged in providing infrastructural support by ensuring the safe availability of Aviation Turbine Fuel at the Delhi Airport. They availed cenvat credit on various input services out of which Revenue was of the opinion that certain amounts were not admissible. Show cause notice dated 13.10.2015 was issued proposing to disallow certain amounts as inadmissible cenvat credit. The adjudication proceedings culminated in the issue of Order-in–Original in which credit was ordered to be disallowed to the extent of Rs. 8,40,569/- alongwith interest and penalties. The adjudicating authority dropped rest of the demand proposed in the show cause notice. The present appeal challenges the denial of cenvat credit in the adjudication order.

3. Heard Ms. Sukriti Das, ld. Advocate for the appellant as well as Sh. P. Juneja, ld. AR for the Revenue.

4. Ld. Advocate submitted that the adjudicating authority has denied cenvat credit in respect of certain general insurance services which were availed by the appellant by way of various equipments, plant and machinery used by them in providing the output service. He has wrongly interpreted the exclusion clause ‘(BA)’ of the Cenvat Credit Rules 2(l). Even though the rule excluded cenvat credit on certain general insurance services with reference to motor vehicle, the adjudicating authority has wrongly interpreted the same as applicable to all the insurance services.

Appellant has used these insurance for the plant, machinery etc. which were used by them in providing output service. This constitutes part of the business activity of the appellant and is covered both within the definition of input service as well as the inclusion portion of such definition.

She also relied on the decision of the Tribunal in the case of Anglo French Drugs & Industries Limited vs. Commissioner – 2017 (3) GSTL 147 (Tri. Bang.) wherein Bangalore Bench of the Tribunal has allowed the cenvat credit in respect of general insurance services for business related activities.
She also submitted that in respect of demand relating to lunch/ food expenses, the same is not being pressed in appeal and cenvat credit amounts involved therein has already been deposited by the appellant alongwith interest after receipt of the adjudicating order.

5. Ld. AR justified the impugned order.

6. The limited question for decision in the present appeal is whether the appellant is entitled to the cenvat credit on certain general insurance services. Such services have been used for insuring the building, plant, machinery, pipes, cables etc. which were used by the appellant in providing the service of making available ATF at the Delhi International Airport. Clearly such services are in the nature of general business activity to ensure the security of the plant and machinery used for providing the output service.

7. After going through the record, I find that in Rule 2(l) of the Cenvat Credit Rules, 2004 it is seen that such services are covered within the definition under the ‘means’ as well as ‘inclusive’ portion. Coming to the question whether the adjudicating authority was right in denying such cenvat credit by applying the exclusion providing under sub –clause
‘(BA)’, the said exclusion clause is reproduced below:

“(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by-

(a) A manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or

(b) An insurance company in respect of a motor vehicle
insured or reinsured by such person; or]”

It is seen that the above exclusion clause is specifically applicable only in respect of general insurance service for motor vehicles which are not being used as capital goods. It cannot be said that the exclusion will be applicable to the insurance for the general plant, machinery which is used for providing the output service.

8. I have also perused the decision of the Tribunal in the case of Anglo French Drugs & Industries (supra) in which a similar question was considered by the Tribunal in respect of general insurance service. The observation of the Tribunal are reproduced below:

“5. After considering the submissions of both the parties and perusal of the material on record, I find that even after the amendment to the definition of ‘input service’ as per Rule 2(l) of Cenvat Credit Rules, the service of General Insurance was never excluded and the exclusion clause is only in respect of General Insurance pertaining to motor vehicle and not to other kinds of insurance such as Marine Cargo Open Policy, Standard Fire and Special Perils Policy, Burglary Floater Policy and other properties of the company. Further I find that the learned Commissioner (Appeals) has totally misinterpreted the definition of ‘input service’ as contained in Rule 2(l) by holding that the said services are not included in the ‘input service’ definition. Even after amendment in the definition of ‘input service’ the General Insurance relating to the Marine Cargo and Fire and Burglary which are directly connected with the business are included in the definition of ‘input service’. Therefore, I am of the considered opinion that the impugned order is not sustainable in law and I set aside the same and allow the appeal of the appellant with consequential relief, if any”.

9. In the above decision the Tribunal has expressed the opinion that general insurance services for various activities used in connection with business can be allowed. By following the above order of the Tribunal, I find that the denial of credit is not justified.

10. The demand for reversal of service tax for a small amount of Rs. 2400/- is not being pressed by the appellant. The said tax has already been paid alonwith interest. Under the circumstances, I find no reason to impose the penalty on such small amount.

11. In the result, impugned order is set aside except the portion admitted by the appellant and appeal is partially allowed.


(Dictated and pronounced in the open Court).

(V. Padmanabhan)
Member (Technical)

Pant

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

Appeal No.: C/40966/2015
(Arising out of Order-in-Original No. 35113/2015 dated 13.02.2015 passed by the Commissioner of Customs (Imports), Chennai-V)

BMW India Pvt. Ltd. :
Appellant

Vs.

Commissioner of Customs, Chennai-V :
Respondent

Appearance:-
Shri Rohan Shah, Sr. Advocate Shri Karthik Sundaram, Advocate, Shri Kumar Visalaksh, Advocate
Shri Rahul Khurana, Advocate Ms. Divya Jaskant, Advocate, For the Appellant
Shri P.R.V. Ramanan, Special Counsel Shri P. Hemavathy, Commissioner (A.R) For the Respondent

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

Date of Hearing: 04.05.2018
Date of Pronouncement: 17.09.2018

Appeal No.C/40966/2015

Final Order No. 42430 / 2018

Per Bench

M/s. BMW India Pvt. Ltd. (hereinafter referred to as ‘appellant’) have been importing through Chennai Sea Port, goods declared in the Bills of Entry as ‚BMW CARS IN CKD‛ classifying them under Customs Tariff Heading (CTH) 8703. In these imports, BMW claimed concessional rate of customs duty @ 10% under clause (i) of Sl. No. 344 of Table appended to Notification 21/2011- Cus. and sub-clause (1)(a) of Sl. No. 437of Notification 12/2012-Cus. The Department took the stand that as the imported goods namely, ‚Engine Assembly‛ and the ‚Transmission Sub-assembly/Gear Box‛ were in a pre-assembled form, the appellant was not eligible to avail the concessional rates provided in the said Notifications.

2. Accordingly, a Show Cause Notice dt. 26.08.2013 was issued to the appellants inter alia demanding differential customs duty in respect of CKD kits for motor cars imported during the period 24.03.2011 to 11.04.2013 and imports of motor cars in a form other than CKD for the period 01.03.2011 to 23.03.2011. The Show Cause Notice inter alia proposed demand of differential duty amounting to Rs. 757,61,37,381/- with interest thereon and imposition of penalties under Sections 112(a) and 114A of the Customs Act, 1962.

3. In adjudication, the adjudicating authority vide the impugned Order dt. 13.02.2015, inter alia concluded as follows :

(a) The subject ‘engine assembly’ and ‘transmission assembly’ in its imported form constitutes a complete and functional pre-assembled engine.
(b) The term ‘sub-assembly’ used in the phrase ‘transmission sub-assembly’ is a misnomer by the importer (appellant) to suppress the fact that the imported item actually constitutes a complete automatic transmission/gearbox.
(c) The ‘transmission sub-assembly’ goods constitute complete and functional ‘automatic transmission’/automatic gearbox.
(d) The assignment of the UID and model no. for the subject goods in their imported form clearly reflects their status as complete and functional ‘automatic transmission’/automatic gearbox.
(e) The add-on products are merely for integrating the gearbox/engine assembly with the car body and mounting the same on the chassis/body of the car.
(f) Engine assembly in its imported form constitutes complete and functional pre-assembled engine.

4. Based on these conclusions, the adjudicating authority demanded differential customs duty of Rs. 7,04,67,90,260/- in respect of 706 Bills of Entry with interest thereon, penalty of Rs.696,44,66,115/- under Section 114A of the Act, penalty of Rs. 3,00,00,000/- under Section 112(a) ibid., confiscation of the goods imported under provisionally assessed Bills of Entry under Section 111(m) and (o) ibid; however, appellant was given option to redeem the same on payment of fine of Rs. 3,00,00,000/- under Section 125(1) ibid. Aggrieved, appellants are before this forum.

5. Hearing for the above appeal took place on several dates.

6. On behalf of the appellant, Ld. Sr. Advocate Shri Rohan Shah took us through the history and chronology of events related to the dispute in the present appeal as under :

i) Notification No.21/2002-Cus. was issued on1.3.2002 providing for a 60% rate of Basic Customs Duty (BCD) for motor cars imported as Completely Built Unit (CBU) and a 30% rate, if imported in any other form.

ii) Notification No.26/2003-Cus., dated 1.3.2003 was issued, which provided for a 25% rate of BCD for motor cars imported as Completely Knocked Down (‚CKD‛) kit, and a 60% rate if imported in any other form. However, no definition of CKD was provided for. Notification No.18/2004-Cus., dated 12.1.2004 was issued, which reduced the rate for CKD imports from 25% to 20%. Notification No.11/2005-Cus., dated 1.3.2005 was issued, which reduced the rate for CKD imports from 20% to 15%.

iii) In the absence of a definition of CKD, and in order to obtain certainty on the position qua its proposed imports, the appellant applied for an Advance Ruling. The entire set of items imported by the Appellant was submitted as Annexure-III to the Application. Vide Order dated 28.10.2005, In Re: Bayerische Motoren Werke Aktiengesellschaft, 2006 (193) ELT 138 (AAR), the question framed for consideration was as follows :

‚Whether the import of car parts, listed at Annexure III would be considered as import of completely knocked down (‚CKD‛) unit, eligible to the concessional rate of customs duty of 15% being covered by Entry 344 of CTH No.8703 (1) of Notification No.21/2002-Cus., dated March 1,2002 as amended by Notification No.11/2005-Cus., dated 1.3.2005?‛

After considering the Report provided by the ARAI on the referred issues, the Authority for Advance Rulings (‚AAR‛) was pleased to hold as follows :

44. [ ]From the perusal of these reports, the position that emerges is that parts listed in Annexure-III to the application represent the CKD Unit and with the assembly of seats, which will be procured locally, the parts would constitute a complete car. There are some parts, which could be taken as component form while there are other parts which could be termed as SKD form. It is true that there are no definitions of the terms ‚CKD‛ and ‚SKD‛ in the Customs Act or Rules framed thereunder. But from the material furnished by the applicant for comparison of CKD and SKD, it appears that the components for the CKD vehicle are procured from the suppliers who supply to main BMW production facility at the CKD location and approximately 1400 single parts and body parts are transported to the CKD country. In the case of SKD, the vehicles are completely built up in a main BMW production facility in Germany and subsequently certain components are disassembled; the partially disassembled vehicles are mounted on transport skids and shifted to the respective countries where the disassembled components are fitted. The reports of the expert, as may be seen, refer to Annexure– III as C K D un it. The notific ation does n ot u se the term ‚SK D‛. The Notification for purposes of concessional duty refers to two categories : (i) imported as completely knocked down (CKD) unit dutiable 15%; and (ii) imported in any other form 60%. The reports of the expert do not mention that the car is not imported in completely knocked down (CKD) unit. What they say is that some parts of the car are in SKD form, thereby meaning, they can be further knocked down into components. This, in our view, may not be a relevant factor because it is clear from the report that Annexure–III represents completely knocked down unit of motor cars. If that be so, the contention of the Commissioner that Sl. No. 344 (2) prescribing 60% duty would apply, cannot be accepted; the applicable rate of duty would be 15%.(emphasis supplied)

Accordingly, on the basis of the expert report, the AAR ruled that the imports by the Appellant would qualify as CKD, and would be entitled to the lower rate of BCD.

(iv) The appellant commenced production of motor cars at its Chennai plant after achieving certainty on the legal position qua imported goods from the BMW AAR.

v) Notification No.20/2007-Cus., dated 1.3.2007 was issued, which reduced the rate for CKD imports from 25% to 20%.

vi) As and when the appellant initiated imports of new models of cars (5 series, XI Series and X3 Series), which were in the same state of disassembly as the 3 Series submitted before the AAR, the appellant wrote to the department to obtain confirmation that the benefit of the Customs Exemption Notification would continue to be available. As and by way of illustration, the appellant addressed letter dt.5.7.2010 seeking confirmation that the benefit of the lower rate of BCD would be equally applicable to the X1 and X3 Series. The Department responded vide letter dt. 23.7.2010 confirming that the benefit of the Customs Exemption Notification can be extended to the X1 and X3 Series, subject to first check examination.

vii) Thereafter, Harley-Davidson Motor Company, made an application before the AAR seeking to claim CKD benefits even if the engine and gearbox were mated / inter-connected in a single unit, in a motor cycle (here, it must be noted that the language of the exemption entries and the amendments thereto have always been identical for motor cars and motor cycles). The AAR vide its Ruling [In Re: H-D Motor Company India Pvt. Ltd., 2011 (270) ELT 432 (AAR)] (‚H-D AAR‛) ruled that the CKD benefits are available even to an engine and gearbox which were mated / inter-connected together in a motor cycle. The Government raised serious objection to H-D’s position qua a mated engine-transmission being eligible for the CKD rate. The objections of the Government were overruled by the AAR and the benefit of the CKD was extended even to an import containing mated engine and transmission sub-assembly. The terms ‚assembly‛ and ‚sub-assembly‛ appear to be used interchangeably throughout the ruling of the AAR.

viii) Post the H-D AAR ruling, while the Government initiated the process for a review of the said ruling, in the parallel the Government also initiated interactions with the industry through the Society and Indian Automobile Manufacturers (‚SIAM‛), inter alia vide a meeting with SIAM on 6.12.2010, on a proposed definition of CKD to be inserted in the Customs Exemption Notification. In the review before the AAR, the Government framed its issue as follows :

‚Apart from the aforesaid substantive argument, the Commissioner has made several other points for seeking modification / rectification / amendment of the advance ruling, such as :

[ ]

- To treat and classify a complete engine and transmission assembly/sub- assembly as a ‘component’ is a serious error of law‛

At this juncture, it is also important to notice that in the above issues framed for review by the AAR, the Government itself uses the words ‚assembly‛ and sub-assembly‛ interchangeably.

ix) Vide Order dated 18.2.2011 [Ref: In Re: H-D Motors Company India Pvt. Ltd. - 2012 (277) ELT 113 (AAR)], the review of the H-D AAR sought by the Government was rejected. On the same date, SIAM submitted its proposal for a CKD definition to the Ministry of Finance, which used the language of ‚inter-connected sub- assemblies‛ to exclude mated sub-assemblies from the CKD rate.

x) Immediately post the rejection of the review of the HD-AAR, and within less than a month, the Government introduced the new definition of CKD under the Customs Exemption Notification with effect from 1.3.2011. In the aftermath of the amendment, SIAM wrote to the Government vide letter dt.1.3.2011, again stressing on the need for the usage of the word ‚interconnected‛ in the first exclusion clause of the CKD definition. SIAM also met with the Government on 8.3.2011 to discuss the newly inserted definition.

xi) Meanwhile the Volkswagen Group India also wrote to the Government seeking the following clarifications :

1. That all operations not running as a kit basis are not affected by this change

2. Reading the Explanation and the memorandum together gives us an impression that one is eligible to import all critical components including a pre-assembled engine, gearbox, transmission mechanism as a CKD so long as these are not installed on the chassis or body assembly.

3. If only the three critical components namely engine, gearbox and transmission mechanism are imported as standalone subassemblies and not interconnected to each other, the same should qualify for clearance as parts.

xii) The CBEC clarified as follows vide Instruction F.No.354/38/2011-TUR, dated 11.3.2011 :

4. In view of the above, it is to inform you that while point nos.1 and 3 of the interpretation of the new definition, as mentioned in your letter dated 4th March,
2011 are correct, the interpretation at point no.2 is not correct.

xiii) In view of the above, it was categorically stated that the understanding set out at point no.3 was accurate, viz. that standalone sub-assemblies would qualify for clearance as parts (i.e. under the main clause of the CKD definition – ‚components, parts or sub-assemblies for assembling a complete vehicle‛). It is further submitted that point no.3 could not conceivably refer to non-CKD imports, as such imports were separately dealt with at point no.1. xiv) Further to the aforesaid developments, a further amendment was made to the Customs Exemption Notification to alter the language in relation to the CKD definition, and to introduce a three- tier-rate slab.

xv) Simultaneously, TRU Circular bearing no.B-1/3/2011-TRU dated 25-Mar-2011 was also issued to clarify the import of the aforesaid amendment. In this regard, a tabular correlation of the clarifications issued qua each sub-clause of the CKD definition, along with the corresponding rate.

xvi) Post the aforesaid amendment, the appellant continued the imports of its CKD kits by availing the 10% rate of duty, after giving prior intimation (vide letter dated 30.3.2011) to the Customs Department of its intent to do so. The Department did not respond to the appellant’s letter dated 30.03.2011 nor did it seek any clarification from the appellant post the said letter dated 30.03.2011. xvii) The Customs Department, on a series of occasions from April 2011 to April 2013 (i.e. 20 times in 25 months), subjected the imports of the appellant to a physical examination to determine whether or not the goods were eligible for the exemption as claimed. On each and every one of these occasions, the Customs Department concluded that the appellant were eligible for the said exemption. Brief extracts from the Bills of Entry, the Examination Order and Inspection Reports are set out in page 12, 13 of the written submissions.

xviii) The appellant subsequently received the SCN dated 26.8.2013 and filed its reply dated 12.12.2013. Thereafter, the impugned Order-in-Original No.35113/2015 dated 13.02.2015 was issued by the respondent.

7. Ld. Senior Advocate also made various submissions on merits which can be broadly summarised as under :

(i) The correct interpretation of the scheme of the relevant exemption notifications is that the concessional rate of 10% customs duty can be denied only if the engine and transmission are ‘mated or inter-connected’ in the form as imported

(ii) It is well settled law, that whenever a court is called to interpret an amended provision it has to bear in mind the history of the provision, the mischief which the legislature attempted to remedy, the remedy provided by the amendment and reasons for providing such remedy. Reliance in this regard is placed on the decisions of the Supreme Court in the case of State of Madras Vs K.M. Rajagopalan - AIR 1955 SC 817.

(iii) Taking resort to the ‘mischief rule of interpretation’ it is clear that the purpose of the two March, 2011 amendments are only to overcome the position in law set out in the AAR Ruling in the Harley Davidson case, the amendments notifications should, therefore, be read and interpreted in light of the same. Therefore, the finding in the impugned order, that the argument that the said amendment dated 24.03.2011 was also to overcome the effect of the Advance Ruling in the case of M/s.H-D Motor Co. Pvt. Ltd. is without any iota of documentary evidence, is without any sustainable basis in fact or in law and is contrary to well settled principles of statutory interpretation.

(iv) The term ‘and’ has been specifically inserted in the Exemption Notification as a ‘conjunctive’ and full effect should be given to the same whilst the 1st March, 2011 amendment used the expression
‚(a) a kit containing a pre-assembled engine or gearbox or transmission mechanism‛ the 24th March, 2011 amendment specifically uses the words ‚engine, gearbox and transmission mechanism not in a pre- assembled condition‛. The word ‘and’ is used in the 24th March, 2011 Notification instead of the word ‘or’ in clause (a) of the customs exemption notification. Full effect therefore needs to be given to the 24th March, 2011 amendment and the use of the word ‘and’ in such amendment, which term has been sued as a ‘conjunctive’ . The introduction of the word ‘and’ was meant to address the concerns of the automobile industry and to provide that the term ‘pre- assembled’ refers to a situation where both engine and transmission are in a mated condition prior to importation. It is clear that ‘and’ is in the present context used a ‘conjunctive’ as the word ‘or’ has specifically been substituted by the word ‘and’. It is well settled law that when ‘and’ is used as a conjunctive, the condition should be read collectively and not disjunctively.

(v) Different clauses of an exemption notification should be constructed harmoniously without rendering any of the provisions otiose. Reliance in this regard is placed on the decision of the Supreme Court in the case of Sultana Begum v. Prem Chand Jain (1997) 1 SCC 373. It is further well settled law that the words in an exemption notification have to be construed keeping in view the said object and purpose of the exemption.

(vi) There is, therefore, a need to adopt a harmonious and purposive interpretation to make the notification workable, as otherwise if clause (b) of Sr.No.344 of Notification No.31/2011 dt. 24.03.2011 (as amended from time to time) were to be read literally without keeping in mind the objective of the notification, it would lead to an incongruous situation where an engine alone though pre- assembled but not combined with a gear-box and transmission assembly would be under the rate of 10% under clause (a) but would at the same time fall under 30% under clause (b). It is submitted that it is settled law that in certain circumstances the word ‘or’ should be read as ‘and’ when giving ‘or’ its natural meaning would defeat the very object and intention of the provision and lead to absurdity.

(vii) If clause (b) of the relevant Exemption Notification is read as referring to ‚... with engine (and) gear box or transmission mechanism in preassembled form but not mounted on a chassis or a body assembly‛ which would attract a higher rate of 30%, then there would be no incongruity or repugnance between clause (a) and clause (b) as where the imports of engine, gearbox and transmission assembly when taken together are not in preassembled condition the applicable duty rate would be 10% (basic customs duty) under clause (a) and when in pre-assembled condition would attract 30%, and, therefore this is the correct interpretation to be adopted.

(viii) Therefore, in terms of the well settled rules of statutory interpretation, the proper and correct construction of Exemption Notifications is that :

a. Imports of engine sub-assembly or transmission sub-assembly which are not mated / assembled together will qualify as CKD imports entitled for the concessional rate of BCD at 10%.

b. Imports of engine and transmission assembly mated / assembled together as a single assembly, but which is not mounted on a chassis or a body assembly, will qualify as CKD imports but be subject to a higher rate of BCD at 30%.

c. Imports of mated engine and transmission assembly which is mounted on a chassis or a body assembly or a CBU will be taxed at the highest rate of BCD at 60%.

(ix) Imports made by the appellant are not of engine or transmission in pre-assembled form for inter-alia the reasons that :

a) Various parts as listed and detailed herein, are added onto the imported ‘engine assembly’ and transmission sub- assembly’ in the Chennai plant of the appellant including various essential parts to make the engine and transmission – complete and functional.

b) Towards making the imported ‘engine assembly’ and transmission sub-assembly’ complete and functional, various processes in the nature of assembly operations are undertaken at the Chennai plant of the appellant. The various processes undertaken by the appellant are in the nature of assembly operations wherein components are assembled either by means of simple fixing devices (screws, nuts, bolt, etc.) or by riveting or welding.

c) The processes are undertaken by trained and qualified personnel using various capital goods at the Chennai plant of the appellant.



d) The entire control and functionality of the ‘engine’ and ‘transmission’ is based on software which is coded and flashed onto the respective ECU’s of the engine and the transmission at the Chennai plant of the appellant.

e) Testing of the complete and functional engine and transmission after (i) addition of various parts in India; and (ii) flashing / coding of software into the ECU’s of the engine and transmission after incorporation and assembly into the completed motor car happens in India at the Chennai plant of the appellant.

(x) The finding in the impugned order that the ‘engine assembly’ as imported by the appellant is complete and functional, and, the parts added in India are only in the context of placing the preassembled engine into its slot within the overall power train of the fully assembled car is wholly contrary to the opinion of the technical experts, whose reports specifically deal with this issue and has been relied upon by the appellant but has not been controverted by the Department by any other technical report.

(xi) The factual position, that the ‘automatic transmission’ is made complete and functional in the Chennai plant of the appellant, by the various activities undertaken at the Chennai plant, is also evident from the two technical reports of the experts which has been relied upon by the appellant and has not been controverted by any other technical report by the Department.

(xii) No reliance can be placed by the Department on the report of Shri Ramesh Babu. The expert has issued the report remised on incomplete facts and without fully understanding or analysing the assembly operations undertaken by the appellant without even visiting the Chennai plant of the appellant and without physically observing the assembly operations undertaken at the said plant on the imported ‘engine’ and ‘transmission’ sub assemblies. Dr. N. Ramesh Babu, has not been offered for cross examination despite many requests by the appellant. It is well settled law that when cross examination of the expert is not afforded, then no reliance can be placed on such expert report.

(xiii) Submissions on Extended period of limitation

(a) Invocation of the ‚extended period of limitation‛ in the OIO is erroneous and unsustainable inasmuch as there is no wilful or deliberate non disclosure of correct information by the appellant. The appellant has always kept the Department in the know-how of the legal position followed by them. The Department has also during the relevant period physically inspected various consignments of imports declared to be in CKD form and approved of the availment of the Exemption Notification by the appellant. This position is evident from the following.

(b) The appellant on June 17, 2005 while filing the Applicaton for Advance Ruling with the AAR submitted the complete list of parts used in assembling the cars at the Chennai plant for 3 Series model of cars in Annexure III (containing list of parts imported for assembling the card model E 90 at their Chennai plant) of the application. The department was party to the application and was well represented before the AAR.

(c) The OIO itself at paragraph 11.10.2 (page 21 of the OIO0, 11.11.1 (page 22 of the OIO), 11.11.2 (page 22 of the OIO) and 12.3 (page 36 of the OIO) clearly records that there has been no change in the import pattern from the time of the AAR ruling in the appellant’s case to the period covered under the SCN. Therefore, since the entire list of parts to be imported were furnished to the department at the time of the AAR Ruling in 2005, and, details as regards import of models were furnished to the Department at different points in time, the Department was fully aware at all times of the nature of imports made in CKD form as well as the level of disassembly of such imports.

(d) The appellant itself post-introduction of the relevant exemption notifications had specifically vide letter dated 30th March 2011 specifically informed the Department that the appellant would continue to avail the concessional rate of duty under the exemption notification namely 10%; and that the appellant was ready to provide any clarification to the Customs Department on the subject issue.

(e) The goods in question at the time of import during the period March 2011 to April 2013 have on various occasions been physically examined by the Customs Department and the benefit of the relevant exemption notification allowed after such physical examination. The Inspection Report issued by CFS officer with respect to the above Examination Reports obtained by the appellant from the Customs Department clearly show that upon verification, the CFS officer has held that consignment are in CKD kit form with
‘engine, gearbox and transmission mechanism not in a pre- assembled form’.

(xiv) Submission on penalty and interest and confiscation

(a) The extended period of limitation has wrongly been invoked for the reasons set out hereinabove, there can be no levy of penalty under section 114A of the Act on goods which have already been cleared. In terms of Section 114A of the Act, penalty is attracted only when short levy is caused by reason of collusion or wilful misstatement or suppression of facts and that in the present case, none of these circumstances exist as has already been set out herein above. It is submitted that the appellant has not violated any provision of the Act or the Rules there under as alleged or at all to warrant the levy of penalty.

(b) Furthermore, as the issue involved is only one of interpretation of the provisions of the exemption notification, it is well settled law that no penalty can be imposed in such a case.
(c) As the duty demand on the appellant is itself not sustainable in light of the submissions set out hereinabove, there can be no question of payment of any interest by the appellant under section 28AB of the Act.

(d) It is well settled law that provisions relating to confiscation will only stand when misdeclaration is proved and if there is no case of misdeclaration, confiscation cannot be made.

(e) It is well settled law that penalty can be levied in terms of Section 112 (a) of the Act only when there are grounds for confiscation of the goods in terms of Section 111 of the Act. In terms of the submissions set out hereinabove, as there exists no grounds for confiscation under Section 111 of the Act, no penalty under section 112 (a) of the Act can be levied on goods which have been assessed and provisionally cleared.

8. On behalf of the Revenue, Ld. Special Counsel Shri. P.R.V. Ramanan also made oral and written submissions which are summarized as under :

(i) It is settled law that a Notification has to be interpreted in accordance with the language of the Notification and there is no scope for any addition or deletion or giving an extended meaning to the expressions used in the Notification. There is, therefore, no warrant to read the expression ‘engine, gear box and transmission mechanism not in a pre-assembled condition’ to mean engine, gear box and transmission mechanism which are ‘mated or interconnected’. This would certainly mean adding an expression to give an extended meaning. Such an interpretation is not permissible.

(ii) As may be seen from the two Circulars issued by the CBEC, extracted at Appendices 1 and 2, the legislative intent has all along been to extend the concessional rate of duty to the imports in the form of CKD kits, where all the parts and components including engine, gearbox and transmission assembly are present in completely knocked down condition. In other words, if any pre- assembled engine, gearbox or transmission mechanism is imported as a part of such unit, or if any of these three components are pre- installed on the chassis or body assembly, the concessional rate of duty will not be available. The claim that the Circular dated 24.03.2011 has accepted the representation of SIAM and clarified accordingly, is totally misconceived if you take into account the full text of the aforesaid clarification.

(iii) Revenue would rely on the following case law in support of the above submissions :

(a) 2005 (186) E.L.T. 263 (S.C.) – EXCON Bldg.Material Mfg.Co.Pvt. Ltd.
(b) 2011 (270) E.L.T. 465 (S.C.) – Saraswati Sugar Mills

(iv) Automatic gear box and auto transmission are synonymous with each other. This fact has not been disputed by BMW. Hence, the use of the word ‘and’ has to be read as ‘or’ because it would lead to an absurdity if we adopt the appellant’s interpretation since both gearbox and transmission mechanism cannot be mated with an engine.

(v) As may be seem from the letter dt. 18.02.2011, SIAM’s suggestion for incorporating a certain definition of ‘CKD kit’ was not accepted as it was not in line with Government’s policy. This is evident from TRU letter dated 11.03.2011 – Para 3, reiterated by the Circular dt. 24.03.2011. The AAR decision in Harley Davidson case was rendered on 24.07.2010 and SIAM was requested to give their suggestion on 06.12.2010. Thus, changes made w.e.f. 01.03.2011 was not on account of rejection of application for review filed by department in HD case.

(vi) If appellant’s interpretation of notification is to be adopted it would mean that mere fastening by four bolts to hold together the pre-assembled engine and pre-assembled gearbox or pre-assembled transmission should result in 20% rate difference.

(vii) The ordinary meaning of the expression ‘not pre-assembled’ means ‘not already assembled’ if adopted would clearly show that the goods imported would qualify to be regarded as a pre- assembled engine or transmission.

(viii) Ld. Special Counsel relied upon the ratio of the case laws in:

(a) Sodra Devi’s case [AIR-57-SC-382]
(b) Excon Bldg. Material Mfg. Co. Pvt. Ltd. Vs. C.C.E, Bombay [2005 (186) E.C.T. 263 (S.C.)]
(c) Aeon’s Construction Products Ltd. Vs. C.C.E., Chennai *2005 (180) E.L.T. 209 (Tri. - Chennai)]

He submitted that applying the ratio of the above decisions, the wording ‚not in a pre-assembled condition‛ as given in the subject Notification dated 24.03.2011 has to be read with each of the items, viz., Engine, Gear Box and Transmission Mechanism. There is no warrant to interpret the word ‘and’ to mean ‚Engine, Gear Box and Transmission Mechanism as mated or integrated or interconnected‛. Further, it is settled law that a Notification has to be interpreted in accordance with the language of the Notification and there is no scope for any addition or deletion or giving an extended meaning to the expressions used in the Notification.

(ix) For availing of concessional rate of Customs Duty @ 10% for consignments of motor vehicles imported as CKD kits, the engine, gearbox and transmission mechanism imported within the CKD kit should not be ‚in a pre-assembled condition‛. The primary test for verifying the ‚pre-assembled condition‛ of an article would be to ascertain whether all the essential parts that go to make the assembled article (i.e., ‘engine’/’gearbox’) are present in an assembled form in the said article. Secondly, there shall be no further assembly as an ‘engine’ or a ‘gearbox’ with any parts of the article. This would be reflected in the nature of ‘add-on parts’ and the processes of assembly undertaken in the receiving factory. The Department has applied these tests to arrive at the conclusion that the goods imported were in a pre-assembled condition.

(x) In the case of engines, the imported article contains in assembled form all the essential parts of an engine such as, cylinder head, flywheel, engine block, connecting rod, crankshaft, crank case, camshaft, piston and rings and exhaust manifold. In the case of automatic transmission, the imported article contains in assembled form all the essential parts, such as planetary gear sets, hydraulic system, clutches, seals and gaskets, torque converter and mechatronic parts. Thus, in both cases, all the integral components are incorporated in the article under import in a pre-assembled condition.

(xi) The argument that the imported goods are not operational is not relevant to the present case. The expression used in the Notification merely refers to the physical condition of the goods in question. Nowhere there is any mention of the operational aspect in the subject Notifications.

(xii) The expression ‘complete and functional’ was used in the SCN and O-I-O since the engine and transmission under import were complete and no parts integral to the engine and transmission were absent. They were functional on account of the same. The operational aspect was never alluded to in the SCN or O-I-O.

(xiii) On a scrutiny of the copy of Annexure III submitted to the AR Authority by the importer, it was observed that among the parts listed therein were parts of description ‘ASSY ENGINE N46 E90 B20 OL LHD A’ (under heading : Engine, Compressor and Generator) and ‘LU AUTO TRANSM 6HP 19 CODE MB N46 OL’(under heading : Gearbox/Transmission Wiring Harness). The importer has declared the disputed engine part of the CKD kit as engine assembly and not as a sub-assembly of an engine. Further, under the heading ‘Engine, Compressor and Generator’ appearing in the annexure parts of description like cylinders, connecting-rods, crankshaft, flywheel, camshaft, piston, etc., which are essential elements for assembling an engine, were not found listed.

(xiv) Moreover, it is pertinent to note that no part by description ‘Transmission sub-assembly’ is found among the parts listed in the Annexure III. It is also accepted by BMW vide the statement of Ms. Payal Tuli given on 06.05.2013 that from 2005 till date there has been no change in the level of dis-assembly with respect to the imported engines and transmissions.

(xv) In the case of engines, the imported article contains in assembled form all the essential parts of an engine such as, cylinder head, flywheel, engine block, connecting rod, crankshaft, crank case, camshaft, piston and rings and exhaust manifold. In the case of automatic transmission, the imported article contains in assembled form all the essential parts, such as planetary gear sets, hydraulic system, clutches, seals and gaskets, torque converter and mechatronic parts. Thus, in both cases, all the integral components are incorporated in the articles under import and were thus complete engines and auto transmissions. They were in fact described in their technical literature and marketed by the suppliers as engines and auto transmissions. In trade parlance they were known as such. Further, no part integral to the engine and transmission was added to them at BMW’s factory. Thus, they were complete and functional as engine and transmission on account of the same.

(xvi) BMW have referred to List of Add-on Parts to contend that these parts are required before a complete car can be assembled. These parts, however, merely provide linkage for the imported engine/gearbox assembly with the rest of the car parts and are useful only for integrating the imported engine assembly and automatic gearbox with the rest of the car. Thus, the engine assembly and the transmission assembly imported by BMW were complete as engine and gear box for automatic transmission respectively.

(xvii) Point raised in appeal : The invocation of extended period of limitation is not sustainable.

(a) After receiving Ministry’s clarification vide Circular dt. 11.03.2011 issued after the amendment dated 01.03.2011, which only reconfirmed the necessity of the engines and the gearboxes not being in pre-assembled condition to avail 10% BCD and the introduction of amendment vide Notification No. 21/2011-Cus. dt. 24.03.2011, BMW did not seek any further clarification either from SIAM or from CBEC or from Chennai Customs as admitted by Ms. PayalTuli in her voluntary statement given on 06.05.2013. On the other hand, they started projecting their imported engines and gearboxes as being in the form of sub-assemblies.

(b) BMW have not been able to demonstrate or describe as to how the imported part declared by them as ‚transmission sub-assembly‛ in the ‚Detailed Packing List‛ is different from a ‚gearbox‛ and they have also not been able to describe or demonstrate as to how the said transmission sub-assembly would constitute a sub-assembly of the gearbox.

(c) Hence, the submission made by BMW India in their letter dt. 30.03.2011 that they imported their engines and gearboxes in sub-assembly form appears to be a clear misdeclaration aimed at misleading the Customs Authority.

(d) BMW have also never declared in any of their Bills of Entry or import documents, the description/nomenclature/the level of assembly or disassembly of the imported parts, viz., engines and gearboxes and establishes suppression of facts and deliberate default to claim ineligible notification benefit.

(e) Very few Bills of Entry filed by BMW [i.e., 20 out of 712 consignments] were taken up (on random selection by system) for assessment and examination. Most of the Bills of Entry filed by BMW during the disputed period were cleared under their own Self-assessment without any examination by Customs based on their status as an Accredited Client under the Accredited Client Programme. Out of 20 examination reports only two mentioned about the pre-assembled nature of engine and transmission. On this basis, generalization cannot be made.

(f) From the above discussion of internal correspondence of BMW, it appeared that the importer had taken a conscious decision not to express to the proper officer their apprehension/doubt regarding their eligibility for availing 10% BCD and not to submit to Customs suo motu the documentation regarding the level of disassembly of their imported engines/gearboxes. Their decision to continue to avail 10% BCD by resorting to self-assessment under Section 17(1) while they were required to go through provisional assessment under Section 18(1)(a) would indicate deliberate suppression of facts regarding the pre-assembled nature of the imported engines and gearboxes on their part to evade payment of the higher rate of 30% BCD.

(xviii) Point raised in appeal : Views of the Technical experts endorse the view that the goods desc ribed a s ‘ engine a ssembly’ and ‘ transmission sub-assembly’ , as imported, a re not pre-assembled.

(a) The adjudicating authority has correctly found that the views expressed by the said ‚technical experts‛ did not help to reach a conclusion as to the applicability of the said Notification to the goods under import. Thus, the parts described as ‘transmission sub-assembly’ by BMW are complete and functional units to be appropriately termed as pre-assembled ‘automatic gearboxes/automatic transmissions’. Accordingly, the adjudicating authority rightly concluded that the expert was discussing the relevance of every support system for the automatic gearbox from the point of view of its fitment in the larger system of drive train which drives the fully assembled car and not from the limited point of view of the completeness and functionality of the automatic gearbox per se. This observation is factually correct and cannot be faulted.

(b) The adjudicating authority has also correctly held that the experts nowhere address the technical literature uploaded by BMW and manufacturers of transmission mechanism, the assembly process, constituent parts and the testing of the subject goods carried out prior to export, based on which the manufacturers themselves are describing and marketing the products as fully assembled ‘automatic transmission’ and ‘engine’.

(xix) Point raised in appeal : No reliance can be placed on the report of Dr. Ramesh Babu.

(a) With regard to the contention of appellant that reliance cannot be placed on the report of Dr. Ramesh Babu, the said expert had inspected the representative samples of imported goods declared by BMW as ‚ASSY Engine‛/‛ZB Engine‛ and ‚Transmission sub-assembly‛/‛ASSY Auto Gearbox‛ and was of the opinion that the above representative samples of engines were ‚pre-assembled engines which could be readily integrated to build the motor car‛ and that the samples described as ‚transmission sub-assembly‛ and ‚ASSY Auto Gearbox‛ respectively were ‚automatic transmission units, which were otherwise known as automatic gearboxes,<..‛.

(b) The report brought out the pre-assembled nature of the imported engines and gearboxes. The Expert had also gone through the ‚List of Add-on Parts‛ and concluded that the same ‚merely comprised nuts, screws, clips, brackets, washers, plugs, hoses, pipes, temperature and pressure sensors and wires, apart from A/C compressor and starter motors‛ (in respect of the engines) and ‚screws, nuts, brackets and metal tubes, except the driveshaft assembly, which actually was a separate and independent item‛ (in respect of the gearboxes).

(c) The above report of the expert thus corroborated/validated the Department’s position discussed hereinabove that the ‚ASSY Engine‛ and ‚transmission sub- assembly‛/‛ASSY Auto Gearbox‛ units imported by M/s. BMW India in their CKD kits of motor cars are pre-assembled engines and gearboxes respectively.

(d) With regard to the denial of cross-examination of Dr. Ramesh Babu, the Ld. Special Counsel submitted that the Department’s case does not rest solely on the opinion of Dr. Ramesh Babu.

(xx) Imposition of Penalties

For the reasons discussed extensively at Para 10 above, it emerges clearly that BMW’s conduct in the matter was not above board. There was deliberate default on their part which certainly entailed severe penal action.

9. Heard both sides and have gone through the records of the case.

10. In our opinion, the issues involved in the present case are as under :

I. Whether imports made by the appellant :

(i) are CKD imports for the period 1.3.2011 to 23.3.2011, entitled to a rate of Customs duty at 10% (as claimed by the appellant) or a rate of Customs duty at 60% (as claimed by the Department);

(ii) are CKD imports for the period 24.3.2011 to 11.4.2013, entitled to a rate of Customs duty at 10% (as claimed by the Appellant) or a rate of Customs duty at 30% (as claimed by the Department)

II. Whether in the facts and circumstances of the present case, the longer period of limitation under Section 28 (4) of the Customs Act, 1962 could be invoked ?

III Whether in the facts and circumstances of the present case, the imposition of penalty under Section 114A and Section 112 (a) of the Customs Act, 1962, as well as the imposition of redemption fine in lieu of confiscation under Section 125 of the Customs Act, 1962, is justified ?

11.1 The concessional rate of duty for motor cars and motor vehicles imported as Completely Knocked Down (CKD) unit came into being w.e.f. 1.3.2003 vide Notification No.26/2003-Cus. by which such imports benefited from a lower Basic Customs Duty of
25%. This concessional rate was further reduced to 20% vide Notification No.18/2004-Cus. dt. 12.1.2004 and to 15% vide Notification No.11/2005-Cus. dt. 1.3.2005, however none of these notifications provided any Explanation or definition of what constituted a CKD unit.

11.2 It is in this scenario that the appellants approached the Advance Ruling Authority. The question that was raised by the appellant for Advance Ruling was as under :

‚Whether the import of car parts, listed at Annexure III, would be considered as import of completely knocked down (‘CKD‛) unit, eligible to the concessional rate of customs duty of 15% being covered by Entry 344 of CTH No. 8703 (1) of Notification No. 21/2002-Cus., dated March 1, 2002 as amended by Notification No. 11/2005-Cus., dated 1-3-2005?‛

11.3 In their Ruling dt. 28.10.2005, as reported in 2006 (193) ELT 138 (AAR), the majority ruling of the Three-Member Authority ruled that the import of parts assembly in Annexure-III to the application would be considered as import of motor car in CKD, eligible to concessional rate of duty under Notification No.21/2002- Cus. as amended by notification No.11/2005-Cus. The relevant portion of the majority ruling, namely para-44 thereof is excerpted as under :

“44. It may be noted from the clarification report that (1) there are no specific guidelines prescribed for defining CKD and SKD kits; (2) there are some parts in the Annexure which could be taken as component form while there are other parts which could be termed as SKD form. (3) on the basis of the analysis carried out by ARAI and the discussions held with BMW, it was learnt that seats would be manufactured locally and then installed in the vehicle; (4) inasmuch as without seats the vehicle could not be treated as complete, the words ‚by and large‛ have been used. From the perusal of these reports, the position that emerges is that parts listed in Annexure-III to the application represent the CKD Unit and with the assembly of seats, which will be procured locally, the parts would constitute a complete car. There are some parts, which could be taken as component form while there are other parts which could be termed as SKD form. It is true that there are no definitions of the terms ‚CKD‛ and ‚SKD‛ in the Customs Act or Rules framed thereunder. But from the material furnished by the applicant for comparison of CKD and SKD, it appears that the components for the CKD vehicle are procured from the suppliers who supply to main BMW production facility at the CKD location and approximately 1400 single parts and body parts are transported to the CKD country. In the case of SKD, the vehicles are completely built up in a main BMW production facility in Germany and subsequently certain components are disassembled; the partially disassembled vehicles are mounted on transport skids and shifted to the respective countries where the disassembled components are fitted. The reports of the expert, as may be seen, refer to Annexure–III as CKD unit. The notification does not use the term ‚SKD‛. The Notification for purposes of concessional duty refers to two categories : (i) imported as completely knocked down (CKD) unit dutiable 15%; and (ii) imported in any other form 60%. The reports of the expert do not mention that the car is not imported in completely knocked down (CKD) unit. What they say is that some parts of the car are in SKD form, thereby meaning, they can be further knocked down into components. This, in our view, may not be a relevant factor because it is clear from the report that Annexure–III represents completely knocked down unit of motor cars. If that be so, the contention of the Commissioner that Sl. No. 344 (2) prescribing 60% duty would apply, cannot be accepted; the applicable rate of duty would be 15%. We hasten to make it clear that the motor cars if imported in any form other than completely knocked down (CKD) unit, the rate of duty applicable would be 60%.‛

11.4 It is interesting to note that in the said AAR Ruling, the Authority have found that ‚there are some parts in the total list which could be taken as component form while there are other parts which could be termed as SKD form‛. The Authority has also noted the usage of words ‚by and large‛ in the report of the Automotive Research Association of India, Pune (ARAI) and noted that ‚inasmuch as without seats the vehicle could not be treated as complete, the words ‚by and large‛ have been used.

11.5 However, in the said AAR Ruling, one of the dissenting Members held that the goods proposed to be imported by BMW are not covered by the main text of the description of goods specified in Column (3) against Sl.No.344 of the Notification No.21/2002-Cus., as amended by Notification No.11/2005-Cus; that the description of the goods in the said Sl.No.344, cannot be interpreted in a manner so as to include incomplete or unfinished ‘motor car’ or ‘other motor vehicle’ within its ambit, hence the benefit of exemption under notification is not available to the goods in question.
11.6 The moot point that should be kept in mind is that for obvious reasons, the application by the appellant to the Authority for Advance Ruling was made before any actual imports had taken place. In consequence, the Advance Ruling Authority and for that matter, the ARAI, had gone only by the list of car parts submitted by the appellants in Annexure III to their application. We find that the said Annexure III has been filed in page 160 onwards of the compilation. At the beginning of Annexure-III it is clarified that ‚all of these items though assigned one part No. are separate‛, an obvious reference to the identical part numbers given to ‚body shell, doors, bonnet, boot lid, fuel flap‛. In page 162, Assy. Engine has been indicated as Part No.7826191 under the sub-group ‚Engine, Compressor and Generator‛. So also, under a separate sub-group, ‚Gearbox / Transmission Wiring Harness‛ the ASSY. TRANSM. WIHARNESS and ‚LU AUTO TRANSM ‛ are listed with Part Nos.7548981 and 754J090. We do not find any indication or mention in this Annexure III as to whether the said engine assembly and transmission assembly are separate or whether mated to each other etc. Nor is there any indication that whether the engine or gearbox / transmission mechanism is preassembled or for that matter, whether any or more of those assemblies are installed onto the body assembly of vehicle. It would therefore not be unreasonable to conclude that at the point of time when the Advance Ruling was sought by the appellant, the requirements of the definition of CKD which were brought about for the first time only w.e.f 1.3.2011 by Notification No.21/2001-Cus. was not required to be looked into.

11.7 The Harley-Davidson Motor Company (referred to as H-D) had also approached the Authority for Advance Ruling on the question whether import of motor cycle ‚in the form of components, parts and sub assemblies proposed to be imported by the applicant would constitute import of motorcycle in CKD form and as such‛ would be eligible for concessional ratio of BCD as provided in Notification No.21/2002-Cus. as amended. The Authority, vide a ruling dt. 27.7.2010, reported in 2011 (270) ELT 432 (A.A.R), held that if the engine and transmission assemblies are designed to be housed in a single housing, and are so assembled, the engine and transmission assembly is generally referred to as ‚Engine Assembly‛ only and merits to be treated as a component for the purposes of CKD units. The authority noted that in the list of components and parts and sub-assemblies in Annexure III of the application filed by BMW related to the earlier ruling, the engine assembly and the transmission assembly have been indicated as two separate assemblies. The authority ruled that motor cycles imported by H-D will be eligible for concessional rate of import duty if they are imported in the form of identifiable basic sub-assemblies or components as per the illustrative list of components, parts and sub assemblies. The authority also ruled that benefit of exemption would however be applicable only in case the engine and transmission assembly imported as a single part is designed to be housed and is so assembled, in a single housing.

11.8 As discussed with respect to the BMW Advance Ruling, the ruling in the H-D case was also made before any definition of what constituted CKD was brought about in the exemption notification, In the case of motor cycles, this came about vide amendment caused in Notification No.21/2011 dt.1.3.2011 by inserting an Explanation for the meaning of ‚Completely Knock Down Unit‛ for the purposes of Sl.No.345.

11.9 The objection filed by the Revenue for reconsideration of its decision, the Authority for Advance Ruling vide an Order dt. 18.2.2011, reported in 2012 (277) ELT 113 (A.A.R) rejected the petition and upheld its Order.

12. From the submissions of the Ld. Advocate, it appears that pursuant to the decision given by the AAR in their case, the appellant commenced production of their motor cars at their Chennai Plant from February, 2007 without any problem or dispute. It also appears that appellants had informed the Customs Department, Chennai vide letter dt. 21.03.2007 seeking approval for import of cars of 5-Series model in CKD form at concessional rate under exemption Notification and that Department vide a letter dt.
26.04.2007 had apparently allowed such imports in CKD condition at concessional rates. So also, appellants had preferred a letter dt. 28.04.2010 with the Department seeking approval for import of X1 and X3 models as CKD import at concessional rates under the Notification. The Department after seeking clarifications from the appellant, apparently allowed the import of the said X1 and X3 series models in CKD condition at concessional rates vide a letter dt. 2.07.2010.

13. It further emerges that pursuant to the AAR ruling in the Harley Davidson case, there were some interactions between the Society for Indian Automobile Manufacturers (SIAM) and the Ministry of Finance, in relation to the proposed definition of CKD for the purpose of the exemption Notification. As per the documents filed by the appellant in Page No. 270 to 271 of the Compilation, SIAM had suggested a definition of CKD as follows :
‚CKD: As imported, in unassembled or dis-assembled condition, means import of all components or sub-assemblies, which may be used for assembling a finished vehicle or a semi-finished vehicle, but does not include any of the following :

(i) Inter-connected sub-assemblies of two or more of the following : (i)Engine, (ii) Gear Box, (iii) Transmission shaft, (iv) Axles, (v) Suspensions, (vi) Steering system, (vii) Glasses, (viii) Seats, (ix) Instrument cluster, (x) Wiring Harness (ii) A chassis/Body assembly of a vehicle on which any of the above components or sub-assemblies is installed.‛

The definition of CKD, as finally approved by the law makers, inserted by Notification 21/2011 dt. 01.03.2011 in respect of motor cars and motor vehicles, read as under :

‚Explanation. – For the purposes of this exemption, ‚Completely Knocked Down‛ unit means a unit having all the necessary components, parts or sub- assemblies for assembling a complete vehicle but does not include, -
(a) A kit containing a pre-assembled engine or gearbox or transmission mechanism; or
(b) A chassis or body assembly of a vehicle on which any of the component or sub-assembly viz., engine or gearbox or transmission mechanism is installed;‛

Evidently, the actual definition of CKD as brought about vide Notification 21/2011 dt. 01.03.2011 was different from that apparently suggested by SIAM.

14. Immediately, on the same day of the date of issue of Notification dt. 01.03.2011, SIAM sent a communication to the Revenue Secretary, Ministry of Finance, conveying that the definition of CKD was highly restrictive and sought urgent clarification and also suggested alternative options. It also emerges that on 04.03.2011, M/s. Volkswagen India also sent a communication to the Revenue Secretary seeking confirmation as to their following interpretations of the new definition :

1. That all operations not running as a kit basis are not affected by this change.

2. Reading the Explanation and the memorandum together gives us an impression that one is eligible to import all critical components including a pre-assembled engine, gearbox, transmission mechanism as a CKD as long as these are not installed on the chassis or body assembly.

3. If only the three critical components namely engine, gearbox, transmission mechanism are imported as standalone sub-assemblies and not inter-connected to each other, the same should qualify for clearance as parts.

In reply, the CBEC, Ministry of Finance, clarified that the definition introduced w.e.f. 01.03.2011 has two independent criteria for their qualification as CKD units :

 That imported units will be termed as CKD units attracting BCD @ 10%, if it is a unit having all the necessary components, parts or sub-assemblies for assembling a complete vehicle;

 That accordingly, if any pre-assembled engine, gearbox or transmission mechanism is imported as a part of such unit or if any of these three components are pre-installed on the chassis or body assembly, the concessional rate of duty will not be available.

Accordingly, M/s. Volkswagen India were informed that Point Nos. 1 and 3 of their interpretation are correct, but that Point No. 2 is incorrect.

15. The definition of CKD was further tweaked vide Notification No. 31/2011 dt. 24.03.2011 and three differential rates of duty were indicated. The amended entry reads as under :


344    8703    Motor cars and other motor vehicles
principally designed for the transport of persons (other than those of heading 87.02), including station wagons and racing cars, new, which have not been registered anywhere prior to importation, if imported,
-
(1) As a Completely Knocked Down (CKD)
kit containing all the necessary components, parts or sub- assemblies, for assembling a complete vehicle, with, -
(a) Engine, gearbox and transmission mechanism not in a pre-assembled condition;
(b) Engine or gear box or
transmission mechanism in pre-assembled form but not mounted on a chassis or a body assembly
(2) In any other form   

10%

30%

60%


The clarifications in respect of these changes made in the definition of CKD were conveyed by the TRU, CBEC, vide letter dt. 25th March, 2011 as under :

‚9. As you are aware, a definition of Completely Knocked Down Unit had been prescribed in the Budget. However, considering the representations by the industry, the custom duty rate on vehicles imported in the form of completely knocked down kits having all the necessary components, parts and sub-assembly including the pre-assembled engine, gearbox and transmission mechanism of Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 87.02) including motor cycles is being reduced from 60% to30%. Such imports of vehicles in completely built form or in any other form including in a form where any of the three viz. engine, gear box or transmission assembly are imported fixed to a chassis will attract 60% BCD. The imports in form of CKD kits where all the parts and components including engine, gearbox and transmission assembly are present in completely knocked down condition will attract 10% BCD.‛

16. Discernibly, the changes brought about by Notification No. 31/2011-Cus. not only created an additional slab of concessional duty, but also further clarified what exactly would be considered as CKD. Notification 31/2011-Cus. in fact expanded the types of imports which could be considered as CKD unit. In the Notification 31/2011 if the engine, gearbox and transmission mechanism was not in a pre-assembled condition, this would be considered as a CKD kit, meriting the lowest rate of 10% BCD.

At the same time, even if the engine, gearbox and transmission mechanism was in a pre-assembled form, however not mounted on the chassis or a body assembly, even if such imported kit may well be considered as a CKD kit for the purposes of the notification, that will be required to suffer BCD @ 30%. If the imports do not fit into any of these two categories, they would have to pay customs duty @ 60%. As clarified by the TRU in their letter dt. 25.04.2011, only those CKD kits where all the parts and components including engine/gearbox and transmission assembly which are imported in a completely knocked down condition, will alone benefit from the lowest rate of 10% BCD.

17. Thus, as per the amended Notification (31/2011-Cus.) when all the parts and components are imported in completely knocked down condition, the lower rate of 10% BCD will be applicable. A combined reading of the Notification No.31/2011-Cus. as also the TRU letter dt.25.4.2011 serves to clarify that ‘not in a preassembled condition’ meant imported in ‘completely knocked down condition’. However, even when the engine or gearbox or transmission mechanism was imported in preassembled form, with the remaining parts, components etc., the entire kit would still be treated as a CKD kit, though required to suffer a higher rate of 30% BCD. This type of imports are covered by entry 344 (1) (b) of the Notification, which reads as under :

‚Engine or gearbox or transmission mechanism in preassembled form, but not mounted on a chassis or a body assembly‛

18. Quite evidently, the sub-assemblies covered in sub entry 344 (1) (b) are only ‚engine‛ or ‚gearbox‛ or ‚transmission mechanism‛. From a plain reading of this sub entry, it is also clear that it will not cover engine mated to a gear box or transmission. Hence if the goods as imported for an engine mated to a gearbox or transmission, they will go out of the scope of entry 344 (1) (b) and will necessarily fall within the residual entry namely 344 (2) ‚in any other form‛ and suffer BCD @ 60%. Hence, in our view, therefore not only will entry 344 (1) (b) not include automobile kit imported with engine or gearbox or transmission in preassembled form and mounted on a chassis / body assembly but also will not include such sub-assembly engine and / or gearbox and / or transmission mechanism if they are imported mated to each other.

19. It is also pertinent to note that if the imported automobile CKD kit has the engine or gearbox or transmission in preassembled condition, the entire kit will not get the benefit 10% BCD under entry 344 (1) (a) but will have to suffer 30% BCD under entry 344 (1) (b).

20. The Ld. Advocate has been at pains to emphasise that various representations were made by SIAM, Volkswagen, etc., to the Ministry after Notification No.21/2011- dt. 1.3.2011 was issued, wherein for the first time, the definition of ‚Completely Knocked Down‛ was defined. Possibly, due to all these representations and the discussions between the stakeholders, the definition of CKD which was introduced by Notification No.21/2011-Cus. was enlarged in scope. Whereas Notification No.21/2011-Cus. excluded from the scope of CKD automobile kit containing even a preassembled engine or gearbox or transmission mechanism, such preassemblies were considered as a CKD unit in the subsequent Notification No.31/2011-Cus. though, required to suffer a higher BCD of 30%. The decision in the case of Sunil Kumar Rana Vs State of Haryana & Others (2003) 2 SCC 628 was relied by the Ld. counsel for appellant to argue that purposive construction has to be applied to interpret the notification. That the legislative intent was to get over the mischief shooted from the AAR Ruling in Harley Davidson case. As already discussed we do not agree with the submission that the notification under consideration was a consequence of the AAR decision in Harley Davidson. Even though SIAM was asked to suggest definition for CKD, the same was not accepted by the Government which would itself show that the notification did not intend to get over any mischief but intended to give a definition for CKD.

21. Further amendment to its duty rate was caused about by Notification No.12/2012-Cus.dt. 17.03.2012 wherein the following rates were brought into effect :

TABLE


S.No.    Chapter or
Heading or Sub- heading or tariff item    Description of goods    Standa
rd rate    Additional
duty rate    Condition
No.
(1)    (2)    (3)    (4)    (5)    (6)
...    ...    ...    ...    ...    ...
437    8703    Motor cars and other motor
vehicles principally designed for the transport of persons (other than those of heading
87.02), including station wagons and racing cars, new, which have not been registered anywhere prior to importation, if imported,- (1) As a Completely Knocked Down (CKD) kit containing all the necessary components, parts or sub-assemblies, for assembling a complete vehicle, with,-
(a)engine, gearbox and
transmission mechanism not in a pre-assembled condition; (b)engine or gearbox or transmission mechanism in Pre-assembled form but not mounted on a chassis or a body assembly.
(2) in any other form,-
[(a) with CIF value more than US $ 40,000 or with engine capacity more than 3000 cc for petrol–run vehicles and   

10%

30%

[100%]   

-

-

-   

-

-

-

        more than 2500 cc for diesel-
run vehicles, or with both] (b) other than (a) above   

60%    -    -


It is thus seen that definition of CKD kit has continued to remain unchanged except that for the words ‚engine or gearbox or transmission mechanism not in a preassembled condition‛ meriting rate of 10% BCD, the Notification 12/2012 had the words ‚engine, gearbox and transmission mechanism not in a preassembled condition‛, also with the same concessional BCD rate of 10%.

22. Having understood the scope and canvas of the relevant notifications, we proceed to apply this knowledge to the actual impugned imports.

23. From the samples of the Bill of Entry and related documents filed by appellants in page 32 onwards of compilation of documents Vol-I, we find that in a sample Bill of Entry No.7949107 dt.14.09.2012, the imported goods were declared as ‚BMW cars in CKD‛. In the Bill of Entry the imported goods are declared as falling within the Customs Tariff Heading 87039090 and claiming benefit of Notification No.12/2012-Cus. Entry 431 (1) (a) namely claiming BCD @ 10%. The related corresponding Invoice No.GCO 7402 dt. 23.07.2012 describes the consignment as ‚BMW CKD Cars – BMW CKD automobile parts‛. It is also mentioned in the invoice that ‚for description of quantity and nature of goods supplied, please refer to packing list or as alternatively invoice attachment‛. The detailed packing list found in page 51 onwards of the said compilation gives description, part number and quantity consigned, however there is no indication in the detailed packing list that the engine or gearbox or transmission mechanism are mated to each other or otherwise.

24. Ld. Advocate has argued that introduction of the words ‚and‛ would only refer to a situation where both engine and transmission are in a mated condition prior to the importation. Ld. Advocate has also relied upon the judgment of the Hon’ble Apex Court in Hyderabad Asbestos Cement Products Vs UOI - 2000 (115) ELT 20 (SC) to argue that since the words ‚gearbox and transmission‛ are separated by a conjunction ‘and’ they have to be read conjointly. However we note that the Hon’ble Apex Court in that judgement was dealing with use of the conjunctive between the two provisos of the erstwhile Rule 56A of the Central Excise Rules, 1944. But in the present case, the meaning of the word ‚and‛ has to be understood and read in the context of the entire sentence as a whole, namely‚engine, gearbox and transmission mechanism not in a preassembled condition‛. It is pertinent to note that to qualify for inclusion under this description, the imported goods will primarily require to be ‚not in a preassembled condition‛. We also note the use of the punctuation mark — namely, the ‘comma’ (,) between the words ‚engine, gearbox‛. In our view therefore, the sentence as a whole should be interpreted only as ‘engine or gearbox or transmission mechanism in a preassembled condition’ i.e. the word ‚and‛ between gearbox and transmission has to necessarily to be read as ‚or‛, since, any other interpretation would lead to absurdity and defeat the intention of the legislature, which obviously is to extend the low est concess iona l ra te to the highes t level of ‚ knocked down parts‛.

25. True, in the ordinary course the word ‚and‛ is normally employed to express the relation of addition, adding of something to that, which preceded and generally has a cumulative sense requiring the fulfilment of all the conditions that it joins together. However, even in such a connection, it is, by force of contents, read as ‚or‛ (Ishwar Singh Bindra v. State of Uttar Pradesh - AIR 1968 SC 1450 / (1969) (1) SCR 219; Mohd. Abubakar Siddique v. Mustafa Shahidul Islam (2000) 2 SCC 62. The word ‚or‛ is normally disjunctive and the word ‚and‛ is normally conjunctive. But at times, the word is read ‚vice versa‛ to give effect to manifest the intention of the legislature as disclosed from the context. [Cable Corporation of India Vs Commission of Labour (2008) 7 SCC 680]. In our view, the word ‚and‛ in the above sentence necessarily have to be read in the disjunctive sense, as ‚or‛, since otherwise it would lead to a absurd interpretation. The intention of the law makers is clear which is manifested by clarification letter of the Tax Research Unit dt.25.03.2011 where in para-9 it has been explicitly clarified as under :

‚the imports in the form of CKD kits where all the parts and components including engine, gearbox and transmission assembly are present in completely knocked down condition will attract 10% BCD‛ [EMPHASIS ADDED]

Hence any attempt to give a different spin or meaning to the wording of the notification, as the Ld. Advocate has attempted to do, will only lead to interpretations which were never intended by the legislature.

26. In the circumstances, the effect of notification No.31/2011-Cus. and also Notification No.12/2012-Cus.is that 10% BCD will be available only when the CKD kit imported contains engine / gearbox / transmission assembly in completely knocked down condition, i.e. not in preassembled condition.

27. So also, in respect of another Bill of Entry 9190798 dt. 01.02.2013, the description of the imported goods is given as ‚BMW Cars in CKD‛. The Custom Tariff Heading declared was 87039090 claiming concessional rate of 10% BCD available as per Sl. No. 437(1)(a) of Notification 12/2012-Cus. The corresponding invoice GCQ 8426 dt. 07.01.2013 describes the goods as ‚CKD Cars – BMW CKD Automotive Parts‛. Here also, the invoice advises to refer to packing list or alternatively, the invoice attachment, ‚for description of quantity and nature of goods supplied‛.

28. From the detailed packing list, it is seen that the assemblies and sub-assemblies imported have been listed with their corresponding Part No., for eg., transmission sub-assembly has been listed with Part No. 764206900, assembly ‚ASSY RR AX Gearbox‛ has been listed with Part No. 7592200500, is seen at page 132 of the compilation, ‚ASSY Engine N47 TUE F25 D20 OL 4WD CKD RU‛ with Part No. 781852800 is found at page 133. There is no indication whatsoever in the packing list or in the other accompanying documents as to whether or otherwise the said engine, gearbox and transmission mechanism are in a pre-assembled condition and/or are mated to each other.

29. Ld. Advocate has contended that further, parts are required to be fitted to the imported transmission unit at their Chennai plant to argue that the imported unit is therefore not a pre-assembled unit.

However, we find that the adjudicating authority has adequately addressed this contention in page 23 of the impugned Order. The adjudicating authority has found that the list of ‚Add-on Parts‛ includes parts like ‚nuts, screws, hoses, cables, drive shafts, gear shaft, levers, cross members and mounting brackets‛. The adjudicating authority has correctly found that the manufacturer was supplying the subject goods in the form of a single product only without supplying any other part and supplying the single product under the nomenclature ‚Automatic Transmission‛; that all the other so-called ‚Add-on Parts‛ are merely required for integrating the gearbox/engine assembly with the car body and mounting the same on the chassis/body of the car. We find ourselves in agreement with these conclusions.

30. There is also no caveat in the concerned Notification that non- inclusion of such ‚Add-on parts‛ would have the effect of treating the otherwise pre-assembled engine/transmission mechanism/gearbox as ‚not‛ pre-assembled.

31. The adjudicating authority has also exhaustively alluded to the parts physically contained in the said assemblies in their imported form as per the technical literature of the manufacturers-suppliers, the technical literature uploaded by the manufacturers at their websites, the technical details of their documents including bill of material and test certificates of M/s. ZF, Germany, the Detailed Packing List, test certificates, list of parts assembled at Chennai plant, etc., to arrive at such a conclusion. Similar analysis and conclusions have been made in respect of ‚engine assembly‛.

32. So also, in para 12.8 of the impugned Order, the adjudicating authority has alluded to the statement of BMW India dt. 22.03.2013 wherein it is admitted that the Chennai plant does not assemble essential components like engine, cram shaft, cylinder heads, crank cases, cylinder head, flywheels, pistons, exhaust, etc; that the imported engine assembly incorporates all these essential components; that the assembly mating of engine with transmission mechanism, done by aligning the Torque converter end of the ‚transmission sub-assembly‛ with the flywheel end of the ‚engine sub-assembly‛ is done seamlessly at the appellant’s Chennai plant, which only proves that both the transmission mechanism and engine imported are complete assemblies, ready to be mated.

33. The following evidences analysed by the adjudicating authority also support the view that the CKD kits imported by the appellants contain engine/transmission mechanism/gearbox which were in pre-assembled and hence not eligible for the 10% BCD rate. On scrutiny of the ‚Detailed Packing List‛ furnished by the importer during investigation in respect of the above six consignments, it is observed that the engine and the individual part pertaining to gear box/transmission mechanism are declared as
follows :


Sl.No.    Bill of Entry No.
& date    Description of
Engine    Description of gear box/trans.
mechanism
1    9484836/5.3.2013    ASSY ENGINE N47 E84
D20OL RHD    TRANSMISSION SUB ASSEMBLY 8HP45 N4701HI
2    9535996/11.3.2013    ZB ENGINE N47CTUE R60
D20UL RK VR    ASSY.AUTO GEARBOX GA6F21WA ANG
3    9536934/11.3.2013    ASSY ENGINE
N47 E84
D20OL RHD    TRANSMISSION SUB
ASSEMBLY 8HP45 N4701HI
4    9560287/13.3.2013    ASSY ENGINE
N47 E84
D20OL RHD    TRANSMISSION SUB
ASSEMBLY 8HP45 N4701HI
5    9621600/20.3.2013    ASSY ENGINE
N47 E84
D20OL RHD    TRANSMISSION SUB
ASSEMBLY 8HP45 N4701HI
6    9827661/11.4.2013    ASSY ENGINE
N16 A US/KOREA    ASSEMBLYTRANSMISSION
GA6F21WA ANJ


The detailed packing list does not include any items of description like cylinder heads, cylinder blocks, pistons, connecting rods, crankshaft, cam shaft etc. which are the components that go into the assembling of an engine. It therefore appears to reason that ‚assembly engine‛ imported is already a complete preassembled engine. So also, the packing list does not contain items like gearsets, torque converters, mechatronic parts etc. which are components that go into the assembling of an automatic gearbox. Hence it appears to reason that the imported ‚transmission sub-assembly / assembly auto gearbox / automatic transmission‛ are gear box / transmission which are already preassembled at the time of import.

34. Reference is also made to letters of appellants dt. 22.03.2013 and 04.04.2013 wherein it has been clarified that they do not assemble internal components of engine and automatic gearbox at the Chennai plant.

35. ‚List of add-on parts‛ contains parts like flange nuts, clip nuts, hex nuts, spacer bolts, head screws, self-tapping screws, packing washers etc. which are locally assembled on to the imported engine and transmission sub-assemblies merely provides linkage for these mechanism with the rest of the car parts and are useful only for completing the integration. It is therefore evident that these ‚add- on parts‛ are not of the genre that are required to complete ‚pre-assembly‛ of the engine / transmission / gear box mechanisms imported.

36. In para 26 (xii), the adjudicating authority has analysed the nature of the imported ‚transmission sub-assemblies‛ in more than five pages of the impugned order. The discussion is very lucid, well researched and logical and we are unable to find any infirmity with the same. The conclusions arrived at by the adjudicating authority make for interesting reading :

‚Thus, though the importer describes the parts locally assembled on to the ‘transmission sub-assemblies’ (gearboxes) in abstract technical terms as ‚mechanical, hydraulic, electronic parts‛, it can be noted/observed from the ‚list of add-on parts‛ that they are merely in the nature of fasteners (nuts, screws, brackets, etc. which merely provide the linkage for other parts of the car with the imported gearbox, drive shaft, gear shift lever, etc.), wiring harness (which is described by the importer as ‚electronic part‛ but which actually consists of insulated wires with connector pins at the ends), hose/pipe/tube (which is described by M/s.BMW India as ‚hydraulic part‛ for the simple reason that fluids pass through them), transmission control parts like gear shift lever and fixtures like brackets for fitment of the gearbox, other transmission parts like drive shaft, output shafts and other items to the body of the car. Thus, it appears that all the other parts like drive shafts and many of the nuts and bolts are merely required for making the gearbox/engine assembly ready for integrating the same with the car body and mounting the same on the chassis/body of the car.‛

37. Unique Identification number and model : From facts on record, it emerges that the goods described as ‚transmission sub- assemblies‛ were nothing but ‚automatic transmission‛ with model No.8HP45 actually manufactured by M/s.ZF Friedrichshafen AG. It does not appear to common sense that the manufacturer supplier of the gearbox would supply unfinished goods transmission mechanism to the appellants for onward exportation to their Indian arm (appellant). In any case, it has been found that each individual gearbox imported has a unique identification number which is engraved on each individual unit’s metal casing by the manufacturer. The adjudicating authority has therefore correctly concluded that no manufacturer supplier would assign such a unique identification number as well as model name to a sub- assembly and refrained from supply remaining parts of that product.

38. Testing of transmission sub assembly / automatic transmission/ auto gear box. From the facts on record, it emerges that the automatic transmission / gear box supplied by M/s.ZF, Germany have undergone standard testing procedures before they are supplied to M/s.BMW AG Germany, a fact which has been admitted by BMW India. It has also been admitted by appellants that the imported transmission sub assembly is not tested in any manner at the Chennai plant before the car assembling process. The adjudicating authority has correctly concluded that a critical part like gearbox cannot be assembled onto the car without first undergoing all mandatory tests and checks which clearly indicates that the product so tested and marketed as an ‚Automatic Transmission‛ by the manufacturer-supplier is a complete and functional automatic transmission and does not constitute any sub- assembly thereof.

39. So also, the imported engine assemblies already incorporated parts and components like crankshaft, cylinder heads , crank cases, cylinder head covers, flywheels, pistons, exhaust and inlet valves etc. Such critical parts and components are not separately imported. Secondly, even in their import documents appellants have described the said mechanism as ‚Assy. Engine‛. The parts of description ‚Assy. Engine‛ imported in the CKD kit are then nothing but ‚complete engine assemblies‛ which have been imported in pre- assembled form. Like in the case of transmission mechanism list of ‘add on parts’ claimed to be crucial and integral constituent parts of engine are seen in the nature of fasteners like nuts, clips, screws, parts like wiring harnesses and parts like braidings etc. Like in the case of transmission assemblies, the ‘add-on parts’ in respect of these ‘assemblies’ only serve the purpose of connecting /mounting/ integrating the engine with the other assemblies or rest of the car.

40. The Ld. Advocate has vigorously argued that no reliance can be placed by the department on the report of Shri Ramesh Babu on the grounds that it has been issued on incomplete facts and without fully understanding or analyzing the assembly operations undertaken by the appellant and without even visiting the Chennai plant of the appellants and physically observing the assembly operations undertaken. Persuasive as it may be, we are nonetheless unable to appreciate this argument of the Ld. Advocate. The levy of Customs duty on imported goods is always on the goods in the condition they are imported. Hence the examination of goods at the point of port alone would be able to determine their exact nature and by implication their value for assessment as well as the eligibility or otherwise of any exemption notification. We find that Dr. Ramesh Babu has also perused copies of the detailed packing list, supplied by sub-assembly chart of engine and transmission submitted by BMW as also the list of parts pertaining to engine and transmission to be assembled to the imported engine and transmission assembly as claimed by the appellants. Only after a comprehensive analysis of all these aspects, has Dr. Ramesh Babu opined that ‚parts list merely comprises of nuts, screws, clips etc.; that the imported engine assemblies are actually fully assembled condition which can be readily integrated to build motor car; that similarly transmission sub assemblies are automatic transmission units, otherwise known as automatic gear box. On the other hand, it is pertinent to note that the experts appointed by the appellants namely Professor A.R.Mohanty and Shri Balraj Bhanot have not mentioned in their reports that they have examined the kits in the stage that they were imported. Both have submitted their reports based on their visits to the Chennai plant of BMW India. On the other hand, Dr. N.Ramesh Babu, whose report has been relied upon by the Department, has inspected the imported goods at the stage of import itself.

41. A grievance has also been brought by appellant that cross- examination sought by them of Dr. Ramesh Babu was not granted.

True, refusal to grant cross-examination in such cases would may possibly put to question the admissibility of the evidence given in the said report. Be that as it may, in our view, the technical opinion of the experts appointed by the appellants also cannot be given any relevance since, as discussed above, they have not examined the goods in the condition as they were imported but only at the factory of the appellants. In any case, the goods as imported, and as per packing list has to be critically examined vis-à-vis the conditionalities of the exemption notification, as per the discussion herein above. We have found that the imported goods as per the packing list would not satisfy the condition of ‚engine, gear box or transmission mechanism not in preassembled condition‛ and hence by no stretch of imagination would they be able to benefit from the lowest B.C.D rate of 10%.

42. For arguments’ sake, even if there had been an ambiguity in the Notifications No.31/2011-Cus. and No.12/2012-Cus. as claimed by appellant, in our view, that will not have bearing effect in the case on hand. The benefit of such ambiguity even if it existed, cannot be claimed by the appellant-importer BMW and as laid down by the Hon’ble Apex Court, the same must be interpreted in favour of the Revenue. There are number of judgments and the higher courts of the land which have consistently reiterated that exemption notifications should be interpreted strictly. In a very recent judgment in the case of Commissioner of Customs (Import) Mumbai Vs Dilip Kumar and Company & Ors. in Civil Appeal No.3327 of 2007, a five Judge Bench of the Hon’ble Apex Court held that 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. The relevant portion of the Hon’ble Apex Court judgement is reproduced as under :

“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 over-ruled”.

43. We have then no doubt in our mind that the goods imported by the appellants were not of the type and nature which would merit the lowest B.C.D rate of 10% as extended vide the Notification No.21/2011-Cus. and later in No.31/2011-Cus. as amended by Notification No.12/2012-Cus. The allusion made to the rulings of the AAR will also not help the case of the appellants since as pointed out, the rulings not only in the appellant’s own case but also in the matter of Harley-Davidson (supra) were made firstly without any actual import of the kits and secondly before any definition of what constituted a ‚CKD kit‛ was inserted into the Exemption Notification No.21/2011-Cus. We are therefore of the considered opinion that the goods imported by the appellants will not benefit from the B.C.D rate of 10% but will only be eligible for higher B.C.D. rate since the CKD kits imported contained engine or gearbox or transmission mechanism in preassembled form (but not mounted on chassis or body assembly). Both for the periods 01.03.2011 to 23.03.2011 as also 24.03.2011 to 11.04.2013, the appellants are not entitled to a rate of B.C.D. @ 10% but will necessarily have to discharge B.C.D @ 60% and 30% respectively only. Issue No.I is answered in favour of Revenue.

44. The appellants have also argued on the ground of limitation. Ld. Advocate has drawn our attention to Examination Order of the concerned examining officer dt. 09.02.2013. It is seen that the order for examination includes to examine whether engine, gearbox and transmission mechanism are pre-assembled or not. The examining officer, by a report dt. 07.02.2013, has reported that engine, gearbox and transmission mechanism are not in a pre-assembled condition (PTC). Ld. Advocate has contended that the fact of these examination reports would only serve to prove that the CKD Kit was imported in the very condition satisfying the requirements of Notification 12/2012 to become eligible for concessional rate of BCD @10%. Once the goods have been cleared with such examination reports, it is but obvious that the Department cannot now rake up an argument that the engine/gearbox/transmission mechanism were in fact pre-assembled and/or were brought mated to each other at the time of import.

45. True, that the Revenue would also argue that since many of the consignments would have been cleared by the Risk Management System (RMS) Module electronically without human interface or intervention, only a few random examination orders may only have been an aberration and not the rule. But, at the same time, it is pertinent to note that the appellant had written to the Commissioner of Customs, Chennai vide a letter dt. 05.07.2010, referring to a meeting and requesting that the CKD import duty rate being given to their 3-series CKD Kits may also be extended to their X1 and X3 models as well.
46. In response, the appellants were informed vide a letter dt. 23.07.2010 that ‚import of BMW X1 and X3 series car in CKD condition can be extended the benefit of Notification 21/2002-Cus., Sl. No. 344(1)‛.

47. Even after the issue of Notifications 21/2011-Cus. dt. 01.03.2011 and 31/2011-Cus. dt. 24.03.2011, appellant appears to have sent another communication to the Commissioner of Customs, Chennai, on 30.03.2011, submitting that the engines, gearboxes and transmission mechanism imported by them as a part of their CKD kits, are in the form of sub-assemblies; that their CKD operations fall within the purview of 344(1)(a) of the definition of CKD; that they will continue to file their Bills of Entry as was done in the past.
48. During the hearings, Ld. Senior Advocate had submitted details of 20 such instances where the imported kits had been examined by Customs Officers during the period March 2011 to April 2013 and in most of these reports, it has been confirmed that the impugned goods have been found in CKD condition. No objection was raised in the concerned inspection report. In certain cases it was also directed to verify whether the engine, gearbox and transmission mechanism are in a pre-assembled condition or not, which was also examined and answered in the negative.

49. These are facts and happenings that will stare the Customs Authorities in the face and demolish the allegation that appellant has suppressed facts of import of pre-assembled engine and pre- assembled transmission mechanism or that they have misstated the description of the goods to avail concessional rate of duty.

50. In arriving at these conclusions, we draw sustenance from the ratio laid down by the Hon’ble Apex Court in Pushpam Pharmaceuticals Company Vs CCE Bombay - 1995 (78) ELT 401 (SC). The relevant portion of the judgment is reproduced below :

“4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

So also, the Hon’ble High Court of Punjab and Haryana in the case of CC Amritsar Vs Jyoti Industries - 2007 (209) ELT 180 (P&H) has upheld the following findings of the Tribunal that mistake committed on the part of Customs officer in proper assessment of goods cannot be held as suppression / misrepresentation of goods to justify invocation of extended period of limitation :

“We have seen the photocopy of the Bill of Entry No. 82 dated 26-5-94, which is in dispute and found that the Assessing Officer has himself assessed the goods under Heading 9017.30 by changing the classification adopted by the importer. The examination report of the Customs Officer as recorded on Bill of Entry clearly shows that they had found the goods as per description in Bill of Entry and invoice. On examination, when the officers have not pointed out that the goods are to be classified not as “universal measuring instrument” but as “micrometer”, then it could only be said a mistake on the part of the Customs Officers and it cannot lead us to conclusion that there has been suppression on the part of the importer (respondent).

We find that the assessment was done by the Customs Officers. The goods were also examined by the Customs Officers and they have found that goods as per description given in the invoice. Therefore, if there has been mistake on the part of Customs Officer in proper assessment of the goods, the respondents cannot be held liable for any suppression of facts as they have neither colluded or suppressed the facts. Therefore, the findings of the Commissioner are correct and based on evidence on record. We, therefore, find no reason to interfere with the order of the Commissioner in dropping the demand for imports made under Bill of Entry No. 82, dated 26-5-94. The appeal of Revenue is accordingly rejected.”

51. Precisely for these reasons, we have no hesitation in holding that the extended period of limitation cannot be invoked in this case and hence, the differential duty liability can be confirmed and demanded only for the normal period of limitation from the date of issue of the Show Cause Notice. For this limited purpose, the matter would be required to be remanded to the adjudicating authority to work out the duty liability afresh limited to the normal period of limitation. So ordered. Hence Issue No.II is answered in favour of appellant.

52. Coming to the issue of penalties, we find that the adjudicating authority has imposed penalty equal to the duty determined under Section 114A of the Customs Act, 1962. For the very reason that ingredients justifying invocation of extended period not being present in this case, further also taking into account that the issue per se revolves around interpretation of the notification which itself underwent a number of changes, we hold that the penalty under Section 114A of the Customs Act, 1962 is not just and fair and is therefore set aside. So ordered.

53. However, with regard to confiscation of the goods, as there has been definite contraventions of Section 111 (m) and (o) of the Customs Act, 1962, the confiscation ordered by the adjudicating authority is upheld. However, we reduce the redemption fine to Rs.1,00,00,000/- (Rupees One Crore only) imposed under Section 125 of the Customs Act, 1962.

54. So also, while upholding the imposability of penalty under Section 112 (a) ibid, we find that the penalty of Rs.3,00,00,000/- imposed is on the higher side and in our view penalty of Rs.1,00,00,000/- (Rupees One Crore only) would merit the interest of justice in this case. So ordered. Issue No.III is answered as held in paras 52 to 54.

To sum up —

(1) The demand is upheld, however restricted to the normal period of limitation. Only for the purpose of re-quantification of the demand for the normal period with interest liability as applicable, the matter is being remanded to the adjudicating authority.

(2) Penalty imposed under Section 114A of the Act is set aside.

(3) Confiscation of goods under Section 111 (m) and (o) of the Act is upheld. Imposability of Redemption fine under Section 125 (1) ibid is upheld. However, the redemption fine imposed is reduced to Rs.1,00,00,000/- (Rupees One Crore only).

(4) Imposability of penalty under Section 112(a) of the Act is upheld. However, penalty imposed is reduced to Rs.1,00,00,000/- (Rupees One Crore only)

Appeal is partly allowed and partly remanded on above terms.

(Pronounced in open court on 17.09.2018)

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

Sdd/Gs

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

Court – I

Appeal Nos. ST/30348 & 30349/2018
(Arising out of Order-in-Appeal No. VIZ-EXCUS-002-APP-101-102-17-18, Dt.22.12.2017 passed by CCCE & ST (Appeals), Visakhapatnam)

WS Industries India Ltd
….. Appellant(s)

Vs.


CCT, Visakhapatnam – GST
….. Respondent(s)

Appearance:
Shri D.V. Subba Reddy, Advocate for the Appellant.
Shri B. Guna Ranjan, Superintendent/AR for the Respondent.

CORAM:
Hon’ble Mr. M.V. RAVINDRAN, Member (Judicial)

Date of Hearing: 13.08.2018
Date of Decision: 11.09.2018

FINAL ORDER No. A/31162-31163/2018

[Order per: M.V. Ravindran]

1. These two appeals are directed against Order-in-Appeal No.VIZ-EXCUS-002-APP-101-102-17-18, Dt.22.12.2017.

2. Heard both sides and perused the records.

3. The issue involved in both these appeals, though being the question of refund to an SEZ unit of service tax paid by various service providers, they are being disposed of separately in this order on the factual matrix.

4. The appellant herein is an SEZ unit; took service tax registration as non-assessee category for claiming exemption from payment of service tax (by way of refund) on various taxable services received by them in relation to authorized operations in SEZ in terms of Notification No.40/2012-ST dated 20.06.2012. Appellant preferred refund claims before the lower

authorities. The said refund claims were partly allowed and partly rejected. It is on record that appellant had list of services approved by Ministry of Commerce and Industry for authorized operations in SEZ unit.

5. In Appeal No.ST/30349/2018, the adjudicating authority as well as the first appellate authority has in respect of refund application No.198 & 199 for an amount of Rs.39,583/- came to be rejected on the ground that the refund of service tax paid on Rent-a-Cab services is not due as the same is not specified in the list of services required for authorized operations as approved by approval committee. On the scrutiny of the details of refund claim filed at 198 & 199, it is noticed that the refund claim is filed on 26.06.2014 for the period May/June 2013 and is in respect of Rent-a-Cab services. It is noticed that the list of services which were approved by the Ministry of Commerce and Industry, by Letter No. 2(6)/APSEZ/2010-1 dated 29.04.2010, indicates at Sl.No.18 the services rendered by Rent-a-Cab operator. Since the said services are approved for authorized operations, I find that impugned Order-in-Appeal No.VIZ-EXCUS-002-APP-101-102-17-18 dated 22.12.2017 to the extent contested in this appeal is set aside and the refund applications are allowed as eligible for refund of Rs.39,583/- (including cesses).

6. In respect of Appeal No.ST/30348/2018, the refund claims have been rejected on the ground that the said refund claims were filed beyond the period of one year from the date of payment to service provider. The adjudicating authority in the case in hand has, wherever an application is made, for condonation of delay has condoned the same and rejected the refund claim of Rs.13,17,625/- as being hit by limitation. The first appellate authority has also upheld the said Order-in-Original.

7. It is the claim of the learned counsel that the dispute is regarding only the documents filed in support of the online refund claims filed by the appellant. It is his submission that the payments to service providers were made on various dates in the period spread between April, 2012 to June, 2013 and the delay in filing the refund claims was spread from 0 months to 13 months. It is his submission that though adjudicating authority has condoned the delay up to 3 months, during the relevant period the refund claims were to be supported by proof of payment of service tax by the service providers to the Government of India which took time. It was submitted that this explanation was not acceptable by the adjudicating authority and also due to attrition of the employees from business and accounts department there was delay in collection of documents.

8. Learned departmental representative reiterates the findings of the lower authorities and submits that the delay wherever was within condonable period was condoned.

9. On careful consideration of the submissions made, I find that the adjudicating authority has condoned the delay of three months in few refund applications which were filed by the appellant herein but has not condoned the delay in respect of other applications. The said order of the adjudicating authority not condoning delay in few applications, in my view needs reconsideration as the procedure mentioned in the Notification No.40/2012- ST dated 20.06.2012 for sanctioning of the refund claims based on this exemption notification, specifically at clause 3(a) indicates that refund claims should be filed within one year from the end of the month in which actual payment of service tax was made by such developer or unit (SEZ) to the registered service provider but considering the situation prevalent at ground level, such clause 3(a) specifically grants powers to the Asst. Commissioner or the Dy. Commissioner of the Central Excise as the case may be condoning the delay of such extended period. There is no limit laid down in the said clause during the relevant period. In the case in hand, the adjudicating authority should have exercised this power granted to him for condoning the delay by appreciating the factual matrix in a broader perspective, wherein the delay has been sought to be explained. In my view, the impugned order and the adjudication order for rejection of refund claims of Rs.13,75,625/- needs reconsideration by the adjudicating authority looking at the circumstances at which appellant had to file the refund claims belatedly. Appellant also needs to file appropriate chart as to how the delay had occurred and give a justification. Accordingly, the appeal in respect of refund claim of Rs.13,75,625/- is disposed of by way of remand to the adjudicating authority to reconsider the issue afresh after considering the prayer for condonation of delay in its correct perspective. Needless to state, the adjudicating authority shall follow the principles of natural justice before coming to any conclusion.

10. The appeals stands disposed of as indicated herein above.


(Pronounced in the Open Court on 11.09.2018)


(M.V. RAVINDRAN)
MEMBER (JUDICIAL)

Veda

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Bench - SM Court – I

Appeal Nos. E/30311 & 30395/2018
(Arising out of Order-in-Appeal No. VIZ-EXCUS-001-APP-170-171-17-18 dated 14.12.2017 passed by Commissioner of Central Tax & Customs (Appeals), Visakhapatnam)

M/s Dr. Reddy’s Laboratories Limited
…..Appellant(s)

Vs.

Commissioner of Central Tax & Customs, Visakhapatnam – G S T
Respondent(s)

Appearance
Shri B. Seshagiri Rao, Advocate for the Appellant.
Shri P.S. Reddy, Shri Dass Thavanam, (ARs) for the Respondent.

CORAM:
Hon’ble Mr. M.V. RAVINDRAN, Member (Judicial)

Date of Hearing: 05/09/2018
Date of Decision: 05/09/2018

FINAL ORDER No. A/31169-31170/2018

[Order per: M.V. Ravindran]

These two appeals are directed against Order-in-Appeal No. VIZ-EXCUS-001-APP-170-171-17-18 dated 14.12.2017. Since the issue involved in this appeal is common and against the same Order-in-Appeal (which disposed of two Orders-in-Original), they are being disposed of by a common order.

2. Heard both sides and perused the records.

3. On perusal of records, it transpires that the issue is regarding to reversal of an amount equivalent to 5% or 6% of the value of inputs sold as such considering the trading activity which is an exempted service. Appellant had procured various inputs for manufacturing activity in his premises during the period March, 2011 to January, 2014; due to change in process or slackness in demand of finished goods was confronted with excess raw materials/inputs, on which CENVAT credit availed. The appellant sold/cleared these inputs as such in the market after reversing the CENVAT credit availed on the quantity so cleared. Revenue Authorities are considering this activity as a trading activity and same being exempted /non-taxable during the relevant period, are seeking to confirm a demand on the appellant on 5% or 6% of the value of such goods cleared on exempted goods cleared.

4. I find this issue is no more res integra. This issue is covered by the order of Allahabad Tribunal in the case of Commissioner of C.Ex. & S.T., Ghaziabad Vs. Mahaveer Cylinders Ltd., [2016 (341) E.L.T. 361] wherein, it is clearly held that removal of input as such by manufacturer after reversal of credit cannot be treated as trading activity. I concur with the views, and find no reason to deviate from such a view already taken. Accordingly, the impugned order is set aside and the appeals are allowed.


(Order dictated & pronounced in open court)


M.V. RAVINDRAN

Member (Judicial)

Lakshmi….

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Bench - SM Court – I

Appeal Nos. E/30311 & 30395/2018
(Arising out of Order-in-Appeal No. VIZ-EXCUS-001-APP-170-171-17-18 dated 14.12.2017 passed by Commissioner of Central Tax & Customs (Appeals), Visakhapatnam)

M/s Dr. Reddy’s Laboratories Limited
…..Appellant(s)

Vs.

Commissioner of Central Tax & Customs, Visakhapatnam – G S T
Respondent(s)

Appearance
Shri B. Seshagiri Rao, Advocate for the Appellant.
Shri P.S. Reddy, Shri Dass Thavanam, (ARs) for the Respondent.

CORAM:
Hon’ble Mr. M.V. RAVINDRAN, Member (Judicial)

Date of Hearing: 05/09/2018
Date of Decision: 05/09/2018

FINAL ORDER No. A/31169-31170/2018

[Order per: M.V. Ravindran]

These two appeals are directed against Order-in-Appeal No. VIZ-EXCUS-001-APP-170-171-17-18 dated 14.12.2017. Since the issue involved in this appeal is common and against the same Order-in-Appeal (which disposed of two Orders-in-Original), they are being disposed of by a common order.

2. Heard both sides and perused the records.

3. On perusal of records, it transpires that the issue is regarding to reversal of an amount equivalent to 5% or 6% of the value of inputs sold as such considering the trading activity which is an exempted service. Appellant had procured various inputs for manufacturing activity in his premises during the period March, 2011 to January, 2014; due to change in process or slackness in demand of finished goods was confronted with excess raw materials/inputs, on which CENVAT credit availed. The appellant sold/cleared these inputs as such in the market after reversing the CENVAT credit availed on the quantity so cleared. Revenue Authorities are considering this activity as a trading activity and same being exempted /non-taxable during the relevant period, are seeking to confirm a demand on the appellant on 5% or 6% of the value of such goods cleared on exempted goods cleared.

4. I find this issue is no more res integra. This issue is covered by the order of Allahabad Tribunal in the case of Commissioner of C.Ex. & S.T., Ghaziabad Vs. Mahaveer Cylinders Ltd., [2016 (341) E.L.T. 361] wherein, it is clearly held that removal of input as such by manufacturer after reversal of credit cannot be treated as trading activity. I concur with the views, and find no reason to deviate from such a view already taken. Accordingly, the impugned order is set aside and the appeals are allowed.


(Order dictated & pronounced in open court)


M.V. RAVINDRAN

Member (Judicial)

Lakshmi….

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi,

Court No. II

Date of hearing/decision: 14.09.2018

Ex. Appeal No.51592 of 2018-SM
(Arising out of Order-in-Appeal No. 159/Central Tax/Appl-II/Delhi dated 28.02.2018 passed by the Commissioner (Appeals), Customs & Central Excise, Delhi-II).

M/s Ruchika Print and Pack
Appellant

Vs.

CCE, Delhi-II
Respondent

Appearance:
Sh. Avneet Singh, Advocate for the appellant
Sh.K. Poddar, AR for the Respondent

CORAM:
Hon’ble Sh. V. Padmanabhan,
Member (Technical)

Final Order No. 52983/2018

Per: V. Padmanabhan:

The present appeal is against the Order-in-Appeal No. 159/ Central Tax/ Appl-II/Delhi dated 28.02.2018 passed by the Commissioner (Appeals), Customs & Central Excise, Delhi-II.

2. The appellant is engaged in the manufacture of packing materials. The dispute is regarding availment of benefit of cenvat credit on various inputs/ input services. The dispute originated with the issue of show cause notice dated 24.06.2011 and culminated with the decision of CESTAT vide F.O. No. 54433 – 54434/2016 dated 19.10.2016. Vide the above Final Order, the duty demand made against the appellant was reduced to Rs.99,642/- alongwith penalty of equal amount under Section 11AC. The benefit consequent to the above order of the Tribunal was claimed by the appellant before the lower authorities by way of filing the refund claim. The appellant had originally paid the entire disputed amount at the time of audit, even before the issue of show cause notice. The lower authorities granted the refund of the excess duty paid. But the authorities below were firm in deciding that the penalty amount of Rs. 99,642/- ordered by the Tribunal, equivalent to the duty finally held as payable, cannot be varied by the lower authorities. Hence, the present appeal is with the limited issue to restrict the penalty to 25% of the amount held as payable finally by the Tribunal by the order dated 19.10.2016, since the disputed duty is already paid before the issue of show cause notice.

3. The case of the appellant was argued by Sh. Avneet Singh, ld. Advocate and Sh. K. Poddar, ld. AR for the Revenue.

4. Ld. Advocate submitted that Section 11AC provides for payment of penalty equivalent to the duty held as payable, but if such duty amount is paid within one month from the date of communication of the order of the officer determining such duty, the amount of penalty liable to be paid shall be only 25% of the duty so determined. Ld. Advocate further submitted that in the case of the appellant, the duty was redetermined at the level of the appellate Tribunal and reduced. Since the duty demand has already been paid by the appellant, even before the issue of show cause notice, he claimed that the appellant will be entitled to payment of penalty @ 25% of the duty finally held as payable.

5. Ld. AR justified the impugned order. He submitted that the Tribunal vide their order dated 19.10.2016 has ordered for payment of duty with equal penalty. Since the Tribunal cannot review its own earlier order, he submitted that the impugned order merits to be upheld.

6. Heard both sides and perused appeal record.

7. The dispute of irregular availment of cenvat credit came to be finally decided by the Tribunal vide the above referred Final Order. In the said order the Tribunal reduced the duty payable to Rs. 99,642/- with penalty equal to the said duty under Section 11AC. It is also not in dispute that the entire duty demand has already been paid by the appellant at the stage of the audit of the accounts, well before the issue of show cause notice. The only question to be decided is whether under the circumstances, the appellant will be entitled to the benefit of payment of penalty equal to 25% of the duty so finally determined by the Tribunal.

8. Section 11AC provides for mandatory penalty equal to the duty determined as payable, in terms of the proviso to Section 11A. But it also provides that if the said duty amount is paid within 30 days from the date of communication of the order of the Central Excise officer determining such duty, the amount of penalty liable to be paid shall be only 25% of the duty so determined. It has further been provided that the benefit of payment of 25% of the duty as penalty will also be available, in cases where the duty is finally determined by the Tribunal, if such duty as reduced is paid within 30 days. In the present case, the duty demand was finally determined by the Final Order of the Tribunal dated 19.10.2016 to be Rs. 99,642/-. The Tribunal also imposed penalty equal to the duty amount. Since the duty amount has been paid even before the issue of show cause notice, I am of the view that the provision of Section 11AC provides for payment of penalty equal to 25% of the duty held as finally payable.

9. In view of the above, the appellant is entitled to the payment of reduced amount of penalty and to consequential relief. Appeal is allowed.


(Dictated and pronounced in the open Court).

(V. Padmanabhan)
Member (Technical)

Pant

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi,

Court No. II

Date of hearing/decision: 13.09.2018

Excise Appeal Nos. 51582-51583 & 51591/2018-SM
(Arising out of Order-in-Original No. RPR/EXCUS/000/COM/CEX/040, 043/2018 dated 19.03.2018 & 23.03.2018 passed by the Commissioner, Customs, Central Excise & Service Tax, Raipur).

M/s Alankar Steel Pvt. Limited
Purshottam Agarwal, Director
M/s Ramesh Steel Industries
Appellant

Vs.

CCE&ST, Raipur
Respondent


Appearance:
Sh. Manish Saharan, Advocate for the appellant
Sh. K. Poddar, AR for the Respondent

CORAM:
Hon’ble Sh. V. Padmanabhan, Member (Technical)

Final Order Nos. 52987 – 52989/2018

Per: V. Padmanabhan:

The present appeals Excise Appeal Nos. 51582-51583/2018 are filed against the Order-in-Original No. 40/2018 dated 19.03.2018. Vide the impugned order, the adjudicating authority confirmed the demand of Central Excise duty amounting to Rs. 4,13,226/- on the appellant and imposed penalty of Rs. 25,000/- on Sh. Purshottamlal Agarwal, Director. However, he dropped the Central Excise duty demand of about Rs. 13.29 crore.

Appeal No. E/51591/2018 is against the Order-in-Original No. 43/2018 dated 23.03.2018. Vide the impugned order, the adjudicating authority confirmed the demand of Central Excise duty amounting to Rs.73,318/- on the appellant and imposed penalty of equal amount. However, he dropped the Central Excise duty demand of Rs. 16,40,67,139/-.

2. The demand for Central Excise duty against both the assessees culminated as a result of common investigation undertaken by the Central Excise officers. The demand raised is based on the entries found in a diary recovered from one Sh. S. K. Pansari, Prop. of M/s Monu Steel a consignment agent. The statement of Sh. S. K. Pansari has also been relied upon. Further, during the course of investigation, Revenue also recorded the statement of Sh. Purshottamlal Agarwal, Director of M/s Alankar Steel Pvt. Limited as well as Director of M/s Ramesh Steel. It is pertinent to record that neither Director admitted to the clandestine clearance of the quantum of M.S. Ingots found mentioned in the diary of Sh. S. K. Pansari. Further, Sh. S. K. Pansari did not appear for cross examination before the adjudicating authority during the course of adjudication proceedings. However, in both the impugned orders, the adjudicating authority has proceeded to confirm the demands for Central Excise duty with the observation that the Directors of the appellant have acknowledged the clearance of M.S. Ingots, found recorded in the diary of Sh. S. K. Pansari and such statements have not been retracted.

3. With the above background, heard Sh. Manish Saharan, ld. Advocte for the appellant as well as Sh. K. Poddar, ld. AR for the Revenue.

4. Ld. Advocate submitted that the case built by Revenue is exclusively on the basis of the third party documents as well as statement. Revenue has failed to bring any corroborative evidence on record. No evidence has been brought on record by Revenue which supports the charge of clandestine clearance on the part of the assessees.

4.1 Ld. Advocate further submitted that several cases were made by Revenue against various other manufacturers of M.S. Ingots also commonly on the basis of diary entries of Sh. S. K. Pansari. At the stage of the appeals before the Tribunal, all such appeals stand allowed on the ground that demand of Central Excise duty cannot be upheld only on the basis of third party evidence. In this connection, he relied on the following decisions amongst others.

i) Maa Banjari Ispat Pvt. Ltd & Ors (F.O. No. 52757-58/2018) decided on 10.08.2018.

ii) Pryash Steel & others (F.O. No. 51656-58/2018) decided on 26.04.2018).

5. Ld. AR justified the impugned orders.

6. The charge of clandestine clearance has been raised by Revenue against both the assessees on the basis of the evidence in the form of diaries maintained by Sh. S. K. Pansari, Commission Agent (who is prop. of M/s Monu Steels). The statement recorded from Sh. S. K. Pansari further implicates the appellants. During the course of investigation, the Directors of the appellant have been interrogated and their statements recorded. But, it is seen that neither of the Directors have admitted to the correctness of the details found in Sh. S. K. Pansari’s diary. Nor have they admitted the charge of clandestine clearance.

7. The law i.e. as to whether the third party records can be adopted as an evidence for arriving at the findings of clandestine removal, in the absence of any corroborative evidence, is well established. Reference can be made to Hon’ble Allahabad High Court decision in the case of Continental Cement Company Vs. Union of India – 2014 (309) ELT 411 (All.) as also Tribunal’s decision in the case of Raipur Forging Pvt. Ltd. Vs. CCE, Raipur-I – 2016 (335) ELT 297 (Tri.-Del.), CCE & ST, Raipur Vs. P.D. Industries Pvt. Ltd. – 2016 (340) ELT 249 (Tri.-Del.) and CCE & ST, Ludhiana Vs. Anand Founders & Engineers – 2016 (331) ELT 340 (P&H). It stand held in all these judgements that the findings of clandestine removal cannot be upheld based upon only the third party documents, unless there is clinching evidence of clandestine manufacture and removal of the goods.

8. I have also perused the decisions of the Tribunal cited by the appellant in identical facts and circumstances. It is seen that the demands stand set aside and penalties also.

9. By following the above discussions, the impugned orders are set aside and appeals allowed.


(Dictated and pronounced in the open Court).

(V. Padmanabhan)
Member (Technical)

Pant

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi – 110 066.

Date of Hearing/Order: 17.9.2018

Appeal No. E/51451/2018-SM
(Arising out of Order-in-Appeal No. DLH-CE-25-2018 dated 11.4.2018 passed by the Commissioner (Appeals), Central GST, New Delhi)

M/s Shri Mahavir Industries
Appellant

Vs.

CGST, Delhi-III
Respondent



Appearance
Ms. Rinki Arora, Advocate - for the appellant
Shri P. Juneja, DR - for the respondent

CORAM: Hon’ble Mrs. Archana Wadhwa,  Member (Judicial)

Final Order No. 52993/2018

Per Archana Wadhwa:

After hearing both the sides, I find that proceedings for confirmation of demand, on the ground of clandestine removal, were initiated against one M/s Diwan Industries, a partnership firm. Inasmuch as the proprietor of the present appellant M/s Mahavir Industries, Shri Prabhat Jain was one of the partners in M/s Diwan Industries, notice also proposed confirmation of demand against M/s Mahavir Industries i.e. the present appellant. The demand to the extent of around Rs. 32 lakhs was confirmed against M/s Diwan Industries along with imposition of penalty of identical amount of Rs. 36 lakhs and demand to the tune of Rs. 75,444/- was confirmed against M/s Mahavir Industries along with imposition of penalty of identical amount.

2. The matter was taken up by both the assessees before Commissioner (Appeals), who confirmed the order in original impugned before him. On subsequent appeals filed before Tribunal, it is seen that both the assessees were directed to deposit a part amount, as a condition of hearing of their appeal in terms of the provisions of Section 35F. As M/s Diwan Industries did not deposit, their appeal was dismissed for default.

3. As far as the present appellant is concerned, they took up the matter before the Hon’ble High Court of Delhi, by way of filing a writ petition which was rejected, and as a consequence, the appellant deposited the directed amount in question. On such deposit, their appeal was taken up for final disposal and vide Final Order No. 50135/2017 dated 6.1.2017, their appeal was allowed.

4. As a consequence of their allowing of their appeal, they became entitled to the refund of the amount pre-deposited by them in terms of Section 35F. Accordingly, they approached their jurisdictional Central Excise Assistant Commissioner for refund of the amount in question.

5. Vide his order dated 20.9.2017, the Assistant Commissioner observed that the appellant is entitled to the refund of the said amount. However, he further held that inasmuch as there was outstanding amount against M/s Diwan Industries, and inasmuch as the proprietor of the present appellant is a partner in that firm, the sanctioned refund was adjusted against the dues from M/s Diwan Industries. The order of the original adjudicating authority was upheld by Commissioner (Appeals) and hence the present appeal.

6. On going through the impugned order, I find that the Revenue’s stand is that since the proprietor of the present unit is a partner in M/s Diwan Industries and the arrears against the partnership firm can be recovered from the partners, the appropriation of the refund sanctioned to the proprietary unit is legal and proper. However, I find that there is no dispute about the fact that proceedings were initiated against M/s Mahavir Industries by treating the same as an individual manufacturer. On success of their appeal before Tribunal, such proprietary unit is admittedly entitled to the refund of the amount pre-deposited by them before the Tribunal. A proprietary unit is an individual legal entity and any refunds due to the proprietary unit cannot be adjusted or appropriated towards the demand which may be pending recovery against an another independent legal entity, of which the proprietor of unit is a partner. It has to be kept in mind that the present proceeding are not recovery proceeding against the partnership firm so as to make the recoveries independently from the partners also. The dispute relates to the refund of the duty deposited by a proprietary unit and on success of their appeal before Tribunal such refunds have to be sanctioned to the proprietary unit. Any such adjustments against the dues of a partnership firm is neither justified nor proper nor legal.

7. In view of the above, I find no merits in the impugned orders of the authorities below. Accordingly, the same are set aside and appeal is allowed with consequential relief.


(Dictated & pronounced in open Court)

(Archana Wadhwa)
Member (Judicial)


RM

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi – 110 066.

Date of Hearing/Order: 17.9.2018

Appeal No. E/51428/2018-SM
(Arising out of Order-in-Appeal No. 11(RK)/CE/JPR/2017-2018 dated 30.1.2018 passed by the Commissioner (Appeals), CCE & ST, Jaipur)

M/s Amol Pharmaceuticals
Appellant

Vs.

CCE & ST, Jaipur-I
Respondent


Appearance
Shri Jai Kumar, Advocate - for the appellant
Shri Kartik Jindal, Advocate
Shri P. Juneja, D.R. - for the respondent

CORAM: Hon’ble Mrs. Archana Wadhwa, Member (Judicial)

Final Order No. 52997/2018

Per Archana Wadhwa:

After hearing both the sides duly represented by Shri Jai Kumar & Shri Kartik Jindal appearing for appellant and Shri P. Juneja, ld. AR appearing for the Revenue, I find that the appellants are engaged in the manufacture of pharmaceuticals and human food stuffs in their factory at Jaipur. They have also an office in Bombay, which is engaged in export and trading activities.

2. Revenue by entertained a view that the appellant, at Jaipur, has taken Cenvat credit in respect of various services, which also stands used for export and trading activities by Bombay office. As such, they were of the view that the appellant, by using the common Cenvatable input services for dutiable as also exempted activities, are required to pay 5% / 6% of the value of their final exempted activities in terms of the provisions of Rule 6(3) of the Cenvat Credit Rules. Accordingly, proceedings were initiated resulting in confirmation of demand of duty of Rs. 13,04,353/- along with confirmation of interest and imposition of penalty. The order-in- original passed by the adjudicating authority stands confirmed by the Commissioner (Appeals) and hence the present appeal.

3. It is seen that the appellant had taken a categorical stand before the authorities below that they have reversed an amount of Rs. 16,000/- in respect of the common services utilised for trading activities. However, the lower authorities, without taking note of the said fact, has confirmed the demand in respect of the provisions of Rule 6(3).

4. Ld. Advocate appearing for the appellant submits that though the proportionate Cenvat credit would be to the tune of around Rs. 7,000/- but by mistake they have calculated more and have reversed more, though he is not claiming the refund of the excess amount so reversed by them. He further clarifies that though the Bombay office is also doing the export trading from China to USA but the Revenue has taken into consideration the value of the said activities also, by adopting the figures as reflected in their balance sheet. As such, he submits that there was no justification for confirming the demand in respect of exports from China to USA inasmuch as the input services credit availed at Jaipur can have no link or relation with such exports, which are exclusively outside India.

5. After hearing the ld. AR, I find that there is no dispute about the fact that the appellant have reversed the Cenvat credit proportionate to the common input services relatable to dutiable as also exempted services. Such reversal entries do not stand disputed by the authorities below. In such a scenario, the confirmation of demand in terms of the provisions of Rule 6(3)(i) is neither justified nor warranted inasmuch as reversal of credit amounts to a situation as if no credit was ever availed by the assessee.

6. In view of the foregoing, I set aside the impugned order and allow the appeal with consequential relief.


(Dictated & pronounced in open Court)

(Archana Wadhwa)
Member (Judicial)


RM

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi – 110 066.

Date of Hearing/Order: 17.9.2018

Appeal No. E/52065/2018-SM
(Arising out of Order-in-Appeal No. 41/SM/CE/JPR/2018 dated 31.12.2013 passed by the Commissioner (Appeals), Central Excise & CGST, Jaipur)

M/s M.J. Engineering Works (P) Ltd.
Appellant

Vs.

CCE & CGST, Jaipur
Respondent


Appearance
Ms. Asmita Nayak, Advocate - for the appellant
Shri K. Poddar, DR - for the respondent

CORAM: Hon’ble Mrs. Archana Wadhwa,

 Member (Judicial)

Final Order No. 52996/2018

Per Archana Wadhwa:

After hearing both the sides, I note that the appellant is engaged in the manufacture of hot dip galvanised steel structure falling under Chapter 73 of the Central Excise Tariff Act. They were sending the raw material to other job worker by the name of M/s M.J. Structure Pvt. Ltd., Bhiwadi, which is their own sister concern, for conversion of the same into intermediate products. For the said job work, to be done by M/s M.J. Structure Pvt. Ltd., they were duly following the procedure envisaged by Notification No. 214/86-CE dated 25.3.1986. In terms of the said notification, they have also given an undertaking to their jurisdictional Central Excise authorities that the goods cleared by the job worker would be further used by them in the manufacture of their final product, which will be cleared on payment of duty. As such, in terms of the said notification, the job worker was to clear their product, without payment of duty.

2. However, the job worker, instead of clearing the product without payment of duty, cleared the same on payment of duty to the extent of Rs. 15,63,859/-. The appellant, accordingly, took the credit of the said duty, which is being objected by the Revenue on the ground that the job worker should not have paid the duty. Accordingly, after initiation of the proceedings and adjudication of the same, demand stands confirmed against the present appellant by disallowing the credit and by imposition of equal penalty under Rule 15(2) of Cenvat Credit Rules. Hence the present appeal.

3. I find that no doubt, the job worker was to clear the goods without payment of duty in terms of Notification No. 214/86 but nevertheless he paid the duty. The said fact is not being disputed by the Revenue. The job worker having paid the duty, the appellant i.e. the principal manufacturer was admittedly entitled to the credit of the same. Such credit cannot be denied simplicitor on the ground that job worker should not have paid the duty. Any manufacturer is entitled to avail the credit of duty paid by the other person, on receipt of the goods from him and on further utilisation of the same in the manufacture of the final product, which is cleared on payment of duty. In such circumstances, all such conditions for availment of credit stands fulfilled by the assessee and as such denial of the same cannot be upheld. It is a revenue neutral situation and the Revenue cannot deny the credit.

4. The above views are fortified by the Hon’ble Madras High Court decision in the case of CCE Vs. Kohinoor Printers Pvt. Ltd. –2015 (321) ELT 448 (Mad.). In an identical situation, the Hon’ble High Court held that even though the job worker was expected not to pay the duty but having paid, the principal manufacturer would become entitled to the credit.

5. In view of above, I set aside the impugned order and allow the appeal with consequential relief.


(Dictated & pronounced in open Court)


(Archana Wadhwa)
Member (Judicial)


RM

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

West Zonal Bench, Ahmedabad

Appeal No. ST/415/2010-DB

(Arising out of OIA No. RKA-328-SRT-I-2010 dated 24/05/2010 passed by Commissioner of Central Excise, CUSTOMS (Adjudication)-SURAT-I)

Banthia & Associates –
Applicant

Vs.

C.C.E. & S.T.- Surat-i
Respondent

 

Represented by:
For the appellant : Shri Sudhanshu Bissa (Adv.)
For the respondent : Shri. K.J. Kinariwal, Asst. Commr., (AR)

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

Date of Hearing: 11.09.2018
Date of Decision: 20.09.2018

ORDER NO. A/11936 / 2018

Per: Raju

The appeal has been filed by Banthia & Associates against confirmation of demand under the Management Consultancy Services.

2. Ld. Counsel for the appellant argues that they are Chartered Accountant. The certain services provided by Chartered Accountant were exempted under notification 59/1993-ST. The said notification was amended in the year 2002 by notification 15/2002-ST dated 01/08/2002 wherein the following explanation was added:

“Explanation.- Nothing contained in this notification shall apply to the services provided by a practicing chartered accountant, a practicing company secretary or a practicing cost accountant which may fall in any other taxable services as defined in clause (90) of section 65 of the said Act.

Illustration :- The service provided by a practising chartered accountant, a practising company secretary or a practising cost accountant in connection with the management of any organization in any manner or recruitment of manpower in any manner shall be deemed to be the taxable service provided under the category of management consultant or manpower recruitment agency, as the case may be. Therefore no exemption under this notification shall be applicable to such practising chartered accountant, a practising company secretary or a practising cost accountant.”

In the instant case the demand is for period August, 2002 to March, 2006. The said exemption notification was withdrawn in the year 2006. Ld. Counsel argued that the service provided by Chartered Accountant was not in the nature of Management Consultancy Services. He argued that the services provided by the appellant was in the nature of services referred to in the clarification of Ministry issued by letter no. F/321/99-TRU dated 28/08/1999. Such services, the Ministry had clarified to law, not covered under the head Management and Consultancy Services.

3. Ld. AR relied on the impugned order. He pointed out that services provided by the appellant are not in the nature of filling just legal forms, etc., but, are clearly advisory in nature and are covered by the head of Management Consultancy Services. He further argued that extended period of limitation is also invoable as Chartered Accountants are experts in the field of Service tax and they could not have any bonafide doubt. Moreover, they had not shown the income under this head in the exempted/non- taxable category in the ST-3 return also. He pointed out that non disclosure of these in the ST-III return also amounts to suppression of facts. He relied on the decision of tribunal in the case of Essel Corporate Service Pvt. Ltd 2015 (37) STR 943.

4. We have gone through rival submissions. We find that the “Management And Consultancy Services” has been defined under section 105(65) of the Finance Act, 1994 is as follows:

“[(65) “management or business consultant” means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation or business in any manner and includes any person who renders any advice, consultancy or technical assistance, relating to conceptualizing devising, development, modification, rectification or upgradation of any working system of any organization.”

From the above it is apparent that management and consultancy can be provided by any person and by being a chartered accountant one does not go out of the purview of the definition. In the instant case, the services provided by appellant have been described by the appellant themselves as preparation of project feasibility report including financial feasibility, profile of the concern, etc. It is seen that the above description does not fall under the category described in the clarification of the Ministry dated 20/08/1999 (supra) wherein following has been covered:

“2. Based on your de nove examination of the case and as the services rendered by the ESI, PF and other industrial law practitioners are in the nature providing secretarial assistance in filling up of various returns and forms, maintenance of records which do not involve any change or improvement in the existing system of management of organizations, it is clarified that such ESI, PF and industrial law practitioners will not be covered by the scope of the term „Management Consultant‟.”

Preparation of project report would squarely fall under the description „relating to conceptualizing devising of any working system of any organization‟ and thus would squarely fall under the definition of Management of Consultancy firm. In view of above, we find that the services provided by the appellant are indeed covered under the definition of Management Consultancy Services.

4.1 In so far as issue of limitation is concerned, we find that even if appellant believed that the said services were exempted or non-taxable, it was necessary for him to declare the same in the ST-3 returns which they have failed to. Moreover, Chartered Accountants are experts in the field of Service Tax and the issue involved in the instant case is not one wherein anybody can have any doubt. In these circumstances, invocation of extended period of limitation is also upheld. The appeal is, therefore, dismissed.


(pronounced in the open Court on 20.09.2018)


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


DS

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA

Appeal No. E/75445/2018
(Arising out of Order-in-Appeal No.269/HWH/CE/2017-18 dated 18.11.2017 passed by the Commissioner of CGST & Central Excise, (Appeals), Kolkata-II)

M/s. Mangal Steel Enterprises Ltd.
Applicant (s)/Appellant (s)

Vs.

Commissioner of CGST & C.Ex, Howrah
Respondent (s)

Appearance:
Shri S.P.Siddhanta, Consultant for the Appellant (s)

Shri H.S.Abedin, AC(AR) for the Respondent (s)

CORAM:
Hon’ble Shri P.K.Choudhary,

 Member (Judicial)

Date of Hearing/Decision: 10.05.2018

ORDER NO.FO/76563/2018

Per Shri P.K.Choudhary

1. The dispute in this case lies in a narrow campus i.e. whether cenvat credit is available to the assessee on account of Service Tax paid by them as consignor/consignee of GTA Service against transportation cost of trading activity in which the assessee are engaged apart from their manufacturing activities.

2. Ld. Counsel appearing on behalf of the appellant assessee submits that the entire proceedings is barred by limitation as the show cause notice was issued after a lapse of more than 2 years. It is the case of the assessee that in terms of Notification No.28/2012-CE(NT) dated 20.06.2012 substituted w.e.f. 01.07.2012, exempted service means service on which no service tax is leviable under Section 66B of the Fi0nance Act. Trading activities has been brought under the purview of exempted service w.e.f. 01.07.2012. Whereas the present show cause notice is for the period of 2005-2006 and 2006-2007. During which period there was no such provision. It is the submission of the ld. Counsel that they had submitted their ER-I Returns regularly and were subject to scrutiny by the Jurisdictional Central Excise Officers. Hence, there is no occasion for any suppression of facts and the entire demand as per the show cause notice covering the period 2005-2006 and 2006-2007 is barred by limitation of time by one year. Further extended period of five years is not applicable in the facts and circumstances of the case.

3. Ld. DR reiterates the orders of the lower authorities.

4. Heard both sides and perused the appeal records.

5. I find that in terms of Notification No.28/2012 CE(NT) dated 20.06.2012 (substituted w.e.f. 01.07.2012) exempted service means service on which no service tax is leviable under Section 66B of the Finance Act (Rule 2(e)(2) of CCR’04). Hence trading activities have been brought under the purview of exempted service with effect from 01.07.2012 as per above amendment. The present case relates to the period of 2005-2006 and 2006-2007. During the said period there was no such provision regarding trading activities. Hence, the question of payment of cenvat credit availed by the appellant on GTA for trading activities during the said period does not arise.

6. In view of the above discussions, the impugned orders are set aside and the appeal filed by the appellant is allowed with consequential relief, if any.


(Operative portion of the order have already been pronounced in the open court)

S/d.
(P.K.Choudhary)
 Member (Judicial)

ss

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA

Appeal No. E/75833/2015
(Arising out of Order-in-Appeal No.181/KOL-IV/2015 dated 28.04.2015 passed by the Commissioner of Central Excise, (Appeal-II), Kolkata)

M/s. Transelectric Energy-System Pvt. Ltd.
Applicant (s)/Appellant (s)

Vs.

Commissioner of C.Ex, Kolkata-IV
Respondent (s)

Appearance:
Shri H.K.Panday, Advocate for the Appellant (s)
Shri A.Roy, Suptd.(AR) for the Respondent (s)

CORAM:
Hon’ble Shri P.K.Choudhary,  Member (Judicial)

Date of Hearing/Decision: 11.09.2018

ORDER NO.FO/76606/2018

Per Shri P.K.Choudhary

Facts of the case in brief are that the appellant is engaged in the manufacture of Electric Transformer classifiable under Chapter 85 of the First Schedule to the Central Excise Tariff Act, 1985. Show Cause Notice dated 02.04.2013 was issued alleging contravention of the provisions of Rule 4, 8(1), 8(3A) & 11 of the Central Excise Rules, 2002 for the clearance made during the period 02.05.2012 to 10.05.2012, since they were required to pay the Central Excise Duty of Rs.52,477/- either through PLA or Cash, consignment wise, as was required to have been made in terms of Rule 8(3A) of Central Excise Rules, 2002, instead, discharged duty utilizing cenvat credit. The Adjudicating Authority confirmed demand of Rs.52,477 alongwith interest and imposed equal penalty under Section 11AC of the Central Excise Act, 1944 and appropriated Rs.34,160/- towards the demand of duty and Rs.3,369/- towards interest. The balance amount of duty i.e. Rs.18,317/- was outstanding. On appeal the lower appellate authority dismissed the appeal. Hence, the present appeal before this Tribunal.

2. Ld. Advocate appearing on behalf of the appellant company submits that the balance amount as outstanding i.e. 18,317/- has been deposited alongwith interest of Rs.1,683/- on 10.09.2018 vide Challan No.00131. A photocopy of the challan has been submitted by him which is placed on record. Ld. Advocate further submits that since they have paid the entire duty alongwith interest, now they are contesting the penalty imposed under Section 11AC.

3. Ld. DR reiterates the orders of the lower authorities.

4. Heard both sides and perused the appeal records.

5. I find from the records and the challan submitted today that the entire demand as confirmed vide the adjudication order stands duly deposited by the appellant alongwith applicable interest and the only point to be decided is penalty imposed under Section 11AC. On the facts as stated above and under the circumstances of the case the demand alongwith interest is upheld and the penalty imposed under Section 11AC of the Central Excise Act, 1944 is set aside.

6. The appeal is thus partly allowed with consequential relief, if any to the appellant.


(Dictated and Pronounced in the open court)

S/d.
(P.K.Choudhary)
 Member (Judicial)

ss

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

EASTERN ZONAL BENCH: KOLKATA

Appeal No. : ST/75568/2018-SMC
[Arising out of the Order-In-Appeal – 47/HAL/ST/2017-18, dated -31/10/2017, passed by Commissioner of CGST & Central Excise (Appeals) - Kolkata]

Commr. of CGST & CX-Haldia Commissionerate
Appellant

Vs.

M/s. R B Agarwl & Co
Respondent

Appearance:
Shri A.K.Biswas, Suptd.(AR) For Appellant
None For Respondent

CORAM:
Hon'ble Shri P. K. Choudhary,Judicial Member
Date of hearing/decision : 14/09/2018

ORDER No._FO/76623/2018

Per Shri P. K. Choudhary:

When the matter was called none appeared on behalf of the respondent assessee. No adjournment request has been received. Notice of hearing have also not been received as undelivered. Also none appeared on the earlier dates i.e. 18.04.2018 and 22.05.2018 when the cases were listed on board.

2. Heard ld. DR and perused the appeal records.

3. Revenue is in appeal before the Tribunal being aggrieved by the order of the lower appellate authority who has set aside the penalty of Rs.47,71,716/- imposed under Section 78. It is difficult to decide the appeal in the absence of the respondent assessee.

4. Under the circumstances it would be appropriate to remand the matter to the ld. Commissioner (Appeals) to consider the grounds of appeal as filed by the Revenue and pass order in accordance with law. Needless to mention a reasonable opportunity of hearing be granted to the respondent to present their case.

5. Appeal is allowed by way of remand.


(Order dictated and pronounced in open court)

 (Shri P. K. Choudhary)
Judicial Member

Sujoy Singha

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH : ALLAHABAD
COURT No. I

APPEAL No.ST/70179/2016-ST[SM]

(Arising out of Order-in-Appeal No. 468-ST/APPL-LKO/LKO/2015 dated 03/12/2015 passed by Commissioner of Central Excise & Customs
(Appeals), Lucknow)

M/s Mera Mann Hotel Pvt. Ltd.
Appellant

Vs.

Commissioner of Central Excise, Lucknow
Respondent

Appearance:
Shri Ashish Kumar Shukla, Advocate for Appellant
Shri Mohammad Altaf, Assistant Commissioner (AR), for Respondent

CORAM:
Hon’ble Smt. Archana Wadhwa, Member (Judicial)

Date of Hearing : 13/09/2018
Date of Decision : 13/09/2018

FINAL ORDER NO-72206/2018

Per: Archana Wadhwa

After hearing both the sides duly represented by learned Advocate Shri Ashish Kumar Shukla appearing for appellant and learned A.R. Shri Mohammad Altaf appearing for revenue, I find that service tax demand stands confirmed against the appellant under various categories. The appellant is not challenging the confirmation of demand and imposition of penalties for various categories but submits that a part of the demand to the tune of Rs.35,908/- is on account of Renting of Immovable Property Service with imposition of penalty of 50% of the tax amount. He submits that though they are also not challenging the said confirmation of demand under the category of Renting of Immovable Property but they are only challenging the imposition of penalty under the said category. By submitting that during the relevant period, the issue of payment of service tax on Renting of Immovable Property was the subject of various litigations before the various High Courts and ultimately the issue was settled with the Hon’ble Delhi High Court’s pronouncement in the case of M/s Home Solutions Retail Ltd. Vs Union of India reported at 2011 (21) STR 109 (Del.). As such, he submits that there is no case of any malafide and prays for setting aside the penalty only.

2. After hearing the learned A.R., I find that they are challenging the penalty of around Rs.17,000/- approx imposed upon the appellant for nonpayment of service tax on Renting of Immovable Property Service. Admittedly, during the period in question, there were decisions by various High Courts, dealing with said issue. In such a scenario, no malafide is attributable on the part of the assessee so as to invoke penal provisions against them. Accordingly, while confirming all the demands of service tax and penalties imposed in respect of other demands, I set aside the penalty of 50% of the service tax imposed under the category of Renting of Immovable Property.

3. Appeal is thus allowed in above terms. (Dictated in Court)

(Archana Wadhwa)
 Member (Judicial)

akp

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH : ALLAHABAD

COURT No. I

E/MISC/70333/2018 IN

APPEAL No.E/70693/2017-EX[SM]
(Arising out of Order-in-Appeal No. NOI-EXCUS-002-APP-0039-17-18 dated 29/05/2017 passed by Commissioner of Central Excise & Customs (Appeals), Noida)

M/s Sampark Industries Ltd.
Appellant

Vs.

Commissioner of Central Excise, Meerut-II
Respondent


Appearance:
Shri S. Sunil, Advocate for Appellant
Shri Mohammad Altaf, Assistant Commissioner (AR), for Respondent

CORAM:
Hon’ble Smt. Archana Wadhwa,

 Member (Judicial)

Date of Hearing : 13/09/2018
Date of Decision : 13/09/2018

FINAL ORDER NO-72208/2018

Per: Archana Wadhwa

After hearing both the sides, I find that the demand to the tune of Rs.11.66 lakhs approximately stands confirmed against the appellant for the period April, 2012 to December, 2014 in terms of provisions of Rule 6 (3) of Cenvat Credit Rules on the ground that the appellant has availed Cenvat credit in respect of common inputs as also input services for provided taxable as also exempted output services.

2. It is seen that the appellant had taken a categorical stand before the Original Adjudicating Authority by submitting that they have reversed the proportionate credit in respect of input services relatable to exempted output service. Such reversal does not stand accepted by the Original Adjudicating authority by observing that the same is not in terms of the formula prescribed under Rule 6 (3A) of the Cenvat Credit Rules.

3. Learned Advocate appearing for the appellant fairly accepted that the reversal has be made in terms of said rule and places on record additional chart showing that subsequently they had made the reversal in terms of said rule. As such, he prays for the matter being remanded for verification of above factual position.

4. Learned A.R. fairly submits that he agrees to the above proposition.

5. In view of the foregoing, I set aside the impugned order and remand the matter to the Original Adjudicating Authority for fresh consideration, after verification of the appellant’s plea of correct reversal of Cenvat credit.

6. Appeal is thus allowed by way of remand. Miscellaneous Application for production of the additional evidences is also disposed of.

(Dictated in Court)

(Archana Wadhwa)

 Member (Judicial)

akp

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH : ALLAHABAD
COURT No. I

APPEAL No.E/70190/2018-EX[SM]

(Arising out of Order-in-Appeal No. NOIDA-EXCUS-002-APP-1407-17-18 dated 09/11/2017 passed by Commissioner of Central Excise & Customs
(Appeals), Noida)

M/s Masterji Metalloys Pvt. Ltd.
Appellant

Vs.

Commissioner of Central Excise & S.T., Noida
Respondent

Appearance:
Shri Rajesh Chhibber, Advocate for Appellant
Shri Pawan Kumar Singh, Supdt (AR), for Respondent

CORAM:
Hon’ble Smt. Archana Wadhwa,

 Member (Judicial)

Date of Hearing : 13/09/2018
Date of Decision : 13/09/2018

FINAL ORDER NO-72217/2018

Per: Archana Wadhwa

After hearing both the sides, I find that the appellant is engaged in the manufacture of M.S. Ingots. On the basis of visit by the officers into the appellant’s factory and on stock taking, the officers deducted shortages of raw materials and also final product to the extent of minor variations. Based upon the same, a view was entertained that the appellant have cleared the same clandestinely.

Further, in the show cause notice issued to the appellant, it was alleged that they has not received the scrap material shown to have been reflected in their Cenvat account. Accordingly, demand to the extent of around 1.23 lakhs was raised on them.

2. The proceedings were initiated against them culminating into passing of the Order-in-Original by the Original Adjudicating Authority and upheld by the Commissioner (Appeals). Hence the present appeal.

3. As regards shortages of the raw material as also of the final products, I find that apart from the shortages there is no evidence on record to corroborate the allegations of clandestine removal. The Hon’ble Allahabad High Court in the case of Commissioner of Central Excise, Kanpur Vs Minakshi Castings reported at 2011 (274) ELT 180 (All.) has held that the shortages of raw material are not enough to upheld charge of clandestine removal. As such, I find no justification on confirmation of demand on the said ground.

4. As regards non receipt of waste and scrap material, apart from the bar allegation made in the show cause notice, there is otherwise no evidence on record to reflect upon the said allegation. As such, I find no justification for confirmation of said demands also.

5. As such the impugned orders are set aside and appeal is allowed with consequential relief.

(Dictated in Court)

(Archana Wadhwa)

 Member (Judicial)

akp

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH : ALLAHABAD

COURT No. I

APPEAL No.E/70142/2018-EX[SM]
(Arising out of Order-in-Appeal No. MRT/CX/000/APPL-MRT/207/2017-18 dated 01/11/2017 passed by Commissioner of Central Excise & Customs (Appeals), Meerut)

M/s Daya Chand Engineering Industries Pvt. Ltd.
Appellant

Vs.

Commissioner of Central Excise & S.T., Meerut-I
Respondent

Appearance:
Shri Suyash Agarwal, Advocate for Appellant
Shri Pawan Kumar Singh, Supdt (AR), for Respondent

CORAM:
Hon’ble Smt. Archana Wadhwa,  Member (Judicial)

Date of Hearing : 13/09/2018
Date of Decision : 13/09/2018

FINAL ORDER NO-72203/2018

Per: Archana Wadhwa

Learned Advocate appearing for the appellant submits that the Commissioner (Appeals) has rejected the appeal on the ground of limitation by observing that there was a delay of
116 days in filing the appeal before him and he has no powers to condone the delay beyond the period of 60 days.

2. I find that the issue is no more res-integra and stands settled by the Hon’ble Supreme Court’s decision in the case of M/s. Singh Enterprises Vs Commissioner of Central Excise, Jamshedpur reported at 2008 (221) E.L.T. 163 (SC). Further, learned Advocate has been fair enough to bring my notice the Hon’ble Allahabad High Court’s decision in the case of M/s Sangam Structural Ltd. Vs Commissioner of Central Excise, Allahabad vide Order dated 26.02.2015.

4. In view of the above, I find no justifiable reason to interfere in the impugned order of Commissioner (Appeals).

5. The appeal is accordingly rejected. (Dictated in Court)

(Archana Wadhwa)
 Member (Judicial)

akp

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

Court – I

Appeal No. E/272/2010
(Arising out of Order-in-Appeal No. 35/2009 (T) CE dated 06.11.2009 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals), Guntur)

The Commissioner of Central Excise & Service Tax, Tirupati
…..Appellant(s)

Vs.

M/s P.R. Rolling Mills (P) Ltd.,
Respondent(s)

Appearance
Shri Dass Thavanam, Superintendent (AR) for the Appellant.
Shri Anand, Advocate for the Appellant.

CORAM:
Hon’ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL)
Hon’ble Mr. P. VENKATA SUBBA RAO, Member (Technical)

Date of Hearing: 08/08/2018
Date of Decision: 08/08/2018

FINAL ORDER No. A/30937/2018

[Order per: M.V. Ravindran]

This appeal is filed by the Revenue against Order-in- Appeal No. 35/2009 (T) CE dated 06.11.2009.

2. Heard both sides and perused the records.

3. The issue in short which falls for consideration is whether the respondent is required to include the value of scrap for discharge of Central Excise duty on the job items cleared by them. The Adjudicating Authority as well as show cause notices relied upon the Order-in-Original No. 04/2007 dated 06.07.2007 passed by the Commissioner of Central Excise, Tirupati in the same assesse’s case for inclusion of value of scarp on the job worked items. The Adjudicating Authority confirmed the demands so raised. The First Appellate Authority on an appeal set aside the Order-in-Original relying upon the judgment of Hon’ble Supreme Court in the case of Lawkim Ltd., and also judgment of the Tribunal in respondent’s own case by Final Order Nos. 213 & 214/2008. Revenue’s aggrieved in his appeal.

4. On careful consideration of submissions made by Learned Departmental Representative and Learned Counsel, we find that the self same issue was decided by the Tribunal vide Final Order No. 213 & 214/2000 as reported at [2010 (249) ELT 232 (Tri. – Bang.)] wherein, the appeal filed by the assessee (respondent in this case) was allowed holding that the value of scrap cleared need not be included for discharging the duty liability on the job worked item. Revenue was aggrieved by such on order of the Tribunal and relied on the decision of Apex Court in Civil Appeal No. D.23764/2010, it was dismissed by Apex Court has recording the following:

“The civil appeal is dismissed both on the grounds of delay as well as on merit” this is reported at [2010 (260) ELT A84 (S.C.)].

5. Since identical issue in respect of the very same assessee has attained finality. We hold that the impugned order is correct and legal and does not require any interference. Appeal stands rejected.

(Order pronounced & dictated in open court)

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

Lakshmi….

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

Court – I

Appeal No. E/2498/2010
(Arising out of Order-in-Original No. 03/2010 (C.E.) dated 26.08.2010 passed by Commissioner of Customs & Central Excise, Hyderabad)

M/s Perfect Knitters Limited
…..Appellant(s)

Vs.

Commissioner of Customs & Central Excise, Hyderabad - I
…..Respondent(s)


Appearance
Shri Joseph Dominic, Consultant for the Appellant.
Shri Dass Thavanam, Superintendent (AR) for the Respondent.

CORAM:
Hon’ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL)
Hon’ble Mr. P. VENKATA SUBBA RAO, Member (Technical)

Date of Hearing: 06/08/2018
Date of Decision: 06/08/2018

FINAL ORDER No. A/31043/2018

[Order per: M.V. Ravindran]

This appeal is directed against Order-in-Original No. 03/2010 (C.E.) dated 26.08.2010.

2. Heard both sides and perused the records.

3. On perusal of records, it transpires that the issue is regarding availment of CENVAT credit of the Central Excise duty paid on capital goods during the period March, 2006 to September, 2008 is correct or otherwise.

4. Appellant herein is manufacturer of 100% Cotton Knitted dyed Fabric and registered with the authorities. The Cotton Knitted Fabric manufactured by the appellant were covered under Notification 29/2004-CE and 30/2004-CE both dated 09.07.2004; Notification No. 29/2004 prescribes effective rate of duty, while Notification No. 30/2004 fully exempts the goods subject to the condition that no CENVAT credit shall be availed on inputs under the Provisions of CENVAT Credit Rules. The appellant had informed the Range Superintendent vide letter dated 18.11.2006 for proposal to avail the benefit of Notification No. 29/2004-CE and also Notification No. 30/2004-CE and have intimated that they will avail CENVAT credit of the Central Excise duty paid on capital goods procured by them. Appellants availed the CENVAT credit on capital goods, manufactured finished goods and cleared the same without payment of duty claiming the benefit of Notification No. 30/2004 and started paying duty on the finished goods subsequently. It is the case of the Revenue in show cause notice the CENVAT credit availed on capital goods, inputs and input services by the appellants is incorrect, as they were availing benefit of Notification No. 30/2004-CE and extended period was invoked in the show cause notice. The appellant contested the show cause notice on merits as well as on limitation. The Adjudicating Authority did not agree with the contentions raised and confirmed the demands with interest and imposed penalty.

5. It is the case of appellant before the Tribunal as canvassed by Learned Consultant, that in respect of inputs and input services the same were reversed as soon as the show cause notice was issued, as they availed benefit of Notification No. 30/2004. As regards capital goods, it is his submission that the case of the Revenue is that the appellant had only manufactured exempted goods and hence they are not eligible for CENVAT credit is incorrect as identical issue was contested before the Tribunal in the case of S.T. Cottex Exports Pvt. Ltd., and Tribunal accepted the preposition that the appellant can avail the CENVAT credit of the duty paid on capital goods availing simultaneously, the benefit of Notification No. 29/2004 & 30/2004. It is his submission that the duty discharged by the appellant on the finished goods subsequently is not disputed. It is his submission that the decision of the S.T. Cottex Exports Pvt. Ltd., was taken in appeal by the Revenue before the Hon’ble High Court of Punjab & Haryana upheld the order of the Tribunal by dismissing the appeal filed by the Revenue as reported at [2011 (268) ELT 318].

6. Learned Departmental Representative on the other hand submits that the decision of the Tribunal in the case of Surya Roshni Ltd., which has been upheld by the Apex Court settles the law, as to CENVAT credit cannot be availed on the capital goods which are used exclusively for manufacturing of exempted goods. It is his further submission that in the case of Brindavan Beverages Pvt. Ltd., [2008 (232) ELT 475] wherein, the issue of capital goods CENVAT credit availed on the machines which are used for manufacturing of exempted goods was considered and it was held that said CENVAT credit availment was incorrect and was not permissible.

7. On careful consideration of submissions made by both sides, we find that the lower authorities in the impugned order have accepted the fact that the CENVAT credit availed on inputs and input services by the appellant during the period in question has been reversed. To that extent, we find that the appellant had followed the Notification No. 30/2004-CE.

8. As regards the eligibility to avail CENVAT credit on capital goods, we find that appellant had during the period in question, initially for two years manufactured goods i.e., Knitted Cotton Fabrics and cleared the same by availing the exemption under Notification No. 30/2004. It is the case of the appellant that Cotton Knitted Fabrics per se are not exempted but exempted subject to conditions mentioned in the said notification. We find that on the same issue going into details of arguments put forth by both sides, the Hon’ble High Court of Punjab & Haryana in the case of Commissioner of Central Excise, Chandigarh Vs. S.T. Cottex Exports Pvt. Ltd., (supra) held in favour of assessee, ratio is directly applicable in the case in hand, as identical set of facts were agitated by the Revenue before the Hon’ble High Court. We reproduce the entire judgment:

“This appeal has been preferred by the assessee under Section 35G of the Central Excise Act, 1944 against order dated 18-1-2010 [2010 (261) ELT 807 (Tribunal)] passed by the Customs, Excise & Service Tax Appellate Tribunal, New Delhi (for short ‘the Tribunal’) seeking to raise the following substantial questions of law :-

“(i) Whether the Hon’ble Tribunal is right in upholding admissibility of cenvat credit taken on capital goods, at the time of receipt of which, the final product was exempted from payment of duty and thus, such capital goods exclusively used in the manufacture of exempted goods exempted vide Notification No. 30/2004-C.E., dated 9-7-2004 during material period, inspite of clear provisions of Rule 6(4) of the Cenvat Credit Rules, 2004 not allowing cenvat credit on such capital goods used exclusively in the manufacture of exempted goods?

(ii) Whether the Hon’ble Tribunal is right in taking a far stretched view of ‘exempted goods’ by bringing in the concept of conditional and unconditional exemption far beyond the scope of definition of ‘exempted goods’ as specifically provided under Rule 2(d) of the Cenvat Credit Rules, 2004 itself?”

2.The assessee is manufacturer of cotton yarn and other items. For period from January, 2005 to March, 2005, it cleared goods. Under Notification No. 30/2004-C.E., dated 9-7-2004, it claimed cenvat credit on capital goods used in the manufacturing. The amount involved was Rs. 75,798/-. The adjudicating authority after issuance of notice confirmed the demand of duty on the ground that since the final goods were exempted, the cenvat credit was not admissible in view of Rule 6(4) of the Cenvat Credit Rules, 2005. The order-in-original was upheld by the Appellate Authority. On further appeal by the assessee, the Tribunal set aside the same, holding that it was not a case of availing of cenvat credit in respect of capital goods used in manufacture of exempted goods as by virtue of Notification No. 29/2004- C.E., dated 9-7-2004, 4% duty was payable on the manufactured goods.

3.We have heard learned counsel for the appellant.

4.Learned counsel for the appellant submits that even though Notification dated 9-7-2004 was in force, the same provided for optional duty and the assessee never invoked the said notification. In such a situation, the view of the Tribunal is against the view taken by it in CCE, Indore v. Surya Roshni Ltd. – [2003 (155) ELT 481 (T)] which was upheld by the Supreme [2003 (158) ELT A273 (S.C.)]. As per the said judgment, on capital goods which are exclusively used in manufacture of exempted goods, credit was not available. Subsequent withdrawal of exemption could not validate the credit wrongly taken.

5.We are unable to accept the submission. Present is not a case of subsequent withdrawal of exemption as in the case of Surya Roshni Notification dated 9-7-2004 is prior to the period of January, 2005 to March, 2005. The Tribunal has held that goods were not used in manufacture of exempted goods. The finding is as under :-

“I have carefully considered the submission from both sides and perused the records. Capital goods, in question, had been received during January, 2005 to March, 2005 and at that time the goods manufactured by using those capital goods- cotton yarn had been cleared by availing full duty exemption under notification No. 30/2004-C.E. However, from June, 2005 onward, the appellants started available benefit of notification No. 29/04-C.E. in respect of their clearance for export where there is optional rate of duty of 4% and there is no dispute about the fact that notification No. 29/04-C.E. and 30/04- C.E. were being available during the same period simultaneously. In view of this position, it cannot be said that the capital goods, in question, had been used exclusively for the manufacture of fully exempted finished products. Under sub-rule (4) of Rule 6 of Cenvat Credit Rules, 2004, capital goods cenvat credit is inadmissible only in respect of those capital goods which are exclusively used in the manufacture of exempted goods. But is is not so in this case. In the case of Surya Roshni Ltd. (supra) relied upon by the Commissioner (Appeals), the finished products at the time of receipt of capital goods were fully and unconditionally exempt from duty while it is not so in this case as in this case while Notification No. 30/4-C.E. provides full duty exemption subject to the condition that no input duty credit has been taken, Notification No. 29/04-C.E. issued on the same date provides optional rate of duty of 4% adv. without any condition. Therefore, the ratio of Tribunal’s judgment in the case of Surya Roshni Ltd. (supra) is not applicable to the facts of this case.”

6.In view of finding of the Tribunal that the assessee availed benefit of notification under which 4% duty was payable, it cannot be held that assessee used the capital goods in manufacture of exempted goods in which case the assessee could not claim the benefit of cenvat credit under Rule 6(4). No substantial question of law arises.

7.Accordingly, the appeal is dismissed.”

9. We find in another case, Hon’ble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore Vs. Kailash Auto Builders Ltd., [2012 (280) ELT 49] took a view which is akin to the view expressed by the Hon’ble High Court of Punjab & Haryana. We reproduce the ratio in paragraph No. 5 of Kailash Auto Builders Ltd.

“5. It is not in dispute that the capital goods were purchased for the purpose of manufacturing the products in the assessee’s factory. At the time of purchase, the excise duty was paid by the assessee on the said capital goods. After such purchase, the capital goods are used in the manufacture of both exempted goods and capital goods. In respect of exempted goods, as there was no liability to pay excise duty, the question of availing Cenvat credit in respect of exempted goods did not arise. However, in respect of excisable goods, the duty payable thereon was not paid and the Cenvat credit was utilized. In the entire material on record, there is nothing to indicate that the capital goods were purchased with any undertaking that the said goods will be used exclusively for the manufacture of exempted goods. In the absence of any such undertaking, when admittedly the capital goods are used for manufacture of both excisable goods and exempted goods, merely because in the beginning the capital goods were used in manufacture of exempted goods, the assessee cannot be denied the benefit of Cenvat credit when they started manufacturing excisable goods and clearing the said goods. There is no period of limitation prescribed for availing the Cenvat credit. Once the duty is paid on the capital goods, the assessee would get a right to avail the Cenvat credit if and when they have to pay duty on excisable goods.”

10. In the case in hand, it is recorded earlier herein above, the appellant had specifically informed the Range Superintendent on 18.11.2006 that they would be discharging duty liability on the finished goods i.e., Cotton Knitted Fabrics under Notification No. 29/2004 and also claiming exemption under Notification No. 30/2004 which would in turn mean that they had informed the authorities they intended to use the machines on which CENVAT credit on capital goods were availed for manufacturing of dutiable goods as well as exempted goods. The facts of the case in hand in respect of capital goods are squarely covered by the issue as decided by the Hon’ble High Court of Punjab & Haryana and in similar set of facts of the Hon’ble High Court of Karnataka. In view of this, we hold that the impugned order to the extent of confirmed the duty of CENVAT credit availed on the capital goods is unsustainable and liable to be set aside and we do so.

11. Since we have set aside the entire demand on merits and question of penalty does not arise.

12. In view of the foregoing, the impugned order is set aside and the appeal stands allowed.

(Operative part of this order was pronounced in open court on conclusion of hearing)

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

Lakshmi….

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

Court – I

Appeal No. C/550/2009
(Arising out of Order-in-Original No.01/2009-CUSTOMS, dated 20.05.2009 passed by CCCE, Hyderabad – IV)

CC & CE, Hyderabad – IV
….. Appellant(s)

Vs.

Microsoft India (R&D) Pvt Ltd
….. Respondent(s)


Appearance
Shri Bhanu Kiran, Asst. Commissioner/AR for the Appellant.
None for the Respondent.

CORAM:
HON'BLE Mr. M.V.Ravindran, Member (Judicial)
HON’BLE Mr. P. Venkata Subba Rao, Member (Technical)

Date of Hearing: 10.08.2018
Date of Decision: 10.08.2018

FINAL ORDER No. A/30912/2018

[Order per: M.V.Ravindran.]

1. This appeal is filed by the revenue against the Order-in-Original No. 01/2009-CUSTOMS dated 20.05.2009.

2. None appeared on behalf of the respondent despite notice. Since, appeal is of 2009, we take up the same for disposal despite there being no representation.

3. Heard the learned departmental representative and perused the records. Learned departmental representative brings to our notice that against the same Order-in-Original, the assessee/respondent had come in appeal before the Bench and the Bench by Final Order No.21236/2015 dated 25.05.2015 rejected the appeal and upheld the Order-in-Original. He produced the copy of the said order dated 25.05.2015.

4. On perusal of the said order of the Tribunal, we find it so. We have upheld the entire Order-in-Original and accordingly the grievance of the revenue in this appeal do not survive. Accordingly, the appeal stands rejected.


(Dictated and pronounced in the open Court)

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

Veda

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

Appeal No. E/406/2009

(Arising out of Order-in-Original No.81/2008-C.Ex, dated 22.12.2008 passed by CCCE & ST, Hyderabad-IV)

Pavani Polymers Ltd
….. Appellant(s)

Vs.

CCCE & ST, Hyderabad-IV
….. Respondent(s)


Appearance
Shri B. Venugopal, Advocate for the Appellant.
Smt B.V. Siva Naga Kumari, Commissioner/AR for the Respondent.

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

Date of Hearing: 03.07.2018
Date of Decision: 03.08.2018

FINAL ORDER No. A/30822/2018

[Order per: P.V. Subba Rao.]

1. This appeal was filed against Order-in-Original No.81/2008 dated 22.12.2008 passed by Commissioner of Customs, Central Excise & Service Tax, Hyderabad-IV.

2. Heard both sides and perused the records. The appellant herein is a manufacturer of pet pre-forms, jars and bottles falling under Central Excise Tariff and was availing benefit of SSI exemption under Notification No.9/2003 during the period 2001-02 to 2004-05. Besides manufacturing goods on their own account, they were also doing job work and clearing the goods so manufactured without payment of duty under Notification No.83/1994-CE dated 11.04.1994. When the records of the appellant were audited, it was found that the appellant had cleared the goods claiming the benefit of this notification. This notification provides for exemption to goods manufactured on job work subject to the condition that the supplier of raw material or the semi-finished goods gives an undertaking to the proper officer having jurisdiction over the factory of the job worker-

(a) That the specified goods received from the job worker shall be used in the factory of the supplier in or in relation to the manufacture of specified goods which are exempted from the whole of the duty of excise leviable thereon under the aforesaid notification; and

(b) That in the event of his failure to do so, he undertakes to pay excise duty, if any, payable on such goods, but for the exemption contained in this notification, as if such goods were manufactured by the supplier and sold on his own account.

3. A show cause notice was issued on 29.10.2007 by the Commissioner stating that on verification of the records it was found that there is no evidence to the effect that the assessees have filed undertakings as stipulated in the Notification No.83/1994-CE. It is further stated that the assessees have produced photo copies of undertakings from 3 suppliers of raw materials filed with the jurisdictional Central Excise authorities. It is further alleged that in respect of 3 other suppliers of raw materials they produced photo copies of undertakings filed by the jurisdictional Superintendents of Vijayawada and Visakhapatnam only (and not an undertaking filed with the Asst. Commissioner/Dy. Commissioner having jurisdiction over the appellant herein). It is further alleged that the undertakings produced by the assessee did not have details of Central Excise Registration, etc., and hence are not verifiable. It is further alleged from the delivery challans, it is apparent that suppliers were sending pet pre-forms for conversion into pet jars which are by themselves fully manufactured goods and therefore, they cannot be further used by the supplier as raw-material in relation to manufacture of goods specified in the notification. It is further alleged that the assessees or the supplier of the raw material had, at any point of time, not declared about this activity to the department and therefore they have wilfully suppressed material facts and availed exemption under Notification No.83/1994-CE which they were not entitled to. Accordingly, Central Excise Duty of Rs.91,59,613/- and Educational Cess of Rs.1,68,141/- was demanded under the proviso to Sub- Section (1) of Sec.11A of Central Excise Act. Interest was demanded under Sec.11AB and a penalty was proposed to be imposed under Sec.11AC r/w Rule 25 of the Central Excise Rules.

4. After following due process of law, Learned Commissioner vide the impugned Order-in-Original confirmed the demand along with interest and imposed penalty equal to the duty demanded. In his Order-in-Original, the Learned Commissioner recorded as follows:

(1)    The assessee had claimed that the respective suppliers of raw materials has furnished declarations with proper officers and during personal hearing, they claimed that out of 6 suppliers of raw materials, 3 are not traceable and supplied photo copies of registration of other 3. They found that on going through the copies of declarations, they did not appear to be genuine as there is no telephone number, sales tax registration number, etc. During adjudication, he further conducted formal enquiries at Visakhapatnam and found that the suppliers of raw materials do not exist as manufactures and there is no trace of manufacturing activity. He further said that in respect of 3 suppliers of raw materials, it has been ascertained from the Commercial Tax department that they are not registered at the given addresses and no TIN was available in their records.

(2) It is a well settled principle that the burden of proof is on the manufacturer availing the exemption. He has to ensure that the conditions of the notification are fulfilled. In this case he found that the suppliers are not traceable and concluded that suppliers do not exist and have been created only on paper and that the declarations are fabricated.

5. The Learned Counsel for the appellant argued as follows:

(a)    Responsibility of giving an undertaking under a notification rests on the supplier of raw materials. It is mentioned in para 6 of show cause notice that some details were missing in the undertaking and hence it cannot be concluded that supplier of raw material is manufacturer or trader, as this notification is applicable only for manufacturers. This shows that undertakings are given by the supplier of raw material and hence the question of denial of exemption does not arise.

(b) The show cause notice sought to deny the benefit of notification on the ground that

i. Appellant had not filed undertaking as stipulated in the notification.
ii. The procedure for movement of materials has not been followed.
iii. The notification is applicable only if the supplier of raw material is a manufacturer and hence in the absence of any such details, the benefit of exemption under notification cannot be extended.

6. However, the Order-in-Original was passed confirming the demand on different grounds including formal enquiries conducted by the Commissioner at Visakhapatnam with the Commercial Tax department, Visakhapatnam. He further argued that he has provisional registration certificates from the department of Industries, Government of Andhra Pradesh in respect of the supplier of the raw material. The pet jar is not completely marketable item and it requires a cap and therefore, pet jars supplied become raw material, further, to the manufacturer. The appellant had carried out the job work in accordance with Notification No.83/1994-CE after assuring that declarations were filed by the suppliers of the raw materials with jurisdictional officer and no objections were raised at the time of filing of undertakings and the genuineness of these undertakings were questioned much later and hence the extended period of limitation cannot be invoked.

7. The Learned Commissioner (AR) reiterated the arguments in the Order-in-Original and asserted that the 6 units who supplied the raw materials, 3 are located in Hyderabad, were closed down and are not traceable and 2 units at Visakhapatnam and 1 at Vijayawada did not exist. The job challans do not match the names of the suppliers and the basic details of transport and receipt and dispatch were also not produced by the appellant as recorded in para 19 of the Order-in-Original. Only fabricated photo copies of some declarations were produced to avail exemption under notification 83/1994-CE as recorded in para 21 of the Order-in-Original. Therefore the assessee is liable to pay duty, interest and penalty as they wilfully suppressed job worker clearances from the knowledge of the department.

8. We have considered the arguments on both sides. The short point to be decided is whether the assessee is eligible for exemption under Notification No.83/1994-CE for the goods manufactured by them on job work basis. This is a conditional exemption notification. The five member constitutional Bench of the Hon’ble Supreme Court put to rest all doubts about interpretations of Exemption Notification in the case of Commissioner of Customs (Import), Mumbai Vs M/s Dilip Kumar & Co. In Civil Appeal No.3327 of 2007 as follows:

“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/assesse and it must be interpreted in favour of the revenue.

(3) The ration in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export case (supra) stands over-ruled.”

9. If the exemption notification is a conditional notification, all conditions must be fulfilled and it is for the assessee to show that they have fulfilled the conditions. If the assessee fails to establish that they have fulfilled all the conditions of the notification, they are not entitled to the benefit of the same. In this case, the exemption notification requires the supplier of raw material to give an undertaking to the jurisdictional authorities of Central Excise having jurisdiction over the assessee that they will pay the relevant excise duty. Thus although the job worker is a manufacturer by virtue of the exemption notification r/w declaration made by the raw materials supplier, the burden of discharging excise duty shifts on to the raw material supplier. In the absence of any such declaration, the liability will continue to be with the assessee. The show cause notice alleges that the appellant has not produced the necessary declarations and when asked they have produced photo copies of some undertakings filed before the jurisdictional Asst. Commissioner or Dy. Commissioner having control over the job worker. While the other declarations were not addressed to the jurisdictional Asst. Commissioner or Dy. Commissioner buy have been filed with the jurisdictional Superintendents in Vijayawada or Visakhapatnam. It further alleges that some details in respect of the supplier of raw material such as Central Excise Registration Number, etc., were not available and hence they are not verifiable. Even in the documents produced before or during the appeal, copies of declarations filed by M/s Sri Harsha Enterprises (supplier of raw material) were clearly addressed to the Superintendent of Central Excise, Visakhapatnam. Similarly, the declarations filed by M/s Matha Pet Bottling Industries are addressed to Superintendent of Central Excise, Vijayawada and declarations of M/s Surya Pet bottles are also addressed to the officers in Visakhapatnam. Clearly, these declarations were not filed with the officers having jurisdiction over the appellant.

10. However, we find that the Learned Commissioner in his Order-in- Original has referred to some enquiries conducted with the jurisdictional authorities regarding the submissions made by the appellant during personal hearing and having found that declarations to be bogus. This was not a ground on which the demand was raised in the show cause notice.

11. We therefore find that the Revenue has a strong case as far as the allegation that the appellant has not fulfilled conditions stipulated in the Notification No.83/1994-CE is concerned. However, while confirming the demands, the Learned Commissioner has gone beyond the ground mentioned in the show cause notice and confirmed demands citing some enquiries conducted by him. We therefore find it a fit case to be remanded back to the original authority with a specific direction to adjudicate the matter solely based on the grounds mentioned in the show cause notice and the documents available in this regard.

12. The appeal is allowed by way of remand.

(Pronounced in the Open Court on 03.08.2018)


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


Veda

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

Appeal No. ST/85831/18
(Arising out Order-in- Appeal No. PUN-EXCUS-001- APP-0732/2017-18 dated 29.11.2017 passed by the Commissioner of Central tax (Appeals-I), Pune)

Lavgan Dockyard Private Ltd.
Appellant

Vs.

CCE Kolhapur
Respondent

Appearance:
Shri Jay Chedda, CA for the appellant
Shri O.M. Shivdikar, AC (AR) for the respondent

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

Date of hearing : 06.08.2018
Date of decision : 06.08.2018

O R D E R No: A/87149/2018

Order of the Commissioner of Central tax (Appeals-I), Pune in not going into the merit of the case at the time of final disposal of the appeal on the ground that appeal was filed 69 days after the receipt of order-in-original without a delay condonation application is under challenge before this Tribunal.

2. The contention of the appeal is that order of the adjudicating authority was received at its end on 23.04.2017, as found from the statement of fact placed before the Commissioner (Appeals) but inadvertently due to typographical error in ST-4 form the date of communication of order has been mentioned as 12.04.2017. Appeal being filed on 21.06.2017, Commissioner (Appeals), he erroneously dismissed the appeal on the ground that there was 9 days delay in filing such appeal and the same is hit by Singh Enterprises 2008 (221) ELT 163 (SC) and order of Ahmedabad Tribunal passed in Prithvi Hotels (Gujarat) Pvt. Ltd. [2013 (31) STR 612] etc.

3. Ld. AR for the department respondent submitted that no irregularity can be found from the order of the Commissioner (Appeals) in view of the fact that no condonation of delay application had been filed, though the same was within the condonable period of further 30 days available at the Commissioner (Appeals)’s end.

4. Heard from both sides and perused the case papers.

5. It is found that the order-in-original dates 31.03.2017 and the statement of fact indicates that it was served upon the appellant on 23.04.2017 i.e. within 3 weeks of such pronouncement of order-in-original but the Commissioner (Appeals) has extracted Section 85(3A) and proviso appended to it to give his finding that he was not competent to condone the subsequent delay in the absence of an application to that effect. To bring clarity I feel it proper to reproduce the proviso once again here:-

“(3A) An appeal shall be presented within two months from the date of receipt of the decision or order of such adjudicating authority, made on and after the Finance Bill, 2012 receives the assent of the President, relating to service tax, interest or penalty under this Chapter:

Provided that the Commissioner of Central Excise (Appeals) may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of two months, allow it to be presented within a further period of one month.]”

6. Therefore appeal can be presented within two months from the date of receipt of order-in-original and in the instant case, statement of fact reveal that it was received on 23.04.2017 and the same statement of fact is supposed to be verified by the appellant himself, which is also done in the instant case. The gap between the pronouncement of order-in-original and its communication, going by the date mentioned in the statement of fact is just 23 days. Therefore it cannot be believed to be untrue. Considering the same to be the valid date of receipt of order-in-original, there is no denying of the fact that the appeal was presented within two months i.e. on 21.06.2017. Even if the Commissioner considers it untrue, the proviso provided to Section 85(3A) enables the Commissioner to allow presentation of appeal on a subsequent stage but the same should be limited to 30 days further. There is a difference in the language imported to Section 85(3A) and Section 86(5) of the Finance Act, 1994. It has also been held in the judgment of the Hon'ble Supreme Court reported in (2008) 7 SCC 169 that there is a difference in extending time for appeal to be presented and condoning delay after presentation of appeal. Hence in view of the proviso enabling the Commissioner (Appeals) to allow the appeal to be presented after two months but within a further period of one month assigning sufficient reason to his satisfaction, such presentation can be accepted by him before proceeding to hear the case in its totality, which is not done at his end. Therefore, in my considered view, the appeal is filed within the stipulated period and to the disagreement of the Commissioner, within his condonable period. Hence the same should have been admitted at his end and the issue could have been settled on merit. Section 86 (1) empowers this Tribunal only to hear appeal against the order of Commissioner (Appeals) passed under Section 85 and not directly against the order of the adjudicating authority. Hence the Order –

7. The Appeal is allowed and the matter is remitted back to the Commissioner (Appeals) for hearing the appeal afresh on merit.

(Operative part pronounced in Court)

Dr. Suvendu Kumar Pati
Member (Judicial)

//SR

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi,

Court No. II

Date of hearing/decision: 07.08.2018

Ex. Appeal Nos. 58728 - 58729 of 2013-SM
(Arising out of order-in-appeal No. 104 to 105/CE/D-II/13 dated 03.05.2013 passed by the Commissioner of Central Excise (Appeals), Delhi-II)

M/s Tricolite Electrical Industries Limited
Appellant

Vs.

CCE, New Delhi
Respondent

Appearance:
Sh. R. M. Saxena, Advocate for the appellant
Sh. P. Juneja, AR for the Respondent

CORAM:
Hon’ble Sh. Ashok Jindal, Member (Judicial)

Final Order Nos. 52744 – 52745/2018

Per: Ashok Jindal:

The appellant filed these appeals against the impugned order wherein the refund claim filed under Rule 5 of the Central Excise Rules, 2004 was rejected.

2. The facts of the case are that the appellant are engaged in the manufacture of electrical switches and appliances and availing cenvat credit on inputs and clearing the same on payment of duty in DTA and in some cases cleared to SEZ units and in some cases goods were cleared to Delhi Metro Rail Corporation (DMRC) without payment of duty. As the goods cleared to DMRC and SEZ units are exempt from payment of duty, therefore, the cenvat credit availed by the appellant on inputs accumulated in their cenvat credit account which was lying unutilised. The appellant filed refund of the amount lying unutilised in their cenvat credit account. Initially, the refund claims were sanctioned by the adjudicating authority but on appeal before the ld. Commissioner rejected the cenvat credit under Rule 5 of the Central Excise Rules, 2004. Against those orders, appellant is before me.

2. Heard the parties considered the submissions.

3. I find that in the case of Sirmaxo Chemicals Pvt. Ltd. vs. CCE, Thane-II – 2016 (337) ELT 425 (Tri. Mum.) wherein it has been held that clearances made to SEZ unit is deemed export. As the clearances made to the SEZ are deemed units, in that circumstances, the facts of that case are applicable to the facts of the present case. Admittedly, due to the clearances made to SEZ unit, the cenvat credit accumulated in their cenvat credit account and remained unutlised. Therefore, under Rule 5 of the Cenvat Credit Rules, 2004 the appellant is entitled to claim refund of cenvat credit remained unutilised in their cenvat credit account. Accordingly, the same is set aside. I do not find any merit in the impugned order and the order of the original adjudicating authority is affirmed.

4. With these terms, appeals are disposed of as above.


(Dictated and pronounced in the open Court).


(Ashok Jindal)
 Member (Judicial)

Pant

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL,
NEW DELHI PRINCIPAL BENCH,
COURT NO. IV

Service Tax Appeal No. 50851 of 2015

[Arising out of the Order-in-Original No. Jai-Excus-001-Com-64-14-15 dated 26.11.2014 passed by Commissioner (Appeals) Central Excise, Jaipur ]

M/s. Krishak Bharti Co-operative Ltd.
Appellants

Vs.

CCE & CST, New Delhi
Respondent

Appearance:
Shri A K Batra, CA for the Appellants
Shri Sanjay Jain, AR for the Respondent


CORAM:
Hon’ble Mr. C L Mahar, Member (Technical)
Hon’ble Ms. Rachna Gupta,  Member (Judicial)

Date of Hearing/ Decision: 08.08. 2018

FINAL ORDER No.52871 /2018

Per: C L Mahar:

The brief facts of the matter are that the appellant-assessee is engaged in the manufacture of various kinds of fertilizers. They are also registered with the Service Tax department under the category of “Goods Transport Agency‟ service. As recipient of GTA service, the appellant-assessee is discharging their service tax liability as per the provisions of the Service Tax law. It has been the contention of the department that the appellant-assessee has not included the value of loading /unloading, and stacking charges in the service value of GTA service. The department has primarily relied upon the CBEC circular No. 104/2007-2008 ST dated 6.8.2008. The short payment of Service Tax amounting to Rs.57,21,856/- for the period June, 2008 to March, 2012 have been demanded under section 73(1) of the Finance Act, 1994. The provisions of penalty and interest has also been invoked. The matter came to be adjudicated vide impugned adjudication order dated 19.12.2014 wherein the charges as invoked in the above mentioned show cause notice has been confirmed by the learned Commissioner.

2. The appellants are before us contending the levy of service tax on the charges of loading /unloading, staking / de-stacking of fertilizers consignment transported by their various contractors. It is the matter of record that the assessee has duly discharged their service tax liability on the transportation charges paid by them to various transport contractors under reverse charge mechanism basis as provided under the Finance Act, 1994. It has been the contention of the department that the charges of loading /unloading staking / de- stacking fertilizers consignment transported by various transport contractors should also have been included in the value of services while discharging the service tax liability. It has been the contention of the department that as per the circular No. 104/07/2008 ST dated 6.8.2008 provides that -

“. Issue 3 : Whether time sensitive transportation of goods by road in a goods carriage by a GTA shall be classified under courier service and not GTA service?

Clarification : On this issue, it is clarified that so long as, (a) the entire transportation of goods is by road; and (b) the person transporting the goods issues a consignment note, it would be classified as „GTA Service‟.”

2. Thus, on the above clarification arguing that the value of impugned services like loading /unloading, staking / de-stacking etc. should have been included in the value of services, discharging the service tax liability on reverse charge basis by the appellant assessee.

3. It has been the contention of the learned advocate that the appellant-assessee have correctly discharged his service tax liability wherever the value of loading /unloading, staking / de-stacking is consolidated and included in transportation charges. The appellant- assessee has discharged their Service tax liability on the entire value of the contract after availing the prescribed abatement. Further only where the charges of loading / unloading staking / de-stacking of the warehouse is separately provided in various contracts, same has not been included and as per the contract the service provider has to discharge the Service Tax liability of handling loading/unloading charges which are recovered by the contracts from the appellant assessee. Learned advocate has taken us through various sample invoices to prove his contention as contained in this regard. A copy of such invoices is reproduced herewith:








5.


4. A glance on above mentioned invoice makes it apparently clear that the appellant assessee while giving contract to transportation of fertilizers have categorically provided that the transportation charges are to be quoted exclusively of service tax because the appellant assessee knew that they themselves have to discharge the service tax liability on transportation charges under reverse charge mechanism basis. While so far as the other charges like rack handling loading /unloading of fertilizers cargo and stacking and un-staking of cargo at the warehouses etc are concerned, these charges are inclusive of service tax and the bidder i.e. the transport contract was supposed to discharge the service tax liability on such charges themselves. It has also been contended by the learned advocate that CBEC vide their clarification on various service tax matters, issued from F No. B 11/1/2002 TRU dated 1.8.2002 has provided that if lump sum amount is charged for both transportation and cargo handling, the service tax will be payable on the entire amount, On the other hand, if the bill indicates the amounts charged separately for cargo handling and transportation on actual basis (verifiable by documentary evidence) in that case, the service tax should be leviable separately under the relevant service tax category i.e. cargo handling charges and road transport agency charges. The relevant portion of the above mentioned clarification is reproduced herein below:-

“3.3 Cargo handling service provided in relation to storage of agricultural produce (scope of the term “agricultural produce” is given under the storage and warehousing service) or for goods meant to be stored in cold storage have been exempted from the levy of service tax. (see Notification No.10/2002-ST).

4. A point has been raised as to what would be the value of service tax in a case where transport and cargo handling service is provided in a composite manner. The measure of tax is the gross amount charged by the cargo handling agency from the customer. Therefore, if lumpsum amount is charged for both transportation and cargo handling, the tax will be payable on the entire amount. On the other hand, if the bill indicates the amount charged for cargo handling and transportation separately on actual basis (verifiable by documentary evidence), then the tax would be leviable only on the cargo handling charges.”

5. Learned advocate has also contended that the demand is barred by limitation as there are no element of suppression of facts or mis - declaration on their part with an intent to evade service tax, it is argued that the accounts of the appellant-assessee are being audited by the Department on regularly yearly basis and all the facts have been before them and therefore the extended period of time provisions of Section 57 (1) for demanding service tax is not invokable in their case as in their case the elements required for invoking extended time provision are not available. Accordingly, the penalty under section 78 of Service Tax Act, 1994 is also not invokable.

6. We have heard Shri Sanjay Jain, learned DR who has reiterated the findings of the order in original.

7. We have heard both the sides and we are of the view that provisions of Circular No. 104/07/2008-ST dated 6.8.08 are relevant only in cases where the consolidated value of transportation charges is being recovered from the service recipient by the service provider. And the clarification is primarily with regard to whether abatement will be entitled on the full value of such charges i.e. transportation charges plus cargo handling, loading, / unloading, stacking /destacking charges etc. are also included. In this particular case, the contracts for transportation of fertilizers cargo filed by the appellant assessee, with regard to various transport contractor are very categorically having two parts, first, which is primarily for transportation of fertilizers; and second is for loading / unloading and stacking/ de-stacking of fertilizers and separate charges for each activity are indicated . The appellant-assessee has very categorically and in very transparent way has provided that the service tax on transportation charges will be paid by them and in case of cargo handling i.e. to say loading / unloading stacking/ de stacking of fertilizers will be paid by the service provider himself. We find that since the value of both the services have categorically been provided separately, the appellant assessee has discharged his service tax liability under reverse charge mechanism of transportation charges as is the requirement of Service tax law, we do not find any legally tenable ground to demand service tax on the cargo handling charges on which service tax as per the provisions of service tax law is to be discharged by the service provider i.e. various transport contractors.

8. The CBEC has also in their clarification dated 1.8.2002 (supra) has provided that in cases where payments including the bill amount charged is separate for cargo handling and other transportation charges, the Service Tax to be paid on actual basis i.e. cargo handling charges are to be taken separately for deciding the Service tax liability. Since in the present case, the value has been indicated separately and there is no charge of the department that the service provider of the cargo handling service like loading /unloading stacking /destacking of fertilizer consignment has not discharged their service tax liability. It is seen that the department has not even tried to prove that there is short payment of service tax. We also find that since there is no charge of non-payment of service tax by the contractors of cargo handling services like loading / unloading etc. in that case they must have paid service tax on the full value of service and if same is added to the transportation charges, the appellant- assessee will be entitled for prescribed abatement and as a result the Department would get less amount of service tax. Thus, we find no merit in confirming short payment service tax in this case.

9. We also agree that since the appellant assessee is being audited regularly by the Department and all the details have been in the knowledge of the department and the charge of suppression of facts or mis declaration etc. have not been established by the department. , Therefore the demand of duty under section 73 (1) under extended time proviso is not sustainable on the ground of limitation in this case. Therefore, we find that demand is also barred by limitation.

10. In view of the above, we do not find any merit in the impugned order in original and thus same is set aside. Accordingly, appeal is allowed.


(operative part of the order pronounced in the open Court)

( Rachna Gupta )             ( C L Mahar )
Member ( Judicial )        Member (Technical)

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