IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH

S/SHRI Adarsh Kumar Goel and Ajay Kumar Mittal, JJ.

COMMISSIONER OF C. EX., LUDHIANA Versus KHALSA COTSPIN (P) LTD.

Central Excise Appeal No.10 of 2011, decided on 27-4-2011
[
Order per: Adarsh Kumar Goel, J. (Oral)].- This appeal has been preferred by the revenue under section 35G of the Central Excise Act, 1944 against the order dated 24-6-2010 passed by the Customs Excise & Service Tax Appellate Tribunal Delhi (for short “the Tribunal”) raising following substantial questions of law:-
“1. Whether the judgment and order passed by the tribunal is proper and legal?
2.Whether the Tribunal was correct in holding that the terms capital goods as such occurring in Rule 3(5) of the Cenvat Credit Rules, 2004 refers to only unused cenvat capital goods in dismissing the appeal filed by the appellants?
3. Whether the duty is payable under Rule 3(5) of Cenvat Credit Rules, 2004 on the cenavated capital goods when the same are sold as capital goods?”
2. The assesse purchased capital goods and availed cenvat credit thereon. The said goods were thereafter sold. The assesse claimed that cenvat credit was not liable to be reversed while clearing used capital on which no central excise duty was attracted. The Adjudicating Authority issued a show cause notice on the ground that when the goods were cleared without payment of excise duty the cenvat already taken was required to be reversed. However considering the reply of the assesse, the Adjudicating Authority dropped the demand which view has been upheld by the Commissioner (Appeals) as well as by the Tribunal. The Tribunal observed;-
“I have carefully considered the submissions from both sides. In the present case undisputedly the capital goods have been installed in the premises of the respondents and were put to use. The phrase cleared as such has been interpreted by the tribunal in the case of Salona Cotspin Ltd. V. CCE, Salem reported in 2006 (201) E.L.T. 592 Wherein it has been held that the goods removed after use cannot be treated as cleared as such”. Similarly in the case of Madura Coats Ltd. Has held that the capital goods removed after putting them to use cannot be held as removed as such.” This decision stands upheld by the Hon’ble High Court of Mumbai. In view of the above I do not find any merit in the appeal challenging the concurrent finding of the Commissioner (Appeals) and the original authority which are in favour of the respondents.”

taxind_2011_hc_ph_cea_10

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

S/SHRI A.P. Deshpande, J.

ARSHAD HUSAIN BAIG Versus DIRECTORATE OF REVENUE INTELLIGENCE

Criminal Application No. 3130 of 2009, decided on 28-7-2009
[Order].- P.C. : According to the respondent Directorate of Revenue Intelligence an intelligence was received by the officers of DRI indicating that some fraudulent importers are importing super bikes in India by first disassembling then abroad and importing the said disassembled bikes in consignments by declaring them as spare parts. The importers then reassemble these parts in India and sale them as super bikes. By following the aforesaid modus operandi these fraudulent importers are able to evade the customs duty and earn huge profits in the process. It is stated that in case of new motor bikes the basic customs duty leviable is at the rate of 60% ad valorem whereas for the spare parts the basic customs duty is leviable at the rate of 10% ad valorem. Taking advantage of the differential duty leviable on motor bikes and the spare parts fraudulent imports of new bikes are made after its disassembling in the foreign country and by imports of spare parts. It is also the case of the respondent that the super bikes after their assembling in India are registered at various RTO offices on the basis of fictitious and forged documents. As per the procedure adopted by RTO imported super bikes can be registered only on submission of bills of entry. As the super bikes are imported by mis-declaring them as bike parts or spare parts bogus and/or forged bills of entry and other concerned documents are pre-pared and submitted to RTO authority for registration of super bikes. If is claimed that bogus bills of entry are prepared on the basis of passport copies of individuals on payment of meager amounts. After bikes are registered in the name of passport holder the same are immediately transferred to the actual users on the basis of pre-signed transfer forms. It is asserted by the respondent that investigation carried out till date has revealed that around 630 imported super bikes have been registered with various RTOs. Verification of registration of documents have revealed that bills of entry submitted to various RTOs in cases of 547 bikes are forged and customs duty is evaded to the tune of more than Rs.30 crores. According to the respondent seven persons are involved in such imports one of them being the present applicant. Five persons were arrested in connection with the crime. It is contended that as the particulars of bike parts are not mentioned in the bills of entry it is very difficult to co-relate the same with the bikes assembled in India which are found to be registered by filing bogus bills of entry and hence process of investigation is slow. The respondent has been able to connect the applicant at least with three bikes which are imported under five bills of entry. The applicant has claimed that the said imports are made by his employee by name Shri Amjad Kadri who expired in June, 2008 due to blood cancer. According to the respondent with a view to verify the authenticity of the applicant’s version statement of Sayyed Zahoor Ahmed Kadri father of Amjad Kadri was recorded and he inter alia stated that his son was an employee of the applicant and was diagnosed blood cancer in the year 2006 and expired in 2008. Sayed Z.A. Kadri has stated that his son Amjad Kadri had no financial capacity to import super bikes or parts thereof. The statement of customs house agent is also recorded who carried out the customs clearing jobs in respect of five bills of entry. According to the statement of customs clearing house he had carried out job of imports customs clearance for the present applicant and he has stated to have received payment of Rs.2,20,000/- vide three cheques from the applicant. According to the respondent this payment is corroborated by the bank statement of the applicant.
According to the applicant he has never dealt with Ravindra Maruti Mansukh the clearing agent except for handing over certain documents to him on behalf of his employee Amjad Kadri. Amjad Kadri expired in June 2008, whereas one of the bills of entry is dated 13-6-2008. Learned counsel for the applicant has submitted that though the applicant’s statements were recorded on four occasions prior to his arrest during the period of his custody over a period of one month only one statement has been recorded and the applicant has been interrogated only once. It is also submitted that three persons who are said to have been involved in the illegal import of the bike parts are released on bail. From the perusal of the orders it is seen that one of them was released as charge sheet was not filed within statutory period whereas in the other case investigation was completed and third accused was released after 49 day. On behalf of the applicant it is contended that further detention of the applicant in custody would not be in furtherance of cause of investigation and personal liberty need to be honored. From the record it does appear that the main person who is heading the racket by name Nadir Ali is not as yet arrested and is stated to have fleed to Dubai. Learned counsel appearing for the respondent has expressed an apprehension that in the event of release of the present applicant he would be in a position to influence others and tamper with the evidence which would frustrate the investigation. It is emphatically submitted that at least for some more time the applicant should not be released on bail. Learned counsel for the applicant submits that as the value of the bikes allegedly imported by the applicant under the five bills of entry pertaining to three bikes is Rs.50 lacs having regard to the rate of duty leviable on new bikes vis-à-vis the spare an amount of evasion of duty would not exceed Rs.30 lacs and hence offence would be punishable for a period of three years. The value of the imported bikes which are till date connected to the applicant though are tentatively valued at Rs.50 lacs it cannot be lost of sight of the fact that as yet investigation is not over and hence gravity of the offence cannot be judged at this stage. Having regard to the fact that a racket is operating which is resulting in causing loss of revenue to the Government by evasion of customs duty in the peculiar facts and circumstances of this case, I am of the view that this not a fit case for release of the applicant on bail. In the result application stands rejected.

taxind_2009_hc_bom_cra_3130

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

S/SHRI J.P. Devadhar and R.M. Savant, JJ.

COMMISSIONER OF C. EX., & CUSTOM DAMAN versus GUJCHEM DISTILLERS

Central Excise Appeal No. 26 of 2004, decided on 16-12-2010
[judgment per: R.M. Savant, J.].- The above Appeal filed by the revenue against the Judgment and order dated 13th January 2004 passed by the Customs Excise & Service Tax Appellate Tribunal Mumbai raises following substantial questions of law:-
“(i) Whether on that facts and circumstances of the case the Tribunal was right in law in Holding that the goods were not required to enter in RG-I?
(ii) Whether on the facts and circumstances of the case the Hon’ble Tribunal is right in law in holding that since there is no confirmation from the buyer that the goods were as per specification and therefore justified in not entering in the RG-1?
(iii) The Hon’ble tribunal had failed to take into account the provisions of Rules 173Q(1) of the central Excise rules 1944.
The facts necessary to be cited for adjudication of the said substantial questions of law can be conveniently stated thus:-
The Respondents herein are engaged in manufacture of various products, which are excisable goods falling under Chapters 22,28,29,34, 38 and 39 of the Central Excise Tariff Act, 1985 and are also availing modvat facility under Rule 57A of the Central Excise Rules 1944 (herein after for the brevities sake referred to as “the Rules”). In so far as the present proceedings are concerned the goods in question are 672 bags of sodium salt. The officers of the Appellant-Revenue during the routine P.B.C. Checks conducted on 12-4-1994 in the factory premises of the Respondents found that the finished stock of 2-4-D sodium salt duly packed and in stitched condition in plastic bags with complete marking on it totally numbering 672 bags weighing 16800 Kgs, valued at Rs.11,08,800/- were lying in the packing section of the auxiliary department of the factory premises of the Respondents. The officers of the Appellant on reconciliation/comparison with Central Excise statutory records i.e. RG-I register found that there was balance of only 400 kgs of the said product in B.S.R. and also in RG-I register whereas the said goods comprising 672 bags weighing 16,800 Kgs. Were not taken into account while maintaining statutory record. On further inquiry, it was revealed that the Respondents had not declared the said stock in the declarations made by them for pre-budget day and budget day. On further scrutiny of production register maintained by the said unit, it was disclosed that the above production was made during the period from 28-2-1994 to 12-4-1994. From the said facts it was revealed that the said had not been purposely accounted for 45 days in the RG-I register.
The officers of the Appellant therefore seized the unaccounted goods under the Panchanama dated 12-4-1994 in the presence of two independent panchas. Thereafter the statements of two officers of the respondents as well as Excise officer on site were recorded. A show cause notice thereafter came to be issued to the Respondents on 23-9-1994 by the Assistant Collector of Central Excise Valsad.
The gravamen of the allegations contained in the said show cause notice can be culled out as follows:-
“(i) The said goods contained in 672 bags weighing 16800 Kgs. Valued at Rs.11,08,800/- not duly accounted for in their statutory records should not be confiscated under Rules 53 and 223B of the said Rules 1994, as though the goods were totally in manufactured and packed condition duly stitched Bags ready for dispatch.
(ii) Basic duty of Central Excise @ 20% Adv. Amounting to Rs.2,21,760/- should not be demanded and recovered from the said assesse under Rule 9(2) of Central Excise Rules, 1944 read with proviso to Section 11-A of Central Excise & salt Act, 1944.”
The said show cause notice was adjudicated upon by the order in original dated 6-6-1996. The Adjudicating Authority i.e. The Deputy Commissioner (Prev), Central Excise & Customs surat confirmed the said show cause notice. The Adjudicating Authority recorded a finding that the goods were fully manufactured and were in a ready for dispatch condition but the same have not been accounted for in the RG-I register and the Respondents therefore had contravened the provisions of the Rules. The Adjudicating officer further recorded a finding that the said action was indicative of the fact that there was some deliberate and ulterior intention to deal with the said goods in a manner than otherwise provided in the Central Excise & Salt Act 1944 (for brevities sake hereinafter referred to as the said Act). The Adjudicating Authority therefore ordered confiscation of 672 bags. However since the said goods were provisionally released on execution of bond for full value and since the same were physically available for confiscation the Adjudicating Authority imposed redemption fine of Rs.1,11,000/- under Section 34 of the Said Act and directed appropriation of the same from the bank guarantee. The Adjudicating Authority confirmed the Basic Central Excise Duty amounting to Rs.2,21,760/- paid by the Respondents at the time of clearance of 672 bags. The Adjudicating Authority imposed penalty of Rs.30,000/- on the Respondents under Section 173Q(1) of the said Rules.
Submissions on behalf of the Appellant:-
“(i) That since the goods in question i.e. 672 bags containing 2-4-D sodium salt weighing 16800 Kgs were duly packed and in stitched condition in plastic bags with complete marking on it, were not entered in the RG-I register as semi-finished or finished goods the respondents had contravened Rule 53 of the rules;
(ii) That the Tribunal failed to appreciate that non-accounted of goods in the prescribed form at fully finished stage even if they were defective or damaged amounts to violation of the Rules and it was therefore not required to prove the attempt or otherwise of clandestine removal;
(iii) That in terms of Rule 173Q(1) of the Rules non-accounted goods were liable to confiscation and in lieu of confiscation the assesse was liable to pay redemption;
(iv) That the Tribunal erred in accepting the case of the Respondents that the goods were not approved by the buyer. The said point was never raised before the Adjudicating Authority and therefore could not be raise at the stage of Second Appeal as the same entails a finding to be recorded on facts;
(v) That the Tribunal erred in recording a finding that since the goods were not approved by the buyer the said goods cannot be said to be fully finished and therefore require no entry in the RG-I Register. The Tribunal failed to appreciate that once the manufacturing takes place the goods are required to be entered in the RG-I Register.
(vi) That the Tribunal erred in adjudicating the appeal on other grounds than the grounds on which the appeal was allowed by the commissioner (Appeals). The Commissioner (Appeal) had only allowed the appeal on the ground that no finding of clandestine removal and intention to evade duty was alleged to be found.
(vii) On the point of Preparation and attempt the learned counsel for the Appellant sought to rely upon the judgment of the Apex court in the case of State of Maharashtra v. Moh. Yakub and others reported in 1983 (13) E.L.T. 1637 (S.C.) and in the case of Narayandas Bhagwandas Madhavdas v. State of West Bengal, reported in 1999 (110) E.L.T. 85 (S.C.)
Submissions on behalf of the Respondents;
“(i) That the goods were not required to be entered in the RG-I Register since they were not marketable as they were awaiting quality control test results. In support of the said submission, the respondents placed reliance on the Judgment of a learned single Judge of the Madhya Pradesh High Court in nthe case of Supreme Industries Ltd. V. C.E.S.T.A.T., New Delhi reported in 2007 (214) E.L.T. 187 (M.P.).
(ii) That there is no provision under the act which covers a case of “attempt to clandestinely remove goods” and therefore the Appellant could not fasten the said charge upon the Respondents;
(iii) That mere non-accounted goods in the RG-I Register cannot lead to a conclusion that the goods were meant for clandestine removal;
(iv) That mere non-entry of goods in the RG-I Register is a contravention of Rule 226 and not Rule 173Q.
In the context of the questions of law involved in the above Appeal, it would be apposite to reproduce the relevant statutory provisions. Rules 47, 53, 226, 223B and Rule 173Q(1) of the Rules are reproduced herein under:-
“Rule 47. Goods may be stored without payment of duty.- [(1) A manufacturer shall provide a store-room or other place of storage at his premises for depositing goods made on the same premises without payment of duty;
Provided that where the manufacturer undertakes to pay duty on all such goods and clears them immediately on completion of manufacture the [Commissioner] may exempt him from providing store-room or other place of storage]
“(2) No duty-paid goods and no goods other than excisable goods made in the factory shall be deposited in such store room or place.
[(2A) Notwithstanding anything contained in sub-rule (2), the Board may subject to such conditions and limitations as may be laid down by it permit duty-paid ice-cream falling under Heading No.21.05 of the Schedule to be Central Excise Tariff Act, 1985 (5 of 1986) to be deposited in store room or other place of storage]
(3) Every such store-room or place shall be declared by the manufacturer and approved by the [commissioner].
[(3A) Where the provisions of Chapter VII of these rules have been extended by the Central Government by notification in the official Gazette to any excisable goods every such store-room or other place of storage in the premises of a factory manufacturing such goods shall be deemed to be a warehouse [registered] under Rule 140]
(4) The manufacturer shall maintain an Entry Book in the proper Form in which he shall on the same day on which goods are deposited in or removed from such store-room or other place of storage, write and enter in the proper column the date of such deposit or removal the full description, quantity weight and value of the goods so deposited or removed the number of and the marks and numbers on the packages (if any) in which they are contained and such other particulars as the [Commissioner] may by general or special order require.
[(5) Notwithstanding anything contained in sub-rule (1) the Central Board of Excise and Customs may in exceptional circumstances having regard to the nature of the goods and shortage of storage space at the premises of the manufacture where the goods are made, permit a manufacturer to store his goods in any other place outside such premises, without payment of duty subject to such conditions as it may specify and the provisions of sub-rules (2) to (4) shall apply to such place of storage as they apply for storage of goods in a store room or other place of storage within the premises of the manufacturer, where the goods are made]
Rule 53. Daily stock account-(1) Every manufacturer shall maintain a stock account in such Form as the [Commissioner] may in any particular case or class of cases allow and shall enter in such account daily—
“(a) Description of goods,
(b) opening balance,
(c) quantity manufactured,
(d) quantity deposited in the store-room or other place of storage approved by the [Commissioner] under Rule 47,
(e) quantity removed after payment of duty from such store-room or other place of storage or from the place or premises specified under Rule 9,
(f) quantity delivered from the factory without payment of duty of export or other purposes, and
(g) the rate of duty and the amount of duty;
Provided that a manufacturer who furnished a declaration in the Form annexed hereto may be exempted by the Commissioner from making nil’ entries in the above account on days on which there is no production receipt in store-room or clearance of excisable goods.[Provided further that the Chief Commissioner of Central Excise may allow by general or special order a manufacturer to make entries in respect of such goods in such manner at such interval, and subject to such conditions and limitations as may be specified [in such order]]
Rule 226. How entry books stock accounts and warehouse registers should be maintained-Where any person is required by these Rules to maintain an entry book stock account or warehouse register in respect of goods produced manufactured or stored by him he shall—
“(i) at the time of making any entry insert the date when the entry is made;
(ii) correctly keep such book account or register in the manner required and shall not cancel obliterate or alter any entry therein except for correction of any errors with the sanction and in the presence of the proper officer and shall not make any entry therein which is untrue in any particular;
(iii) keep the book account or register at all times ready for the inspection of the officers and shall permit any officer to inspect it and make any such minute therein or any extract therefrom as the officer thinks fit, and shall at any time if demanded send it to the proper officer…… and any person who fails to enter the required particulars within the time prescribed in the relevant rule or who fails to keep such book account or register as the case may be or to deliver it up to the officer on demand or who obstructs or hinders such officer in making any minute therein or extract therefrom or conveys away or conceals it or destroys or tears our any leaf therefrom or makes any false entry therein or fraudulently alters any entry therein shall be liable to a penalty which may extend to two thousand rupees and all the goods of which due entry has not been made in such book [account or register] shall be liable to confiscation.
Rule 223B. Declaration of stock of goods and information regarding the serial number of the last gate pass issued at 6.00 P.M. on the day preceding the Budget day.- (1) A [registered person] shall furnish to the proper officer a declaration in writing in such form and in such manner as the [Commissioner] may require regarding the stock of excisable goods remaining in a factory warehouse or store-room [registered] or approved for the storage of such goods and the serial number of the last gate-pass issued as remained at six ‘O’ clock in the afternoon of the day preceding the day appointed for the presentation of the annual or any Supplementary Budge of the Central Government to the Parliament or for the introduction in the House of the People of any Finance Bill or any Bill for the imposition or increase of any duty.
(2) Any person who fails to furnish the declaration in the manner prescribed under sub-rule (1) or makes any false entry therein shall be liable to a penalty which may extend to two thousand rupees and all the excisable goods in respect of which due declaration or due entry has not been made shall be liable to confiscation.]
“[173Q. Confiscation and penalty-(1) [Subject to the provisions contained in Section 11AC of the Act and sub-rule (4) of Rule 57-I and [sub-rule (6) of Rule 57 U]], if any manufacturer, ] producer registered person of a warehouse or a registered dealer-
“(a) removes any excisable goods in contravention of any of the provisions of these rules; or
(b) does not account for any excisable goods manufactured produced or stored by him; or
[(bb) takes [credit of duty or money] in respect of [inputs or capital goods] for being used in the manufacture of final products for capital goods for use in the factory of the manufacturer of final product as the case may be] wrongly or without taking reasonable steps to ensure that appropriate duty on the said [inputs or capital goods] has been paid as indicated in the [invoice] or any other document approved under these rules evidencing the payment of excise duty or the countervailing duty, as the case may be, accompanying thereof or takes [credit of duty or money] which he knows or which he has reason to believe, is not permissible under these rules, or does not utilize the [inputs or capital goods] in the manner provided for in these rules, or utilizes [credit of duty or money] in respect of [inputs or capital goods] in contravention of any of the provisions of these rules, or does not render proper and true account of the receipt and disposal of the said [inputs or capital goods] and the [credit of duty or money] taken thereon as required under these rules, or contravenes any of the provisions contained in [Section AA or AAA or AAAA of Chapter V of these rules]; or
[(bbb) enters willfully any wrong or incorrect particulars in invoice issued for the excisable goods dealt by him with intent to facilitate the buyer to avail of credit of duty of excise in respect of such goods which is not permissible under these rules;] or
(c) engages in the manufacture production or storage of any excisable goods without having applied for the [registration certificate] required under Section 6 of the Act; or
(d) contravenes any of the provisions of these rules with intent to evade payment of duty,
Then all such goods shall be liable to confiscation and the [manufacturer, producer registered person of a warehouse or a registered dealer], as the case may be shall be liable to a penalty not exceeding three times the value of the excisable goods in respect of which any contravention of the nature referred to in clause (a) or [clause (b) or [clause (bb) or clause (bbb)] or clause (c) or clause (d) has been committed or five thousand rupees whichever is greater.
[Explanation-For the purposes of clause (bb) of sub-rule (1), a person availing of credit of duty on inputs received by him shall be deemed to have taken reasonable steps if the satisfies himself about the identity and address of the manufacturer or supplier as the case may be issuing [invoice] or any other document approved under these rules evidencing the payment of excise duty or the countervailing duty as the case may be either (a) from his personal knowledge or (b) on the strength of a certificate given by a person with whose handwriting or signature he is familiar, or (c) on the strength of a certificate issued to the manufacturer of the supplier, as the case may be by the Superintendent of central excise within whose jurisdiction such manufacturer has his factory or the supplier has his place of business;
Provided that where the identity and address of the manufacturer or the supplier is satisfied on the strength of a certificate the person availing of credit of duty shall retain such certificate for production before the proper officer on demand.]”
In terms of Rule 47(4) the manufacturer is obligated to make an entry on removal of goods from the store-room or other place of storage, write and enter in the proper column the date of such deposit or removal the full description quantity weight and value of the goods so deposited or removed the number of and the marks and numbers on the packages (if any) in which they are contained and such other particulars as the Commissioner may by general or special order require.
Rule 173Q postulates, if the manufacturer does not account for any excisable goods manufactured produced or stored by him them all such goods shall be liable to confiscation and the manufacturer or producer as the case may be shall be liable to a penalty not exceeding three times the value of the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (bb) or clause (bbb) or clause (c) or clause (d) has been committed or five thousand rupees whichever is greater. Under Rule 226, the penalty for non-entry of the goods in the register is prescribed.
As indicated above, the matter was thereafter carried to the Customs Excise & Service Tax Appellate Tribunal (CESTAT). The finding of the CESTAT as can be seen from Paras-5,6 and 7 of it is order reproduced herein under:-
“In the order-in-original the Deputy Commissioner comments that consequent to provisional release of the seized goods the party claimed to have reprocessed the goods after obtaining permission from the Range Superintendent which is not correct since the Assistant Commissioner denied of having given any such permission. This again in my view is a very strange disposal of the claim. In any case the Department was required to establish beyond doubt that the goods which were not entered in the RG-1, and those found unaccounted for in the Auxiliary Department ought to have been made. There is also no confirmation from the buyer that the goods were as per their specification and yet the Respondents failed to enter the production in the RG-1. There was no need to enter the said goods in the RG_1, the question of consequent failure and penal consequences do not arise.
The entire process of adjudication being based on assumption and presumptions, I hold that the learned Commissioner (Appeals) was right in setting aside the order in appeal.
Consequently the revenue appeal fails and the same is rejected”
Resultantly the above Appeal filed by the Revenue would have to be allowed and is accordingly (sic). The impugned order dated 13-1-2004 is quashed and set aside and the matter is remitted back to the CESTAT for a de novo consideration in accordance with law. On such remand the CESTAT is directed to hear and dispose of the Appeal within a period of three months from date. All the contentions are kept open. The Appeal is accordingly disposed of.

taxind_2010_hc_bom_cea_26

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

S/SHRI N. Kumar and Ravi Malimath, JJ.

COMMISSIONER OF C. EX., MYSORE-I Versus WOLFRA TECH PVT. LTD.

C.E.A. No. 65 OF 2007, DECIDED ON 28-2-2011
This appeal was admitted on 20-9-2007 to consider the following substantial question of law:
“Whether the Tribunal is right in deciding the issue pertaining to Rebate of duty when the Tribunal has no jurisdiction to deal with this matter as per Section 35B(1) of the Central Excise Act, 1944?
Section 35B deals with the appeals to appellate tribunal which reads as under:-
35B. Appeals to the Appellate tribunal
“(1) Any person aggrieved by any of the following orders may appeal to the appellate Tribunal against such order-
“(a) a Decision or order passed by the Commissioner of Central Excise as an adjudicating authority;
(b) an order passed by the Commissioner of Appeals under Section 35A;
(c) an order passed by the Central Board Of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) (hereinafter in this Chapter referred to as the Board) or the Appellate Commissioner of Central Excise under Section 35 as it stood immediately before the appointed day;
(d) an order passed by the Board or the Commissioner of Central Excise either before or after the appointed day under Section 35A as it stood immediately(PROVIDED that no appeal shall lie to the Appellate tribunal and the Appellate Tribunal shall not have jurisdiction to decide any appeal in respect of any order referred to in clause (b) if such order relates to,
“(a) a case of loss of goods where the loss occurs in transit from a factory to a warehouse or to another factory or from one warehouse to another or during the course of processing of the goods in a warehouse or in storage whether in a factory or in a warehouse;
(b) a rebate of duty of excise on goods exported to any country or territory outside India or on excisable materials used in the manufacture of goods which are exported to any country or territory outside India;
(c) goods exported outside India (except to Nepal or Bhutan) without payment of duty:
(d) credit of any duty allowed to be utilized towards payment of excise duty on final products under the provisions of this Act or the rules made thereunder and such order is passed by the commissioner (Appeals) on or after the date appointed under section 109 of the Finance (No. 2) Act, 1998;]
PROVIDED FURTHER that the Appellate Tribunal may in its discretion refuse to admit an appeal in respect of an order referred to in cl.(b) or cl. (c) or cl. (d) where-
“(i) in any disputed case other than a case where the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment is in issue or is one of the points issue the difference in duty involved or the duty involved; or
(ii) the amount of fine or penalty determined by such order does not exceed [fifty thousand rupees].
[1A) Every appeal against any order of the nature referred to in the first proviso to sub-section (1) which is pending immediately before the commencement of section 47 of the Finance Act, 1984 before the Appellate Tribunal and any matter arising out of or connected with such appeal and which is so pending shall stand transferred on such commencement to the Central Government and the Central Government shall deal with such appeal or matter under section 35EE as if such appeal or matter were an application or a matter arising out of an application made to it under that section.]
[(1B)(i) The Central Board of Excise and Customs constituted under Central Boards of Revenue Act, 1963 may by notification in the official Gazette constitute such committees as may be necessary for the purposes of this Act.]
(ii) Every committee constituted under clause (i) shall consist of two Chief Commissioners of Central Excise or two commissioner of Central Excise as the case may be]
“(2) [The Commissioners of Central Excise may, if it is] of opinion that an order passed by the Appellate Collector of Central Excise under section 35, as it stood immediately before the appointed day or the Commissioner (Appeals) under section 35A, is not legal or proper direct any Central Excise officer authorized by him in this behalf (hereafter in this Chapter referred to as the authorized officer) to appeal [on its behalf] to the Appellate tribunal against such order.
(3) Ever appeal under this section shall be filed within three months from the date on which the order sought to be appealed against is communicated to the [commissioner of Central Excise], or as the case may be the other party preferring the appeal.
(4) On receipt of notice that an appeal has been preferred under this Section the party against whom the appeal has been preferred may notwithstanding that he may not have appealed against such order or any part thereof file within forty-five days of the receipt of the notice a memorandum of cross-objections verified in the prescribed manner against any part of the order appealed against and such memorandum shall be disposed of by the Appellate tribunal as if it were an appeal within the time specified in sub-section (3)
(5) The Appellate Tribunal may admit an appeal or permit the filing of a memorandum of cross-objections after the expiry of the relevant period referred to in sub-section (3) or sub-section (4), if it is satisfied that there was sufficient cause for not presenting it within that period,
(6) An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner and shall irrespective of the date of demand of duty and interest or of levy of penalty in relation to which the appeal is made be accompanied by a fee of;
“(a) where the amount of duty and interest demanded and penalty levied by any Central Excise officer in the case to which the appeal relates is five lakh rupees or less one thousand rupees;
(b) where the amount of duty interest demanded and penalty levied by any Central Excise officer in the case to the which the appeal relates is more than five lakh rupees but not exceeding fifty lakh rupees five thousand rupees;
(c) where the amount of duty and interest demanded and penalty levied by any Central Excise officer in the case to which the appeal relates is more than fifty lakh rupees ten thousand rupees:
PROVIDED that no such fee shall be payable in the case of an appeal referred to in sub-section (2) or a memorandum of Cross-objections referred to in sub-section (4).
(7) Every application made before the Appellate tribunal,-
“(a) in an appeal for grant of stay or for rectification of mistake or for any other purpose; or
(b) for restoration of an appeal or an application shall be accompanied by a fee of five hundred rupees:
PROVIDED that no such fee shall be payable in the case of an application filed by or on behalf of the Commissioner of Central Excise under this sub-section.]”
A reading of the aforesaid provision makes it very clear that the proviso to Section 35 categorically states that no appeal shall lie to the appellate tribunal and the appellate tribunal shall not have jurisdiction to decide any appeal in respect of any order referred to in Clause (b) that is an order passed by the Commissioner of Appeals-under section 35-A, if such an order relates to rebate of duty of excise on goods exported to any country or territory outside India or exercisable materials used in the manufacture of goods which are exported to any country or territory outside India. Therefore the exclusion of the jurisdiction of the appellate Tribunal is expressly stated in the Statute. Therefore the Tribunal was in error in entertaining the said appeal. Against the said order an order under Section 35-EE provides revision to the Central Government. Therefore the impugned order passed by the Tribunal is illegal contrary to law and cannot be sustained. Hence we pass the following order:-
“(1) The appeal is allowed.
(2) The impugned order passed by the Tribunal is hereby set aside recto ring the order passed by the Commissioner of appeal.
(3) However the assesse is at liberty to prefer a Revision to the Central Government against the order passed by the Commissioner of Appeals under section 35-A.
(4) If the appeal is filed within 30 days from the date of receipt of copy of this Order the Central Government shall entertain the said Revision and pass appropriate orders in accordance with law after hearing the assesse without getting into the question of limitation as the Tribunal had entertained and set aside the order of the appellate Tribunal and had granted the relied to the assesse.

taxind_2011_hc_kar_cea_65

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF DELHI

S/SHRI Misra C.J. and Sanjiv Khanna, J.

AGV ALFAB LIMITED Versus COMMISSIONER OF C. EX., DELHI-II

Writ Petition (Civil) No.12604 of 2009 and W.P. (C) No.2003 of 2010, decided on 15-3-2011
The contention of the petitioner on the other hand is that it is engaged in doing work of structural glazing (curtain walls) and cladding which cannot be regarded as identifiable commercial products in a factory or in any other manufacturing premises. It is alleged that the said activity involves only reaction and installation of curtain walls and cladding and not manufacturing and therefore no excisable goods come into existence.
Generally parties are not encouraged to seek writ remedy, if alternative remedy is available. In Whirpool Corpn. V. Registrar of Trade Marks, (1998) 8 SCC 1 the Supreme Court pointed out the three contingencies in which writ remedies may be sought namely “where the writ petition has been filed for the enforcement of any of the fundamental rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. In the present case in view of the observations made above, we are not satisfied that the present case justifies interference inspite of the alternative remedy. The Supreme Court has observed in a catena of decisions over the years that a writ court should not interfere at the stage of issuance of show cause notice by the authorities. In union of India v. Hindalco Industries, (2003) 5 SCC 194=2003 (153) E.L.T. 481 (S.C.). it was observed by the Supreme Court that in taxation matters it is not proper for the High Court to interfere in exercise of jurisdiction under Article 226 of the Constitution at the stage of show cause notice especially if there is an alternative remedy available i.e. by way of filing a reply or appeal. It was held:
“There can be no doubt that in matters of taxation, it is inappropriate for the High Court to interfere in exercise of jurisdiction under Article 226 of the Constitution either at the stage of the show cause notice or at the stage of assessment where alternative remedy by way of filing a reply or appeal, as the case may be is available but these are the limitations imposed by the courts themselves in exercise of their jurisdiction and they are not matters of jurisdictional factors. Had the High Court declined to interfere at the stage of show-cause notice perhaps this Court would not have been inclined to entertain the special leave petition when the High Court did exercise its jurisdiction entertained the writ petition and decided the issue on merits, we do not think it appropriate to upset the impugned order of the High Court under Article 136 of the Constitution on a technical ground.”
As of now there is no determination of the questions raised even by the authorities. No final view has been taken by the respondent, The situation is still fluid. It cannot be disputed that the respondent i.e. the Commissioner of Central Excise has jurisdiction to decide and go into the said questions by issue of notice under Section 11A of the Act. The said authority can adjudicate and decide the objections and contentions raised by the petitioner. In these circumstances we are not inclined to entertain the present writ petition against the show cause notices and the petitioner is given liberty to file reply within three weeks to the show cause notices along with the citations relied upon by them. The Commissioner of excise well examine the said contentions including the judgments relied upon by the petitioner. The contention that the petitioner is registered and paying service tax for the activities of fabrication and erection of wall curtains will also be examined. The Commissioner shall deal with the contention that both service tax and excise duty cannot be levied on the activity. The Commissioner of excise will pass a speaking and reasoned order. The petitioner will be at liberty to challenge and question the same, if aggrieved. The petitioner will also be at liberty to apply for stay and if necessary, approach this Court for protection. The observations made in this order are for the purpose of disposal of these writ petitions and will not be construed as observations or finding on merits which are binding on the authorities.

taxind_2011_hc_del_wp_12604

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

S/SHRI J.P. Devadhar and Roshan Dalvi, JJ.

RELIANCE MEDIA WORKS Versus COMMISSIONER OF C. EX., MUMBAI-V

Writ Petition (L) Nos. 570-571 of 2011 decided on 30-3-2011
The Petitioner produces chemical preparations for processing cinematography films. By treating that the above activity constitutes manufacture similar show cause notices were issued by the Excise Authorities however the said show cause notices were dropped by an order-in-original dated 31st May 2000 by holding that the activity carried on by the petitioner did not amount to manufacture.
We see no merit in the aforesaid contentions. Admittedly in compliance with the order of the Tribunal dated 11-7-2008 which is confirmed by this Court vide order dated 24-6-2009/12-11-2009, the adjudicating authority has passed a fresh order on 25-8-2009 by holding that the activity carried on by the petitioner amounts to manufacture. On the basis of the said order-in-original dated 25-8-2009, the present show cause notices have been issued. Admittedly the appeal filed by the petitioner against order in original dated 25-8-2009 is pending before the CESTAT. During the pendency of the said appeal the competent officer on the basis of the order-in-original dated 25-8-2009, was Justified in issuing show cause notices demanding duty in respect of the clearances made during the period specified in the show notices.
As regards the merits of the show cause notices, it is open to the petitioner to show cause in the adjudication proceedings as to why the duty demand should not be confirmed.

taxind_2011_hc_bom_wp_570

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH

S/SHRI Adarsh Kumar Goel and Alok Singh, JJ.

GUPTA IMPEX Versus UNION OF INDIA

C.W.P. No. 7330 of 2010 decided on 26-5-2010
Case of the petitioner is that it imported material under open General Licence and requisite duty was duty paid. Inspite of the said payment impugned order dated 26-2-2010 was passed asking for further payment of duty without taking into account the duty already paid. Vide order dated 19-12-2005, passed by this court in P.P. Industries v. Commissioner of Customs, Amritsar 2007, (220) E.L.T. 55, Annexure P-1, this Court held that due credit has to be given for the customs duty already paid. Still order Annexure P-2 was passed without giving credit for duty paid and without serving any notice to the petitioner. Thus the order passed without complying with principles of natural justice was liable to be set aside. Reliance has been placed on judgment of this Court in Sonia overseas (P) Ltd. V. Union of India 2009 (241) E.L.T.38.
On 28-4-2010, following order was passed:-
“Learned counsel for the petitioner says that the impugned order has been passed without giving an opportunity of hearing to the petitioner and in similar circumstances this court interfered with a similar order in Sonia overseas (P) Ltd. V. Union of India 2009 (241) E.L.T.38.
Notice of Motion.
Mr. G.s. Ghuman Advocate present in Court accepts notice and seeks time.
List again on 26-5-2010.”

taxind_2010_hc_ph_cwp_7330

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

S/SHRI Akil Kureshi and Sonia Gokani, JJ.

COMMISSIONER OF C.EX. & CUSTOMS Versus D.P. SINGH

Special Civil Application No. 16269 of 2010 with S.C.A. Nos. 814 of 2011 and 16270-16271 & 16304 of 2010, decided on 31-3-2011
[Judgment per: Akil Kureshi, J. (Oral)].- These petitions filed by the Commissioner of Central Excise Surat raise similar questions of law and facts. They are therefore being heard together and disposed of by this common order. In all material aspects since facts are common, for the sake of convenience, we may note such facts as emerging from record of Special Civil Application No. 16269/2010.
Respondent M/s. Roman overseas is an exporter. It had purchased certain materials for its manufacturing activity for the purpose of export from one M/s. unique exports. Necessary documents and invoices etc. were found to be in order at the relevant time when respondent M/s. Roman overseas made such purchases. Significantly, such documents revealed that the goods supplied by M/s. unique Exports to M/s. Roman overseas had suffered excise duty at the rates applicable. Upon eventual export of the goods manufactured by m/s. Roman overeas with the use of inputs supplied by M/s. unique Exports M/s. Roman overseas filed six rebate claims totaling to Rs.17,00,163/- before the department for the duty paid on such goods in terms of Rule 18 of the Central Excise Rules, 2002.
While processing such rebate claims the Range officer Verified the genuineness of the duty payment particulars with respect to the goods supplied by M/s. unique Exports. Upon such verification it was found that M/s. unique Exports had purportedly purchased such goods from two agencies namely, M/s. Amar Enterprise and M/s. Harikrishana Enterprise. However, such agencies were found to be non-existent. It was thus noted that M/s. Unique Exports had falsely claimed cenvat credit on the basis of invoices issued by such non-existent firms. M/s. Unique Exports had since passed on such cenvat credit to M/s. Roman overseas, department was of the opinion that M/s. Roman overseas is not entitled to claim rebate since no duty was ever paid on the inputs received by M/s. Roman overseas from M/s. unique Exports.
On the basis of such facts a show cause notice came to be issued against respondent M/s. Roman overseas on 29-3-2005 by the Assistant Commissioner of Central Excise & Customs, Surat. In the notice it was alleged that M/s. Unique Exports had taken cenvat credit on the basis of invoices issued by non-existent firm and passed on cenvat credit fraudulently to present respondent. It was thus stated that since no excise duty on inputs used for exports was actually paid M/s. Roman overseas was not entitled to claim any rebate for such exports. M/s. Roman overseas was called upon to show cause why rebate claim of Rs.17,00,163/- should not be rejected under Section 11B of Central Excise Act, 1944 read with Rule 18 of Central Excise Rules, 2002 read with Notification No.41/2001.
Respondent herein M/s. Roman overseas appeared before the authority filed its objections were also heard in person. By order dated 20-3-2006, however the Assistant Commissioner, Central Excise Surat ruled against respondent M/s. Roman overseas disallowed the rebate claimed primarily holding that:-
“In the above case I find that when the manufacturer has availed the Cenvat credit on the basis of invoices issued by the non-existing units and passed on such Cenvat Credit vide invoice No.07 to 12 all dtd. 5-5-04 for claiming the Rebate claim. Therefore the whole credit circulated by the non-existing firm which have been declared bogus and the manufacturer of the goods have passed on such inadmissible Cenvat Credit to the Exporter for availing the Rebate claim shall be inadmissible.”
In addition to above conclusions the competent Authority also relied on Rule 9(3) of the Cenvat Credit Rules, 2004 which requires the manufacturer or producer taking cenvat credit on inputs or capital goods to take all reasonable steps to verify that such goods or inputs are such on which appropriate duty of excise has been paid.
Before the competent authority, though respondent M/s. Roman overseas denied any involvement in such fraud and claimed to be bona fide purchaser, did not dispute that M/s. unique Exports had not paid duty at the time of clearance of goods. On behalf of respondent M/s. Roman overseas. It was contended that department is at liberty to proceed against suppliers but not against M/s. Roman overseas.
One more significant aspect that emerges from the order in original is that as per the competent authority respondent M/s. Roman overseas was not part of the fraud in nonpayment of excise duty.
Aggrieved by order in original respondent M/s. Roman overseas carried the matter in appeal before the Commissioner (Appeals). The Commissioner (Appeals) by his order dated 20-3-2006 allowed the appeal, reversed the order passed by the competent authority held that respondent M/s. Roman overseas is entitled to rebate as claimed. In the order it was emphasized that there was no allegation that M/s. Roman overseas and manufactures are related persons or that such sale was not principle to principle basis. It was observed that M/s. Roman overseas had taken full precaution to ensure that manufacturer supplier is registered with the department and invoices issued by them are in order.
Department aggrieved by the order of Commissioner (Appeals) approached the Government invoking powers of revision under Section 35EE of the Central Excise Act. Such revision was however dismissed by impugned order dated 7-1-2010. Aggrieved department is before us challenging the orders passed by the Commissioner (Appeals) as confirmed by the Government.
On the other hand, counsel for respondent M/s. Roman overseas supported the order passed by the Commissioner (Appeals) as well as Government and submitted that insofar as respondent M/s. Roman overseas is concerned, duty was duty paid. Respondent M/s. Roman overseas had taken all necessary precautions. Being a bona fide purchaser, when it is admitted that goods were eventually exported rebate claimed could not have been denied.
“4.1 Counsel relied on the following decisions:
“(1) In case of Taparia overseas (P) Ltd. V. union of India reported in 2003 (161) E.L.T. 47 (Bom.), wherein Bombay High Court found that all the petitioners had obtained licenses for valuable consideration without any notice of the fraud alleged to have been committed by the original license holders. In that background it was observed that concept that fraud vitiates subsequent transactions would not apply. The Court allowed exemption of duty on goods imported.
(2) In Tax Appeal No 1263/2006 dated 27-1-2006 wherein the Division Bench of this Court was considering the effect of purchase of advance license under DEEC scheme, which was found to have been obtained on forged or false export documents before DGFT, the Bench confirmed the view of the tribunal holding that eventual purchaser cannot be denied the benefits making following observations:
“15. The aforesaid decisions would apply with full force to the facts of the present case inasmuch as the endorsement of transferability had been made by the licensing authority. It is not the case of the licensing authority that the endorsement was fraudulently obtained, nor has the licensing authority taken any steps to cancel the said licence. In the circumstances the customs authorities could not have refused to grant the benefit under the said licence. The Tribunal was therefore justified in setting aside the duty demand.”
“(3) In case of CC, Amritsar v. Ajaykumar & Co. reported in 2009 (92) RLT 883 (S.C.)= 2009 (238) E.L.T. 387 (S.C), wherein Judgment of the Tribunal in case of Ajay Kumar & Co. v. Commissioner of Customs, Amritsar reported in 2006 (205) E.L.T. 747 was confirmed wherein tribunal had observed as under:
“6. By applying the ratio as laid down by the Court in the above decisions, to the fact of the present case it has to be held that the imports made under the DEPB Scrips, which were valid at the time of import the subsequent cancellation of the same on the ground that original allottee procured them by fraud will not have any bearing upon the imports made by the appellant. There is nothing in the impugned order to reflect upon any mala fide on the part of the appellant or to show that he was a party to the fraudulent obtaining of scrips by M/s. Parker or had any knowledge about the tainted character of the scrips. As such we are of the view that the imports made by the appellant in terms of the said scrips cannot be held invalid.”
Additionally such rebates are governed by conditions laid down in the notifications issued by the Government of India from time to time. In the present case, Notification No.19/2004 would be relevant which lays down conditions for claiming such rebates. Relevant condition is condition No.2, particularly clause (a) thereof which reads as under:
“(a) that the excisable goods shall be exported after payment of duty directly from a factory or warehouse except as otherwise permitted by the Board of Excise and Customs by a general or special order.”
At this stage we would like to deal with the judgments cited by the counsel for the department
“(1) Reliance was placed decision in case of New India Assurance Co. Shimla v. Kamla and others reported in (2001) 4 Supreme Court Cases 342. In that case a driving license upon its expiry was presented for renewal Authorities unmindful of the defects, renewed the same. The Insurance claim repudiated the claim citing the reason that the original license was forged. It was contended that even it previously license may have been forged, upon renewal would be rendered valid. It was in this background that Supreme Court observed that “what was originally a forgery would remain null and void forever and it would not acquire legal validity at any time by whatever process of sanctification subsequently done on it. Forgery is antithesis to legality and law cannot afford to validate a forgery.”
(2) Reliance was placed on decision of Punjab and Haryana High Court in case of Golden Tools International v. Joint DGFT, Ludhiana reported in 2006 (199) E.L.T.213 (P & H). It was however a case where the petitioner themselves had imported duty free item on the basis of DEPB allowance which was found to have been fraudulently obtained. It was in this background that the Court held that same would tantamount to contravention of provisions of Foreign Trade (Development and Regulation) Act, 1992. Penalty imposed was thus upheld.
(3) Reliance was also placed on decision of Punjab and Haryana High Court in case of Friends Trading co. v. union of India reported in 2010 (254) E.L.T. 652 (P & H), wherein again DEPB scrips were found to have been obtained by producing false documents. There again the person claiming the duty exemption was the same as one who was found to have committed fraud.
(4) Reliance was placed on decision in case of Sheela Dyeing & Printing Mills P. Ltd. V. C.C.E. & C., Surat-I reported in 2008 (232) E.L.T. 408 (Guj,), wherein issue involved was whether while taking cenvat credit on inputs the appellant had taken reasonable steps to ensure that goods are duty paid. It was this background relying on sub-rule (2) of Rule 7 of Cenvat Credit Rules, Court Found that appellant had failed to take such care. In the present case we have already noticed that such averment and allegations are not on record. In fact findings are to the contrary.
Before closing however we may reiterate that the facts in present case are peculiar. Had there been any allegations and evidence to show that respondent M/s. Roman overseas was either part of the fraud in non-payment of excise duty or had knowledge about the same or even had failed to take care as envisaged under sub-rule(2) of Rule 7 of the Cenvat Credit Rules, situation would have been different. In the present case, where no such facts emerge, we have no hesitation in confirming the view of the Government.

taxind_2011_hc_guj_sca_16269

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF JUDICATURE AT MADRAS

S/SHRI Chitra Venkataraman and P.P.S. Janarathana Raja, JJ.

COMMISSIONER OF CUSTOMS (EXPORTS), CHENNAI Versus VBC INDUSTRIES LTD.

C.M.A. No. 3873 of 2005, decided on 9-4-2011
The assesse/respondent herein applied for registration of six contracts under Project Import Regulations with Visakapatnam Customs House during 1991. Out of six contracts five had been cleared through Madras Customs House. It is seen from the facts herein that the assesse imported certain capital goods. For the manufacture of Ammonium Nitrate and Nitric Acid. These goods were assessed to duty as Project imports. Following the announcement of new Export-Import Policy for clearance of capital goods under the EPCG scheme, which provided for concessional rate of Customs duty subject to fulfillment of certain export obligation the assesse got the Import Licence amended accordingly through DGFT. In respect of performance of the obligation a show cause notice dated 26-7-1999 was issued by the Revenue alleging violation of Notification No.160/92-Cus., dated 20-4-1992, that the respondent had not fulfilled the obligation. The adjudication ultimately culminated into an order dated 28-8-2002 passed by the Commissioner of Customs (Sea), Chennai. The adjudication order apart from confirming the duty demanded also resulted in confiscation of seized goods with option for redemption and imposition of penalty to a sum of Rs.2,01,89,241/- The said amount was paid by the assesse.
On appeal by the assesse before CESTAT Bangalore by order dated 11-7-2003 [2003 (156) E.L.T. 872 (Tri.-Bang.) the same was allowed and thus the liability to pay duty as well as interest was set aside. The tribunal held that interest was not leviable since notification No. 160/92-Cus. Did not contain a condition to that effect. It is stated that the order passed by the CESTAT Bangalore was taken on appeal before the High Court. In the meantime, the assesse sought for refund of duty paid along with interest. The assesse filed a refund claim dated 16-8-2003, having regard to the CESTAT order allowing the appeal filed by the assesse/respondent, cancelling the duty levy as well as interest. The Deputy Commissioner (Customs) found that the refund claim had arisen consequent on the order passed. He further pointed out that the claim was hit by limitation inasmuch as the amount claimed was not paid under protest. The Deputy Commissioner further pointed out that the Commissioner of Customs in his order-in-original No.147/2002, dated 30-8-2003, had appropriated the payment towards the interest liability. He further pointed out that even though the assesse had not passed on its liability to the customers yet having regard to the order passed dated 28-8-2002 of the Commissioner (Customs), a sum of Rs.3,59,62,163/- was remaining outstanding towards differential duty together with interest. Thus, in terms of Section 142 of the Customs Act, a sum of Rs.2,01,89,241/- refundable to the assesse/respondent herein was to be deducted as against a sum of Rs.3,59,62,163/- Thus the Deputy Commissioner sanctioned the sum of Rs.2,01,89,241/- alone by way of refund under Section 27 of the Customs Act. On appeal by the respondent/assesse before the Commissioner of Customs, by order dated 31-3-2004, the Commissioner modified the order of the Deputy Commissioner and held that the assesse paid the differential duty and interest on the differential duty on account of non-fulfilment of export obligation. However the Commissioner of Customs ordered confiscation of goods. Consequent on the DRI booking a case for evasion of duty against the assesse, the Commissioner of Customs demanded extra duty, which was subsequently set aside by the CEGAT. The Commissioner held that the Deputy commissioner of Customs (Refunds) overlooked the relief granted by the Tribunal, but however ordered adjustment of the refund claimed as against the demand. The commissioner further pointed out that the Deputy Commissioner did not place any evidence on record to show that the demand made by any other proper officer under Section 142 of the Customs Act requiring him to deduct the amount as payable by the assesse. When the demand had been struck down by the CEGAT vide order No.911/03 [2003 (156) E.L.T. 872 (Tribunal) and having regard to the fact that the Commissioner (Export) had recorded that no amount is due from the assesse as per the CEGAT’s order the adjustment was illegal. As far as interest issued is convened, the Deputy Commissioner had not passed any order. Therefore the said aspect was not considered in the appeal. The assesse preferred a further appeal before the CESTAT, as against the interest claimed which was not granted by the Commissioner. By order 14th February, 2005 [2005 (192) E.L.T. 275 (tribunal)], CESTAT allowed the appeal holding that the Revenue was liable to pay interest from the date of payment of interest till the date of refund of the same. In so holding the Tribunal followed the decision reported in 254 ITR 606-Commissioner of Income Tax v. Narendra Doshi to order refund of interest as well as interest on interest for the belated payment. Aggrieved by the same the Revenue has come on appeal before this Court.
Per contra, learned Senior counsel appearing for the respondent/assesse submitted that going by the decision of the Apex Court reported in 254 ITR 606 (Commissioner of Income Tax v. Narendra Doshi), when interest payment is compensatory in character, it takes the character of principal duty. The word duty appearing in Section 27 of the Customs Act has to be read as inclusive of interest on the belated payment. Hence the assesse is entitled to interest on interest. Referring to the definition of duty in Section 2(15) of the Customs Act, he pointed out that having regard to the interest payable on the payment of duty, the interest thus paid ought to have been included into the concept of duty for the purpose of considering the claim under Section 27A of the Customs Act. In any event he pointed out that the provisions of section 27(2) of the Customs Act contemplates refund of duty with interest. As such going by the Heading to Section 27A of the Customs Act, interest on belated refund, the scope of the term duty for the purposes of grant of interest should be read as inclusive of interest payment on the belated remittance of the duty.’ Thus when the Section contemplates interest on delayed refund the interest payable on the refund amount, as such has to be inclusive of interest on the interest paid on the belated payment.
A reading of the said section shows that if any duty ordered to be refunded under sub section (2) of Section 27 of the Customs Act is not refunded within a period of three months from the date of receipt of application, interest shall be payable by the Central Government on the refund claim. It is a matter of interest to note that while Section 27(2) of the Customs Act speaks about the refund of duty interest, Section 27A of the Customs Act stops with making reference to the refund of duty alone and makes no reference at all to the interest payable on the interest on the belated payment of duty, which is ordered to be refunded. When the language used in the section is clear and there is no ambiguity it is a well settled principle of law that section does not call for any interpretation. Section 27(1) and (2) of the Customs Act speaks about the refund of claim on duty on interest; Section 27A of the Customs Act, inserted in the year 1995, reads as follows:
“27A. Interest on delayed refunds.- If any duty ordered to be refunded under sub-section (2) of section 27 to an applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate not below five per cent and not exceeding thirty per cent per annum as is for the time being fixed by the Central Government by notification in the official Gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty:
Provided that where any duty, ordered to be refunded under sub-section (2) of Section 27 in respect of an application under sub-section (1) of that section made before the date on which the Finance Bill, 1995 receives the assent of the President is not refunded within three months from such date, there shall be paid to the applicant interest under this section from the date immediately after three months from such date till the date of refund of such duty.
Explanation.- Where any order of refund is made by the Commissioner (Appeals), Appellate tribunal, National Tax Tribunal or any court against an order of the Assistant Commissioner of Customs or Deputy Commissioner of Customs under sub-section (2) of section 27, the order passed by the Commissioner (Appeals) Appellate Tribunal or, as the case may be, by the court shall be deemed to be an order passed under that sub-section for the purposes of this section.”
It is also relevant to note that a reference to duty and interest in Section 27(2) of the Customs Act was added by way of substitution under Act 55/1991 with effect from 23-12-1991. As already pointed out Section 27A of the Customs Act, granting interest on delayed refund was inserted by Act 22/1995 with effect from 26-5-1995. In this connection the decisions relied on by the learned Senior Counsel for the assesse have to be seen.
It must be noted herein that the decision of the Apex Court is based on the interpretation of the word any amount as appearing in Sections 240 and 244(1A) of the Income Tax Act and in the absence of any specific provision on grant of interest on the belated refund of the interest component, it applied the general principles. Quite apart even otherwise the facts therein indicated that the claim of the assesse was by way of writ Petition challenging the order of the Commissioner rejecting the claim of the assesse for interest. Hence the decision relied on by the learned Senior Counsel appearing for the assesse has to be understood in the context of the facts therein and the provisions of law and the same cannot be of any assistance to the assesse herein.

taxind_2011_hc_mad_cma_3873

SUPREME COURT JUDGEMENTS

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

S/SHRI D.Y Chandrachud and Anoop V. Mohta, JJ.

ESSEL MINING & INDUSTRIES LTD. Versus UNION OF INDIA

Writ Petition No.4499 of 2007, decided on 14-6-2011
{Judgment per : D.Y. Chandrachud, J. (Oral)].-The Petitioner has been recognized as an Export House by the Director General of Foreign Trade in the union Ministry of Commerce. The Petitioner engages in the manufacture of Ferro molybdenum which falls under Heading 72.02 of the Central Excise Tariff, at its factory at Vapi. Roasted molybdenum concentrate is the principal raw material and input in the manufacture of Ferro Molybdenum and is imported by the Petitioner. The Petitioner is also engaged in the mining of Iron ore. Iron ore is sold within India and is exported by the Petitioner.
The Target Plus Scheme:
Clause 3.7.6 of the Foreign Trade Policy permitted the utilization of the duty credit for effecting imports Clause 3,7.6, in so far as it is material, was to the following effect:
“3.7.6, The Duty credit may be used for import of any inputs capital goods including spares office equipment professional equipment and office furniture provided the same is freely importable under ITC (HS) Classification of Export and Import items, for their own use or that of supporting manufactures as declared in Aayaat Niryaat Form.” (emphasis supplied).
Under paragraph 3.7.6. the duty credit could be utilized for the “import of any inputs” and for capital goods including spares, office equipment professional equipment and office furniture. Only those inputs which were freely importable could be imported. Moreover importers could import inputs only “for their own use or that of supporting manufacturers”. The Handbook of Procedures listed out in paragraph 3.2.5 the nature of goods which were allowed to be imported under the Scheme. Paragraph 3.2.5 requires a “broad nexus” with the products exported. The relvant provision in the Handbook of Procedures was to the following effect:
“II. Goods allowed to be imported under this scheme shall have a broad nexus with the products exported. For the purpose of import entitlements under this Scheme broad nexus would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate.” (emphasis supplied).
The Standard Input-output Norms for Engineering products in the Handbook of Procedures contain Entry C-478 which relates to ferro molybdenum and Entry C-1932 which relates to iron ore including processed iron ore.
A circular was issued by the Central Board of Excise and Customs on 8 May 2007. The circular records that it had been brought to the notice of the Ministry by the trade that some exporters had obtained duty credit certificates against exports of rice and using these certificates, they had imported almonds which after removal of shells, had been sold in the marked without payment of duty. As dry fruit/almonds cannot be used in the processing or manufacture of rice, it was alleged that the condition of broad nexus stipulated in the Handbook was not fulfilled. Moreover it was alleged that the actual user condition specified in the policy and in the Customs notification was also violated because almonds, after removal of shells were being sold in the open market. It is alleged that the act of importation of almonds which were neither inputs nor capital goods in relation to rice would be a misuse of the Target Plus Scheme. The circular states that the opinion of the Union Ministry of Law was sought on the interpretation of the terms contained in paragraph 3.7.6 of the Foreign Trade Policy. The circular elaborates that while interpreting the expression “inputs” and use” in paragraph 3.7.6 of the Policy, the Ministry was of the following opinion:
“Together these words indicate that the item sought to be imported should be an input in the manufacture of the exported items which is required for “use” by the exporter or the supporting manufacturer, as the case may be for this purpose the intended input must have a relationship with the export product.”
The conclusion which was drawn by the Union Ministry of Law has then been set out in the circular in the following terms:
“In the light of this, the Ministry of Law has clarified that the holder of TPS certificate is permitted to import an item under the TPS and get the same processed into possible resultant products only if the same has a broad nexus’ with product group as an input in the export product and is required to be used as an input in the product exported for which TPS benefit is sought. The Ministry of Law has also clarified that the term broad nexus’ with the product group is in addition to and not in substitution of the words “inputs” and own use in para 3.7.6 of the Scheme.”
Now it is not disputed before the Court that the goods which have been imported by the Petitioner satisfy the requirement that there should exist a “broad nexus” between the goods which are imported and the goods which are exported as stipulated in Paragraph 3.2.5 of the Handbook of Procedures. The requirement under the Handbook of Procedures is that for the purposes of import entitlement under the scheme, broad nexus would mean goods imported with reference to any of the product groups of the imported goods within the overall value of the entitlement certificate. There is no dispute before the Court that this requirement under the Handbook of Procedures has been duly fulfilled. No submission to the contrary has been urged by Counsel for the respondents. The fact that the goods imported were required by the Petitioner for its own use has not been disputed before the Court by Counsel for the respondents. But the case of the Respondents is that the requirement which is stipulated in the circular dated 8 May 2007 is that there should not only be a broad nexus of the goods imported with reference to the product group of the exported goods but that the goods imported must constitute an input in relation to the very products which have been exported Now reading paragraph 3.7.6 of the Foreign Trade Policy, it is evident that an eligible exporter is entitled to utilize duty credit in the import of any inputs, provided (i) they are freely importable; and (ii) the inputs are imported by importers for their own use. Paragraph 3.7.6 does not stipulate that the goods which are imported must be inputs for the manufacture of the export product in relation to which the benefit of the Target Plus Scheme is claimed. What paragraph 3.7.6 requires is that the goods which are imported by the eligible exporter must be inputs and the inputs must be imported “for their own use” meaning thereby the use of the importer himself. This is also amplified by the requirement of the exemption notification dated 8 April 2005 which stipulates that the goods imported against the certificate shall not be transferred or sold. Paragraph 3.7.6 on its plain construction, does not incorporate a requirement that the goods which are imported as inputs must find physical incorporation in the export products in relation to which the benefit of the Target Plus Scheme is claimed. In fact even Paragraph 3.2.5 of the Handbook of procedures which spells out the meaning of the broad nexus requirement does not impose such a condition Such a requirement is sought to be introduced for the first time by the circular dated 8 May 2007.
The Foreign Trade Policy, it is well settled is referable to the provisions of Sections 4 and 5 of the Foreign Trade Development and Regulation Act, 1992. The policy cannot be amended by an administrative circular. The circular does not in this case supplement the policy or fill up an interstitial space. The circular imposes a substantive condition at variance with the policy. Where the Central Government has considered it necessary to impose a requirement of physical incorporation, such a condition has been made expressly in other provision of the Foreign Trade Policy. For instance in relation to advance plus licences governed by the duty exemption scheme, it has been stipulated that an advance licence is issued to allow duty free importable inputs which are physically incorporated in the export products (paragraph 4.1.3 of the Foreign Trade Policy for April 2005). Similarly while issuing an exemption notification in relation to imports covered by advances, the Union Government in its notification dated 10 September 2004 (Notification 93/04) has specifically defined materials to mean raw materials components intermediates consumables, catalysts and parts which are required for manufacture of resultant products. No such requirement was incorporated in paragraph 3.7.6 of the Foreign Trade Policy. In other words the condition that the inputs which are imported must be used in the export of the resultant product was not incorporated as part of paragraph 3.7.6 of the Foreign Trade Policy. In that view of the matter I tis not possible to accept the contention of the Respondent that the conditions which were imposed by the circular dated 8 May 2007 were implicit in paragraph 3.7.6 of the Foreign Trade Policy. We therefore come to the conclusion that the conditions which were stipulated by the circular dated 8 May 2007 were ultra vires paragraph 3.7.6 of the Foreign Trade Policy and Customs notification dated 8 April 2005 (Customs Notification 32/05).
For the reasons aforesaid, we make rule absolute in terms of prayer clause (a) by quashing and setting aside the impugned circular dated 8 May 2007 issued by the Ministry of Finance in the Department of Revenue and the consequential assessment. During the pendency of the Petition the Petitioner was permitted by an interim order to import goods by availing of the benefit of the Notification dated 3 March 2005 March 2005 to the extent of the entitlement certificate dated 5 January 2007 by furnishing an undertaking in favour of the Commissioner of Customs in respect of the differential duty as demanded by the Authority. In view of the fact that the circular dated 8 May 2007 has now been quashed and set aside the assessment shall be carried out afresh in accordance with law. There shall be no order as to costs.

taxind_2011_hc_bom_wp_4499

SUPREME COURT JUDGEMENTS