Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Ramesh Nair (Judicial Member) and Raju (Technical Member) allowed the appeal in which the issue was that whether the appellant was required to pay 10% of value of exempted goods in terms of Rule 6(3) of Cenvat Credit Rules, 2004.

Counsel appearing on behalf of the appellant, Mr Amal Dave submitted that the appellant had been paying proportionate Cenvat credit attributed to exempted goods from time to time at their own and where there was any delay, interest was also paid. Therefore, the demand of 10% of the value of exempted goods under Rule 6(3) of Cenvat Credit Rules, was not sustainable. Mr Rakesh Bhaskar, Superintendent (Authorised Representative) appearing on behalf of the Revenue reiterated the findings of the impugned order.

The Tribunal hearing both sides found that there was no dispute about reversal of credit on input services attributed to exempted goods. It was also observed by the Tribunal that appellant had paid Cenvat credit and wherever there was delay in such payment, the appellant paid interest and in this position it should be considered that appellant had not availed Cenvat credit. Thus, Rule 6(3) of Cenvat Credit Rules, 2004 shall not be invoked.

The Tribunal allowed the appeal following the decision of this tribunal in the own case of the appellant in P&B Pharma Ltd. CESTAT Ahmedabad order No. A/1344 1345/WZB/AHD/2010 dated 26-08-2010 where it was held,

“4. After appreciating the submissions made by both the sides, we find that the law on the disputed issue is clear by the various decisions referred supra. As regards the fact of reversal of modvat credit, we find from the impugned order in original passed by the Additional Commissioner that the factum of reversal of credit amount relatable to the inputs used in the manufacture of exempted final product stands accepted by him and there is no dispute about the same, in which case there is no need for remanding the matter for verification of reversal amount.In view of the above, the impugned orders have been set-aside and appeals allowed with consequential relief to the appellants.”

[P & B Pharmaceuticals Ltd. v. Commr. Of CE & ST,  2021 SCC OnLine CESTAT 2500 , decided on 04-08-2021]


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Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Rachna Gupta (Judicial Member) allowed an appeal which was filed aggrieved by the order-in-original asking the appellants for recovery of Central Excise Duty amounting to Rs 16,22,501 along with the appropriate interest and proportionate penalty.

The appellant was engaged in the manufacture of organic compound and enzymes. During the course of audit, the Department observed that the appellant had sent 1,41,396.180 litres of chemical for job work under job work Challan for processing. They had received only 90620.290 litres of chemicals. The chemical not received by the appellant i.e. 50775.890 litres was alleged to have the value of Rs. 1,01,15,903/- involving Central Excise duty of Rs.16,22,501/- from their job worker. The said amount of excise duty during the period from 1-3-2003 to 31-3-2005 has accordingly been alleged to have not been paid in contravention to the provisions of Rule 4(5) of CENVAT Credit Rules, 2002.

The appellant submitted that in the manufacture of organic compound into antibiotics and enzymes, the appellant has used Hexa methyl Di-Silioxane (HMDS). After the manufacture of said antibiotic, there remain a by-product namely, (Hexa-Methyl Di-Silixane) HMDSO which contains 75% of HMDS, the raw material for the appellant’s final product and about 25% Toluene. They did not have recovery plant in their factory premises to recover said 75% of HMDS from the said by-product HMDSO. Accordingly, the said product was given to the job worker with an agreement that the yield returnable product would be 90% calculated on 100% basis of HMDS in case the purity is more than 80%. However, if the purity was less than 80%, the yield returnable would be 85%. It was submitted that it is because of that difference in yield returnable that quantity of HMDS received back by the appellant from the job worker was less by about 32-36% of total quantity of HMDSO.

The main issue deduced by the tribunal was that whether Rule 4(5) of CCR was applicable to the given facts and circumstances. The Tribunal perused Rule 4 (5) and explained that:

  • where the manufacturer need to sent those inputs for any kind of processing either inputs as such or after partially processing those inputs, then also those inputs shall be eligible for Cenvat Credit to the extent of duty paid on those inputs provided job workers returned the reprocessed inputs within one hundred eighty days, else the manufacturer shall be liable to pay the amount equivalent to the Cenvat Credit attributable to such inputs by debiting the Cenvat Credit or otherwise.
  • It also stand, abundantly clear from this provisions that this Rule applies to such inputs which have been sent to the job worker before the manufacturer is able to manufacture its final product.
  • This provision applies Thus to a situation where final product cannot be manufactured unless and until the inputs has to undergo such further processing, testing, repairing, reconditioning or any other such treatment which is not available with the manufacturer himself and it has to be got down from the job worker that Rule 4(5) of CCR is invokable. That too in case when Job worker fails to return the processed input within 180 days of receipt thereof.

The Tribunal was of the opinion that there was no denial of the fact that the by-product / waste (HMDSO) which has emerged with the final product (anti-biotic/ organic compound ) of the appellant from the inputs HMDS is sent to the job worker for the reason that this by-product has a potential of releasing the inputs i.e. HMDS by further recovery process as 75% of such HMDS is still contained in the said by-product i.e. HMDSO and this was sufficient to hold that Rule 4(5) of Cenvat Credit Rules is not applicable to the given facts and circumstances. The Tribunal held that what was given to the job worker was the waste which emerged along with final product and not the inputs as such, used by the appellant for manufacturing anti-biotic as a final product. The Tribunal relied on the rulings of Rocket Engineering Corporation Pvt. Ltd. v. CC Pune, 2005 (191) ELT 483 which has been based upon the earlier decision of this Tribunal in the case of Preetam Enterprises v. CCE, 2004 (173) ELT 26. It was held in these decisions that Rule 4(5)(a) of the Cenvat Credit Rules, 2002 does not cover the return of waste and scraps.

The Tribunal further stated that the Commissioner (Appeals) had rejected the appeal solely on the ground that Rule 4(5) does not differentiate between product and by-product however findings are apparently wrong on the face of it.

The Tribunal allowed the appeal and set aside the order-in-original canceling the recovery of Central Excise duty along with interest and penalty.[Dalas Biotech Ltd. v. Commr. Of CE & CGST,  2021 SCC OnLine CESTAT 2523, decided on 03-08-2021]


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Counsel appearing for the Appellant: Ms Jwaria Kainath

Authorised Representative appearing for the Department: Shri Yashbir Singh

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Rachna Gupta (Judicial Member) allowed an appeal which was filed against the rejection of appeal in regard to interest and penalty matter under Rule 6 (3) of Cenvat Credit Rules.

Appellant was engaged in manufacture of PP woven fabrics and were also the recipient of few services as that of Goods Transport Agency Service, Manpower Recruitment Agency Service and Legal Consultancy Service etc. During the course of audit Department noticed that appellant had cleared empty polythene bags of raw-material, empty drum of power oil worth Rs.33,62,307/- in the name of waste sales without payment of duty, despite that the goods so cleared were non-excisable.

The appellant was required to reverse the amount at the rate of 6% of the value of goods so cleared alongwith applicable interest and penalty relying upon the notification which said that any non-excisable goods cleared from the factory will be treated as exempted goods and Cenvat Credit will be reversed on the same as per Rule 6 (3) of Cenvat Credit Rules.

The Tribunal after hearing the Departmental Representative and perusing the grounds of appeal observed that the main issue was whether Rule 6(3) of CCR, 2004 was applicable to the given facts and circumstances. The Tribunal came to a conclusion that Rule 6(3) was applicable only to the manufacturers that too those who manufacture two classes of the goods i.e. non-exempted and exempted goods. Apparently and admittedly the appellant herein was manufacturing only one kind of goods which was PP woven fabric. The Tribunal observed that irrespective, exempted goods include non-excisable goods in view of the amendment in terms of Notification No. 6 of 2015 dated 01-03-2015 unless and until such exempted goods were manufactured that too alongwith the non-exempted goods by the assessee, applicability of Rule 6 does not at all arise. The Tribunal further relied on the case of the Supreme Court in Union of India v. DSCL Sugar Ltd., 2015 (322) ELT 769 (S.C.) where it was held that the products which do not quality the definition of manufacture in Section 2 (f) of Central Excise Act, there cannot be any excise duty for such products.

The Tribunal while allowing the appeal held that said Rule had wrongly been invoked in case of the appellant for demanding the reversal of Cenvat Credit availed by him at the rate of 6% of the value of empty packets of raw-material and empty drums of the oils used by the appellant in manufacture of PP woven fabric when cleared for consideration.[Sundaram Packaging (India) (P) Ltd. v. Commr. Of Customs & CGST, 2021 SCC OnLine CESTAT 169, decided on 01-04-2021]


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Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Sulekha Beevi (Judicial Member) and P. Anjani Kumar (Technical Member) allowed an appeal which was filed aggrieved by the judgment and order of the Commissioner (Appeals).

The appellants had entered into a Business Solutions Agreement and another Business Promotion Agreement with Amazon Ltd. and as per the agreement the appellants had to store various merchandizes in the Amazon warehouse and facilitate dispatch of the goods for which Amazon was providing BSS and warehousing services. Service tax was collected from the appellants by Amazon for such services provided to appellant as these were input services for the appellant. The appellants were thus engaged not only in trading but also providing taxable service. The appellants started availing input tax credit on the service tax collected from them by Amazon on Business Support Service and Storage and Warehousing Services. They were advised that they were not eligible to avail credit on such service tax paid to M/s.Amazon and therefore they, as an abundant caution to avoid penal proceedings, reversed the credit by making cash payment along with interest for the input tax credit availed by them during this period. This was informed to the department. Since the appellants had utilized the input services for trading (exempted services) as well as taxable output services, they opted for reversal of proportionate credit as provided under Rule 6 (3A) (ii) of Cenvat Credit Rules, 2004. As the credit reversed was in excess of the proportionate credit to be reversed, they had filed a refund claim. After due process of law, the original authority rejected the refund claim entirely. In appeal, the Commissioner (Appeals) held that appellants will have to reverse/pay credit along with interest as per Rule 6(3A) (i) @ 7% of the value of exempted services and therefore were eligible for a partial refund and appropriate interest. Aggrieved by which, the instant appeal was filed.

The Counsel for the appellant, G. Natarajan submitted that the appellants had not maintained separate accounts of the input services used for exempted services (trading) and taxable output services and on wrong advice, reversed the entire input service credit by way of paying cash and on receiving proper legal advice, they filed the refund claims of excess payment.

The Tribunal observed that the appellant has been compelled to reverse credit @ 7% of the value of exempted services under Rule 6 (3) (i) read with Rule 6 (3D) (c) only for the reason they have not followed the procedure of intimating the department with regard to the option exercised. The Tribunal further laid emphasis on the judgment of the Tribunal in Philips Carbon Black Ltd. v. CCE & ST Durgapur, 2020 (1) TMI 530-CESTAT Kolkata,

“9. The issue can be looked at from another angle as well. Rule 6(1) of the CCR inter alia provides that cenvat credit shall not be made available in respect of inputs used in the manufacture and clearance of exempted goods. The reason being that there is no tax cascading requiring elimination in such a situation. Therefore, the said Rule 6(1) is clearly not aimed at revenue maximization but credit neutralization. Rule 6(2) and Rule 6(3) of the CCR are only aimed at securing compliance with the substantive provision contained in Rule 6(1) of the CCR where common inputs are used in the manufacture of a dutiable and exempted final product. Reversal of proportionate cenvat credit in respect of the common input used in the manufacture of exempted goods is an option duly permitted under Rule 6(3)(ii) of the CCR itself. Non-compliance with the procedure prescribed under Rule 6(3A) of the CCR does not result in the manufacturer losing his substantive right to avail the option of reversing proportionate credit, as such procedural lapse is condonable and denial of substantive right on such procedural failure is unjustified in light of the decision of the Tribunal in the Cranes & Structural Engineers Case (supra). Therefore, the imposition of Rule 6(3)(i) of the CCR for demanding payment of 5% / 6% of the sales value of electricity is even otherwise unsustainable.”

The Tribunal held that non-compliance with the procedure prescribed under Rule 6 (3A) of the CCR does not result in losing substantive right to avail the option of reversing proportionate credit as envisaged in Rule 6(3) (i); That procedural lapse is condonable and denial of substantive right is unjustified keeping in mind the above case.

The Tribunal allowed the appeal and held that view taken by the Commissioner (Appeals) that the appellant has to reverse credit as per Rule 6 (3) (i) was against the provisions of law. The Tribunal further directed the lower authority to quantify the amount eligible for a refund after complying with Rule 6 (3) (i) being the proportionate credit availed on exempted services.[Rockey Marketing (Chennai) (P) Ltd. v. CST, 2020 SCC OnLine CESTAT 266,  decided on 03-11-2020]


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Jharkhand High Court
Case BriefsHigh Courts

Jharkhand High Court: A Division Bench of Aparesh Kumar Singh and Anubha Rawat Choudhary, JJ., refused prayer for grant of waiver and dismissed petition being devoid of merit.

The present case related to the petitioner company engaged in manufacturing of  M.S. Ingots falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985 and procuring raw materials required for manufacture of sponge iron, pig iron, scrap, coal, etc. for the use in the manufacturing of this M.S. Ingot. A search was conducted by the officials of Central Excise Department on 04-12-2015 and Central Excise duty along with education cess and secondary and higher secondary education cess along with interest aggregating Rs 11,73,32,395 was imposed under section 11-AC(1)(c) of the Central Excise Act, 1944 read with Rule 25 of Central Excise Rules. A official order was passed by Commissioner, Central Goods and Service Tax and Central Excise, Jamshedpur. The petitioner Company voluntarily deposited Rs 37,50,000  to be appropriated against the confirmed demand of duty. Further, penalty of Rs 11,73,32,395 was imposed in terms of Section 11AC(1)(c) of CEA read with Rule 25 of CER, 2002. Separate penalty of Rs 2 crore and Rs 1 crore respectively was imposed upon the two Directors Raj Jaiswal and Gyan Chand Jaiswal under Rule 26 of CER, 2002. Aggrieved by the said order appeal was filed for grant of 7.5% of waiver in pre-deposit which was rejected by CESTAT Kolkata. Hence the instant petition is filed for waiver of the pre deposition of the amount as per Section 35 F of the Central Excise Act.

Amended Section 35F of CEA reads as under

“35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal.- The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal.-

(i) under sub-section (1) of Section 35, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Principal Commissioner of Central Excise or Commissioner of Central Excise;

(ii) against the decision or order referred to in clause (a) of sub-section(1) of section 35B, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;

(iii) against the decision or order referred to in clause (b) of sub-section(1) of section 35B, unless the appellant has deposited ten per cent of the duty, in case where duty or duty and penalty are in dispute,

or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;

Provided that the amount required to be deposited under this section shall not exceed rupees ten crores;

Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014.

Explanation.- For the purposes of this section “duty demanded” shall include,-

(i) amount determined under section 11D;

(ii) amount of erroneous Cenvat credit taken;

(iii) amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Central Credit Rules, 2002 or the Cenvat Credit Rules, 2004.”

The counsel for the petitioners, Sumit Gadodia submitted that the petitioners are facing financial crisis due to drop in sale and economic slowdown in the market. They had lost reputation in business circle due to false allegation and supply market has diminished. They further relied on the judgment titled Pioneer Corporation v.Union of India [2016 (340) ELT63 (Del.)] stating High Court can exercise discretion and reduce the pre-deposit in rare and deserving cases, notwithstanding the amendment made under Section 35F of CEA.

The counsel Ratnesh Kumar represented the respondents.

The Court after hearing the parties held that under the amended section 35-F of C.E.A, there is no provision for making an application for waiver of pre-deposit before the learned CESTAT, as was available under the pre-amended section 35-F. It was further submitted that Section 35-F, as quoted above, regulates the right to appeal under section 35 and 35-B and is conditional upon making pre-deposit under Section 35-F. No exceptional grounds of undue hardship for waiver of mandatory pre-deposit under section 35-F of CEA, 1944, as amended with effect from 06th August 2014 was made out. Therefore, there would be no appeal in the eyes of law in absence of such pre-deposit under the amended Section 35-F.

In view of the above appeal rejected and dismissed. [Raj Jaiswal v. Union of India, 2020 SCC OnLine Jhar 714, decided on 31-07-2020]

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Customs, Excise & Service Tax Appellate Tribunal (CESTAT): The dispute in this appeal was filed before Archana Wadhwa, Member, related to the availability of Cenvat Credit of duty paid on various iron and steel items.

The various iron and steel items according to the Revenue had been utilized as supporting structures. The Lower Authority referred to the Explanation under Section 2(k) of Cenvat Credit Rules and the case of Vandana Global Ltd. v. CCE, 2010(253) ELT 440(Tri-LB) where it was held that such item used for supporting structures are not entitled to the benefit of Cenvat Credit. But it was found that the case referred to above was set aside by Chhattisgarh High Court referred to as Vandana Global Ltd. v. CCE, 2018(16) GSTL 462(Chhattisgarh). The impugned order was assailed for being time-barred.

The Tribunal found the demand to be time-barred and also the case referred was set aside by Chhattisgarh High Court. Admittedly the credit was being availed by the assessee by reflecting the same in the Cenvat Credit. In the circumstance of the case, no malafide can be attributed to the appellant so as to invoke the extended period of limitation. Therefore, the impugned order was set aside. [Sangam India Ltd. v. Commr. of Excise and Service Tax, 2019 SCC OnLine CESTAT 1, dated 08-02-2019]

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Customs, Excise and Service Tax Appellate Tribunal (CESTAT): A Division bench comprising of C.L. Mahar (Technical) and Ajay Sharma (Judicial), Members. upheld the order of Excise Commissioner directing reversal of Cenvat credit against a manufacturer for non-compliance of Cenvat Credit Rules.

The instant appeal arises against an order of the Excise Commissioner directing reversal of Cenvat credit availed by the appellant. Appellant is the manufacturer and supplier of leaf springs falling under Chapter 73 of Schedule I to the Central Excise Tariff Act, 1985. During 2014, it got an order from the Government of India’s Defence Vehicles Factory and as an established practice, availed Cenvat credit on inputs, input services and capital goods as per Cenvat Credit Rules, 2004 as per which it should have reversed Cenvat credit at the rate of 6% of the value of exempted goods. However, no separate accounts of Cenvat credit availed on exempted and dutiable goods had been maintained by the appellant. Accordingly, show cause notices the demanding reversal of Cenvat credit was issued to the appellant, which was adjudicated by the Commissioner.

The Tribunal noted that Rule 6 of the Cenvat Credit Rules clearly stipulates that if any input, input services or capital goods are used in manufacture of goods which are exempted from payment of central excise duty, then the manufacturer is legally required to reverse back the 6% of the value of clearances from the accumulated Cenvat credit. The manufacturer can also maintain a separate account of inputs and the credits thereon for both dutiable as well as exempted goods, and in that case, the requirement of 6% of the value of clearances is needed not to be followed.

In view of the above and decision rendered in NCS Distilleries/Estates Pvt. Ltd. v. CCE, Visakhapatnam; 2006 SCC OnLine CESTAT 644, the Tribunal held that since the appellant had not maintained separate account of Cenvat credit availed on exempted as well as dutiable final products, hence, it was liable to reverse the Cenvat credit. [Jamna Auto Industries Limited v. CCE & ST, Ujjain,2018 SCC OnLine CESTAT 863, decided on 12-11-2018]