Central Excise & Customs

1. Jayant Food Processing (P) Ltd. vs. CCE —2007 (215) ELT 327(SC)

Issue

Applicability of section 4 or section 4A, for valuation of products like ice cream, kitkat chocolate, telephone instruments, refrigerator, mineral water and electric filament.

Facts with respect to various products & Ruling of Bench.

1. Ice cream sold by assessee to Hotel Industry in four litre package displaying “packed for exclusive of catering industry”.

Ruling

1. The ice-cream was sold to hotel industry and not directly to consumer, hence does not come under the purview of retail package but would be a wholesale package, therefore no requirement of mentioning retail sale price under the Standards of Weights & Measures Act (SWMA).

2. Further, Rule 34 of Standard of Weights & Measures (Package Commodity) Rules (SWM (PC) Rules) provides that the said Rules are not applicable for the products specially packed for the exclusive use of an industry as a raw material or for the purpose of servicing any industry, mine or quarry. Hence in the instant case the package was for “servicing Hotel Industry”, thus there is no need to have retail sale price on the said package..

3. Assessee’s affixing retail sale price is inconsequential.

2. KITKAT chocolate sold to Pepsico India holdings for distributing the same as free gift with 1.5 litres of Pepsi.

Ruling

1. Clarification issued in para 6 of Circular No. 625/16/2002-CX provided that for goods whether notified under section 4A or not on which statutorily there is no requirement of printing MRP can be valued u/s 4 or u/s 4A. Hence there can be a product, part of which are cleared adopting value u/s 4 and part of which u/s 4A.

2. Rule 34 SWM (PC) Rules provide that retail sale price is not required to be displayed if the product is used for servicing an industry. In the instant case also the product is used to service Pepsico, a soft drink manufacturing industry.

3. Sale of telephones to DOT, MTNL, BSNL — The said telephones were given on rent to consumers by DOT, MTNL, BSNL and MRP printed on the package. Refrigerator sold affixing MRP on the package, to Pepsi, Cocoa Cola etc. electric filament lamps.

Ruling

1. For assessment u/s 4A nature of sale is not important; i.e., whether bulk sale or not, what is important is requirement of printing MRP on the packages.

2. Further, the package is a retail package. Though it is sold to BSNL, etc., and then rented out to ultimate consumers it would fall under the purview of
   s. 4A.

3. Furthermore, nothing was written on package to indicate that it was used for servicing a particular industry. Hence would not come under the ambit of Rule 34 of SWM (PC) Rules.

4. 12 bottles mineral water sold by assessee in a single package on which MRP was mentioned were sold to Jet Airways for serving the same to its passengers. On each bottled it was printed that it was “specially packed for Jet Airways” and “Not meant for sale”.

Ruling

1. The package of 12 bottles would not come under the definition of whole sale pack as defined in SWM (PC) Rules as the same was not sold to Jet Airways for further sale.

2. Though the package contains more than 10 bottles, still each bottle cannot be said to be a retail package nor there is any rule which requires labelling the same with retail price. Further, it was also mentioned that the same were “ not meant for sale”

2. CCE vs. Solaris Chemtech Ltd. — 2007 (214) ELT 781 (SC)

Issue

Whether Modvat/Cenvat Credit on LSHS & Furnace oil was used in generation of electricity used for production of final product is admissible?

Facts

LSHS & furnace oil were used as fuel for generating electricity for the electrolysis process for manufacturing cement and caustic soda. The Revenue disallowed the credit on the ground that LSHS is used for manufacture of non-excisable commodity viz., electricity.

Held

Electrolysis process cannot be carried out without continuous supply of electricity. Therefore, LSHS would come under the ambit of the expression “used in or in relation to the manufacture of final product.

When a raw material is used, it is said to be “inputs used in the manufacture of final product”. However, in case of some articles not used in the main stream of manufacturing process but something which is used for rendering final product marketing or used otherwise in assisting the process of manufacture, would be covered by the expression “used in relation to manufacture” as set out in the definition of input. Thus, credit is allowable.

However, credit on LSHS used for electricity conserved by the residential colony of the factory’s workers, families, school etc., to the extent of Modvat credit will not be admissible.

3. UOI vs. Hindustan Zinc — 2007(214) ELT 510 (HC-Raj)

Issue

Whether repair & maintenance equipments are eligible for Modvat/Cenvat Credit?

Facts

MS/SS Plates were used in the workshop, for repairs & maintenance of Machinery. The dispute was about admissibility of such credit.

Held

Once the goods are brought in the factory for use in upkeep and maintenance of plant and machinery, which are used in the manufacture of excisable goods are capital goods, and were subordinate to the plant and machinery and are running of plant and essential for regular operation. These goods are integral part of the process with which the primary machines are engaged. Therefore, there is no impediment for these goods to qualify as capital goods.

4. CCE vs. Maruti Udyog Ltd. — 2007 (81) ELT 804 (HC-P&H)

Issue

Whether interest is payable on Modvat/Cenvat credit wrongly availed but not utilized?

Facts

Respondents availment of Modvat Credit was denied on the ground that the respondent could not produce certificate under Rule 57E of the Central Excise Rules, 1944. The Revenue contended that interest would be payable on the credit wrongly availed from the period of availment to its utilization. This contention was rejected by Tribunal. Therefore, an appeal was filed by Revenue.

Held

The Modvat credit wrongly availed was not utilized, hence there was no duty payable in absence of availment of credit. Therefore, interest was not payable as availment and reversal were merely book entries.

5. CCE vs Padmashri V. V. Patil SSK Ltd. — 2007 (215) ELT 23 (HC — Bom)

Issue

Whether penalty and interest can be waived on the ground that the duty was paid before the issuance of show cause notice?

Facts

1. Major portion of duty was paid before issuance of show cause notice.

2. Commissioner (Appeals) confirmed demand as it was not contested and levied interest but however, did not impose penalty.

3. Tribunal did not go into the aspect of duty demand but set aside interest u/s 11AB as duty paid much before the issuance of show cause notice.

Held

1. Penalty:

1. Penalty u/s 11AC is a mandatory penalty and there is no discretion to impose a lesser amount of penalty except the proviso added in the year 2000 stating that the penalty can be reduced to 25% of duty determined, if paid within 30 days of its determination (passing of adjudication order).

2. Penalty is imposable when there is fraud, suppression, misstatement, etc with intent to evade duty.

3. Therefore, it does not make any difference whether duty paid before issuance of show cause notice or later on and clause 2B of section 11AC will not come to rescue of an assessee who intentionally evades duty.

4. Decision of Tribunal in the case of Rashtriya Ispat Nigam Ltd. (affirmed by Hon’ble Supreme Court) was for the period when sub-sections 2A 2B, 2C) were not inserted in statute. Hence this decision is not applicable now.

5. However, in the instant case, since the revenue did not challenge the finding of Commissioner (Appeals) of there being no fraud, suppression, misstatement with an intent to evade duty, penalty was not imposable.

2. Interest

1. Interest is a civil liability and does not make any difference whether there was a mala fide intention or not.

2. There is no discretion either, with respect to rate as the same is notified in Official Gazette, or with respect of leviability as Section 11AB(1) uses the word “shall” and “be liable”

3. The phrase “but for” appearing in the section 11AB cannot be given a meaning contrary to the main section. Hence interest cannot be set aside on the ground that duty is paid before issue of SCN, if otherwise it is payable.

6. CC vs. Jupiter Exports – 2007 (213) ELT 641 (HC – Bom)

Issue

Whether Duty on transferor of the licence, who is not the importer, can be demanded? Can penalty on partnership firm as well as partner is imposable?

Facts

Jupiter Exports, a partnership firm, after exporting polyester filament yarn (PFY) under DEEC scheme, forged the licence and enhanced the exports to avail higher entitlement for imports. The said licence were then transferred. The Commissioner at the adjudication stage completely exonerated the transferee of the licence on the ground that they were bonafide transferee, however, imposed penalty on Jupiter Exports and its partners also demanded duty considering them as deemed importers. Jupiter Exports filed an appeal before the Tribunal, against duty and penalty.

Tribunal imposed duty on Jupiter Exports for the imports made by it. However, for imports made by the transferee, no duty was imposed on Jupiter as the person chargeable to duty under section 28 of the Customs Act can only be the importer. Futher penalties on partners were set aside as the partnership firm was penalized.

Revenue filed a civil appeal against the Tribunal’s order and Jupiter Exports filed a Writ Petition for implementation of the order.

Held

1. Custom duty on imports under section 28 of the Customs Act can only be demanded from “importers”. “Importer” defined under section 2(26) of the Customs Act does not cover a person who has not ‘caused the import or who does not hold himself to be the importer. Hence duty cannot be demanded from Jupiter Exports for exports made by bonafide transferees. Therefore, the duty demand on Jupiter Exports for imports made by transferee’s were set aside.

2. Penalty cannot be imposed both on partners as well as partnership firm. Hence Tribunal’s order of exonerating partners from penalty was upheld.

3. Insofar as cancellation of DEEC of licence is concerned it is the domain of DGFT (licensing authority) not customs. The licensing authority sought to cancel the licence, which order was set aside in appeal. Hence, the licence is valid.

4. The subsequent cancellation of licence is of no relevance nor does it retrospectively render the import illegal.

7. Anil Dang vs. CCE – 2007 (213) ELT 29 (Tri. LB)

Issue

Whether slitting & cutting of plastic laminated sheet amounts to manufacture?

Facts

The appellant received duty paid printed/unprinted/plastic plain laminated films of 500 mm to 700 mm width on jumbo rolls, classified under CET 3920.38 from Mahad factory. Appellant rewound them on slitters cum rewinder machine and slit them into width of 250 mm, 300 mm etc. and the same are also classified under sub-heading 3920.38

Held

The activity of cutting and slitting of jumbo rolls into smaller rolls does not amount to manufacture as no new commodity with different name, characters and use come into picture. The Bench relied upon the below mentioned decisions.

(i) CC vs. S R Tissues (P) Ltd., — 2005 (186) ELT 285
(iv) Faridabad Iron & Steel traders Association vs. UOI 2004 (178) ELT 1099.

8. Noble Drugs Ltd. vs. CCE – 2007 (215) EKT 500 (Tri-LB)

Issue

Whether an assessee during the period of forfeiture of facility for payment of duty on fortnightly basis, is required to pay duty out of PLA and whether failure on his part to do so would attract interest and penal provisions?

Held

The above issue is answered by the Hon’ble Kerala High Court in the case of Thankik Kundam, Bhagawati Mills Ltd. vs. CCE in Central Excise Appeal No. 22 of 2005, by the judgment dated 26-10-2005, wherein the bench was to decide whether an assessee committed default under Rule 173 C would loose the benefit of utilization of input credit facility and duty payment through utilizing credit would be deemed to have been not paid. However, there was no provision wherein the asessee was considered a defaulter, in payment of duty. Thus the question was answered in favour of assessee by the High Court. The present dispute falling under Rule 8(4) is para materia with
R. 173G(1)(e) and the non-obstantive clause was inserted on 31-3-2005 by inserting sub-rule 3A to Rule 8, but the period in dispute in the instant case was prior to that date. Therefore, failure by assessee by not paying through PLA would not attract any liability on account of interest and penalty.

9. 2007 (215) ELT 55 Cyrus Surfactants Pvt. Ltd. vs. CCE (Tri.)

Issue

Whether Refund of Education cess is admissible under Notification No. 56/2002, when the same is not referred in the said notification in duties exempt?

Facts

Appellant was availing the exemption under Notification No. 56/2002, that is area based exemption, wherein whatever additional duty is paid after utilizing cenvat credit was refunded to the appellant. Revenue contended that since the aforesaid notification did not mention duty levied under Finance Act, 2004, in the list of duties exempted therefore education cess which is a levy under the Finance Act, 2004, cannot be allowed as refund.

Held

Education cess is in the nature of excise duty required to be levied and collected under section 93 of the Act. Education cess, therefore, is a “piggy back duty”, which would not be leviable in case excise duty is exempted under the relevant law. Hence, even education cess would also be exempted.

10. CCE vs B.O.C. India Ltd — 2007 (81) RLT 570 (HC – Del)

Issue

Whether Rule 57D of the Central Excise Rules, 1944 is applicable, when the evaporation of inputs are the natural consequence of the manufacturing activity?

Facts

The assessee used nitrogen and liquid argon as inputs in its manufacturing process. The nature of the gas was such that some of it evaporated in the atmosphere. The Modvat credit was sought to be disallowed in respect of the gas which got evaporated in the atmosphere. The Assistant Commissioner held that the nitrogen/liquid argon which got evaporated cannot be said to have been used in the manufacture of the goods. The Commissioner (Appeals) held that evaporation did not amount to waste and therefore the disallowance under Rule 57D of the Central Excise Rules, 1944 was incorrect. The Revenue preferred an Appeal before the Hon’ble CESTAT, wherein the Hon’ble CESTAT upheld the order of the Commissioner (Appeals).

Held

The Revenue filed an appeal before the High Court. The Hon’ble High Court on the Revenue’s Appeal clearly held that ‘there was a clear distinction between waste, refuse or by product arising during the manufacture of the final product. The loss of nitrogen/liquid argon due to evaporation could not be considered as waste or refuse or even a by-product arising during the manufacture of the final product. Evaporation was a natural consequence of the manufacturing activity carried out by the assessee. Therefore the provisions of Rule 57D were not applicable and the Revenue’s Appeal was dismissed as no substantial question of law arose.