A. Principles of natural justice

1. At the time of preferring the appeal, the appellant had its place of business at its erstwhile premises, but by the time the appeal was listed for hearing, the appellant had shifted to a new address. Notice of the final hearing before the Tribunal was not served on the appellant though the new address was known to the Department, as was seen from the cause title of the appeal memo. The appellant did not therefore have the opportunity to appear before the Tribunal and present its case or to distinguish the judgment which was sought to be relied upon by the Tribunal.

Held: Without entering into merits of the case, on the ground that when the fact of the change in address was known, the appellant not having been served notice on the new address was violative of the principle of natural justice. The matter was therefore remitted back to the Tribunal.

[Expo-Fyn Electricals & Electronics v. Commissioner of Central Excise, Jaipur-I (2018 (8) GSTL 160 (Raj.)]

2. The Tribunal considered the grounds of appeal submitted, but passed its order without discussion, directly relying on previous case law on the issue, and dismissed the appeal. This action was challenged before the Hon’ble High Court.

Held: The Tribunal is a final fact-finding authority. Though the Tribunal had considered the grounds of appeal, there was no discussion. Further the reliance placed on the earlier case law could not be approved in the light of decisions of the Hon’ble Supreme Court in previous cases including
Tata Engineering & Locomotive Co. Ltd. v. Collector of Central Excise, Pune
[2006 (203) ELT 360 (SC)]
where it was held that it was not sufficient to give conclusions alone, and that it was necessary to give reasons in support of the conclusions arrived at. In the absence of such reasons, the matter was remitted to the Tribunal to pass orders on the appeal on merits and in accordance with law.

[Nandhi Spinning Mills (P) Ltd. v. Commissioner of C.Ex., Salem (2018 (8) GSTL 103 (Mad.)]

B. Demand of interest

3. The petitioner challenged a demand of interest stating that that no notice was issued to the petitioner prior to issuance of the impugned demand. The demand was also challenged on the ground that the basis of quantification had not been communicated.

Held: The contention that no notice was issued prior to issuance of impugned demand was liable to be rejected, as the demand for interest is consequent upon the order-in-original and payment of interest is automatic. However, the petitioner was entitled to know how the amount of interest had been arrived at, and therefore the first respondent was directed to issue a fresh demand giving details as to how the interest had been computed and thereafter, proceed to recover the interest in accordance with law.

[Thangam Steel Ltd. v. Asst. Commissioner of Central Excise, Chennai-II (2018 (8) GSTL 127 (Mad.)]

C. Refund of encashed bank guarantee

4. The petitioner filed a writ petition challenging an order rejecting the petitioner’s application for refund of an amount that had been recovered by the Department by encashing a bank guarantee on the basis that the petitioner had not fulfilled its export obligations in terms of an advance licence. The reason for rejecting the refund application was that the petitioner had not filed documents evidencing enforcement and deposit of the said amount.

Held: While the respondent Department could not be found fault with for encashing the bank guarantee, since the petitioner had subsequently produced the redemption letter from the Competent Authority / Additional Director General of Foreign Trade, the respondent Department was bound to honour the redemption letter and effect the refund. The respondent could not call upon the petitioner to prove when the bank guarantee was encashed, and it was for the Department to verify their records.

[R.K. Industries-IV v. Commissioner of Customs (Sea), Chennai-IV (2018 (8) GSTL 110 (Mad.)]

D. Judicial discipline

5. The petitioner was engaged in the business of textile printing and processing of fabrics. The petitioner made a payment of duty, which was sought to be increased by the Deputy Commissioner on enquiry. Aggrieved by such order, the petitioner preferred appeal to the Commissioner (Appeals), who reduced the duty amount. The petitioner therefore filed an application for refund of the excess duty, which application was filed within the period of two months. The Department ordering the refund but directed payment to the Consumer Welfare Fund, against which the petitioner filed another appeal before the Commissioner (Appeals), who held that since the duty had been paid on demand, there was no question of the petitioner passing on the duty burden to any consumer, and therefore, the petitioner was entitled to refund in its entirety. The lower authority then held that the refund claim was barred by limitation.

Held: The attempt of the lower authority to circumvent the order of the Commissioner (Appeals) could not be encouraged, and such attempts have been deprecated by the Hon’ble Supreme Court in the case of Union of India v. Kamlakshi Finance Corporation Ltd. [1991 (55) ELT 433 (SC)] where it was held that the Department has to unreservedly follow the orders of appellate authorities unless operation thereof has been suspended by a competent court, and further that the mere fact of an appeal having been filed against the order was no ground for not following it. These were sufficient reasons to hold that the impugned order deserved to be set aside.

[Padma Raghvan v. Assistant Commissioner of C.Ex., Mettupalayam (2018 (8) GSTL 108 (Mad.)]

E. Customs valuation

6. The appellant is a subsidiary of Reebok International Ltd. (RIL), and regularly imported various sports goods from their parent, bearing the brand name ‘Reebok’. They had made an application before the Customs Special Valuation Branch, New Delhi for approving the transaction value of such imports from related parties. The Directorate of Revenue Intelligence investigated the allegation that certain costs pertaining to advertising and promotions were not included in the assessable value of the goods. Following the investigation and issue of show cause notice, an order was passed rejecting the assessable value of goods, and confirming the demand of differential duty with interest and penalty in respect of alleged undervaluation on the basis of a Distribution Agreement which required expenditure on advertisement and promotion of not less than 6% of the total invoice value which was considered to be a condition for sale of goods and to be added per Rule 10(1)(e) of the Customs Valuation Rules.

Held: For the payments to be addable, they should be made as a condition of sale, and should not already be included in the price actually paid. There was no doubt that the amounts were not already included in the price. As the appellant was allowed to import goods in terms of the Agreement per which it would have to necessarily spend 6% of the invoice value on advertisement and promotion, it was an obligation for import of the goods. Also, per other stipulations in the Agreement, RIL UK was controlling every aspect of promotion, and such promotion and advertising was towards promotion of the ‘Reebok’ brand as a whole and not only in respect of goods being imported – therefore, it was evident that the advertising and promotion expenses were incurred as a condition of sale and on behalf of seller and may be considered as satisfying the obligation of the seller.

It was also held that it could not be concluded in the facts of the present case, that the expenditure has been incurred by the appellant on their own account to apply the Interpretative Note of Rule 3(2)(b).

[Reebok India Company v. CC 2018-TIOL-561-CESTAT-Del.]

F. No Education Cess when Excise Duty exempted

7. In order to encourage the setting up of manufacturing units in industrially backward areas like the North-Eastern States, goods manufactured and cleared from units located in these States were exempted from Central Excise duty by notifications issued by the Government of India. The exemption methodology in these notifications was that the manufacturer was initially supposed to pay the excise duty leviable on such goods at the time of clearance as per the Central Excise Tariff and the refund thereof insofar as the duty was paid in cash after utilisation of the CENVAT credit available. Following the imposition of Education Cess and Higher Education Cess, which were levied as surcharges on the excise duty, the dispute before the Hon’ble Supreme Court was whether the Education Cess and Higher Education Cess was also liable to be refunded in terms of the exemption notifications. Whereas one view was that the cesses were refundable along with the Central Excise duty, there was another view that the Department was seeking to apply, that there was no obligation on the Department to refund the cesses as the exemption notifications only exempted the Central Excise duty.

Held: Divergent views have been expresses by the CESTAT and different High Courts, in which scenario it is important to examine how the Department has viewed the position on refund of the cesses when the Central Excise duty has been exempted. Referring to the circulars issued by the CBEC in the context of the cesses being levied on Central Excise duty and service tax, it was noted that the Government had itself taken the position that where the Central Excise duty or service tax was exempted, the cesses would not be payable, and that the Department was bound by these circulars. Further, it was rational to accept the view set out in the said circulars as Education Cess being a surcharge levied on Central Excise duty, it could be inferred that when no Central Excise duty was payable as it was exempted, there would not be any Education Cess as well.

It was further held that when the CESTAT had in earlier judgments held that the cesses were not refundable, another co-ordinate bench of the CESTAT could not take a contrary view, and that judicial discipline warranted reference to a Larger Bench. It was also noted that when two views were possible, one which favoured the assessee had to be adopted.

[SRD Nutrients Pvt. Ltd. v. Commissioner of C.Ex., Guwahati (2017 (355) ELT 481 (SC)]

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