Excise & Customs -Case Law update

1. CENVAT Credit on Outward Transportation of goods

It was held that going by the definition of the term “input service” in the Cenvat Credit Rules, the Service Tax paid on transportation of finished goods from the factory to the premises of the customer can be taken as Cenvat Credit by the appellants.

It was inter alia observed as follows:

• the definition of input service is an inclusive definition covering inward transportation of inputs or capital goods and outward transportation up to the place of removal and that transportation of goods from the factory gate to the customer premises would be rightly covered by the term “input service” as defined in the rules and therefore, the credit taken was in order.

• It is an inclusive definition to cover transport of goods from the factory to the depot as well as transportation of inputs.

• If the intention was to deny credit in respect of outward transportation of finished goods then the same could have been specifically excluded in the definition itself, which however has not been done.

• Further if the intention was to deny the credit in respect of outward transportation then there was no need to include the words “and clearance of the final products from the place of removal” in rule 2(l) of the Rules relating to the definition of the input service.

[IN RE: NHK Spring India Ltd. 2006 (4) STR 618 (Commr. Appl.)]

2. A beneficial circular to be applied retrospectively while adverse one to be applied prospectively

It was held by the Honb’le Supreme Court that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively. [Suchitra Components Ltd. vs. CCE vide Civil Appeal No. 3596 of 2005].

3. Rule 8(3) under the Central Excise Rules, 2002, is ultra vires Section 11AB (1)

It was held by the Hon’ble Tribunal that Rule 8(3) of the Central Excise Rules, 2002, in so far as it prescribes a penalty of “or Rs. 1,000/- whichever is higher” is ultra vires section 11AB (1) of the Central Excise Act, 1944. Rule 8(3) of the Central Excise Rules, 2002, prescribes an interest rate of two per cent per month or rupees one thousand per day, whichever is higher. Section 11AB(1) confers the powers on the Central Government for notifying the rate of interest not below 10% and not exceeding 36% per annum. It was held that the power to prescribe interest rate per annum, justifies that part of sub-rule (3) of rule 8 which fixes the rate of interest at 2% per month (which would worked out to 24% per annum). Once the interest is so worked out and notified by the Central Government/ there is hardly any scope for resorting to recovery of any amount in excess of such interest, on a plain reading of the provision of section 11AB (1).

[M/s Automotive India (Raipur) Pvt. Ltd vs. CCE vide Excise Appeal No. 5171 of 2004, Final order dated 21-8-2006]

4. Single Member Bench must follow the larger bench decision which is neither expressly nor impliedly overruled by any decision of a higher forum

In the present case the CENVAT credit claimed in respect of oxygen gas and acetylene gas which were used by the appellant for repairs of various parts of machinery and restructuring and refurbishing the same was claimed on the ground that they were used as “input”.

The Hon’ble Tribunal held that credit is not available in terms of the decision of the larger bench in Jaypee Rewa Plant vs. CCE, Raipur 2003 (150) ELT 553 (Tri.-LB).

It was observed that the court is bound to follow the larger bench decision in preference to the decision of the Division Bench, which could not have declared a larger bench decision as overruled. Only a bench larger than the said larger bench deciding Jaypee Rewa Plant (supra) could have declared that decision to have been either expressly or impliedly overruled by a decision of a higher forum, or itself overruled it. Judicial discipline demands that single Member Bench must follow the larger bench decision which is neither expressly nor impliedly overruled by any decision of a higher forum.

[J.K Cement Works vs. CCE vide Excise Appeal Nos. 99 & 109 of 2005-SM Branch, Final order dated 11-12-2006]

5. Penalty under Section 11AC

The assessee filed a Writ Petition before the Hon’ble Supreme Court against the order of the Hon’ble Tribunal.

The Department also filed an appeal before the Hon’ble P&H High Court and raised following questions of law:

• Whether penalty under section 11AC of the Central Excise Act, 1944 is mandatory or discretionary in nature?

• Whether mandatory equal penalty imposed under section 11AC of the Central Excise Act, 1944 can be reduced?

It was held that by the Hon’ble High Court that admission of appeal in the Hon’ble Supreme Court on exigibility of duty itself shows that the mens rea for levy of penalty cannot be presumed as envisaged under section 11AC of the Act.

[CCE vs. Punjab Alkalies & Chemicals Ltd 2006 (203) ELT 223 (P&H)]

6. Satisfaction of Government for need to grant exemption under the EPCG scheme and ministerial act of its issuance are the two stipulations

It was held by the Hon’ble Tribunal that once the subject goods satisfy the conditions in the notification as well as they are specifically mentioned in the EPCG licence granted by the authority constituted to implement the EPCG scheme, the benefit of the notification issued under the Customs Act to implement the scheme of the Government of India; viz., EPCG Scheme would have to be read harmoniously and the benefits allowed.

A notification under section 25 of the Customs Act has two stipulations. The first stipulation is the satisfaction of the Central Government for the need to exempt and the second one is ministerial in nature; i.e., of the effectual issue of a notification. Once the authority constituted under the Central Government is satisfied and a licence is granted to import an item under the said notification, then the Customs Authority should implement the said notification as a ministerial function; if the Customs officers have a doubt to eligibility then, they should first take up the issue with the concerned Central Government Authority, who had granted Import Licence and get the licence cancelled ab initio for void and thereafter deny the benefit of the notification. It is well settled the Customs Authority cannot give any judgment on licence granted by the appropriate authority.

[Indian Hotel Co. Ltd. vs. CCE 2006 (204) ELT 439 (Tri.-Mumbai)]

7. Determination of assessable Value – Excess transportation cost recovered

It was held by the Hon’ble Tribunal that Excise duty is not payable on the excess freight collected. In any case, freight itself is not Includable in the assessable value. When the factory gate price is available as per Section 4(1) (a) that price has to be adopted for duty purposes and in any case transportation cost cannot be included, much less the profit made in transportation.

[M/s. Andhra Sugars Ltd. vs. CCE vide Appeal No: E/287 & 288/2006, Final Order dated 11-9-2006]

8. Conditions for grant of stay

The Hon’ble Supreme Court has held that Petitions for Stay not to be disposed of in routine manner unmindful of consequences flowing from order requiring deposit of full or part of demand. There can be no rule of universal application in such matters and order to be passed keeping in view factual scenario. Merely because principles are indicated by Supreme Court, licence not given to pass order which is not sustainable on grounds of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake citizen’s faith in the impartiality of public administration, interim relief can be given.

It was held that under section 35F two significant expressions used are “undue hardships to such person” and “safeguard the interests of revenue”. Therefore, while dealing with the application twin requirements of considerations; i.e., consideration of undue hardship aspect and imposition of conditions to safeguard the interest of Revenue have to be kept in view. A mere assertion about undue hardship would not be sufficient. “Undue hardship” is normally related to economic hardship. “Undue” which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances. The word “undue” adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.

The other aspect relates to imposition of condition to safeguard the interest of revenue. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interest of revenue. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate condition as required to safeguard the interest of revenue.

[Benara Valves Ltd. vs. CCE 2006(204) ELT 513 (SC)]