­­CESTAT Weekly Round-up

This weekly round-up analytically summarises the key stories of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) reported at taxscan.in, from May 07th to May 12 th 2023.

Service Tax is Applicable to the Construction of Office Buildings, Erection of Cell Phone Towers and other Civil Structures under ‘Works Contract’: CESTAT K. Villaudam vs The Commissioner of Central ExciseCITATION:   2023 TAXSCAN (CESTAT) 503

The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside the demand of Service Tax under ‘construction service’ and ‘commercial or industrial construction service’ and ruled to pay the service tax under ‘Work Contract’.

The Vasa Seshagiri Rao and P. Dinesha bench noted that the appellant has accepted that their services are taxed under "works contract service" as of 01.06.2007 in the grounds of appeal as well as before the lower authority. Further stressed was the fact that the operations carried out by the appellant were in the form of works contracts, rendering the claims made under construction service and commercial or industrial construction service up to 31.05.2007 unsupportable. The two-member panel found that for work contract services provided between June 1, 2007, and March 31, 2009, the appellant was required to pay service tax in the sum of Rs. 7,94,122.

CA Certificate Establishes Fact of use of Material in the Work Executed: CESTAT allows Claim of 67% Abatement in Value of Construction Contract M/s Makkar Construction Co. vs Commissioner of C.E.CITATION:   2023 TAXSCAN (CESTAT) 504

The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that the appellant is entitled to an abatement of 67% in the value of the contract of construction.

The bench found that the Chartered Engineer and Chartered Accountant Certificates established the fact that the material was used in the work done by the appellants. The contract also included provisions describing the quality of the goods, and the invoices and copies of the Value Added Tax returns conclusively show that steel, cement, and other building materials were purchased. The contract was also quite explicit that it was for construction based on a fixed price per square.

Rule 5 of Cenvat Credit Rules, 2004 cannot be invoked to Sanction Refund of UtilizedCenvat Credit in Cash: CESTAT M/s Mahavir Metal Manufacturing Company vs Commissioner (Appeals) CITATION: 2023 TAXSCAN (CESTAT) 508

In a recent case, the Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that Rule 5 of Cenvat Credit Rules, 2004 cannot be invoked to sanction refund of utilizedCenvat credit in cash.

Dr. Ms. Rachna Gupta, a single member of the panel, declared that "the Adjudicating Authority has not committed any error in holding that Rule 5 of the Cenvat Credit Rules, 2004 cannot be invoked to sanction the refund of unutilizedCenvat credit lying with the appellant much before April 2017, that too in cash as per Section 140 of the CGST Act, 2017."

Service Tax Liability on Strapping of Wire Rod Coil arises Separately for  Service Provided by Head Office and Branch Office: CESTAT quashes Tax Demand M/s. Walzen Strips Private Limited CITATION: 2023 TAXSCAN (CESTAT) 509

In a recent case, the Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) service tax liability on strapping of wire rod coil arises separately for service provided by Head Office and Branch Office and upheld the demand quashed by Commissioner (Appeals).

It was argued that the service tax in relation to the services given by their Visakhapatnam branch office had been handled independently at Visakhapatnam and that the work at RashtriyaIspat Nigam, Visakhapatnam, had been conducted by their branch office there. As a result, the demand placed at the Kolkata Head Office cannot be met. The identical observations were expressed by the adjudicating authority's commissioner for appeals, who dismissed the case.  The two-member bench, made up of Shri P K Choudhary (Judicial) and Shri K Anpazhakan (Technical), maintained the Commissioner's contested order and dismissed the appeal made by the department since no further action is necessary in their Head Office in Kolkata.

Activity of Printing on PVC amounts to Activity of Production of Goods: CESTAT allows to Avail Exemption under Excise Notification  Decorative Sleeves Pvt Ltd vs C.C.E. & S.TCITATION:   2023 TAXSCAN (CESTAT) 506

The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Activity of Printing on PVC amounts to the Activity of Production of Goods and allowed to avail exemption under excise notification.
The two-member bench, which was made up of Mr. Ramesh Nair (Judicial) and Mr. Raju (Technical), noted that the activity of manufacturing is distinct from that of producing things. It was believed that the notice covered any activity incidental or auxiliary to the production of products in addition to the activity of producing goods itself. The CESTAT upheld that the appellant's activity of printing on PVC can be considered an activity of producing goods while admitting the appeal and vacated the contested ruling.

Indian Origin Gold Bangles and Silver Bar Seized Are Not Prohibited Goods: CESTAT Deletes Penalty u/S 112(b)(i) Shri Daleep Kumar Verma vs Commissioner of Customs (Preventive)CITATION:   2023 TAXSCAN (CESTAT) 511

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)Indian origin gold bangles and silver bar seized are not prohibited goods and deleted the penalty under section 112(b)(i) of the Customs Act, 1962.

The silver bar is of Indian origin, according to a two-member tribunal made up of Shri P K Choudhary (Judicial) and Shri K Anpazhakan (Technical), and the word of the co-accused cannot be trusted without any outside confirmation. A penalty may be imposed under section 112(b)(i) of the Customs Act of 1962 if it is discovered that the individual is dealing with items for which a prohibition is in effect. It was determined that the silver bar and the gold bangles sold by the appellants were of Indian origin and hence were not forbidden items. According to the CESTAT, they are not subject to punishment under Section 1129B)(i) of the 1962 Customs Act.

Conversion of One Stage of Yarn into Another will not amount to Manufacture: CESTAT sets aside Excise Duty Demand  Hada Textiles Industries Limited vs Commissioner of Central Excise & Service TaxCITATION:   2023 TAXSCAN (CESTAT) 510

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Conversion of One Stage of Yarn into Another will not amount to Manufacture and set aside the excise duty demand.

According to a two-member panel composed  of Shri P K Choudhary (Judicial) and Shri K Anpazhakan (Technical), converting yarn from one stage to another does not constitute manufacturing. Additionally, it can be seen that the production of hank yarn occurs in a continuous process, with the winding of the bobbin serving as merely an intermediary step. The CESTAT reversed the contested decision and upheld the appeal.

Paddles as Part of Canoe Cannot be Classified Under Yachts and Others For Sports under CTA: CESTATM/S ANJANA INTERNATIONAL INDUSTRIES vs THE PR. COMMISSIONER CITATION:   2023 TAXSCAN (CESTAT) 507

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)has held that paddles as part of a canoe cannot be classified under yachts and others for sports under Customs Tariff Act(CTA),1975.

A two-person panel made up of Mr. Raju (technical) and Mr. Ajay Sharma (judicial) noted that a combined reading of Chapters 1(p) of Chapters 95 and 44 of the Customs Tariff Act (CTA), 1975, implies that "means of propulsions" of sports crafts like "canoes and skiffs" would be excluded from Chapter 95 and would instead fall under the Chapter relevant to the material of which they are made. It was believed that the descriptor "toys, games, and sports requisites" found in the aforementioned Chapter Notes does not apply to "paddles" (means of propulsion).  According to the CESTAT, "the goods are correctly classifiable under Chapter Heading 68151090."

Rule 96ZP of Central Excise Rules,1944 declared as Ultra Vires by Supreme Court: CESTAT deletes Penalty Hazra Iron Works vs Commissioner of Central ExciseCITATION:   2023 TAXSCAN (CESTAT) 505 

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) deleted the penalty demanded and held that Rule 96zp of Central Excise Rules, 1944 declared as ultra vires by the Supreme Court.

In order to have the ACP recalculated and the duty set based on actual production, the Appellant has not provided any proof to the Commissioner. In the absence of any revisions made by the Commissioner, the ACP set by the Commissioner at 1106.82 MT annually is still in effect, and the assessee must pay duty in accordance with the ACP set. It was noted that the assessee paid duty in accordance with real output rather than ACP set. The duty demand confirmed in the contested order was sustained by the CESTAT. Taking into account the ruling in the matter of Shree Bhagwati Steel Rolling Mills v. Commr. of Central Excise, where it was decided that the interest and penalty provisions under Rule 96ZP of the Central Excise Rules, 1944 were ultra vires.

The CESTAT held that the demand of interest and penalty in the Impugned Order is not sustainable and set aside the interest and penalty demanded in the said Order.

Service Tax not demandable on Construction of Residential Complexes  before 01.07.2010: CESTAT    M/s. Shanti Builders vs The Commissioner of Service Tax CITATION:   2023 TAXSCAN (CESTAT) 513

the Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not demandable on the construction of residential complexes in the period before 01.07.2010.            

A Coram made up of P. Dinesha, Member (Judicial), and Vasa Seshagiri Rao, Member (Technical), noted that it had been categorically decided that no service tax could be assessed on residential complex construction performed prior to 1.07.2010, regardless of whether it was performed under a works contract or as a service simpliciter. The aforementioned judgement applies to the current case because the issue in it arose between June 16, 2005, and March 10, 2010. The Tribunal approved the appeal and dismissed the demand made in the contested order.

Product ‘MIRACULAN’ based on Traicontanol 0.05% EC is an Insecticide and Classifiable as Growth Promoter: CESTAT Agro Pack vs C.C.E. & S.T.CITATION:   2023 TAXSCAN (CESTAT) 512 

The Ahmedabad bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the product ‘Miraculan’ based on Traicontanol 0.05% EC is an insecticide and classifiable as a growth promoter.

It was noted that as the product "MIRACULAN" is based on Traicontanol 0.05% EC, which is nothing more than an insecticide, it needs to be registered with the Directorate of the Plant Protection, Quarantine and Storage, Faridabad, in accordance with Section 9(3) of the Insecticides Act, 1968. A two-member Coram comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar, Member (Technical) observed that a similar product which contains Traicontanol has been classified as an insecticide and not a plant growth regulator and held that the product 'MIRACULAN' which primarily contains Traicontanol 0.05% by weight is a product under the category of Insecticides and cannot be considered as the plant growth regulator.

Jute Cess Payable only when Goods are Removed from Factory: CESTAT quashes Excise Duty Demand M/s.AI Champdany Industries Limited vs Commissioner of Central Excise CITATION:   2023 TAXSCAN (CESTAT) 515

the Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Jute Cess is payable only when goods are removed from the factory and quashed the excise duty demand.

The department has not filed an appeal against the contested ruling, according to a two-member bench made up of Shri P K Choudhary (Judicial) and Shri K. Anpazhakan (Technical). As a result, all demands made against the appellant have already been dismissed and have become final. The CESTAT declared that "no additional guidance in these appeals is necessary as the Commissioner's (Appeals) decision in the contested order has already gained finality. The appeals that the appellant filed are dismissed with the aforementioned remarks.

Dept has no Right to file Revision Application on Refund of Service Tax on Export Services: CESTAT Commissioner of Service Tax vs Mail Order Solutions (I) Ltd.CITATION:   2023 TAXSCAN (CESTAT) 514

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the department has no right to file a revision application on refund of service tax on export services.

It was noted that Section 86 of the Finance Act of 1994 contains procedures that govern the filing of appeals before the Tribunal. Ibid. Subsection (1) outlines the procedure for an assessee to file their appeal with the Tribunal.  The first proviso attached to sub-section (1) states that the Central Government shall review the order in accordance with Section 35EE of the Central Excise Act, 1994 with regard to the order made by the Commissioner of Central Excise (Appeals) under Section 85 ibid regarding the grant of a rebate relating to services that are exported.

The bench of S. K. Mohanty (Judicial) and M. M. Parthiban (Technical) held that the assessee is only permitted to file the revision application before the Central Government in terms of Section 35EE and there are no such provisions for the appeals to be filed by the Revenue.

CESTAT allows Service Tax Exemption on Service Tax allowable in respect of GTA services used in Export of Goods to HEG Ltd HEG Limited vs Commissioner (Appeals) GST CITATION:   2023 TAXSCAN (CESTAT) 516 

The New Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that exemption on service tax is allowable in respect of GTA services if are used in the export of goods and allowed the exemption to HEG Ltd.

A two-member bench comprising Justice Dilip Gupta, President and Hemambika R Priya, (Technical) observed that the appellant has complied with the notification condition and set aside the demand of duty and interest upheld in the impugned order. 

Further, it was held that the penalty under section 78 is imposed when there is a wilful intention to evade the payment of tax. The delay in filing the return for claiming the exemption cannot be termed as a wilful intention to evade payment of duty. The CESTAT set aside the penalties imposed under section 78 of the Act. While allowing the appeal, the Tribunal upheld the penalty under section 77 is upheld for failure to file the returns in time.

No Evidence to Prove Non-Payment of Service Tax was to Evade Tax: CESTAT sets aside Penalty Imposed u/s 78  M/s.Assam Company India Limited vs Commissioner of Service Tax CITATION:   2023 TAXSCAN (CESTAT) 517

The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) set aside the penalty imposed under section 78 of the Finance Act, 1994 in the absence of evidence to prove non-payment of service tax to evade tax.

A two-member bench Comprising Shri P K Choudhary, (Judicial) and Shri K Anpazhakan,(Technical) observed that the Revenue has not brought any evidence to prove that the Appellant has not paid service tax intending to evade payment of service tax. The Appellant has established that there was no intention to evade payment of service tax. The CESTAT held that “no penalty under section 76, 77, or 78 is imposable.”Further set aside the penalty imposed under Section 78 of the Finance Act.

Inclusion of Subsidy Amount in Transaction Value in Terms of Section 4(3)(d) of Central Excise Act is a matter of Interpretation of Law: CESTAT Rajasthan Digital Tiles (P) Ltd. vs Commissioner, Central Excise & CGSTCITATION: 2023 TAXSCAN (CESTAT) 518

In a recent judgment, the New Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT)has held that inclusion of subsidy amount in transaction value in terms of section 4(3)(d) of the Central Excise Act, 1944 is a matter of interpretation of the law.

The allegation of fact suppression is not applicable, so neither interest nor penalty is levyable, according to a single-member bench made up of Ms. BinuTamta (Judicial), who noted that the question of whether the subsidy amount was includible in the transaction value under Section 4(3)(d) of the Central Excise Act was a matter of legal interpretation. The appeal was accepted, and the CESTAT overturned the challenged orders.

Central Excise Duty Debited against Amount Received as State VAT Subsidy under Protest: CESTAT allows Refund Claim of Excise Duty M/s Pine Laminates Pvt. Limited vs Commissioner, Central Excise & CGSTCITATION:   2023 TAXSCAN (CESTAT) 519

The New Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) allowed the refund claim of excise duty Since the central excise duty debited against the amount received as state vat subsidy under protest.

The Central Excise duty was charged against the amount received as State VAT subsidy under protest, and the same cannot be ignored, according to a single-member bench made up of Ms. BinuTamta (Judicial). Further held that the appellant is entitled to the benefit of the proviso to section 11B of the Central Excise Act, 1944, which specifically says that period of limitation of one year shall not apply where duty and interest are paid under protest.

The tribunal ruled, "I completely disagree with the findings in the order that the duty on VAT subsidy was last deposited on 30.11.2016 during the lengthy period from March 2010 to November 2016 or thereafter, and if they had any doubt about the audit they were required to submit a letter of protest or to file a refund claim of duty/interest/penalty deposited within the statutory period of one year provided under section 11B of the Central Excise Act, 1944, but the requirement was not followed.

Value of Corrugated Boxes Cleared to Merchant Exporter can be Includable for Computing Threshold under SSI Exemption Notification: CESTAT  CITAION:2023 TAXSCAN (CESTAT) 526 M/s. Universal Packaging vs Commissioner of Central Excise CITATION:  2023 TAXSCAN (CESTAT) 526

The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the value of corrugated boxes cleared to merchant exporters can be includable for computing threshold under SSI exemption notification.

According to a two-member bench made up of Mr. Sanjiv Srivastava, a technical member, and Dr. Suvendu Kumar Pati, a judge, "inclusion of the value of corrugated boxes supplies to Merchant Exporters to determine tax liability by computing the out-turn to exceed the SSI exemption limit and its confirmation by the Commissioner (Appeals) is not sustainable in both law and facts." While granting the appeal, the CESTAT overturned the decision made by the Mumbai Zone Commissioner of Central Excise (Appeals).

Duty Demanded on Value of Exempted Goods without Considering Evidence of  Maintaining Separate Accounts for Dutiable and Exempted Goods: CESTAT Orders for Fresh Adjudication M/s. M. B. Control & Systems Pvt. Ltd. vs Commissioner of CGST & CX CITATION:   2023 TAXSCAN (CESTAT) 520

The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ordered to conduct of a fresh adjudication since the duty was demanded on the value of exempted goods without considering evidence of maintaining separate accounts for dutiable and exempted goods.

Mr. R. Muralidhar, (Judicial), served as the sole member of the bench that remanded the case to the adjudicating authority. The CESTAT held, "The Appellant should produce the RG23A Part 1 & Part 2 Books as well as photocopies of the same before the Adjudicating Authority along with statement and copies of the invoices which they claim about inputs used for exempted goods and Cenvat was not taken by them."

Failure Of CHA to Verify KYC Document of Bogus Firm Created With Forged Document does not amount to Abetment of Export: CESTAT Sets aside Penalty KVS CARGO vs COMMISSIONER,CUSTOMS CITATION:   2023 TAXSCAN (CESTAT) 521 

The New Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the failure of the Customs House Agent (CHA) to verify the KYC document of a bogus firm created with forged document does not amount to abetment of export and set aside the penalty imposed.

"How can one expect CHA, who is not even a public official, to unearth the dubious plan of the exporter?" the CESTAT said. "If the Bank officials, despite verification, are not able to detect the fraudulent nature of the documents." The single-member bench made up of Ms. BinuTamta (Judicial) determined that the appellants had not committed any act of omission or conduct that would have resulted in a penalty under section 112 of the Customs Act while admitting the appeal.

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