CESTAT Weekly Round-up

The two-member bench observed that when sales are made on an FOR destination basis and the freight charges form part of the assessable value, the buyer’s premises can be treated as the place of removal.

The tribunal explained that in such cases, the transportation service used for delivery up to the buyer’s location has a direct nexus with the sale and qualifies as an input service.

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The two member bench comprising D.M.Mishra (Judicial Member) and Pullela Nageshwara Rao (Technical Member) observed that the main issue was whether the spare parts and components imported by the appellant for dumpers, motor graders, and other industrial goods were liable for MRP-based assessment under Section 4A of the Central Excise Act, 1944.

It was undisputed that the goods were cleared to industrial consumers, either directly or through distributors, and were declared as “not for retail sale” in the Bills of Entry.

DGCEI Officers Competent to Issue Duty Demands under Section 28 of Customs Act: CESTAT confirms Validity of SCN

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has upheld the competence of Directorate General of Central Excise Intelligence (DGCEI) officers to issue show cause notices (SCNs) and raise duty demands under Section 28 of the Customs Act, 1962.

The bench of M. Ajit Kumar (Technical member) and P. Dinesh (Judicial member) referred to the Supreme Court’s ruling in Commissioner of Customs v. Canon India Pvt. Ltd. (Review, 2024), which upheld the constitutional validity of Section 28(11) and related amendments, concluded that DGCEI officers were indeed proper officers empowered to issue SCNs and demand differential duty under Section 28.

Accepting the appellant’s plea, CESTAT held that in the absence of machinery provisions under the Customs Act for recovery from legal heirs or dissolved firms, the appeal abated in terms of Rule 22 of the CESTAT (Procedure) Rules, 1982.

Rules 10 & 8 of CEV Rules Do Not Apply when Job-Worked Goods are Returned to Principal Manufacturer and Consumed in Further Manufacture: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the provisions of Rule 10A(iii) read with Rule 8 of the Central ExciseValuation (Determination of Price of Excisable Goods) Rules, 2000 (“CEVR”) are not attracted where goods manufactured on job work basis are returned to the principal manufacturer and consumed in further manufacture.

The two member bench comprising Mr. Vasa Seshagiri Rao (Technical Member) and Mr. P. Dinesha (Judicial Member) observed that the legislative intent of Rule 10A was to capture value in cases where job-worked goods were directly sold or transferred for sale.

The tribunal held that the impugned orders in appeal cannot sustain insofar as the duty demand which is challenged in these appeals is concerned. Accordingly, the demand was set aside.

Extended Limitation cannot be Invoked Once Facts already Disclosed in Returns: CESTAT

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the extended period of limitation under indirect tax law cannot be invoked where all material facts have already been disclosed in statutory returns.

The bench of M. Ajit Kumar ( Technical member) and P. Dinesh (Judicial member) examined whether the invocation of the extended period of limitation was justified in the present case. The Bench further noted that an earlier round of litigation on the same issues had already been decided in favour of the assessee by CESTAT in 2015, and that order had attained finality.

Accordingly, the Tribunal held that allegations of suppression or misrepresentation were unsustainable, and therefore, the extended limitation could not be invoked.

Cropping of Grey Fabrics Does Not Constitute Manufacture, No Excise Duty Payable: CESTAT

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the cropping of grey fabrics does not amount to manufacture and no excise duty is payable on such cropped fabrics.

The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that there was no evidence of clandestine removal of goods and that the department had adopted inconsistent bases for calculating shortages and excesses. The tribunal explained that the cropping process did not change the character or use of the grey fabrics and thus could not be treated as manufacture.

The tribunal further observed that duty cannot be demanded on an activity that does not amount to manufacture. It set aside the duty demand of Rs. 26,70,702 on cropped grey fabrics and allowed the appeal with consequential relief.

CENVAT Credit Cannot Be Denied If Goods Are Received with Valid Invoices and Duty Is Paid and Accepted: CESTAT

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit cannot be denied to the recipient when goods are received under valid invoices and the excise duty paid by the supplier has been accepted by the department.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that the goods were received under valid invoices and duly accounted for, and there was no evidence that the duty paid by the suppliers had been questioned by their jurisdictional authorities.

Silver Granules Not Notified Goods u/s 123 of Customs, Burden of Proof Lies With Revenue: CESTAT Quashes Confiscation of 260 Kg Silver and Vehicle

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that confiscation of silver granules cannot be sustained when the revenue fails to produce cogent evidence establishing their smuggled or foreign origin.

The tribunal held that silver granules are not notified goods under Section 123 of the Customs Act,1962, and the burden of proof lies with the department.

CESTAT holds Exemption under Notification 19/2009-ST as Prospective, upholds Right to Tax Option under Rule 6(7B)

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has partly allowed an appeal filed by M/s Foundation One Infrastructures Pvt. Ltd., holding that while the reclassification of services under Works Contract Service (WCS) was justified, the extended period of limitation and penalty under Section 78 of the Finance Act, 1994 could not be sustained.

The Bench comprising Mr. P. Dinesha (Judicial Member) and Mr. M. Ajit Kumar (Technical Member) observed that since the assessee had paid VAT on materials used in construction, the transaction involved both supply and service elements and was therefore a composite contract. Following the ratio laid down by the Supreme Court in Larsen & Toubro Ltd., the Tribunal held that classification under WCS was appropriate.

On the issue of profits from the sale of foreign exchange to EEFC account holders, the Tribunal ruled that such transactions did not involve actual conversion and hence did not attract Service Tax. Similarly, the minor demand on profits from the settlement of travellers’ cheques was found unsustainable.

Micronutrient-Based Products Used for Soil Fertility are Fertilizers, Not Plant Growth Regulators: CESTAT Rules No Excise Duty Payable

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that micronutrient-based products used to improve soil fertility and supplement nutrients are fertilizers and not plant growth regulators (PGRs) and no excise duty is payable on such goods.

The tribunal explained that mere presence of natural extracts or auxin-like compounds in negligible amounts does not change the fundamental nature of the products into PGRs. It pointed out that growth promoters aid natural processes, while PGRs regulate or alter them, and this distinction has been recognized in several judicial rulings.

The tribunal concluded that products like ACE, BLOOM F, and Totoroot are fertilizers classifiable under Chapter 31 and not plant growth regulators under Chapter 38. As a result, the excise duty demands and penalties imposed on the appellant were set aside.

Services Involving Accommodation Without Transport Cannot Be Taxed as Tour Operator Service: CESTAT

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that services involving accommodation without transportation cannot be classified as tour operator service under the Finance Act, 1994.

The two-member bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) observed that the statutory definition of a tour operator requires involvement in planning or organizing tours with transportation in a tourist vehicle or contract carriage.

The tribunal explained that since the appellant did not provide transportation or arrange tours, their services could not be classified under tour operator service. The tribunal pointed out that the activities were more appropriately classifiable as short-term accommodation services, taxable only from 1 May 2011.

Revenue cannot Question Economic Viability of making use of Low Grade Sponge Iron for the manufacture of High grade Sponge Iron : CESTAT allows CENVAT Credit

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ),Bench Kolkata, in its recent decision has held that the Revenue authorities cannot question the economic viability or business prudence of a manufacturer’s decision to use certain raw materials, so long as such materials are duly accounted for and statutorily recognized inputs.

In the present case, the Tribunal said that the Revenue had failed to produce any evidence of diversion or misuse of inputs. No discrepancies were found in statutory registers, and there was no material to establish that input-output ratios were manipulated.

Accordingly, the Tribunal held that Revenue cannot sit in judgment over business decisions or dictate what is economically viable for a manufacturer.

Dept alleges Clandestine Sale without producing Corroborative Evidence such as Consumption of Electricity: CESTAT quashes Excise Duty

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has quashed excise duty demands against the appellant and its directors, holding that the Department failed to substantiate charges of clandestine manufacture and removal with cogent evidence.

The Bench of R. Muralidhar (Judicial member) and K. Anpazhakan (Technical member) noted that without corroborative evidence like excess power consumption, purchase of raw materials, transportation payments, and buyer details, clandestine removal cannot be sustained.

The CESTAT also noted that since the alleged clandestine clearances were linked to supposed illicit removals by Sai Sponge, and the demand against Sai Sponge had already been set aside in a connected appeal, the foundation of the Revenue’s case collapsed.

Services Provided to SEZ Units Not Covered Under Rule 6(3) of CCR, No Reversal of Credit Required: CESTAT

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that services provided to Special Economic Zone (SEZ) units are not covered under Rule 6(3) of the CENVAT Credit Rules. Hence, no reversal of CENVAT credit is required.

The two-member bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that Rule 6(6A), introduced by Notification No. 03/2011-CX (NT), specifically excluded services provided to SEZ units from the scope of Rule 6(1) to 6(4).

The tribunal further observed that through Section 144 of the Finance Act, 2012, this benefit was made retrospective. The tribunal explained that services rendered to SEZ units are treated as export of services under the SEZ Act, 2005, and the provisions of Rule 6(3) do not apply.

Service Tax on Passenger Service Fee (PSF) Payable by Airport Authority, Not Airlines: CESTAT

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Passenger Service Fee (PSF) collected by airlines from passengers is a statutory levy, and service tax on such PSF is payable by the Airport Authority, not by the airlines.

The tribunal explained that including PSF in the airline’s taxable value would result in double taxation because it was already taxed as part of “Airport Services.” It also pointed out that PSF and airport taxes are not consideration for services rendered by the airline and thus cannot be included in the value of air travel services. The appeal filed by Austrian Airlines was allowed.

Photographic Flashlights Producing Short-Duration Light Classifiable as Photographic Equipment, Not as Lamps and Lighting Fittings: CESTAT

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that photographic flashlights producing short-duration light are classifiable as photographic equipment and not as lamps and lighting fittings.

The tribunal held that the correct classification of the goods was under the tariff heading for photographic equipment and not under the heading for lamps and lighting fittings. The bench thus set aside the reclassification, upheld the declared classification and value, and allowed the appeal.

Failure of Dept to Prove Misclassification: CESTAT sets aside Customs Classification of Optical Power Ground Wire

The Tribunal criticised the reliance on assumptions and public-domain catalogues instead of concrete evidence, calling it “inferior proof.” It reiterated that classification must be based on physical characteristics and not inferred from usage or general technical literature.

The CESTAT set aside the impugned order, holding that the Revenue failed to establish the correctness of the reclassification under Heading 9001. The appeal was allowed with consequential relief to the appellant.

CESTAT clarifies Service Tax Demand on Transportation Income, classifies Tirupur Container Terminals’ Services under Cargo Handling

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has held that the differential amount between transport income and expenses cannot be subjected to service tax under “Business Support Service” (BSS). The Tribunal thus clarified that the appellant’s activities were squarely covered under “Cargo Handling Services” (CHS) and hence, the demand raised by the Customs Department was not sustainable.

The Bench comprising Mr. P.Dinesha (Judicial Member) and Mr. Vasa Seshagiri Rao (Technical Member) noted that the appellant was providing composite cargo handling services, wherein transportation was only an ancillary activity. The Tribunal held that Revenue had not provided sufficient justification for classifying the service as “Business Support Service.”

Additionally, the Tribunal found that the invocation of the extended period of limitation was unwarranted since there was no suppression or misstatement of facts by the assessee.

Doubt on Importer Status and Duty Payment: CESTAT remands SAP Software Import Case for Fresh Adjudication

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has remanded the appeals filed by M/s Rane Holdings Ltd. and M/s Rane Engine Valves Ltd. (REV) for fresh adjudication, after finding uncertainty regarding the actual importer, payment of license fees, and duty already paid by related entities in connection with the import of SAP software.

The Tribunal found that the record was unclear on whether Rane Holdings had actually paid the ₹31.5 lakh license fee and whether the duties paid by REV and SAP India had already satisfied the customs obligation. The lower authorities also failed to examine the effect of these payments and whether invoking the extended limitation period and penalties was justified.

Customs Broker Not Liable for Exporters’ Fraudulent Activities If Documents Were Verified and Actions Taken in Good Faith: CESTAT

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a customs broker cannot be held liable for fraudulent activities committed by exporters if the broker has duly verified all documents and acted in good faith.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that no evidence was produced to show that the customs broker was involved in any fraudulent activity.

The tribunal explained that the broker had performed all required verifications and that mere acceptance of documents from the exporters could not amount to a breach of the regulations. It pointed out that obligations under Regulation 10 should be reasonably construed and cannot impose strict liability when the broker acts in good faith.

Penalty not Justified for Procedural Lapses like Late Filing of Returns in Absence of Fraud, Negligence or Intent to Evade Taxes: CESTAT

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that penalties cannot be automatically imposed for procedural lapses such as late filing of returns when there is no fraud, gross negligence, or intent to evade duty.

The single-member bench comprising Dr. Rachna Gupta (Judicial Member) observed that the delay in filing quarterly returns was purely procedural and not deliberate. The bench pointed out that the appellant had filed all returns and the competent authority had issued certificates confirming compliance.

It further observed that the penalty cannot be imposed automatically and must be based on evidence of fraud, gross negligence, or intent to evade duty. The tribunal explained that penalties are intended to ensure compliance and cannot be invoked for bona fide or technical lapses.

Non-Verification of Electronic Evidence with Corroborating Statements as per S.9D of Central Excise Act: CESTAT quashes Demand Order on Alleged Clandestine Movement of M S Ingots

The bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside a demand order concerning the alleged clandestine movement of M.S. Ingots, ruling that statements recorded under Section 14 of the Central Excise Act, 1944, cannot be relied upon unless duly verified in accordance with Section 9D of Central Excise Act,1944.

The Tribunal reasoned that statements recorded during investigation cannot be treated as substantive evidence unless they pass the test prescribed under Section 9D(2). The Bench further clarified that a plea of non-compliance with Section 9D can be raised at the appellate stage since it involves a question of law.

The Tribunal on electronic data retrieved from pen drives and computer hard disks seized during searches to be non-admissible in the absence of compliance with Section 9D and the required certification under Section 36B(4) for electronic evidence.

Appeal Maintainable against Anti-Dumping Duty on Ophthalmic Lenses as Finance Act, 2023 Amendments Not Yet in Force: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, held that an appeal challenging anti-dumping duty on semi-finished ophthalmic lenses is maintainable since Section 134 of the Finance Act, 2023, amending Sections 9A and 9C of the Customs Tariff Act, 1975, has not yet been brought into force by a notification of the Central Government.

Since no such notification had been issued, the Tribunal ruled that the amendments made to Sections 9A and 9C of the Customs Tariff Act have not come into effect. Therefore, the pre-amended provisions under which appeals against government notifications imposing anti-dumping duties are maintainable before the CESTAT, remain applicable.

The Bench further held that once notified, the amendments would transfer appellate jurisdiction from the Tribunal to appeals against determinations or reviews by the Designated Authority; however, until that occurs, existing appeal rights under Section 9C subsist.

Electronic Data Interchange (EDI) System Glitches: CESTAT remands Refund Claim on CVD Paid for Fresh Adjudication

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has remanded the refund claims of two Imp-Ex Companies for fresh adjudication, directing the original authority to reconsider the matter in accordance with law and principles of natural justice.

The Bench observed that equality cannot be claimed in illegality but acknowledged procedural lapses, including the non-communication of the Tribunal’s earlier recall order to the parties.

Considering these factors, the Tribunal upheld the Commissioner (Appeals)’ decision to remand the matter but modified it, directing the Original Authority to conduct de novo adjudication within 90 days after granting a fair opportunity of hearing. The authority was instructed not to be influenced by prior findings while issuing a speaking order. The appeals and cross-objections were disposed of on these terms.

CESTAT allows Suo-Moto Re-Credit of Cenvat Credit without Refund Procedure u/s 11B, quashes Order, Penalty and Interest

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench, comprising Judicial Member Ajayan T V, has allowed the appeal of M/s. Polyhose India (Rubber) Pvt. Ltd. and set aside a demand of ₹40.64 lakh along with penalties, holding that suo-moto re-credit of Cenvat credit, once legitimately available, cannot be denied merely for not following the refund procedure under Section 11B of the Central Excise Act, 1944.

The Tribunal further held that since the department was aware of the appellant’s intention to re-avail credit and the entries were disclosed in returns, there was no suppression or wilful misstatement. Consequently, invocation of the extended period of limitation was unjustified, and the demand was barred under Section 11A of the Central Excise Act.

Concluding, the Bench held that both the demand and the penalties were unsustainable and allowed the appeal in full, granting consequential reliefs in accordance with law.

Benefit of Customs Duty Exemption on Imported Drugs applicable to Bulk Drugs Also: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Ahmedabad, has held that the term “drugs” under the relevant customs duty exemption notification includes “bulk drugs” as well, thereby granting the appellant pharma export unit the benefit of customs duty exemption.

The Bench of Judicial Member Somesh Arora, after hearing both sides, observed that the issue had already been conclusively settled in the Aurobindo Pharma case, where the Tribunal held that all drugs and medicines, including their salts, esters, and diagnostic test kits listed under Notification No. 21/2002-Cus., dated 1 March 2002, qualify for the exemption.

Transfer of Development Rights Does Not Attract Service Tax as It Amounts to Transfer of Immovable Property: CESTAT

The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT) held that the transfer of development rights by the assessee did not attract service tax, as it amounted to the transfer of immovable property.

The two member bench comprising Binu Tamta(Judicial Member) and P.V.Subba Rao (Technical Member) noted that the Bombay High Court in Chheda Housing Development Corporation vs. Bibijan Shaikh Farid had held that benefits arising from land, including transferable development rights (TDR), constituted immovable property under Section 3(26) of the General Clauses Act, 1897.

Applying these principles, the appellate tribunal concluded that the collaboration agreement’s purpose was the transfer of land, which fell outside the service tax provisions.