CESTAT Weekly Round-up

The Tribunal reasoned that deciding the appeal on merits in the absence of the appellant would deprive it of a fair hearing and compel unnecessary litigation before higher forums. The tribunal noted that even after exhausting all modes of service, the appellant’s whereabouts remained unknown and concluded that the appellant was not interested in pursuing the matter.

Accordingly, the CESTAT dismissed the appeal for default under Rule 20 of the CESTAT (Procedure) Rules, 1982, while granting liberty to the appellant to seek restoration upon showing sufficient cause for non-appearance.

Import of Yogurt Flavoured Milk Drinks through Unauthorized Port Violates Livestock Import Norms: CESTAT Upholds Redemption Fine

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the redemption fine imposed under Section 111(d) of the Customs Act, 1962 and held that the import of yogurt flavoured milk drinks through an unauthorized port violated the Livestock Importation (Amendment) Act, 2001 and the Notification S.O. 2666(E) dated 16.10.2014.

The Tribunal relied on the decision in Broadway Overseas Ltd. v. Commissioner of Customs, Amritsar (2014), which was affirmed by the Punjab & Haryana High Court, and the Tribunal held that import through an unauthorized port is contrary to statutory restrictions and justified the confiscation and imposition of a redemption fine. The Tribunal found no infirmity in the order of the Commissioner (Appeals) and rejected the appeals filed by the appellant.

Accordingly, the CESTAT upheld the redemption fine under Section 111(d) of the Customs Act, 1962, holding that import of livestock products through an unauthorized port is in violation of Livestock Import Norms.

Notice u/s 28(6) of Customs Act Mandatory when Officer Finds Short Payment of Duty or Penalty: CESTAT sets aside order against L&T

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has ruled that issuance of a notice under Section 28(6) of the Customs Act, 1962 is mandatory when the proper officer finds short payment of duty or penalty after an assessee has made a payment under Section 28(5).

On appeal, the Tribunal observed that “Section 28 (6) specifically mandates the issuance of notice, if the proper officer is of the opinion that there is any short payment of duty or penalty or variation in the payment and it is not an empty formality. The non-issuance of mandatory notice by the Revenue has only rendered the above provision otiose and hence, the very purpose of the said provision is rendered futile.”

The Tribunal further held that the department’s failure to issue such a notice rendered the proceedings invalid.

Commission Income from Business Auxiliary Services Liable to Service Tax, Not Covered under Negative List: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Principal Bench, New Delhi upheld the levy of service tax on commission income earned under Business Auxiliary Services (BAS). The Tribunal ruled that such services do not fall under the Negative List specified in Section 66D of the Finance Act, 1994, and therefore attract service tax liability.

After examining the record, Dr. Rachna Gupta (Judicial Member) held that the appellant had been previously issued a similar show-cause notice for 2011-2016, which he settled under the Sabka Vishwas scheme.

Despite this, he again failed to pay service tax or file returns for the subsequent period (April 2016-June 2017). This pattern of non-compliance, coupled with delayed replies and non-filing of returns, was considered willful suppression of facts with intent to evade tax.

Relief to Johnson & Johnson: CESTAT Allows CENVAT Credit Distribution through ISD for Both Manufacturing & Trading Units

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) recently granted relief to Johnson & Johnson Pvt. Ltd., holding that the company’s head office can function as an Input Service Distributor (ISD) for the distribution of Central Value Added Tax (CENVAT) credit to its manufacturing units, provided that statutory conditions and reversal obligations are duly fulfilled.

Xavier Mascarenhas, appearing for the Revenue, argued that the appellant had failed to produce relevant documents before the adjudicating authority and relied on the Tribunal’s earlier decision in Clariant Chemicals (I) Ltd. vs. Commissioner of Central Excise, Raigad (2015) to contend that an ISD can be treated as an assessee under the CENVAT statute for ensuring statutory compliance.

The Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) examined the statutory scheme under the CENVAT Credit Rules, particularly Rule 3, which permits manufacturers of excisable goods to take CENVAT credit on input services received by manufacturing units.

Lubricating Oils and Greases Manufactured by Balmer Lawrie Eligible for Exemption: CESTAT

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that lubricating oils and greases falling under Heading 34.03 and manufactured by Balmer Lawrie and Company Limited are eligible for exemption under Notification No. 120/84-CE dated May 11, 1984.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that the lower authorities failed to follow the tribunal’s earlier directions. It was observed that the notification did not mention any tariff heading and granted exemption to all lubricating oils and greases obtained by blending mineral oils.

The tribunal pointed out that the authorities ignored this evidence and relied only on the Chief Chemist’s interpretation, which carried no weight. It also explained that other manufacturers producing similar goods had been granted the same benefit.

Short Delay in CENVAT Debit Not Non-Payment of Duty: CESTAT Quashes ₹12.59 Crore Demand Against ITC Limited

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a short delay in debiting CENVAT credit cannot be treated as non-payment of excise duty. The tribunal set aside the Commissioner’s order.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that ITC had enough CENVAT credit balance at the end of each month and that the only issue was the timing of debit.

The tribunal explained that when sufficient credit is available and the delay is short, the liability can only attract interest, which ITC had already paid. It pointed out that raising a demand of Rs. 12.59 crore in such circumstances was excessive and unjustified since the department suffered no revenue loss.

CENVAT Credit Allowed on Mining Services Used for Bauxite Extraction: CESTAT Dismisses Revenue Appeal Against Bharat Aluminium

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Bharat Aluminium Co. Ltd. (BALCO) was eligible to avail CENVAT credit on service tax paid for mining services used to extract bauxite from its captive mines. The tribunal dismissed the revenue’s appeal.

The two-member bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) agreed with BALCO’s arguments. The tribunal observed that the extraction of bauxite and its conversion into alumina were essential parts of the aluminium manufacturing process.

It explained that without bauxite there can be no alumina, and without alumina there can be no aluminium, establishing a clear production link. The tribunal also observed that Rule 3(1)(xi)(ii) applied only when a job worker availed the exemption under Notification No. 214/86, which was not the case here, as Vedanta had paid duty.

Service Tax Demand Based on Photocopy of Bill Unsustainable when Marriage Palace’s Receipts Below Exemption Limit: CESTAT

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a service tax demand cannot be sustained when based only on a photocopy of a bill, particularly when the assessee’s receipts were below the exemption limit.

The tribunal, presided by Dr. Rachna Gupta (Judicial Member), observed that the entire case rested on an unverified photocopy with no evidence of payment. It observed that the appellant’s turnover during the relevant years was below Rs. 10 lakh, qualifying for exemption.

The tribunal explained that even if the full Rs. 9,00,000 were assumed to be received, the taxable value would remain below the limit after applying 70% abatement under Notification No. 26/2012-ST.

Clinical Trial/Testing Services Conducted Outside India but Reports Delivered to Indian Recipient Liable to Service Tax: CESTAT

CENVAT Credit Allowed on Hazardous Waste Disposal under Input Services: CESTAT Holds Waste Removal an Integral Part of Manufacturing Process

The Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal and held that the services used for disposal of hazardous waste qualify as ‘input services’ under Rule 2(l) of the CENVAT Credit Rules, 2004, as waste removal is an integral and statutory part of the manufacturing process.

The Bench comprising C.J. Mathew (Technical Member) and Ajay Sharma (Judicial Member) observed that removal of effluents and hazardous waste generated during manufacture is a statutory obligation under pollution control laws, and without fulfilling such requirements, manufacturing operations cannot legally continue. Hence, such activities are inextricably linked with factory operations and form part of the manufacturing process.

CESTAT Sets Aside Order as Confiscation and Penalties Unsustainable Once Duty and Penalty Paid u/s 11AC(1)(d)

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the order confirming confiscation and penalties against appellant and its directors and held that once the assessee had paid the duty, interest, and penalty under Section 11AC(1)(d) of the Central Excise Act, 1944, the proceedings stood concluded and no further confiscation or penalties could be sustained.

The Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that the appellants had made payment of the entire duty, interest, and penalty within the prescribed time and that the adjudicating authority had not disputed this fact.

The Tribunal referred to the provisions of Section 11AC(1)(d), which clearly state that payment of such dues within thirty days of the SCN results in deemed closure of the proceedings.

CESTAT Holds Type Test Charges Not Liable to Excise Duty Under Section 4: Quashes Demand and Penalty Against Crompton Greaves

luding “type test” charges in the assessable value of transformers cleared from its factory.

The Bench comprising C.J.Mathew (Technical Member) and Ajay Sharma (Judicial Member) observed that the Tribunal had already, in a previous order concerning Crompton Greaves, relied on Ericsson India Pvt. Ltd. v. Commissioner of Central Excise, Pondicherry (2007) and Essar Telecom v. Union of India (2012) to hold that consideration realized for an activity subjected to service tax cannot be included for excise duty purposes.

The Tribunal found no justification for levying central excise duty on type test charges and held that such consideration, being for a separate service activity, could not form part of the assessable value under Section 4 of the Central Excise Act, 1944.

Mere Price Difference is No Proof of Misdeclaration: CESTAT Partly Allows Appeal in Customs Valuation Dispute

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that a mere difference in import prices between two importers does not constitute misdeclaration under the Customs Act, 1962.

The Bench comprises President, Justice Dilip Gupta and Technical Member, P. V. Subba Rao held that the rejection of declared values for 44 earlier consignments could not be sustained, as there was no independent evidence or contemporaneous comparison to justify the rejection of those transaction values. Thus, applying the residual valuation method under Rule 9 in such circumstances was not legally permissible.

Buyer cannot be Denied CENVAT Credit if Supplier does not Avail Advance Authorisation Duty Exemption: CESTAT in Galaxy Surfactants’ Case

The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) recently held that a buyer cannot be denied Central Value Added Tax (CENVAT) credit in a situation where the supplier, though eligible for duty-free clearance under the Advance Authorisation or Advance Licence scheme chooses to clear goods on payment of duty.

CESTAT noted that what matters is that the recipient received duty-paid goods under proper duty-paying documents and used them in manufacture. The Bench further noted that any proceedings, if necessary, lay against the supplier and penal consequences could not be shifted to the recipient manufacturer.

When Goods Are Sold on FOR Basis, Buyer’s Premises is Treated as Place of Removal and Freight Forms Part of Assessable Value: CESTAT

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that when goods are sold on a Free on Road (FOR) basis, the buyer’s premises is treated as the place of removal, and the cost of freight forms part of the assessable value for excise duty.

The bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that when goods are sold on an FOR basis, the seller retains ownership until delivery, and the place of removal is the buyer’s premises.

The tribunal explained that freight charges are rightly includable in the assessable value, and duty paid on such value is proper. It also pointed out that the refund sanctioned earlier had attained finality and could not be reopened under Section 11A of the Central Excise Act. The appeal was allowed with consequential relief.

CENVAT Credit on Tippers/Dumpers Used For Site Formation Services Not Admissible Prior to Oct 1, 2010: CESTAT

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that CENVAT credit on tippers and dumpers used for site formation and clearance services is not admissible for the period before 1 October 2010.

Applying this reasoning, the tribunal observed that the appellant had acted under a bona fide belief that the credit was admissible since the vehicles were used directly in providing taxable services. It explained that the extended period of limitation was not applicable because there was no suppression or intent to evade duty.

The tribunal remanded the case only to verify any demand that might fall within the normal limitation period and clarified that no penalty could be imposed in light of the appellant’s bona fide conduct.

Interest Payable on Entire Amount Deposited During Investigation, ‘Interest On Interest’ also Admissible When Refund is Delayed: CESTAT

The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that when an assessee deposits money during investigation, interest is payable on the entire amount once it is found refundable, and if the refund is delayed, interest on that interest is also admissible.

The tribunal referred to earlier tribunal rulings, including BSL Ltd. v. CCE & CGST, Udaipur (2019) and Kerala Chemicals & Proteins Ltd. v. CCE, Cochin (2007), where it was held that both interest and interest on interest were payable when the department delayed refund of deposits made under compulsion.

The tribunal further explained that restricting interest to only 7.5 percent of the disputed amount was incorrect because the entire deposit was made under pressure during investigation and not voluntarily as a pre-deposit.

Coke Breeze Qualifies as Metallurgical Coke When Used in Sintering: CESTAT Grants Exemption to Jindal Steel

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that “coke breeze” qualifies as metallurgical coke when used for metallurgical purposes such as sintering and granted exemption under Notification No. 12/2012-Cus dated 17 March 2012

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the department had not disputed that coke breeze is used in sintering, which is part of the metallurgical process of iron and steel making.

The tribunal explained that sintering involves heating iron ore fines with coke breeze to form sinter, which is then used in the blast furnace to produce iron. The tribunal observed that coke breeze retains the same chemical and metallurgical properties as metallurgical coke and differs only in size.

Not Disclosing Fibre Length in Import of ‘Para-Aramid Pulp’ not Suppression: CESTAT Bars Extended Limitation by Customs

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at New Delhi ruled that failure to disclose the length of imported ‘Twaron Para-Aramid Pulp’ fibre does not constitute suppression or wilful misstatement under Section 28(4) of the Customs Act, 1962, and set aside the extended limitation and penalty imposed by the Customs under Section 114A of the Act.

The Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Member Technical) agreed with the appellant, observing that suppression under Section 28(4) required that deliberate concealment with intent to evade duty be done.

It was noted that the Bill of Entry only required the nature of the goods to be declared and not all the parameters of the test reports. Noting that the assessing officers had the opportunity to determine fibre characteristics during examination, it was observed that such omission could not be treated as suppression by the importer.

CENVAT Credit on Balance 50% of Capital Goods Can Be Availed in Subsequent Years: CESTAT Holds Rejection Unsustainable

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Principal Bench, New Delhi, has held that the rejection of CENVAT credit taken on the balance 50% portion of capital goods in subsequent years is unsustainable, ruling that Rule 4(2)(a) of the CENVAT Credit Rules, 2004 permits such availment without any time limitation.

The order states that “Under Rule 4(2)(a) of the 2004 Credit Rules, a manufacturer is permitted to avail only 50% of the credit on capital goods in the financial year of receipt, and the remaining 50% can be availed in any financial year subsequent to the year of receipt. There is no time limit placed to availing the remaining 50% credit.”

Accordingly, the appellate tribunal set aside the finding relating to the capital goods credit and held that the rejection of CENVAT credit on the balance 50% portion was unsustainable in law, as the availment fully complied with Rule 4(2)(a). Thus, the appeal was allowed.

Post-Closure Invoices Invalid for CENVAT Credit Transfer: CESTAT Rejects RSPL’s Claim of ₹26 Lakh

The Principal Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, while dismissing an appeal, ruled that post-closure invoices are invalid for CENVAT credit purposes, by upholding the department’s decision to disallow credit amounting to ₹26,11,388 claimed under Rule 10 of the CENVAT Credit Rules, 2004.

The bench of Dr. Rachna Gupta, Judicial Member observed that the six invoices were all dated between January and July 2010, whereas the appellant had surrendered its registration in December 2009. Therefore, the invoices could not establish that the services were received prior to the surrender.

Although the appellant produced ledger extracts and e-challans, the bench noted that these documents did not correspond to the six invoices or establish any nexus between the services and the manufacture of final products. It was further observed that under Rule 10 of the CENVAT Credit Rules, transfer of unutilized credit is allowed only if such credit exists at the time of shifting.

Service Tax Demand Based Solely on Income Tax Data Set Aside by CESTAT

The Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that a service tax demand raised merely on the basis of data derived from Income Tax returns and Form 26AS, without any independent verification or evidence of suppression, is unsustainable in law.

The bench of Dr. Rachna Gupta, Judicial Member observed that the demand was raised solely by comparing figures declared in the Income Tax return with those in the ST-3 return, without any independent verification.

The Tribunal observed that the Service Tax returns were duly filed, and the nature of services as “construction of residential complex service” was clearly disclosed, along with a specific claim for exemption under Notification No. 25/2012-ST.

It was held that once returns are filed, the responsibility lies with the departmental officer to scrutinize them within the normal period and to raise objections, if any. Failure on the part of the officer to do so cannot justify the invocation of the extended period of limitation.

Sending Testing Samples to In-House Laboratory Not Exciseable Activity: CESTAT quashes Excise ₹2.57 Crore Demand against Navin Fluorine

The New Delhi bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has quashed a demand of ₹2.57 crore against the famous Navin Fluorine International Limited, holding that sending product samples to the company’s in-house laboratory for testing does not constitute a clearance of excisable goods.

The Bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) noted that the appellant, being an Export Oriented Unit (EOU), was engaged in Contract Research and Manufacturing Services (CRAMS), which required multiple rounds of laboratory testing of intermediate products and materials. Since the Dewas facility lacked certain equipment, the samples were sent to its own laboratory at Surat for analysis.

Construction of Buildings for Educational Institutions Not “Primarily for Commerce or Industry”: CESTAT sets aside Service Tax Demand

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at Chennai has held that construction services rendered to educational institutions are not liable to service tax under ‘Works Contract Service’ prior to July 1, 2012, while partly upholding the demand for the subsequent period and remanding the matter for re-quantification.

Following the Supreme Court’s ruling in Commissioner v. Bhayana Builders (P) Ltd. [2018 (10) GSTL 118 (SC)], the Tribunal held that the cost of materials supplied free of charge by the recipient cannot be added to the taxable value. It directed the adjudicating authority to recompute liability for 2012 - 2014 after allowing cum-tax benefit and excluding free-supplied material costs.

Refundable Loans Not Taxable as Service Advances under Finance Act: CESTAT Allows Appeal

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bench at Kolkata has set aside a service tax demand of ₹2.41 crore, ruling that refundable loans cannot be treated as taxable advances for services and that tax on imported services under Reverse Charge Mechanism (RCM) was revenue neutral.

After examining the documents and hearing both sides, the Tribunal comprising K. Anpazhakan (Technical Member) and R. Muralidhar (Judicial Member) observed that the amounts recorded in the “Advance Ledger” were refundable loans and not advances against taxable services; the adjudicating authority erred in treating them as service-related advances. On RCM liability of ₹16.44 lakh, the Tribunal held that the entire transaction was revenue neutral, since any tax paid was simultaneously available as credit.

Revenue Neutral Transactions Between Sister Units Not Liable for Excise Demand: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bench at Kolkata), has dismissed the Revenue’s appeal and allowed the appeal, holding that the alleged undervaluation of goods cleared to sister units was revenue neutral and thus, demand of duty, interest, and penalty could not be sustained.

The Tribunal comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member observed that the goods cleared were scrap, which arises incidentally during manufacture and cannot be treated as “manufactured goods” under Section 2(f) of the Central Excise Act. Further, the Revenue’s insistence on applying CAS-4 for determining value of scrap was “beyond comprehension” since costing principles under CAS-4 apply to manufactured goods and not waste or by-products.

It was held that since the receiving unit availed CENVAT credit of the duty paid, the entire transaction was revenue neutral.

Service Tax on Renting of Immovable Property Payable Only for Normal Period: CESTAT Partly Allows Appeal

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at New Delhi held that the extended period of limitation cannot be invoked against a government authority in absence of intent to evade tax. The Bench upheld the demand for the normal period only and remanded the matter to the adjudicating authority for re-quantification.

Holding that the Authority’s operations were transparent and under direct government supervision, the Bench added that the Department’s own audit office operated within the Trade Fair premises, paying rent to GTFA, showing that the Department was well aware of the renting activity. Accordingly, the Tribunal ruled that while tax liability existed for the normal period, the invocation of the extended period under the proviso to Section 73(1) was unsustainable.

Advertisement and Promotional Expenses Incurred “On Own Account” Cannot be Added to Customs Value of Imports: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bench at New Delhi set aside the demand of over ₹21.85 crore in differential customs duty, holding that Advertisement and Promotional Expenses (APE) and Management Services Fees (MSF) paid to overseas affiliates cannot be added to the assessable value of imported motorcycles and parts.

The Tribunal comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed that the Distributor Agreement between Triumph UK and the Indian subsidiary only required the latter to promote and advertise the brand at its own cost. These were activities undertaken by the appellant “on its own account” to develop sales in India and not as a precondition for import of goods.

Citing the Interpretative Note to Rule 3(2)(b) of the Valuation Rules, the Bench held that marketing and promotional activities undertaken by a buyer on its own account, even under agreement with the seller, do not form part of the value of imported goods.

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