TIOL-DDT 2131 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=17063"><img src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2013.jpg" alt="DDT in Limca Book of Records" width="175" height="120" hspace="5" border="0" align="right"></a></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></strong></font><font color="#663399" size="3">TIOL-DDT 2131 </font><br>
20.06.2013 <br>
Thursday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Interest
on un-utilised CENVAT Credit - The litigation continues …</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IS</strong> an assessee required to pay interest when the irregular credit was never utilized and reversed later? It is now almost a routine matter for the Tribunal to dismiss the appeals filed by the assessee by relying on the decision of the Supreme Court in case of <em>Ind-Swift Laboratories Ltd</em> - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2011/2011-TIOL-21-SC-CX.htm" target="_blank"><font size="1">2011-TIOL-21-SC-CX</font></a></strong>. In swift disposal of the appeals, all that the Tribunal has to do is to simply follow the ratio of Supreme Court and dismiss the appeals. Even after Ind-Swift , many assessees believe that if the Credit is not utilized and is reversed, demand of interest is unjustified. And their view gets support from the decision of the High Court of Karnataka in <em>Bill Forge Pvt Ltd , distinguishing the ratio of Ind-Swift</em> - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2011/2011-TIOL-799-HC-KAR-CX.htm" target="_blank"><font size="1">2011-TIOL-799-HC-KAR-CX</font></a></strong>. This raises a fundamental question about the facts of Ind-Swift case, especially whether Ind-Swift had reversed the Credit without utilizing it. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In case of<em> Ind Swift</em>, the assessee was alleged to have availed/taken <em>CENVAT credit</em> on fake invoices and utilized it. The assessee approached Settlement Commission. The Settlement Commission ordered for payment of interest at the rate of 10%. The assessee while computing the interest on CENVAT Credit, did the most unusual thing. They computed the interest from the date of utilization of the credit till the date of payment/reversal. The department objected to this and demanded interest from the date of taking credit. The assessee contested this and the High Court of Punjab and Haryana held that ‘<em>Reliance of respondents on Rule 14 of the Credit Rules that interest under Section 11AB of the Act is payable even if CENVAT credit has been taken. In our view, said clause has to be read down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable on the Cenvat credit taken and utilized wrongly. Interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. On a conjoint reading of Section 11AB of the Act and that of Rules 3 and 4 of the Credit Rules, we hold that interest cannot be claimed from the date of wrong availment of CENVAT credit. The interest shall be payable from the date CENVAT credit is wrongly utilized.'</em> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, the Supreme Court reversed the above ratio by holding that “the High Court misread and misinterpreted Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word "OR" in between the expressions `taken' or `utilized wrongly' or `has been erroneously refunded' as the word "AND". On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 14 has been amended with effect from 17.03.2012 to replace the words ‘taken OR utilized' with ‘taken AND utilized OR erroneously refunded'. In the changed scenario with effect from 17.03.2012, the following issues make an interesting reading. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is the ratio of <em>Ind-Swift </em>is still applicable for the cases from 17.03.2012? If one has to interpret the amended Rule 14 in the light of Supreme Court's observation that OR appearing in Rule 14 cannot be read as AND, now the Rule itself reads AND, the ratio is not applicable. So, if <em>Ind-Swift</em> repeats the same offence after 17.03.2012, they will be liable to pay interest only from the date of utilizing credit. Let us analyse further with the help of two different situations. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Case 1:</strong> An assessee takes credit in 2010. Utilizes the same in 2012 (No doubt, CENVAT account is maintained as common pool for all credits and it is difficult to establish this, but let us assume that this is the only credit that this assessee had availed). In 2013, department finds it irregular. So he pays back this in 2013. Now, interest is applicable only from 2012, being the date of utilization. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Case 2:</strong> An assessee takes credit in 2010, does not utilize it. In 2013, the department finds it irregular, and the assessee reverses it. He is not liable to pay any interest. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Perhaps the intention behind the amendment in 2012 was only to take care of case 2, but inadvertently, case 1 is also getting the benefit of interest exemption from 2010 to 2012. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe there should be two separate sub-rules in Rule 14 to prescribe liability to pay interest in two different situations above. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is also interesting to note the High Court of Karnataka in case reported in <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2011/2011-TIOL-799-HC-KAR-CX.htm" target="_blank"><font size="1">2011-TIOL-799-HC-KAR-CX</font></a></strong> while distinguishing the ratio of <em>Ind-Swift </em>held that ‘It (CENVAT Credit) is in the nature of a set off or an adjustment. The assessee uses the credit to make payment of excise duty on excisable product. Instead of paying excise duty, the cenvat credit is utilized, thereby it is adjusted or set off against the duty payable and a debit entry is made in the register. Therefore, this is a procedure whereby the manufacturers can utilize the credit to make payment of duty to discharge his liability. Before utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non-taking of credit on the inputs'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It remains to be seen how the Supreme Court will decide the appeal that must have been filed by the revenue against the above order. But the CESTAT has viewed the Karnataka High Court decision as per <em>incuriam </em>and held Supreme Court Judgement in<em> Ind-Swift</em> is applicable. Please see <strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=ODg3NTI=" target="_blank"><font size="1">2013-TIOL-934-CESTAT-BANG</font></a></strong>, which we are carrying today </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MODVAT was introduced in the year 1986 and even today, the lawmakers are not able to properly draft a rule to deal with applicability of interest and are burdening the judiciary! </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Re-export of defective parts/spares not mandatory </font></strong></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Central Government has amended paragraph 2.38 of Foreign Trade Policy, 2009-2014 to read - </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Goods or parts, except restricted under ITC (HS) thereof, on being exported and found defective, damaged or otherwise unfit for use may be imported for repair and subsequent re-export. Such goods shall be allowed clearance without an Authorisation and in accordance with customs notification. <font color="#FF0000"><em>However, re-export of such defective parts/spares by the Companies/firms and Original Equipment Manufacturers shall not be mandatory if they are imported exclusively for undertaking root cause analysis, testing and evaluation purpose.</em></font>"</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The effect of this addition shown in red italic is that it is not mandatory to re-export defective parts/spares imported exclusively for undertaking root cause analysis, testing and evaluation purpose by the Companies/firms and Original Equipment Manufacturers. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=45&filename=notification/dgft/2013/dgft13not024.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification 24/(RE-2013)/2009-2014, Dated: June 19, 2013 </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Commissioner passing an order-in-original in less than 24 hours of conducting hearing - Matter remanded</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION </strong>11A(11) of the CEA, 1944 reads thus - </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#FF0000">(11) The Central Excise Officer shall determine the amount of duty of excise under sub-section (10)- </font></em></font></p>
<p align="justify"><font color="#FF0000"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) within six months from the date of notice, where it is possible to do so, in respect of cases falling under sub-section (1); </font></em></font></p>
<p align="justify"><font color="#FF0000"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b)<strong> within one year</strong> from the date of notice, where it is possible to do so, in respect of cases falling under sub-section (4) or sub-section (5). </font></em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Furthermore, Chapter 13, Part II of the CBEC Supplementary Manual also contains the following guideline - </font></p>
<blockquote>
<p align="justify"><em><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">2.1.8. It is clarified that notwithstanding this revision, in all cases where the personal hearing has been completed, orders will be passed by the Adjudicating Authority before whom the hearing has been held. <strong>Such orders should normally be issued within a month of the date of completion of the personal hearing.</strong></font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We do not know whether the provisions of section 11A cited above have been followed to a ‘T' but nonetheless we know that you will be stunned if told that an adjudicating authority of the rank of Commissioner some time back passed an Order-in-Original in<em><strong> less than 24 hours</strong></em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In this crorepati case, majority of the relied upon documents were given to the appellants on 30/07/2012. The appellants were called for personal hearing on 22.08.2012 and when they sought additional time the same was denied and final hearing was held on 30.08.2012. In any case, they attended the hearing on 30.08.2012 and submitted the interim reply and further reply was to be submitted. In fact, further submissions were submitted by M/s Apex Inc. & by Apex Industries to the office of Commissioner on 31.08.2012. <em>M/s Sunbeam Home Appliance</em> also filed written submissions on 07.09.2012. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, the order-in-original was passed on 31.08.2012 itself and issued on 07.09.2012 allegedly without considering the above submissions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Probably, some diktat from the administrative apex must have prompted the adjudicating authority to conduct the proceedings with a lightning speed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the appellants are before the CESTAT and after narrating the above sequence of events also submit that they had raised five pertinent issues before the adjudicating authority but on the same there are no findings given - either rejecting or accepting the same. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Revenue representative obviously had to reiterate the contents of the o-in-o. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Bench observed thus - </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#663399">"5. It is found that due to clubbing alone the demand would be approximately Rs.88 lakhs. It is observed that when the hearing was held on 30.08.2012 and appellants had asked for sometime, a reasonable time should have been given to them so as to enable them to make further written submissions. We also note from the Order-in-Original that on most of the issues Ld. Commissioner has not given any findings on the appellants' submissions. The Ld. Advocate for the appellant makes an offer of deposit of Rs.50 lakhs within a period of 12 weeks and suggests that the matter can be remanded to the Ld. Commissioner wherein they would explain each and every issue and thereafter Ld. Commissioner can adjudicate the case. </font></em></font></p>
<p align="justify"><font color="#663399"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. We consider the above offer as a reasonable one. Main appellant (M/s Apex Home Appliances) to deposit Rs.50 lakhs in cash within a period of 12 weeks from 22 nd April, 2013 and report compliance to the Ld. Commissioner on 12th August, 2013. In the meantime, all the appellants may resubmit their submissions afresh to the Commissioner. Commissioner may thereafter give an opportunity of hearing and decide the matter through a speaking order. <strong>It is made clear with the Commissioner would hear the case only after deposit of the above mentioned amount</strong>. Further, appellants will not seek adjournments as far as possible and Commissioner would decide the case expeditiously. We are not expressing any opinion on any issue."</font></em></font></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the stay petitions and appeals were disposed of in above terms. </font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See <font size="1"><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=ODg3NTM=" target="_blank">2013-TIOL-935-CESTAT-MUM </a></font> to know more </font></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">CESTAT Wants Technical Members </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Government plans to appoint some technical Members in the CESTAT. They have called for applications from IRS officers of the grade of Commissioner and above. Some Chief Commissioners are not applying because they are waiting for the cadre review and the post of Principal Chief Commissioner with a pay of Rs.80,000/-. Tribunal Members are in the pay scale of Rs. 75,500 - 80,000. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In fact the Government had notified some vacancies in October 2012 and a couple of Commissioners have told me that they had applied for the post, but there was no response from the Government. Government has now clarified that those who had applied in response to the October 2012 Circular are not required to apply again. Applications should reach the Board by 8th July 2013. For those officers who are not enamoured by the perks of office and who can write their own Adjudication orders, this is a good opportunity. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=70&filename=pitara/deputation/Vacancies_CESTAT_Member.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MoFDoRF.No. A.12026/2/2012-Ad1C (CESTAT), Dated: June 13, 2013 and June 17, 2013 </font></strong></a></p>
<p align="center"><em><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Obiter Dicta </font></strong></em></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is
not rare in the Indian judicial oeuvre to see sound justice being mixed up
with irrelevant obiter dicta, for some of the judges in our superior judiciary
do tend to pontificate and sermonise when required only to reason, or seek
refuge in social mores when law, precedent or practice is available to fall
back upon. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From an Editorial in the<em> Hindu </em>of 19th June 2013.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> - Friday's cases</font></strong></font></strong></font></p>
<p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left">Central Excise</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Applicant clearing goods manufactured in J & K unit in terms of exemption operated through procedure prescribed in notification nos. 56/2002-CE & 57/2002-CE to Mumbai unit, availing CENVAT credit and then affixing labels on same and treating same as manufacture u/s 2(f) and clearing goods for export and claiming rebate of duty - notification 19/2004-CE(NT) governing rebate of duty clearly envisages that rebate is not admissible in such a situation - Difference of opinion - Matter referred to Third Member: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>applicant is procuring Cocoa Butter and Cocoa Powder from their factory at Jammu. The goods are cleared by the Jammu unit to the applicant on payment of duty and applicant took the credit of the duty so paid. The applicant also imports Cocoa Butter & Cocoa Powder on payment of duty. The applicant also takes the credit of duty paid thereon and thereafter applicant affixed two labels described as label 1 and label 2 on the goods procured by them and same were exported on payment of duty. Thereafter, the applicant filed rebate claim which were sanctioned to them. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Revenue is of the view that putting label A and label B on the boxes does not make the product marketable to the consumer.</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether it is sine qua non for assessee to produce substantial materials before Court or any other authority to show that borrowed funds were not diverted for any purpose other than business - YES: Madras HC</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is engaged in the business of export of beedi leaves, food grains and also in transport contracts. On scrutiny of the return of the assessee, it was found that the assessee had advanced loan to the Directors to a sum of Rs.3.91crores as against what was given earlier at Rs.3.23crores. The AO viewed that the assessee had not utilised the borrowed funds for business purpose, but diverted the same for advancing loans to the Directors and, hence, the claim of interest payment was disallowed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue before the Bench is - Whether it is incumbent upon the assessee to produce substantial materials before the Court or any other authority to show that the borrowed funds are not diverted for any purpose other than business. And the answer goes against the assessee. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Appellant providing shipping vessels to M/s ONGC on charter hire basis for a consideration - primary object of charter hiring vessel is for transportation of crude from place of production i.e. in High Sea to refineries in India and not for "storage and warehousing" - such services are classifiable under ‘supply of tangible goods' for use - Pre-deposit waived and stay granted: CESTAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant had provided shipping vessels to M/s. ONGC on charter hire basis for which they were receiving consideration. The said vessels were used during monsoon period and on call out basis for storage and transportation of crude oil from Bombay High. From the agreement for charter hire it appeared that the vessel is to be used for at a particular place or site for operation and service, which indicated that the vessel is stationery and primarily not used for voyage/transport of oil. The vessel is sought to be moored to the ONGC rig and act as a mother vessel receiving oil from the rig and pumping it to other daughter vessels which does actual transporting. The vessels used as mother vessel is required to carry out ship to ship transfer of cargo to daughter vessel. Therefore, the department was of the view that the activity undertaken by the appellant in charter hiring the mother vessel was primarily for the purpose of storage of crude oil at Bombay High and the transportation was only an incidental function to the primary function of storage. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our Columns tomorrow for the judgements </font></strong></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></strong></font></p>
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