CESTAT dismissed said appeal as not maintainable

Service Tax : Where assessee had filed appeal against order of Joint Commissioner before CESTAT, CESTAT dismissed said appeal as not maintainable and assessee's request to transmit appeal papers to Commissioner (Appeals) was rejected
■■■
[2014] 50 taxmann.com 119 (Bangalore - CESTAT)
CESTAT, BANGALORE BENCH
G.P. Josekuttan
v.
Commissioner of Central Excise, Cochin*
P.G. CHACKO, JUDICIAL MEMBER
AND M.VEERAIYAN, TECHNICAL MEMBER
MISC. ORDER NO. 642 OF 2012
FINAL ORDER NO. 576 OF 2012
STAY ORDER NO. 1440 OF 2012
MISC. APPLICATION NO. 447/2012
STAY APPLICATION NO. 1502/2011
SERVICE TAX APPEAL NO. 2446/2012
AUGUST  8, 2012
Section 86 of the Finance Act, 1994, read with section 35C of the Central Excise Act, 1944 and section 129B of the Customs Act, 1962 - Appeals - Orders of - Appellate Tribunal - Assessee filed an appeal before Tribunal on 12-10-2011 against order of Joint Commissioner dated 23-5-2011 relying upon a preamble in said order that appeal would lie to Tribunal - Department argued that said

M/s C.J. Shah & Co. Vs CCE Rajkot

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT - I

Appeal No.ST/11639/2014-DB
Arising out of: OIO No.RAJ-EXCUS-000-COM-182-13-14, dt.31.01.2014
Passed by: Commissioner of Central Excise & Customs, Rajkot
For approval and signature:
Mr.M.V. Ravindran, Hon ble Member (Judicial)
Mr. H.K. Thakur, Hon ble Member (Technical)  

1. Whether Press Reporters may be allowed to see the               No
    Order for publication as per Rule 27 of the CESTAT
    (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the               No
    CESTAT (Procedure) Rules, 1982 for publication
    in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of            Seen
    the order?
 4.Whether order is to be circulated to the Departmental         Yes
    authorities?

Appellant:
M/s C.J. Shah & Co.

Respondent:
CCE Rajkot

Represented by:
For Assessee: Shri J.C. Patel, Adv.
For Revenue: Shri S.K. Mall, Addl.Commissioner (AR)

CORAM:
MR.M.V. RAVINDRAN, HON BLE MEMBER (JUDICIAL)
MR. H.K. THAKUR, HON BLE MEMBER (TECHNICAL)


Date of Hearing:09.07.14
Date of Decision:31.07.14
Order No. A/11433 / 2014, dt.31.07.2014

Per: M.V. Ravindran

1. This appeal is against order of confirmation of demand for service tax under the category of Business Auxiliary service, interest thereon and imposition of penalties on the Appellants.

2. The facts leading to the present appeal are as follows.

3. The Appellants are engaged in the business of importing and selling Bulk Solvents and Chemicals. Apart from undertaking sales of the imported goods after clearance from customs, the Appellants also effect sales of the imported goods which on import are warehoused in customs bonded warehouse and which are sold by way of transfer of ownership while in the customs bonded warehouse. The present appeal relates to transactions in respect of the warehoused goods which were sold by the Appellants to traders, while the goods were in customs bonded warehouse.

4. The purchasers to whom the goods are sold while in the customs bonded warehouse, place purchase orders on the Appellants indicating therein the quantity and the price or rate at which the goods are agreed to be purchased. For effecting the imports of the goods, the Appellants  incur various expenses towards service provided by various service providers to  the Appellants such as expenses towards Banking and L/C (letter of credit) charges, wharfage, surveyor s fees, etc. The Appellants while raising the invoices on the purchasers, split the price mentioned in the purchaser orders and issue a separate debit note towards such expenses incurred by the Appellants. To take an illustrative transaction which is at Exhibit A to the Appeal, the Appellants imported a consignment of 286.415 M.Tons of  Methyl Ethyl Ketone  in May 2008 and filed warehousing bill of entry no.243376 dated 29-5-2008. While the goods were in warehouse, the Appellants sold 16 M.tons out of the said goods to R.A.Nariman & Co P. Ltd who cleared the said 16 M.tons by filing ex-bond bill of entry. The said purchaser, R.A.Nariman & Co. P. Ltd had placed  purchase order dated 14-6-2008 on the Appellants, as per which the goods were agreed to be purchased at the rate of Rs.87.50 per kg. . While raising the Invoice, the Appellants split the price into two viz.Rs.9,34,597/- and Rs.3,88,859/-  and issued a separate debit note for the amount of Rs.3,88,859/- towards expenses incurred by the Appellants for Banking, L/C charges etc. In other words the said expenses were factored in the said rate of Rs.87.50 per kg and a separate debit note was issued by the Appellants for the same.

5. It is in respect of the said debit notes raised by the Appellants towards the expenses of services such as Banking, L/C, Wharfage, Survey, etc that the department has raised a demand for service tax against the Appellants under the category of Business Auxiliary service under clause (iv) of Section 65 (19) of the Finance Act 1994. It is the case of the department that the Appellants have procured the said services which are inputs for their clients and have thus rendered Business auxiliary service within the meaning of clause (iv) of Section 65 (19) of the Finance Act 1994 which reads as follows:
          Business auxiliary service means any service in relation to:

(i) .

(ii) ….

(iii) …

(iv) Procurement of goods or services which are inputs for the client

Explanation-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause,  inputs  means all goods or services intended for use by the client."
7. Show cause notice dated 18-4-2013 was issued to the Appellants demanding service tax under the category of business auxiliary service on the amounts of the aforesaid debit notes for the period 1-10-2007 to 5-1-2012 by invoking the extended period of limitation of five years prescribed in the Proviso to Section 73 (1) of the Finance Act 1994. The same was contested by the Appellants on the plea of limitation as well as on merits. The Commissioner after considering the reply of the Appellants and after granting personal hearing to the Appellants passed his Order which is impugned in the present appeal.

8. On behalf of the Appellants, Ld.  Counsel submits that the Commissioner erred in applying the larger period of limitation. It is submitted that the Director General of Central Excise (DGCEI) had in November 2009 called upon the Appellants to submit copies of their commercial invoices for the period October 2005 to September 2009 while investigating an inquiry to ascertain facts regarding discharge of Service tax payment initiated against the Appellants. Further in June 2010 the DGCEI also called upon the Appellant to submit Invoice details as well as details in respect of extra charges including charges recovered through debit notes as well as party wise ledger accounts and balance sheets for the period April 2005 to March 2010 in respect of the inquiry regarding service tax. All such documents were submitted to DGCEI who after examining the same, by letter dated 31-8-2010 informed the Appellants that the Additional Director General  had ordered closure of the inquiries and the Appellants were accordingly requested to collect from the office of the DGCEI all the records and documents submitted for the inquiry. It is contended that having examined the documents and ascertained the facts and having come to the conclusion that there was no case for demand of service tax and having ordered closure of the inquiry in the year 2010, it is not open to the department in the year 2013 to issue a Show cause notice alleging wilful suppression or mis-statement of facts merely because of change of view on the part of DGCEI. It is further submitted that the Service tax and central excise audit department had from time to time audited the Appellants  records for the periods 2004-05 to 2009-10 and at no point of time it was contended that the Appellants were rendering business auxiliary service and in view of such audits undertaken from time to time there cannot be any scope for holding that there was wilful-suppression or mis-statement of facts by the Appellants. On merits, it was submitted that the transactions between the Appellants and the purchasers of the goods in the custom bonded warehouse were one of sale and purchase and merely because the Appellants gave a break-up of the price to separately show the expenses incurred by the Appellants towards banking, L/C charges etc, it cannot mean that the Appellants had rendered business auxiliary service. The representatives of the buyers-traders such as Mansi Chemicals, Noble Resourcesand Trading India P. Ltd and Chemtrade Overseas P. Ltd whose statements had been recorded by the department had in their statements stated that they had purchased chemicals from the Appellants and that the debit notes raised by the Appellants for part of the agreed rate were towards reimbursement of expenses such banking. L/C charges incurred by the Appellants. It was submitted that where the Appellants have rendered service to the buyers for storage of the buyers  goods after sale of the goods, the Appellants have paid service tax which is not in dispute and which is also apparent from the statements of the buyers. It was submitted that as clarified by the Central Board of Excise and Customs in para 18.2 of its circular No.80/10/2004-ST dated 17-9-2004, rendering of the service of business auxiliary of procuring services which are inputs for client, contemplates relation of agency as per which the agent procures on behalf of the principal, services which are inputs for the principal. In the present case the transactions between the Appellants and the buyers were on principal to principal basis and there was no agency and the various service providers like the Bank and Port had rendered the services to the Appellants as principals and not as agents for and on behalf of the buyers. It was further submitted that assuming while denying that the Appellants had rendered any service, the debit notes were towards reimbursement of expenses incurred by the Appellants and as held by the Hon ble Delhi High Court in the case of Intercontinental Consultants & Technocrats P. Ltd v UOI   2013 (29) STR 9 service tax cannot be levied on expenses incurred by the service provider.

9. On the other hand it is submitted by Ld. A.R. on behalf of the department, that although the show cause notice was issued on 18-4-2013 it is for the period which is within five years i.e. October 2007 to January 2012 and hence the notice is not barred by time. It is submitted that merely because after holding the inquiry in 2009-10 the DGCEI ordered closure of the same and returned the documents to the Appellants, it would not mean that  the DGCEI could not have issued the Notice in 2013 invoking the larger period of limitation. It is further submitted that merely because the Appellants  records were audited the same cannot mean that larger period cannot be invoked. It was submitted that in respect of transactions with manufacturers, the Appellants had been paying service tax and reference in this behalf  was made to an agreement dated 5-8-2010 (page 121 of the Appeal) made with one such manufacturer viz. Aquapharm Chemicals P. Ltd. as per which the Appellants had been appointed to perform various acts on behalf of the manufacturer and for which the Appellants were paying service tax. It was therefore submitted that service tax was also payable on the debit notes raised on purchasers who were traders. On the question of interpreting the nature of the transactions with the traders, reference was made to para 48 of the judgment of the Apex Court in the case of Bharat Sanchar Nigam Limited v UOI   2006 (2) STR 161 (SC) in which it is held that the seller and purchaser would have to be ad idem as to the subject matter of sale or purchase and the Court has to arrive at the conclusion as to what the parties had intended when they contracted and in arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence.

10. We have considered the submissions made by both sides and perused the records.

11. We find that the Notice is issued on 18-4-2013 and demands service tax for the period 1-10-2007 to 5-1-2012. The same is therefore beyond the normal period of limitation of eighteen months prescribed in Section 73(1) of the Finance Act 1994.  The question which arises for consideration is whether the larger period of limitation prescribed in the Proviso to Section 73 (1) is attracted in the present case. The said proviso applies in cases of fraud, collusion, wilful mis-statement or suppression of facts or contravention of the Act or Rules with an intent to evade payment of tax. It has been consistently laid down by the Hon ble Apex Court that to attract the said larger period of limitation of five years there must be some positive and deliberate act of concealment of facts with an intent to evade payment of tax and mere inaction or failure  on the part of the assesse would not justify invoking of larger period of limitation. Reference can gainfully be made in this behalf to the decisions of the Hon ble Apex Court in the case of Collector of Central Excise v Chemphar Drugs and Liniments- 1989 (40) ELT 276 and Pushpam Pharmaceuticals Company v Collector of Central Excise- 1995 (78) ELT 401. In the present case the Appellants  records have been subjected to scrutiny by the department from time to time. It is not in dispute that as many as four audits have been conducted by the department covering the period 1-10-2007 to           5-1-2012. Apart from such audits, the Director General of Central Excise Intelligence (DGCEI) had in November 2009 called upon the Appellants to submit copies of their commercial invoices for the period October 2005 to September 2009 on an inquiry to ascertain facts regarding Service tax, was initiated against the Appellants. Further in June 2010 the DGCEI also called upon the Appellants to submit Invoice details as well as details in respect of extra charges including charges recovered through debit notes as well as party wise ledger accounts and balance sheets for the period April 2005 to March 2010 in respect of the inquiry regarding service tax. All such documents were submitted to DGCEI who after examining the same, by letter dated 31-8-2010 informed the Appellants that the Additional Director General  had ordered closure of the inquiries and the Appellants were accordingly asked to collect from the office of the DGCEI all the records and documents submitted for the inquiry. In these circumstances, in our view there is no scope for invoking the larger period of limitation. The DGCEI having examined the documents and ascertained the facts and having come to the conclusion that there was no case for demand of service tax and having ordered closure of the inquiry in the year 2010, it cannot be held that there was cause for invoking the larger period of limitation by issuing a Notice in the year 2013. Where the documents were examined and a view was formed in 2010 that there is no case for demanding service tax and accordingly closure of inquiry was ordered, merely because the authorities subsequently change their view that does not justify invoking the larger period of limitation. It has been consistently held that a subsequent change of view by the authorities would not justify invoking the larger period of limitation. Reference can usefully be made in this behalf to the decisions in Jolly Electrical Industries v Commissioner of Customs- 2004 (174) ELT 460 (Tri-Mumbai), Gujarat Petrosynthese Ltd v CCE -1998 (102) ELT 293. When the DGCEI itself after examining the documents formed the opinion that there was no liability to service tax and ordered closure of inquiry, it cannot be said that the view held by the Appellants about the recovery of expenses by debit notes not being liable to service tax was not a bona fide one. The view entertained by the Appellants was also the view arrived at by the DGCEI when it ordered closure of the inquiry after examining all documents. We find that the Commissioner while dealing with the issue of larger period of limitation, has completely ignored the fact that apart from the Appellants  records being audited by the department on as many as four occasions, the DGCEI itself had after examining the documents arrived at a conclusion that service tax was not payable and ordered closure of the inquiry. There is no basis for the Commissioner s finding that the Appellants were aware that the expenses recovered under the debit notes from the traders-purchasers were liable to service tax under Business auxiliary service. Merely because after commencement of the DGCEI inquiry in November 2009, the Appellants started paying service tax in respect of such debit notes from December 2009 would not in itself be a justification for invoking the larger period of limitation particularly when after such inquiry the DGCEI itself ordered closure of the inquiry in August 2010. In the circumstances the larger period of limitation is not applicable in the present case and on this ground itself the impugned order is liable to be set aside.

12. Moreover, while allowing the appeal on limitation, in our view, it is noted from the purchase orders placed by the purchasers that the transaction between the parties may be one of sale and purchase. The purchase orders indicated the price at which the goods were sold. Merely because the Appellants while issuing the invoices, split the price and raised debit notes towards the expenses incurred by the Appellants for Banking, L/C charges, etc, it may not convert part of the transaction into one of service.

      One of the view may be, even if it were to be held that any service was rendered by the Appellants to the traders-buyers, indisputably the debit notes were towards reimbursement of expenses incurred by the Appellants and as held by the Hon ble Delhi High Court in the case of Intercontinental Consultants & Technocrats P. Ltd v UOI   2013 (29) STR 9 service tax cannot be levied on expenses incurred by the service provider.
     
13. The ld. AR has contended that the Commissioner has dropped the demand for denial of Cenvat Credit and this part of the Order would not be sustainable if the demand for service tax is set aside. Our findings in respect of notice being barred by time would equally apply in the context of demand for cenvat credit also and hence interference with the Commissioner s order relating to Cenvat credit is not called for.

14. Accordingly, the impugned order demanding service tax and interest and imposing penalties on the Appellants is set aside on the ground of limitation with consequential relief.

 (Pronounced in Court on 31.07.2014)

  (H.K. Thakur)                                                  (M.V. Ravindran)              
Member (Technical)                                         Member (Judicial)

M/s. GNFC Ltd. Vs C.C.E. & S.T

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

West Zonal Bench, Ahmedabad

COURT

Appeal No.                         :               ST/360/2010-DB

Arising out of     :               OIO No.08/VDR-II/STAX/GNFC/COMMR/2010,

                                                                                dt. 28.05.2010. 

Passed by                            :               Commissioner,

                                                                                Central Excise, Customs & Service Tax, Vadodara-II. 

 For approval and signature : 

Mr. M.V. Ravindran, Hon ble Member (Judicial)

Mr. H.K. Thakur, Hon ble Member (Technical)

 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?  No

2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No

3 Whether their Lordships wish to see the fair copy of the Order? Seen

4 Whether Order is to be circulated to the Departmental authorities? Yes

Appellant (s)      :               M/s. GNFC Ltd.

Represented by               :               Shri S.R. Dixit (Advocate)

Respondent (s) :               C.C.E. & S.T.  Vadodara-ii

Represented by               :               Shri Alok Srivastava (A.R.)

CORAM :

Mr. M.V. Ravindran, Hon ble Member (Judicial)

Mr. H.K. Thakur, Hon ble Member (Technical)

                                                                                                Date of Hearing:               17.07.2014

                                                                                                Date of Decision:              31.07.2014

      ORDER No. A/11437/2014, dt. 31.07.2014

Per:  Mr. M.V. Ravindran;

      This appeal is directed against OIO No.08/VDR-II/STAX/GNFC/COMMR/2010 dt. 28.05.2010. 

2.            The relevant facts that arise for consideration are the appellant herein is a registered service provider engaged in providing taxable services such as online information and data base access and / or retrieval services .  The appellant is discharging the appropriate service tax liability on such services. The appellant are also providing services of digital signature certification on which service tax liability was not applicable as per the CBEC circular no.137/76/2008-CX(4), dt. 05.06.2008.  The appellant has been availing benefit of Cenvat Credit of the service tax paid on various input services which are used by them for providing taxable service as well as non-taxable service.  The appellant has not maintained separate accounts in respect of receipt, consumption and inventory of input services used in both the categories.  It was noticed by the lower authorities that appellant utilized whole of the Cenvat Credit of service tax towards payment of service tax liability on the taxable output services while they were eligible to use only 20% of the amount of service tax payable from Cenvat Credit.  This contravention was noticed by the lower authorities for the period of October 2005 to September 2007.  Show cause notice dt. 21.12.2009 was issued to the appellant directing them to show cause as to why the demand of an amount of Rs.51,85,498/- be not raised on them alongwith interest and penalties be not imposed for improper utilization of Cenvat Credit in excess of 20% as provided under provisions of Rule 6(3)(c) of Cenvat Credit Rules, 2004.  The appellant before the issuance of show cause notice paid off the entire duty liability and the interest thereof in cash and submitted detailed reply to the adjudicating authority contesting the issue on merits and on limitation.  The adjudicating authority after following the due process of law upheld the demand raised alongwith interest and imposed penalties under Section 76 and 78 of the Finance Act, 1994 and also extended the benefit of payment of 25% of the amount of tax confirmed as provided under Section 78 of the Finance Act, 1994.  Aggrieved by such an order the appellant is before us. 

3.            Ld. Counsel appearing on behalf of the appellant would submit that the provision of digital signature certification is not a service which cannot be considered as an exempted service as the said service is not taxable is the view which has been expressed by the CBEC in their circular dt. 05.06.2008.  He would draw our attention to the definition of exempted services and submit that it would not encompose the services which are non-taxable as taxable services stand defined under various sub-clauses of Section 65(105).  He would submit that when the services digital signature certification is not liable to levy itself would mean it is not a service which can be called as exempted services.  It is his submission that by applying the maxim ejusdem generis or noscitur a socii the word service used in the definition of exempted services in the second limb has to be read with taxable service.  It is his submission that various case laws though pertaining duty of central excise would support his case.  He relies on:

(a)          Siddeshwari Cotton Mills (P) Ltd. Vs. Union of India & Anr.  1989 (39) ELT 498 (SC),

(b)          CCE, Bombay Vs. Maharashtra Fur Fabrics Ltd.  2002 (145) ELT 287 (SC),

(c)           Oswal Agro Mills Ltd. Vs. CCE  1993 (66) ELT 37 (SC),

(d)          Rohit Pulp and Paper Mills Ltd. Vs. CCE  1990 (47) ELT 491 (SC),

(e)          Commercial Taxes Officer, Anti Evasion, Circle-II, Jaipur Vs. MRF Ltd.  2009 (235) ELT 802 (Raj.). 

4.            He would also submit that the entire demand is time barred as appellant has been filing the monthly returns with the authorities and various audit took place and there is no question of evasion of service tax liability in as much as, they had paid the tax through their Cenvat Credit available to them and it is not the case of the revenue that there were no balances in the Cenvat Credit account.  It is also his submission that since the entire demand is hit by limitation, no penalties are liable to be imposed.  It is his final submission that appellant having paid the entire amount through cash, the Cenvat Credit which he has already debited during the relevant period should be allowed as credit to the appellant. 

5.            Ld. Departmental Representative on the other hand would submit that the issue is now fairly settled by the Hon ble High Court of Rajasthan in the case of Vodafone Digilink Ltd. Vs. CCE, Jaipur-II  2013 (29) STR 229 (Raj.).  After taking us through the facts of the case, and the facts of the case in Vodafone Digilink Ltd. Vs. CCE, Jaipur-II, he would submit that facts are similar and there is no difference.  It is his submission that the adjudicating authority was correct in coming to a conclusion that the appellant should be penalized.  He reiterates the findings of the adjudicating authority. 

6.            In rejoinder, Ld. Counsel would submit that in the case of Vodafone Digilink Ltd. Vs. CCE, Jaipur-II (supra) relied upon by the revenue, there is a specific finding of the Tribunal as well as Hon ble High Court that the appellant had devised a scheme deliberately to evade tax liability and hence the ratio of that case would definitely apply in that case. 

7.            We have considered the submissions made at length by both sides and perused the records. 

8.            At the outset, we would like to record the undisputed facts that the appellant is registered with the authorities for discharge of service tax liability on a specific output services provided by them.  They are also availing the benefit of Cenvat Credit of the service tax paid on input services.  It is also undisputed that the appellant had paid the entire amount of the demands which are confirmed by them through PLA as also through their RG-23A are to account. 

9.            On perusal of the records, we find that the appellant has used the entire Cenvat Credit for discharge of the service tax liability on the output services during the period October 2004 to September 2007; wherein during the period they were supposed to use only 20% of the amount of the Cenvat Credit.  This provision is very clear from reading of Rule 6(3)(c) of the Cenvat Credit Rules, 2004.  To that extent, we find that the appellant has contravened the provisions of the Cenvat Credit Rules, 2004.  We also find that the appellant has discharged an amount of Rs.51,85,498/- through PLA as also the interest of Rs.20,85,851/-. 

10.          We find that the main defense of the Ld. Counsel is on limitation.  On perusal of the records, we find that this defense of the Ld. Counsel may not carry their case any further as they have not clearly indicated by any correspondence to the revenue as to provision of the digital signature certification services. 

11.          In our considered view, the adjudicating authority has correctly come to the conclusion that appellant is required to pay the amount of Rs.51,85,498/- through PLA. 

12.          Since the amount is payable through PLA the interest charged on the said amount is also correctly appropriated by the authority. 

13.          At the same time, we find strong force in the contentions raised by the Ld. Counsel that the amount of Rs.51,85,498/- paid by the appellant through PLA / cash is over and above the same amount which has been debited by them during the period October 2004 to September 2007 in their Cenvat Credit account.  We direct the lower authorities to allow the appellant to avail Cenvat Credit of an amount of Rs.51,85,498/- as appellant has made good the said amount by paying it in cash. 

14.          As regards the penalties imposed, we find that during the material period, there could be a confusion in the mind of the appellant as to whether digital signature certification services rendered by them would get classified under the category of exempted services or not.  It is seen from the records that the authority i.e. office of controller of certifying authorities had specifically informed the appellant herein that the services rendered by them would not fall under the category of taxable service either under business auxiliary services or business support services.  Appellant could have entertained a bonafide belief as to that a non-taxable services would not fall under the category of exempted services .  In any case, we find that appellant could not be charged with intentional evasion of service tax liability by utilizing excess amount of the Cenvat Credit for discharging service tax liability, in as much that there is no dispute that appellant had sufficient balance in the Cenvat Credit account.  It is settled law that any amount debited in RG-23A Part-II or Cenvat Credit account tantamounts to discharge of tax liability.  In our considered view, the penalties imposed by the adjudicating authority under Section 76 and 78 of the Finance Act, 1994, are very harsh and unwarranted, in the peculiar facts and circumstances of this case.  Keeping in mind that the appellant is subsidiary of a Government of Gujarat undertaking and also noting that appellant could have had a bonafide belief that the digital signature certification services would not fall under the category of exempted services, by invoking provisions of Section 80 of the Finance Act, 1994, we hold that appellant has made out a reasonable and justifiable cause for setting aside the penalties.  Invoking provisions of Section 80 of the Finance Act, 1994, we set aside the impugned order which visits the appellant with penalties under Section 76 and 78 of the Finance Act, 1994. 

15.          The appeals are allowed to the extent as indicated hereinabove with consequential relief, if any. 

(Pronounced on 31.07.2014)

(H.K. Thakur)                                                                                     (M.V. Ravindran)

Member (Technical)                                                                       Member (Judicial)

M/s. Jay Bhawani Metal Company & Others Vs C.C.E. & S.T. ( DTD 31/07/2014)

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

West Zonal Bench, Ahmedabad

COURT

Appeal No.                         :               E/775,776,777/2011-DB

Arising out of     :               OIO No.18/MP/2010, dt. 31.03.2011. 

Passed by                            :               Commissioner,

                                                                                Central Excise & Customs, Surat-I. 

For approval and signature: 

Mr. M.V. Ravindran, Hon ble Member (Judicial)

Mr. H.K. Thakur, Hon ble Member (Technical)

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No

2Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes

3 Whether their Lordships wish to see the fair copy of the Order? Seen

4 Whether Order is to be circulated to the Departmental authorities? Yes

Appellant (s)      :               M/s. Jay Bhawani Metal Company,

                                                Shri Ramesh R. Kothari,

                                                M/s. Jay Bhawani Metal Industries.

Represented by               :               Shri W. Christian (Advocate)

Respondent (s) :               C.C.E. & S.T.  Surat-i

Represented by               :               Shri Alok Srivastava (A.R.)

CORAM:

Mr. M.V. Ravindran, Hon ble Member (Judicial)

Mr. H.K. Thakur, Hon ble Member (Technical)

                                                                Date of Hearing:                               08.07.2014

                                                                Date of Decision:                              31.07.2014

      ORDER No. A/11434  11436/2014, dt. 31.07.2014

Per:  Mr. H.K. Thakur;

      These appeals have been filed by the appellants against OIO No.18/MP/2010, dt. 31.03.2011 passed by Commissioner of Central Excise and Customs, Surat-I.  Main appellant M/s. Jay Bhawani Metal Industries, Udhna, Surat (JBMI) are engaged in the manufacture of copper strips, copper wire rods, copper bars, etc. for which they are holding central excise registration.  The second appellant M/s. Jay Bhawani Metal Company, Roowala Tekro, Surat (JBMC) is a trading firm of the main appellant and trading in scraps of various metals like copper, zinc, lead, etc.  Appellant Shri Ramesh R. Kothari is the partner in both companies i.e. JBMI and JBMC. 

2.            Brief facts of the case are that the officers of the Directorate General of Central Excise Intelligence (DGCEI), Mumbai Zone received an information that JBMI is indulging in sale of clandestine manufacture and removal of excisable goods under the cover of fake / fabricated sale documents of JBMC.  A search was carried out on 25.04.2007 in the factory premises of JBMI, JBMC and JBMI depot at Bhivandi, Thane.  Premises of some important buyers and transporters in relation to the appellants were also searched.  During the course of search at the factory premises of JBMI, Surat, one bound book of delivery challans / proforma invoices of trading firm JBMC was recovered from the factory premises of JBMI, Surat.  Shri Ramesh R. Kothari partner of JBMI identified the said challan book to be of JBMC and lying in the factory premises of JBMI.  Two challans / proforma invoices bearing sr. no. 2 & 3 both dtd. 23.04.2007 were found to have been used for removal of copper rods manufactured by JBMI.  Another challan bearing sr. no. 2, dt. 20.04.2007 of JBMC was also found to be used for sale of Foundry Ash from the same challan book, which was in addition to the challan bearing the same no. dt. 23.04.2007.  After doing detailed investigation and recording of statements of various persons, a show cause notice was issued to the appellants on the grounds that JBMC cannot retrieve articles like copper strips, copper wire rods, copper bars from the scraps purchased by them and that the trading documents of JBMC were actually used for clearance of copper articles manufactured in the factory premises of JBMI.  Show cause notice issued was confirmed by the adjudicating authority against all the appellants against which the present appeals have been filed. 

3.            Shri Willingdon Christian (Advocate) appearing on behalf of the appellants argued that the challans / proforma invoice book of JBMC was found in the factory premises of JBMI as the trading goods of JBMC were required to be temporarily stored near the factory of JBMI.  That the retrieved articles sold under delivery challans / proforma invoices, bearing sr. no. 2 and 3, both dtd. 23.04.2007, were purchased from M/s. Mahalaxmi Metals, Ahmedabad vide bill no.5, dt. 21.04.2007 which were brought by truck no.GJ-17 T 4865.  It was his case that the premises of JBMC were heavily damaged due to torrential rains in Surat, therefore, temporarily the goods were stored near the factory premises of JBMI.  That the bill book of JBMC was found from the JBMI shop only and not from the factory premises of JBMI.  That as per the Panchnama dt. 26.04.2007 (sr. no.14) of the annexure to the Panchnama.  That the trading goods under challan no.2 and 3 were supplied to the customers in surat only but no verifications were made by the investigating officers from the buyers of these goods.  That the affidavits of these two customers were also filed by the appellants which were not appreciated by the adjudicating authority.  That there is no other evidence against the appellants except that the two delivery challans were recovered from the factory premises of the JBMI.  That the duty with respect to these two challans were paid by the appellant two buy peace. 

4.            Ld. Advocate emphasized that appellant has the experience in the field of segregating of waste / scrap for the last more than 30 years and has segregated the retrievable articles of copper and other metals which were sold to the customers by paying Sales Tax / VAT and were also shown in their income tax returns.  That from the purchased copper scrap appellant is retrieving reusable plastics, copper rods, copper strips, copper wires of metals, including tin, lead, nickel.  It was argued by the Ld. Advocate that it is presumed by the adjudicating authority that JBMC had sold the entire quantity of more than 400 MT scrap to some other persons over a period of 4 / 5 years and JBMI has procured equal quantity of copper material from elsewhere to manufacture copper articles for which demand has been issued.  He made the bench go through Panchnama dt. 25.04.2007 drawn at the factory premises of JBMI do drive home the point that during the course of Panchnama physical stocks of raw materials, semi finished goods and finished goods were taken under by the officers of DGCEI but the physical stocks were found to be as per statutory records.  It was thus argued by the Ld. Advocate that if their was clandestine manufacture and clearance of copper articles then there would have been some shortages / excess in the raw material and finished goods in the factory premises of JBMI. 

6.            Ld. Advocate appearing on behalf of the appellants also argued that the case of the revenue is totally based upon the surmises, presumptions and statements of third parties.  That no cross examination of the witnesses was allowed to the appellants as indicated by the adjudicating authority in paragraph 31 of the OIO dt. 29.04.2011.  Ld. Advocate also invited the attention of the bench to the tables made in paragraphs 26.3 and 26.4 of the OIO dt. 29.04.2011 to emphasize that yearwise details of the second hand goods of aluminum, zinc, lead, etc. were segregated by JBMC out of the waste and scrap purchased.  That no question has been raised in the investigation with respect to capability of JBMC to retrieve wire rods, wire bars and strips of metals like lead, tin and zinc.  That no investigation worth the name was carried out with respect to the manufacturing activity done by the JBMI and no inquiries were conducted from any suppliers of the manufacturing unit to indicate as to from where the excess raw materials were procured by JBMI for the manufacturing activity and how consumption of extra raw materials, electricity, transportation of finished goods and money adjustments were achieved.  He relied upon the following case laws in support of his argument that in the absence of any other corroborative evidences no case can be made against the appellant JBMI for clandestine manufacture and clearance of goods:

(i)            Jai Mata Industries Ltd. Vs. CCE, Rohtak [2013 (293) ELT 539 (Tri.  Del.),

(ii)           Centurian Laboratories Vs. CCE, Vadodara [2013 (293) ELT 689 (Tri.  Ahmd.),

                (iii)          Arya Fibers Pvt. Ltd. & Ors. Vs. CCE [2014-TIOL-15-Cestat],

(iv)         CCE Vs. Vishwa Traders P. Ltd. [2013 (287) ELT 243 (Guj.), [2014 (303) ELT 68 (SC),

(v)          Bachcha Prasad Vs. Collector of Customs [1988 (37) ELT 269 (Ttibunal). 

7.            Ld. Advocate also filed written submissions in support of his arguments which were received on 14.07.2014.  In the written submissions certain sale invoices of JBMC for the years 2004-05 were provided indicating the purchase and sale of articles of zinc and other metals.  It was also the case of the appellants that JBMC is also trading in Foundry Ash for which proper ledger records are maintained by the appellants. 

8.            Shri Alok Srivastava (A.R.) appeared on behalf of the revenue and made the bench go through paragraphs 3.1, 3.2, 3.3.1 and 3.3.2.  It was his case that Shri Ramesh R. Kothari, Partner of JBMI in his statement dt. 01.05.2007 had admitted duty liability with respect to challan nos.2 and 3 both dtd. 23.04.2007 of JBMC found in the factory premises of JBMI.  It was his case that another challan no.2, dt. 20.04.2007 with respect to Foundry Ash of the JBMI was also be for clearing Foundry Ash generated in the factory premises of JBMI.  Ld. A.R. also emphasized that as per the statement of the suppliers of waste and scrap to JBMC it was not possible to retrieve copper articles like copper bars, copper rods and copper strips.  It was also his case that in a small premises of JBMC it is not possible to segregate the waste and scrap of different articles and that during the relevant period the payment made to the labour was found to be nil when appellant claimed the segregation of waste and scrap to have been done by employing labourers and that such labourers were being paid through cash.  Ld. A.R., therefore, strongly defended the order passed by the adjudicating authority. 

9.            Heard both sides and perused the case records.  In these proceedings, a case of clandestine manufacture and clearance of copper articles has been made against JBMI on the grounds that JBMC is not capable of segregating waste and scrap purchased by them in view of the statements of the suppliers of such waste and scrap who supply these goods to JBMC.  Second piece of evidence is that certain trading challans of JBMC were found in the factory premises of JBMI on the date of search operations.  The case of the revenue is that the goods manufactured in the factory premises of JBMI were cleared in the guise of trading invoices of JBMC.  Appellant requested for the cross examination of the suppliers of the raw materials who gave the opinion that no copper articles can be retrieved from the waste and scrap and that such waste and scrap can be used only as melting scrap.  Appellants also requested for the cross verification of the customers of JBMC to whom they have sold that retrieved material as traded goods.  However, it is observed from the case records that no cross examinations of such witnesses were provided by the adjudicating authority and no investigations were carried with respect to the buyers of the traded goods from JBMC.  It is also observed from the sale invoices / bills of JBMC that even truck numbers are also mentioned but no statements of such transporters were recorded to establish the truth as to from where the goods originated and whether these goods were prime or out of retrieved materials. 

10.          Appellants have clearly argued before the adjudicating authority that JBMC were retrieving articles of metals like tin, lead, nickel and copper from the waste and scrap purchased.  Revenue has only questioned the capability of JBMC for retrieving copper articles but no doubt has been expressed with respect to retrieving of articles of tin, lead and nickel.  It is not the case of the revenue that the waste and scrap purchased by JBMC was diverted for the manufacturing activity in JBMI and the finished goods so manufactured were then clandestinely cleared in the guise of traded goods under the invoices / bills of JBMC.  On the date of search of the factory premises of JBMI no excess of quantity of raw materials and finished goods were found.  Under the present facts and the extent of clandestine manufacture and clearance activities there ought to have been some indicators in the form of excess / shortages of raw materials and finished goods or seizure the finished goods outside the factory premises after clandestine removals.   Recovery of certain challans of JBMC in the factory premises of JBMI and the opinion / statements of third parties can create a strong presumption that appellants were indulging in the clandestine manufacture and clearance of excisable goods.  However, creation of a strong suspicion does not establish the charge of clandestine manufacture and clearance of excisable goods.  It has been held by the Hon ble Supreme Court in the case of State of Kerela Vs. M.M. Mathew & Anr. [(1978) 4 SCC 65] that a strong suspecion from strange coincidences and grave doubts cannot take the place of the legal evidence.  That to establish the charges of clandestine manufacture and clearances, it is essential to substantiate the case by adducing satisfactory proof to the effect that appellants have actually committed an offence.  In the absence of any such corroborative evidences and indications mentioned above, it cannot be held that JBMI has undertaken clandestine manufacture and clearance of excisable goods.  In the case of Commissioner of Central Excise, Customs and Service Tax Vs. Vishwa Traders P. Ltd. [2013 (287) ELT 243 (Guj.)], the jurisdictional Hon ble High Court of Gujarat held as follows in paragraphs 7 and 8:

7.          The Tribunal in Paragraph Nos. 12, 13 and 16 has recorded clear finding that when the premises of the respondent were visited, the stock of raw-material and finished goods were tallying with the recorded goods. Further, nothing on record was found by the authority, which showed that unrecorded raw-materials were purchased or consumed by the respondent or that the respondent had clandestinely manufactured or removed the goods. It is necessary to extract Paragraph Nos. 12, 13 and 16 of order of the Tribunal, which reads as under :-

12.       Be that as it may be, it is to be noted that there is no dispute that to manufacture of said final product Frit requires the use of Quartz, Feldspar, Zinc, Borax Power, Calcium and Dolomite as inputs/raw material. On the date of visit of the officers to the factory premises of the appellant, it is undisputed that the stock of raw materials as well as finished goods was tallying with recorded balances. This conclusion can be reached from perusal of records, as there is nothing on record to indicate otherwise.

13.          On careful perusal of the entire records of the case, we find that there is nothing on record as to unrecorded purchases or consumption of various other raw material in the manufacture of Frit, there is also nothing on record to indicate that the appellant had purchased the Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite and without accounting them used for the manufacture of Frit for clandestine removal. There is also nothing on record nor there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials. There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil Jadav and whose evidence has been discarded for having not been produced for cross examination; in the absence of any other tangible evidence to show that the appellant had been procuring the other major raw materials required for manufacture of Frit without recording in books of accounts, we are unable to accept the contentions of the ld. AR appearing for the Revenue and the findings of the adjudicating authority, that there was clandestine manufacture and clearance of the finished goods. The investigation has not proceeded further to bring on record unaccounted purchases of all the raw materials required for manufacturing of Frit .

16.          In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s. VTPL, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand on the appellant M/s. VTPL and imposes penalty on them is not sustainable and is liable to be set aside and we do so.

8.            From the aforesaid findings of the Tribunal, it is clear that the appellant has not made any clandestine manufacture, which he has removed clandestinely and on which the duty was payable.  

11.          In the present appeals also there is no such evidence on record that appellant JBMI procured extra raw materials or used extra power etc. because on the date of visit of the officers of DGCEI the stocks of raw materials and the finished goods were found tallying.  There is also no corroborative evidence suggesting any transit seizure of finished excisable goods or establishment of a modus operandi that there was any procedure of getting unrecorded raw materials by JBMI. 

12.          Appellants have also relied upon the judgment of M/s. Nova Petrochecmicals Ltd. & Ors. Vs. CCE, Ahmedabad-II [2014-TIOL-15-CESTAT-AHM] to support their case that there is no evidence suggesting clandestine manufacture and clearance.  It is observed that in paragraph 40 of this judgment of this very bench held as follows:

40.       After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:

(i)            There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;

(ii)           Evidence in support thereof should be of:

(a)          raw materials, in excess of that contained as per the statutory records;

(b)          instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;

(c)           discovery of such finished goods outside the factory;

(d)          instances of sale of such goods to identified parties;

(e)          receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

(f)           use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;

(g)          statements of buyers with some details of illicit manufacture and clearance;

(h)          proof of actual transportation of goods, cleared without payment of duty;

(i)            links between the documents recovered during the search and activities being carried on in the factory of production; etc.

      Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacture or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v CCE, Vadodara, 2013 (293) ELT 689. It would appear that the decision, though rendered on 3.5.2013, was reported in the issue of the ELT dated 29.7.2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the ELT issue of 5.8.2013 (after hearings in the present appeals were concluded), once again re-iterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v CCE, 2013 (294) ELT 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal (Pan Parag India v CCE, 2013 (291) ELT 81), it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.  

13.          In view of the above observations, the facts available on record and the case laws relied upon by the appellants, OIO dt. 29.04.2011 issued against the appellants does not survive and is required to be set aside.  Accordingly, appeals filed by the appellants are allowed, with consequential relief, if any. 

(Pronounced on 31.07.2014)

(M.V. Ravindran)                                                                             (H.K. Thakur)

Member (Judicial)                                                                           Member (Technical)

M/s V.R.A. Cotton Mills Pvt.Ltd. Vs CC Jamnagar (Preventive) DTD 01/08/2014

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

WEST ZONAL BENCH AT AHMEDABAD

COURT - II

Appeal No.C/12375/2014-SM

Arising out of:

OIO No.VIII/10-172/Commr/O&A/2013, dt.15.01.2014

OIO No.VIII/10-172/Commr/O&A/2012, dt.29.03.2013

Passed by: Dy.Commissioner (O&A) Customs HQ, Jamnagar

For approval and signature:

Mr.M.V. Ravindran, Hon ble Member (Judicial)

 1.     Whether Press Reporters may be allowed to see the               No

        Order for publication as per Rule 27 of the CESTAT

        (Procedure) Rules, 1982?

2.      Whether it should be released under Rule 27 of the              No

         CESTAT (Procedure) Rules, 1982 for publication                                       

         in any authoritative report or not?

3.      Whether their Lordships wish to see the fair copy of            Seen

          the order?

 4.      Whether order is to be circulated to the Departmental         Yes

          authorities?

Appellant:

M/s V.R.A. Cotton Mills Pvt.Ltd.

Respondent:

CC Jamnagar (Preventive)

Represented by:

For Assessee: Shri P.P. Jadeja, Consultant

For Revenue: Shri S.K. Mall, Addl.Commissioner (AR)

CORAM:

MR.M.V. RAVINDRAN, HON BLE MEMBER (JUDICIAL)

      Date of Hearing:  25.07.14

      Date of Decision: 01.08.14

          

Order No.A/11457/2014, dt.01.08.2014

Per: M.V. Ravindran

1.            The appellant M/s V.R.A. COTTON MILLS PVT LTD, New Delhi 110048 has filed this appeal against the Order by commissioner of Customs(Prev), Jamnagar wherein ld commissioner has rejected Appellant s request filed on 20-07-2013 for conversion of Shipping Bill from Duty Free Import Authorisation [DFIA] to Drawback scheme on the basis of a CBEC Circular No. 36/2010-Cus., dated 23-9-2010 which has provided one of the condition in para 3(a) that request for such conversion is to be made by exporter within three months from the date of the Let Export Order (LEO).

2.            The facts, in brief, are that the appellant is exporter who applied for DFIA to DGFT who had issued DFIA No. 0510306798 dt.31.10.2011 with export obligation of Rs. 25 croes. Thereafter, Appellant exported 10 consignments of Raw Cotton of CTH 5201 totally v/a Rs. 13.51 crores under DFIA shipping Bills. The appellant s export was to China and such exports were on quota basis . Since Appellant could not fulfill export obligation, Appellant requested DGFT, New Delhi for cancellation of DFIA in terms of Para 4.28(e) of HBP Vol-I 2009-14 vide their request dt. 28-06-2013. Considering no imports made against said DFIA, DGFT New Delhi cancelled DFIA No. 0510306798 dated 31-10-2011 vide their communication dated 10-07-2013. After cancellation of DFIA No. 0510306798 dt. 31-10-2011, appellant requested the commissioner of Customs(Prev), Jamnagar for conversion of Shipping Bills from DFIA to Drawback scheme on 20-07-2013, which has been rejected only on the ground that request for conversion is not made by the exporter within three months from the date of the Let Export Order (LEO).

3.            During personal hearing, on behalf of Appellant shri P.P. Jadeja argued that the appellant is exporter of the Indian Raw Cotton of CTH 5201 who has fulfilled export obligation under DFIA scheme in past cases and availed such benefits on export of goods, without any dispute from either side. He also argued that Appellant is eligible for the substantial benefit on the exports made by them and submitted a written brief containing relevant documents for export, decisions, Circulars etc and argued that such conversion of Shipping Bill from DFIA to Drawback can also be allowed considering on the following grounds :-

i) The documents like contracts, Test analysis reports by Cotton Association of India are existing and available on record for perusal. Concerned Shipping Bills were presented at Pipavav port for allowing exports under DFIA were signed by Customs officers. Bills of Lading, Shipping Bills, B.R.C. showing realisation of sale proceed of exported goods etc specifically indicate that the goods which were cleared for export was Indian Raw Cotton Shankar-6 of CTH 5201.

ii) Under DFIA, appellant had benefits of about 1.5 %, whereas under Drawback scheme, appellant eligible for benefit  of 1 % only.

iii) The  Cotton Association of India, an independent analytical laboratory had analysed all specific consignments which were exported; that such Test & Analysis reports indicate that the goods were Indian Raw Cotton Shankar-6 of CTH 5201 . Perusal of the analytical certificate given by M/s Cotton Association of India co-relate goods with the  Shipping Bills, wherein the description was given as Indian Raw Cotton Shankar-6 of CTH 5201.

iv) There can be no dispute to certificate by M/s Cotton Association of India who are one of the Government of India s recommended and authorized analytical laboratories. There is no reason why the benefit of said Test reports should not be extended to cover the case of the appellant in seeking conversion of DFIA Shipping Bills into Drawback Shipping Bills, when there is a unimpeachable evidence of export of the Indian Raw Cotton of CTH 5201.

v) It is also submitted that Hon'ble High Court of Mumbai in the case of Repro India Ltd - 2009 (235) ELT 614 (Bom.) has specifically laid down in Para 8 which read that the intentions of the Government is not to export taxes but only to export the goods. In the case in hand, if the duty drawback is not allowed to appellant, the appellant is perforce required to export the taxes, which gets included in the FOB value.  This being not the intention, conversion of DFIA Shipping Bills into Drawback Shipping Bills needs to be allowed.

vi) Substantial benefit available otherwise could not be denied for the procedural aspects like in this case. Making request for conversion is a procedural aspect, when the export of goods is the prime condition. Therefore, when the export is not in any dispute, substantial benefit attached to export can not go away on procedural aspects.

vii) The provisions of Rule 12(1) of Customs & Central Excise Duties Drawback Rules, 1995 (Drawback Rules) and also proviso empowers the Commissioner to condone non-observance of provisions of Rule 12 and allow drawback. As such non-observance of condition was beyond appellant s control. The appellant s export was only to China and such exports were on quota basis and that when such quota for export to China was already exhausted by other such exporters, there was no possibility for the appellant to export further quantity to China;

viii) After exports against DFIA scheme, there was no imports made by the appellant. Hence appellant has not received any benefits on exports.

ix) There is no distinction in the DFIA or Drawback Shipping Bills except showing that the said export is made under claim for drawback or DFIA. Commissioner is empowered to condone non-observance of procedure under Rule 12(1) irrespective of the claim for drawback made on the Shipping Bill or not. The time limit of 3 months has been made only by the CBEC by circular without authority of law such time limitation by Circular is not supported by the Act or Rule or the law established.

x) The provisions of Rule 12(1)(a) of Drawback Rules, require an exporter to declare on the shipping bill, the description, quantity and such other particulars as are necessary for deciding whether the goods are entitled to drawback, and if so, at what rate or rates and make a declaration on the relevant shipping bill that a claim for drawback is being made and in respect of duties paid on containers packing materials service tax etc. no separate claim for rebate of duty has been made. The Commissioner is empowered to allow drawback or shipping bills which may not contain any of these details. This is nothing but an amendment of the shipping bill filed or conversion.    The circular issued by the Board goes beyond the rules. In fact Section 149 of Customs Act, 1962 clearly permits amendment of shipping bill. The section is reproduced below:

Section 149: Amendment of documents. - Save as otherwise provided in sections 30 and 41, the proper officer may, in his discretion, authorize any document, after it has been presented in the custom house to be amended:

Provided that no amendment of a bill of entry or a shipping bill or bill of export shall be so authorized to be amended after the imported goods have been cleared for home consumption or deposited in a warehouse, or the export goods have been exported, except on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be.

xi)  It may be seen from the section reproduced above that amendment of shipping bill can be permitted even after the goods have left the country if the basis for amendment is documentary evidence.

xii) It has been claimed by the appellants that documentary evidence is available to show the necessary details required for the purpose of considering drawback. The Commissioner has failed to take note of the provisions of Section 149 which empowers him to consider amendment and if the amendment was to be made on the basis of documents, the applicant would have been benefited. Since Boards circular also does not clearly provide that Commissioner cannot allow amendment under Section 149 of Customs Act 1962, Commissioner could have considered the request under this section. Since Raw cotton according to the appellants has been exported the quantity, description and other details would have been verified since let export order is given in the case of ships by the customs officers after loading takes place.

xiii) Purpose of putting such such condition of time limitation is that conversion is not matter of right and it should not result in availment of double benefits.  In case of abnormal delay in making such request for Conversion of shipping bill, Department would not be in a position to ascertain as to whether duty free goods were utilised in export product. However, in the present case, since there is no import, the question of any benefit is not taken at all so far.

xiv) Under these circumstances we request to direct the Commissioner to allow conversion of the shipping bills into drawback shipping bills and eligibility of the appellants to drawback, the amount of drawback etc. would be decided in accordance with law by the appropriate authorities of customs.

xv) We also rely upon following Rules regulations, Circulars decisions :-

a) Para 4.28(e) of HBP Vol-I 2009-14

b) Rule 12 of Customs, Central Excise Duties And Service Tax Drawback Rules

c) Drawback Schedule for CTH 5201

d) 2012(281)ELT-173(Ker)  Leotax vs UOI

e) 2013(298)ELT-123(Tri-Ahd)  Rajguru Impex (India) Ltd. vs C/

f) 2010 (259) ELT 295 (Tri-Ahmd) - ESSAR OIL LTD

g)  2013 (288) ELT 265 (Tri  Che.) - Diamond Engg. (Chennai) P. Ltd.

h)  2011 (269) E.L.T. 378 (Tri.  Che)  - ITC LIMITED vs C/

i)  Order No. A/10565 / 2014 dt. 09.04.2014 in Appeal No.C/39/2012-DB filed by Essar Oils Ltd

j)  2002 (141) E.L.T. 394 (Tri. - Kol) - TERAI OVERSEAS LTD.

k)  Ltd.Head Notes of some relevant decision on conversion of shipping Bills

l) CBEC Circular No. 36/2010-Cus., dated 23-9-2010

m)  CBEC Circular No. 48/98-Cus., dated 15-7-1998

n)  CBEC Circular No. 74/97-Cus., dated 30-12-1997

4.            On the other hand, Shri S.K. Mall, SDR reiterated the impugned Order and draw attention to provisions of Section 149 of Customs Act 1962 and argued that Section 149 cannot be interpreted to hold that an Appellant can file application for conversion of the Shipping Bills at any point of time.  He would submit that the adjudicating authority has correctly come to the conclusion that the appellant herein had not justified the conversion when Appellant has submitted request after 3 months of LEO. He also argued that the appellant having filed Shipping Bills with claim of DFIA for export benefit, exports were allowed by the Department as claimed. The appellant has not filed shipping Bills under Drawback scheme at the time of export and hence they are not eligible for such a request made for conversion of shipping Bill from one scheme to other scheme after 3 months of LEO. He has also argued that although Section 149 of Customs Act 1962 provides for amendment of documents, it does not envisage conversion of Shipping Bill from one export promotion scheme to the other. He relied upon decision of in case of Commr. of Cus. (Seaport-Export), Chennai Vs Suzlon Energy Ltd. Reported in 2013 (293) E.L.T. 3 (Mad.).

5.            Hearing submissions made at length by both sides and perusing relevant case records, It is seen that there is no dispute on the facts of case. Appellant was issued DFIA. Appellant has exported 10 consignments of Raw Cotton of CTH 5201 under cover of DFIA shipping Bills. Since Appellant could not fulfill export obligation, they requested DGFT, for cancellation of DFIA in terms of Para 4.28(e) of HBP Vol-I 2009-14 and considering no imports made against said DFIA, DGFT New Delhi cancelled DFIA on 10-07-2013. After cancellation of the said DFIA, appellant requested the commissioner of Customs (Prev), Jamnagar for conversion of Shipping Bill from DFIA to Drawback scheme on 20-07-2013, which has been rejected as request for such conversion is not made by exporter within three months from the date of Let Export Order (LEO).

6.            The issue involved in this case is whether the appellant s application for conversion of Shipping Bills from DFIA to Drawback scheme needs to be allowed or otherwise, when such application filed on 20-07-2013 is made after the goods have been exported, no imports are made against such DFIA and cancellation of such DFIA on 10-07-2013 by DGFT. 

7.            The undisputed facts are that documents relating to the exports i.e. Invoice, Shipping Bills, Bills of lading and the Bank Realization Certificate clearly indicate that the goods were exported and said goods were described in documents as Indian Raw Cotton Shankar-6 of CTH 5201 . It is also undisputed that the appellant has exported the said goods and subsequently not imported any goods as per the DFIA, which has been cancelled by DGFT on 10-07-2013. Thus, there will be no imports under the said DFIA.

8.            On this factual background, I have to consider the submissions made by both sides and I find that the submissions made on behalf of the Appellant needs to be accepted for more than one reason as under.

8.1          I find that DFIA in terms of Para 4.2.1 of Export- Import Policy, issued is to allow duty free import of inputs, fuel, oil, energy sources, catalyst which are required for production of export product. Similarly, Para 4.2.6 shows that Once export obligation has been fulfilled, request for transferability of Authorisation or inputs imported against it may be made before concerned authority. Once, transferability is endorsed, authorisation holder may transfer DFIA or duty free inputs. Para 4.28(e) of HBP Vol-I 2009-14 allows cancellation of DFIA when there is no imports made against exports and allows assessee to approach customs for conversion of Shipping Bill under Drawback scheme, for which no time limitation is provided by DGFT.

8.2          I find that Rule 12(1)(a) of Drawback Rules, require an exporter to declare on the Shipping Bill, the description, quantity and such other particulars as are necessary for deciding whether the goods are entitled to Drawback, and if so, at what rate or rates and make a declaration on the relevant Shipping Bill that a claim for Drawback is being made and in respect of duties paid on containers packing materials service tax etc. no separate claim for rebate of duty has been made. The Commissioner is empowered to allow Drawback on Shipping Bills which may not contain any of these details. The provisions of Rule 12(1) of Customs & Central Excise Duties Drawback Rules, 1995 (Drawback Rules) and also proviso empowers the Commissioner to condone non-observance of provisions of Rule 12 and allow Drawback. This is nothing but an amendment or conversion of the Shipping Bill filed. The circular issued by the Board goes beyond the Rules. In fact Section 149 of Customs Act 1962 clearly permits amendment of Shipping Bill without any such time limit even after export of goods. The section is reproduced below:

Section 149: Amendment of documents. - Save as otherwise provided in sections 30 and 41, the proper officer may, in his discretion, authorize any document, after it has been presented in the custom house to be amended:

Provided that no amendment of a bill of entry or a shipping bill or bill of export shall be so authorized to be amended after the imported goods have been cleared for home consumption or deposited in a warehouse, or the export goods have been exported, except on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be.

8.3          Documents submitted by the appellant like contracts for exports, Test analysis reports by Cotton Association of India, Shipping Bills were signed & cleared by proper Customs officers and Bills of Lading, BRC for realisation of currency etc specifically indicate that the goods which were cleared for export were Indian Raw Cotton Shankar-6 of CTH 5201 . Perusal of the analytical certificate given by M/s Cotton Association of India seems to co-relate the goods in the shipping bills wherein the description was given as Indian Raw Cotton Shankar-6 of CTH 5201 . 

8.4          Appellant s submission of non observance of provisions of Rule 12(1) of Drawback Rules could be also treated beyond their control, when export as claimed by appellant was only to China on quota basis and when such quota for export to China had been exhausted by other such exporters, there was no possibility for appellant to export any other quantity to China. After exports against DFIA scheme, there was no import by the appellant. Since Appellant could not fulfill export obligation, Appellant requested DGFT for cancellation of DFIA in terms of Para 4.28(e) of HBP Vol-I 2009-14 vide their request dt. 28-06-2013. Para 4.28(e) ibid is reproduced:

e)      In case an exporter is unable to complete EO undertaken in full and he has not made any import under Authorisation, Authorisation holder will also have an option to get the Authorisation cancelled and apply for drawback after obtaining permission from Customs authorities for conversion of shipping bills to Drawback Shipping Bills.

      Considering no imports made against said DFIA, DGFT New Delhi cancelled DFIA No. 0510306798 dated 31-10-2011 in terms of Para 4.28(e) of HBP Vol-I 2009-14 vide their communication dt.10.07.2013. Thus, in such facts, appellant could have applied for conversion only after getting cancellation of the said DFIA. The appellant applied for such conversion immediately on   20-07-2013, which is within 10 days of such cancellation of DFIA by DGFT.

8.5          I also find that Hon'ble High Court of Mumbai in the case of Repro India Ltd 2009 (235) ELT 614 (Bom.) has specifically laid down in Para 8 which read that the intentions of the Government is not to export taxes but only to export the goods. In the case in hand, if the duty drawback is not allowed to the appellant, the appellant is perforce required to export the taxes, which gets included in the FOB value.  In my view, this being not the intention, conversion of Shipping Bills from DFIA to Drawback Scheme needs to be allowed.

8.6          The provisions of Para 4.28(e) of HBP Vol-I 2009-14, Rule 12 of Customs, Central Excise Duties And Service Tax Drawback Rules and section 149 of the Customs Act 1962 has not specifically prescribed any such time limitation of 3 months for applying for the conversion of Shipping Bill.

8.7          I find that in the relied upon decisions on behalf of appellant, 2012(2810ELT-173(Ker)-Leotex vs UOI, the hon ble High Court has allowed conversion from DEPB to Drawback Scheme observing in Para 4 as under

Circular dated 23-9-2010 is not mandatory at all. In fact, the latest Circular dated 23-9-2010 shows that in view of the decisions of the Tribunal and this court on the question, the Government themselves had decided to liberalise the provision regarding even conversion from one scheme to another.

8.8          I find that in the relied upon decisions on behalf of appellant, 2013(298)ELT-123(Tri-Ahd)  Rajguru Impex (India) Ltd. vs CC, this Bench has also allowed conversion from DFRC to DEPB scheme observing in Para 9, 10 as under:-

Description of goods in Shipping Bill had to be taken as one covering goods which were exported - Since that description was exactly as mentioned in DEPB schedule, application for conversion had to be considered sympathetically, and allowed - It was more so as         EXIM policy was designed to encourage exports and in facts of case liberal view was called for.

8.9          I find that in the relied upon decisions on behalf of appellant, 2013 (288) E.L.T. 265 (Tri. - Chennai) - Diamond Engg. (Chennai) P. Ltd vs CC, Bench has allowed conversion from DEEC to DEPB observing as under:-

EXIM - Shipping bill - Conversion from Advance Licence to DEPB Scheme - Request made after more than one year of export - Request rejected on the ground that Circular No. 36/2010-Cus., dated 23-9-2010 permitted conversion within three months from the date of Let Export order and no documentary evidence produced by the exporter which existed at the time of export to support the request - HELD : Circular being beneficiary in nature, issued consequently to a number of Tribunal s decisions holding that amendment of shipping bill after export is governed by proviso to Section 149 of Customs Act, 1962, which prescribes no time-limit for such conversion and if the documentary evidence available at the time of export is produced such conversion needs to be allowed - Circular No. 36/2010-Cus., dated 23-9-2010 and Section 149 of Customs Act, 1962.

8.10        I find that in the relied upon decisions on behalf of appellant, 2010 (259) ELT 295 (Tri-Ahmd) and recent Order No. A/10565/2014 dated 09.04.2014 in Appeal No.C/39/2012-DB in case of ESSAR OIL LTD, Division Bench of this Court has also allowed conversion of Shipping Bill from Free scheme to Drawback scheme considering exports made, Rule 12(1) of Drawback Rules and section 149 of the Customs Act 1962.

9.            Ld.Departmental Representative s reliance on the judgment of Hon'ble High Court in the case of Commr. Of Cus. (Seaport-Export), Chennai Vs Suzlon Energy Ltd. Reported in 2013 (293) E.L.T. 3 (Mad.) may not carry the case of the Revenue any further for the reason that in the said case, conversion was sought from one export benefit scheme into another after importing the goods under DEEC & EPCG and conversion of Shipping Bills.     I find that the Hon ble High Court have perused the Circular No. 36 of 2010, dated 23-9-2010 and observed in Para 17 as under :-

No doubt, the issue has been considered by the Board in detail and it is stated therein that conversion should be permitted in accordance with the provision of Section 149 of Customs Act, 1962 on a case to case basis on merits provided the Commissioner of Customs is satisfied on the basis of documentary evidence which was in existence at the time the goods were exported and that the goods were eligible for the export promotion scheme to which conversion has been requested

      I find that facts of the said case are totally different than the issue in hand.  I find that on deeper perusal of the judgment, it transpires that supporting evidences were not in existence at time of export of goods.  In view of this, I find that the Hon'ble High Court has taken a view in facts of the said case, which may be applicable in situation which is similar or identical case. For the case in hand, appellant s exports are not in any dispute as regards description, quality, quantity, value, BRC etc, having no import against DFIA the substantial benefit on such exports now available need not be denied.

10.          Division Bench of this Court has taken view that conversion can be allowed in such cases, I do not find any reason to deviate from such a view already taken. Accordingly, in view of the foregoing, I set aside the impugned order and direct lower authorities to convert DFIA Shipping Bills in this appeal to drawback shipping bills. I also make it clear that I have allowed only conversion into drawback Shipping Bills and eligibility of the appellant to the amount of drawback and its quantum etc. would be decided in accordance with the law by the appropriate authorities of customs.

11.          The impugned order is set aside and the appeal is allowed with consequential benefits of Drawback scheme as available in this case.

 (Pronounced in Court on 01.08.2014)

(M.V. Ravindran)              

Member (Judicial)