3

CENTRAL EXCISE

Deemed Manufacture

CBEC clarification1

Certain dealers are receiving liquid chemicals in bulk in containers and offloading the same at the dealers‟ premises

or godown into drums of 200 ltrs for subsequent marketing of these materials to customers.

Chapter Note 10 to Chapter 29 provides that in relation to products of this Chapter, labelling or relabelling of

containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product

marketable to the consumer, shall amount to „manufacture‟.

Containers / Lorry tankers in itself can never be termed as bulk packs. Gas / Liquid brought in tankers can never be

termed as brought in bulk packs. Therefore the assessee was not repacking the goods from bulk packs to retail

packs. Accordingly the activity undertaken by the assessee in filling the smaller container from bulk container namely

tankers can never fall within the fiction of manufacture as envisaged by Note 10 quoted above. Hence the tankers

cannot be termed as bulk packs and therefore the activity of transferring the goods from tankers into smaller drums

cannot be said to be covered by the said chapter note 10.

(vii) The assessee was engaged in the manufacture of liquid mosquitoes‟ destroyer. It used to obtain

concentrated alletherin and convert it into diluted alletherin by adding solvent deodorized kerosene oil,

perfume (as a masking agent) and DHT (as a stablising agent). The question which came for the

consideration before the High Court was whether the addition of stabilizing agent, masking agent etc.

amounted to manufacture within the meaning of section 2(f) of the Central Excise Act, 1944. The High Court

held that mere processing of the goods by adding stabilizing agent, masking agent etc was not manufacture

and to fall within the definition of manufacture a new substance should be formed. In the present case, no

new substance was formed and only a diluted form of original substance was packaged under a different

brand name. Alletherin in its concentrated form was an insecticide. The final product manufactured by the

respondent was a diluted form of insecticide-allethrin which would only kill small insects like mosquitoes.

Hence, only the potency of the insecticide was being reduced. Therefore, it could not be termed as

manufacture2

.

(ix) Supreme Court held3 that mustard seeds were subjected to the process of extraction whereby mustard oil

and oil cake were produced, the process involved manufacture of mustard oil as also the manufacture of oil

cake. It was certainly not a mere process of cleaning, repairing, reconditioning, recycling or

assembling. Oil cake was a distinct and different entity from mustard seeds and it had a separate

name, character and use different from mustard seed. Oil cake was not a waste to be thrown away, but was

a valuable product with a distinct name, character, use and marketability. So, oil cake was a finished

product and not a by-product and the said process amounted to manufacture.

(x) Held4

that cutting, edging, trimming, polishing and other processes on the marble slabs does not amount to a

process of manufacture as it does not bring in a distinct product.

1 Circular No. 910/30/2009-CX., dated 16-12-2009

2 CCEx. v. Karam Chand 2009 (236) E.L.T. 647 (H.P.)

3 Jai Bhagwan Oil and Flour Mills v. UOI 2009 (239) E.L.T. 401 (S.C.)

4 Collector v. Associated Stone Industries (Kotah) Ltd. - 2010 (251) E.L.T. A147 (S.C.)

4

Central Excise Rules

Rule 8 - Manner of payment of duty

(ii) In case of a SSI5

, the duty on goods cleared during a quarter of the financial year shall be paid by the 6th day

of the month following that quarter, if the duty is paid electronically through internet banking and in any other

case, by the 5th day of the month following that quarter. However, in case of goods removed during the last

quarter, starting from the 1st day of January and ending on the 31st day of March, for which the duty shall be

paid by the 31st day of March.

The manner of payment as specified above shall be available to the assessee for the whole of the financial

year.

Rule 11

Invoices are no longer required to be authenticated.

Rule 12 - Filing of return

(i) Every assessee being a manufacturer shall submit to the Superintendent a monthly return, of production and

removal of goods and other relevant particulars, within ten days after the close of the month to which the

return relates.

(a) If an assessee is a SSI6

he shall file a quarterly return in the form specified, of production and

removal of goods and other relevant particulars within 10 days after the close of the quarter to which

the return relates. The filing of returns as specified above shall be available to the assessee for the

whole of the financial year.

(b) If an assessee is a manufacturer of yarns or fabrics or readymade garments, shall file a quarterly

return, within twenty days after the close of the quarter to which the return relates.

(c) If an assessee is availing area based exemption7

, he shall file quarterly return with the jurisdictional

Commissioner, of production and removal of goods and other relevant particulars as prescribed, in

the form specified, within 20 days after the close of the quarter.

However, if an assessee has paid total duty of Rs. 10 lakh or more including the amount of duty paid by

utilization of CENVAT credit in the preceding financial year, he shall file the monthly or quarterly return, as the

case may be, electronically.

Benefits to the assessee in filing an electronic return:

(a) Reduce Physical Interface with the Department;

(b) Save Time;

(c) Reduce Paper Work;

(d) Online Registration and Amendment of Registration Details;

(e) Electronic filing of all documents such as applications for registration, returns, claims, permissions

and intimations; provisional assessment request, export-related documents, refund request;

(f) System-generated E-Acknowledgement;

(g) Online tracking of the status of selected documents;

(h) Online view facility to see selected documents;

(i) Internal messaging system on business-related matters;

5 An assessee shall be eligible, if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the

manner specified in the said notification, did not exceed Rs. 400 lakhs. 6 An assessee shall be eligible, if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the

manner specified in the said notification, did not exceed Rs. 400 lakhs 7 Notification No. 49/2003-CE dt 10.6.2003 or Notification No. 50/2003-CE dt 10.6.2003

5

(iv) Every assessee shall submit to the Superintendent, an Annual Financial Information Statement for the

preceding financial year to which the statement relates in duplicate in form ER 4 by 30th day of November of

the succeeding year.

However, the Central Government has notified that following assessee shall be exempt from filing Annual

Financial Information Statement:

(a) Indian Ordnance Factories, Department of Defence Production, Ministry of Defence;

(b) Assessee who paid excise duty less than Rs. 100 lakhs during the financial year;

(c) biris, manufactured without the aid of machines falling under tariff item 2403 10 31;

(d) matches manufactured without the aid of power falling under heading 3605;

(e) reinforced cement concrete pipes failing under heading 68108

.

(v) Every assessee shall submit to the Superintendent, an Annual Installed Capacity Statement in Form ER–7

declaring the annual production capacity of the factory for the financial year to which the statement relates.

Such statement shall be filed by 30th day of April of the succeeding financial year9.

Rule 16 -Credit of duty on goods brought to the factory

CBEC10

has clarified that credit on rejected/ returned goods, received in the factory before prescribed date for duty

payment, can be allowed to be taken under Rule 16(1).

In this connection CBEC drew reference to 8(2) of the Central Excise Rules which inter alia provides that “the duty of

excise shall be deemed to have been paid for the purposes of these rules on the excisable goods removed in the

manner provided under sub rule(1) and the credit of such duty is allowed, as provided by or under any rule”. This

provision explains that the invoice of the returned goods, would be a valid document for availing credit and duty is

deemed to have been discharged. Regarding availing credit on its own invoice, Rule 16(1) of the Central Excise

Rules, allows the assessee to do so. In any case, the whole procedure is revenue neutral, in the sense as the duty

has to be discharged by the 5th of next month.

Export Procedures

Rule 18 - Export of goods under Rebate of duty

Where goods are exported, the Central Government is empowered to grant rebate of duty11

paid on such excisable

goods or duty paid on materials used in the manufacture or processing of such goods.

Export shall include goods shipped as provision or stores for use on board a ship proceeding to a foreign port or

supplied to a foreign going aircraft.

CBEC has clarified12

that rebate is admissible for supplies made from DTA to SEZ.

Warehousing

Rule 20 - Warehousing provisions

The responsibility for payment of duty on the goods that are removed from the factory of production to a warehouse or

from one warehouse to another warehouse shall be upon the consignee. If the goods dispatched for warehousing or

re-warehousing are not received in the warehouse, the responsibility for payment of duty shall be upon the consignor.

8 Notification No. 26/2009-C.E. (N.T.), dated 18-11-2009

9 Inserted as Rule 12(2A) vide Notification No.38/2008- CE (NT) dt 29th September, 2008

10 Instructions - F.No.267/44/2009-CX 8 dated 25.11.2009

11 Duty means duty of excise collected under CEA, AED (GSI), AED (TTA), NCCD, E. Cess, AED under section 157 of the Finance Act, 2003

12 Circular No. 06 /2010 – CUS dt 19.3.2010

6

Rule 20 facility – Transfer to Warehouse without

payment of duty.

Rule 4(4) facility – Transfer to any other storage

area without payment of duty).

This facility is available in respect of notified goods. This facility is available in respect of all goods.

This facility is not dependent on availability of storage

space in factory.

This facility is dependent upon availability of storage

space in factory.

Once the goods are notified, it is the right of the

assessee, no permission from any CEO required.

The facility is not right of the assessee. It is subject to

the approval of the Commissioner.

W/H keeper personally becomes liable to ED. ED remains with the manufacturer and not with the

storage place.

Warehouse to store goods belonging to the registered person

(iii) The owner of the warehouse may sort, separate, pack or re-pack the goods and make such alterations

therein as may be necessary for the preservation, sale or disposal thereof. An exporter desirous of bringing

duty paid packing material required for packaging of other material in the warehouse, may submit a written

request to the jurisdictional AC/DC of the Division, who may grant the permission for a period of one year at

a time. The exporter will maintain proper account of such goods and shall not claim any export benefit like

rebate of duty paid on the said material.

CBEC has clarified13

that duty paid packing material can be brought into the export warehouse, but exporter

would not be allowed to claim export benefit like rebate for the duty paid on the said packing material.

(iv) It has been clarified by CBEC14

that duty paid goods may be stored outside factory premises.

Rule 21 / Section 5 - Remission of duty on goods found deficient in quantity.

The power to remit duty has been delegated to lower authorities, depending upon the amount involved:

Designation of CEO Amount empowered to remit

Inspector None

Superintendent Below Rs. 10,000

AC/DC Rs. 10,001 to Rs. 1,00,000

Add / Jt Com Rs. 100,001 to Rs. 5,00,000

Commissioner No limit prescribed.

Manner of Destruction

(i) The goods intended and presented before the proper officer for destruction must be destroyed in such a

manner that they become irretrievable as excisable commodity. The actual method of destruction will depend

upon the nature of the goods to be destroyed. The officer supervising the destruction will satisfy himself that

the destroyed goods cannot be marketed. If there is any doubt with regard to the suitability of any particular

method for destruction of any goods, the officer destroying the goods will refer the matter to his

superior officer for orders.

(ii) The officer supervising the destruction must endorse under his signature the relevant records/ documents or

other relevant factory records indicating the description and quantity of the goods destroyed in his presence

at which time and on which day.

13

CBEC circular 900/20/2009-CX, dated 6-10-2009 14

Circular no. 610/1/2002 dated 1 January 2002.

7

(iii) Immediately after destruction of the goods is completed, the officer supervising destruction must also send a

certificate to his immediate superior, countersigned by the factory manager and the factory officer in the

prescribed form.

(iv) Where excisable goods are manufactured out of inputs goods on which Cenvat credit was availed,

proportionate credit should be reversed before destruction of such goods.

(v) There will be no limit on the executive powers of the Commissioners to order remission of duty in such cases.

However, it has been decided that as a measure of administrative control and information, where the duty

amount exceeds Rs.5 lakhs in a case, the Commissioners will send a report to the Board giving sufficient

details of such cases.

Various cases for Remission

Sl No Status Eligibility for Remission

1 Goods damaged due to breakage in handling after removal No

2 Goods destroyed by Fire in transit No

3 Goods stolen from store room No15

4 Export goods cleared under Bond destroyed in transit No

5 Loss of goods arising in course of manufacturing process (Natural Loss) Yes

6 Goods that cannot be marketed due to passage of time Yes

7 Goods lost due to natural calamity Yes

8 Normal evaporation, storage and handling losses Yes

9 Goods lost before being manufactured No16

10 Goods lost in transit to customer due to unavoidable circumstances No

11 Goods lost by fire before removal Yes

12 Goods lost in theft or dacoity17

No

13 Difference was found between the physically verified stock and the stock

as per the books due loss of goods occurring due to de-bagging, shifting

of concentrates, seepage of rain water, storage and loading on trucks18

.

Yes

15

In the case of Golden Hill Estate v CCE [1997] 90 ELT 301 (Mad), theft is neither accident nor unavoidable. Further it is available elsewhere for consumption. 16

No question of remission, as the duty liability was not fastened. 17

Gupta Metal Sheets v. CCE 2008 (232) ELT 796 (Tri. - LB). Theft or „dacoity‟ involves forcible removal of goods by non-violent or violent means, as the case may be, and this

cannot be said to be a natural cause. 18

UOI v. Hindustan Zinc Limited 2009 (233) E.L.T. 61 (Raj.) - The expressions “natural causes” and “unavoidable accident” were required to be given, reasonable and liberal

meaning,. Even in cases of “unavoidable accident”, it could always be contended that the accident could have been avoided by taking recourse of one or more measures. If this

contention was accepted, no loss or destruction would fall in either of these clauses. Merely on the basis of method of accounting of physical stock, the remission of duty could not

be denied.

8

CENVAT CREDIT RULES

Inputs

The assessee were engaged in the manufacture of pharmaceutical product-pediatric drops. They contended that the

plastic droppers supplied with the bottle containing drops were inputs used in or in relation to manufacture of final

product namely Novamox pediatric drops. However, the Revenue argued that these droppers were separately kept in

the cartons along with the sealed bottle of the pediatric drop. These droppers were neither used in the manufacture of

pediatric drop nor used in relation to its manufacture.

The High Court, pointed out that the medicine could not be properly administered with the dropper and also the Drug

Controller had made it mandatory for providing the dropper alongwith the medicine. Held that the plastic dropper

packed in the pediatric drops and marketed at the factory gate should be construed to be an input used in or in

relation to the manufacture of the final product19

.

(vii) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the

factory, or premises of the provider of output services, the manufacturer of the final products or provider of

output service, shall pay an amount equal to the credit availed in respect of such inputs or capital goods.

If the capital goods, on which CENVAT Credit has been taken, are removed after being used, the

manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the

said capital goods reduced by the percentage points calculated by straight line method as specified below for

each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:

(a) for computers and computer peripherals:

Period (@) Rate

for each quarter in the first year 10%

for each quarter in the second year 8%

for each quarter in the third year 5%

for each quarter in the fourth and fifth year 1%

(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.

However, such payment shall not be required to be made where any inputs or capital goods are removed

outside the premises of the provider of output service for providing the output service;

Such removal shall be made under the cover of an invoice referred to in Rule 9. The amount so paid

shall be allowed as CENVAT credit to the buyer.

Held20

it is immaterial as to who has paid the duty under the Cenvat Credit Rules. There is no specific

provision that the payment of duty is to be made by the actual buyer. Where the duty was paid to the Central

Excise Department by the buyer which is a manufacturing concern, for material purchased, for the removals

effected as such by the seller, it would not amount to any default so as to attract Rule 14.

(viii) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty

leviable on transaction value21

. Such removal shall be made under the cover of an invoice referred to in Rule

9. The amount so paid shall be allowed as CENVAT credit to the buyer.

19

CCEx., Mumbai v. Okasa Ltd. 2009 (241) E.L.T. 359 (Bom.) 20

CCE v SUNTECH GLASS PVT. LTD. 2010 (251) E.L.T. 224 (All.) 21

CBEC has clarified that in view of specific provisions under Rule 3(5A) of the CENVAT Credit Rules, 2004, if the capital goods, on which Cenvat credit has been

taken, are cleared as waste and scrap, even after a period of 10 years, an amount equal to the duty leviable on the transaction value for such capital goods cleared

as waste and scrap, would be payable. – Cicular no 267141/2009-CX.8, dated 7-12-2009.

9

(ix) If the value of any, input or capital goods before being put to use, on which CENVAT credit has been taken is

written off fully or where any provision to write off fully has been made in the books of account, then the

manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit

taken in respect of the said input or capital goods.

If the said input or capital goods is subsequently used in the manufacture of final products or the provision of

taxable services, the manufacturer or output service provider, as the case may be, shall be entitled to take

the credit of equivalent CENVAT credit paid earlier. However, the CENVAT credit shall be granted subject to

the other provisions of CENVAT Credit Rules. [sub rule 5B].

(x) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be

remitted under rule 21 of the CER, the CENVAT credit taken on the inputs used in the manufacture or

production of said goods shall be reversed [sub rule 5C].

CBEC22

had earlier clarified that, CENVAT credit of the excise duty paid on inputs is not permissible where

the excise duty on such finished goods has been remitted due to damage or destruction etc.

CBEC has further clarified23

that as regards writing off work in progress (WIP), it is stated that if the WIP has

reached the stage, when it can be considered as manufactured goods, in that case, the same treatment as

applicable to finished goods, would apply. However, if the activity carried out on the WIP goods cannot be

considered as amounting to manufacture, in that case, the said goods should be considered as input and the

treatment for reversal of credit applicable to input would be applicable.

Rule 4 - Conditions for allowing CENVAT credit

(iii) The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of

output service at any point of time in a given financial year shall be taken only for 50% of the duty on such

capital goods in the same financial year.

In case of a SSI24

, the CENVAT credit in respect of capital goods received by such assessee shall be

allowed for the whole amount of the duty paid on such capital goods in the same financial year25

.

(vi) CBEC26

has also clarified that in case the rate of duty in respect of waste / scrap / refuse is Nil in the tariff or

they are exempt from duty in terms of any exemption notification, and if Cenvat Credit has been taken on the

inputs which are used for manufacture of dutiable and exempted goods, then, the assessee is required to

reverse the proportionate credit or pay 5% amount.

(vii) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially

processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the

manufacture of intermediate goods necessary for the manufacture of final products or any other purpose.

However it should be established from the records, challans or memos or any other document produced by

the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in

the factory within 180 days of their being sent to a job worker.

22

Circular no. 800/33/2004-CX dated 1 October 2004 23

Circular No. 907/27/2009-CX., dated 7-12-2009 F.No. 267/141/2009-CX8 24

An assessee shall be eligible, if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the

manner specified in the said notification, did not exceed Rs. 400 lakhs. 25

Notification No.6/2010-Central Excise(N.T.) dt 27.2.2010 26

Circular No. 904/24/2009-CX., dated 28-10-2009 F.No. 17/02/2009-CX

10

If the inputs or the capital goods are not received back within 180 days, the manufacturer or provider of

output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital

goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service

can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in

the premises of the provider of output service.

The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a

manufacturer of final products to:

(a) another manufacturer for the production of goods, according to his specifications; or

(b) a job worker for the production of goods on his behalf, according to his

specifications.

The AC/DC having jurisdiction over the factory of the manufacturer of the final products who has sent the

input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid

for a financial year, in respect of removal of such input or partially processed input, and subject to such

conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to

be paid, allow final products to be cleared from the premises of the job-worker.

Rule 6 – Manufacture of dutiable and exempted goods

(ix) The provisions of clause (i) to (iv) shall not be applicable in case the excisable goods removed without

payment of duty are either:

cleared to a unit in a SEZ or to a developer of SEZ for their authorized operation / 100%

EOU/EHTP/STP; or

supplied to the United Nations or an international organization for their official use or supplied to projects

funded by them, on which exemption of duty is available under notification; or

cleared for export under bond; or

gold or silver falling, arising in the course of manufacture of copper or zinc by smelting;or

All goods which are exempt from the duties of customs leviable under the First Schedule to the Customs

Tariff Act (BCD) and the additional duty leviable under section 3(1) of the said Customs Tariff Act (CVD)

when imported into India and are supplied:

(a) against International Competitive Bidding; or

(b) to a power project from which power supply has been tied up through tariff based competitive

bidding; or

(c) to a power project awarded to a developer through tariff based competitive bidding.

Rule 9 - Documents and accounts

(vi) Persons availing CENVAT benefit are required to file returns with the Superintendent as under:

Manufacturer of final products being a SSI unit shall submit within ten days from the close of each

quarter a quarterly return in the prescribed form, read with rule 12 of CER.

11

Rule 12AA - Power to impose restrictions in certain types of cases

(g) removal of inputs as such on which CENVAT credit has been taken, without paying an amount equal

to credit availed on such inputs in terms of rule 3(5) of the CENVAT Credit Rules, 2004.

1. Where a manufacturer is prima-facie found to be knowingly involved in committing the offences as specified,

the following restrictions may be imposed on the facilities, namely :

(iii) the assessee may be required to maintain records of receipt, disposal, consumption and

inventory of the principal inputs27

on which CENVAT credit has not been taken;

(iv) the assessee may be required to intimate the Superintendent regarding the receipt of

principal inputs in the factory on which CENVAT credit has or has not been taken, within a

period specified in the order and the said inputs shall be made available for verification upto

the period specified in the order.

Rule 14 - Recovery of CENVAT credit wrongly taken

Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with

interest shall be recovered from the manufacturer or provider of output service and the provisions of sections 11A / 73

(recovery of duties or tax not-levied or not-paid or short-levied or short-paid or erroneously refunded) and 11AB / 75

(interest on delayed payment of duty or tax) of the Act shall apply.

The CBEC has clarified28

that under the amended Rule 14 has clarified that the judgement is in relation to the

erstwhile rules, which has been amended, therefore interest would be recoverable when CENVAT credit is taken or

utilized wrongly, it is clarified that the interest shall be recoverable when credit has been wrongly taken, even if it has

not been utilized, in terms of the wordings of the present Rule 14.

It appears that the view taken by the CBEC is not in accordance with the legislative intent. The Punjab & Haryana29

have ruled to the contrary.

Rule 14 of the CCR 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, the Court held 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.

Held30

CENVAT Credit was wrongly availed by company and not by the Directors. Penalty under this rule imposable

on company as manufacturer availing credit and not on the Directors as they cannot be said to be manufacturers

availing credit.

Rule 15 - Confiscation and penalty

(i) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly

or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation.

Also such person, shall be liable to a penalty of the undermentioned amount(s), whichever is greater:

An amount the not exceeding the duty or service tax on such goods or services;

Rs. 2,000.

27

Principal inputs, means any input which is used in the manufacture of final products where the cost of such input constitutes not less than 10% of the total cost of

raw materials for the manufacture of unit quantity of a given final products. 28

Circular No. 897/17/2009-CX 29

IND-SWIFT LABORATORIES LTD. v UOI 2009 (240) E.L.T. 328 (P & H) 30

ASHOKKUMAR H. FULWADHYA v UOI 2010 (251) E.L.T. 336 (Bom.)

12

(ii) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or

utilised wrongly by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or

contravention of any of the provisions of the Excise Act, or of the rules made thereunder with intent to evade

payment of duty, then, the manufacturer shall31

also be liable to pay penalty in terms of the provisions of

section 11AC of the Excise Act.

(iii) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or

utilised wrongly by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or

contravention of any of the provisions of these rules or of the Finance Act or of the rules made thereunder

with intent to evade payment of service tax, then, the provider of output service shall also be liable to pay

penalty in terms of the provisions of section 78 of the Finance Act.

(iv) Any order shall be issued by the Central Excise Officer following the principles of natural justice.

Cenvat credit when input price reduced after clearance

(i) Whether proportionate credit should be reversed in cases where a manufacturer avails credit of the amount

of duty paid by supplier as reflected in the excise invoice, but subsequently the supplier allows some trade

discount or reduces the price, without reducing the duty paid by him.

The discount in such cases are given in respect of the value of inputs and not in respect of the duty paid by

the supplier, the effect of reduction of value of inputs may be that the duty required to be paid on the inputs

was less than what has been actually paid by the inputs manufacturer. However, the fact remains that the

inputs manufacturer had paid the higher duty. Rule 3 of Cenvat Credit Rules, 2004 allows credit of duty

“paid” by the inputs manufacturer and not duty “payable” by the said manufacturer.

(ii) CBEC has clarified32

that the entire amount of duty paid by the manufacturer, as shown in the invoice would

be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced

by way of discount or otherwise. However, if the duty paid is also reduced, along with the reduction in price,

the reduced excise duty would only be available as credit.

Clarification on irregular availment of Cenvat credit on certain activities not amounting to manufacture

The CBEC earlier had clarified33

that if the process does not amount to manufacture, duty is not required to be paid

and hence no Cenvat credit of duty paid on inputs is admissible.

Where an assessee, who has paid excise duty on a product under the belief that the same is excisable, but

subsequently the process of making the said product, is held by the Court as not amounting to manufacture, in such

cases, the Central Government may issue an order for non-reversal of such credit in past cases.

CBEC has further clarified34

on the issue of irregular availment of CENVAT Credit:

Sl No Situation Clarification

1 In case where the assessee has already paid duty, but

subsequently the process of making the said product, is

held by the Court as not amounting to manufacture

Assessee is at liberty to approach the Central Govt. for

issue of appropriate notification for regularization of the

CENVAT credit availed.

2 The assessee has not paid duty and the process

undertaken by him indisputably does not amount to

Department should inform the assessee about the correct

legal position and advise him not to pay duty and not to

31

The Bombay High Court noted that language used is “shall”. Hence undoubtedly, the language is mandatory and there is no discretion vested in the authorities in the matter of

imposition of penalty or the quantum thereof. The penalty has to be equal to the amount of duty which is payable and not less than that - CCus & Ex., Raigad v. Fibre Foils Ltd. 2009

(241) E.L.T. 201 (Bom.) 32

Circular No. 877/15/2008-CX., dated 17-11-2008 33

Circular dated 26-9-2007 issued from F. No. 93/1/2005-CX3 34

Circular No. 911/1/2010-CX dated 14.01.2010

13

manufacture. avail credit on inputs.

Clarification35

on items used in ceramic tiles industry - whether capital goods or inputs

Sl No Situation Clarification

1 Whether items, namely, alumina balls/ ceramic pebbles

which are grinding media used in ball mills in the ceramic

tile industry should be treated as capital goods or inputs

for CENVAT credit purposes?

It is clarified that alumina balls/ ceramic pebbles should

be considered as component/ part of the machines and

should be classified as capital goods for CENVAT credit

purposes.

2 Whether items, namely, bolting cloth/ screens/ silicon

cylinders which carry designs and which are fitted on the

machines used for printing of design over the surface of

the tiles, should be considered as capital goods or inputs

for CENVAT credit purposes?

It is clarified that these items are essential for operating of

the machines.

Therefore, being part/ component of the machines, they

would be considered as capital goods for the CENVAT

credit purposes.

his space is intentionally left blank

35

Circular No. 920/10/2010 – CX dated 01.04.2010

14

Adjudication Authority

Section 2(a) - Adjudicating Authority

Adjudicating authority means any authority competent to pass any order or decision under this Act, but does not

include the CBEC, Commissioner (Appeals) or Appellate Tribunal.

Section 33 - Power of adjudication

In terms of Act / Rules made thereunder anything is liable to confiscation or any person is liable to a penalty, such

confiscation or penalty may be adjudged by the following officers (as notified by CBEC) in relation to the amount

involved:

Designation Amount of duty involved

DC/AC Upto Rs. 5 lakhs

JT Comm Above Rs. 5 lakhs but upto Rs. 20 lakhs

Add Comm Above Rs. 20 lakhs but upto Rs. 50 lakhs

Comm Without limit

Power of Adjudication on remand:

If the Appellate Authority while remanding the case has specified the officer who would adjudicate the remanded case

then only that specified officer shall adjudicate the case. However, where the appellate authority remands the case

back for de-novo adjudication without specifically mentioning the designation of the officer, such cases would be

adjudicated by the authority who had originally passed such an order.

Section 33A - Adjudication procedure

(i) The Adjudicating authority shall, in any proceeding under this Chapter or any other provision of this Act, give

an opportunity of being heard to a party in a proceeding, if the party so desires.

(ii) The Adjudicating authority may, if sufficient cause is shown, at any stage of proceeding, grant time, from time

to time, to the parties or any of them and adjourn the hearing for reasons to be recorded in writing.

However, no such adjournment shall be granted more than 3 times to a party during the proceeding.

Supreme Court in the case of Aeon‟s Construction Product Ltd. v CCE36

- a SCN notice u/s 11A was issued by the

Superintendent and the case was adjudicated by a DC, this was done inspite of the fact that there was a CBEC

circular requiring a CEO of the designation of a Commissioner only to deal with such cases.

The Court ruled that section 11A specifically provides that any CEO may issue a SCN under that section. Where the

section speaks for itself the Board has no powers to issue any instructions or orders contrary to such specific

provisions. Section 33 which deals with the limit of adjudication of a CEO, deals only with the matter of confiscation

and penalty, it does not restrict the power of the CEO to issue SCN under section 11A.

Further Rule 37 gives only rule making power to the Central Government. There is no Rule which authorizes the

Board to cut down the jurisdiction and / or power of the CEO as given under the Act.

Accordingly any circular issued by the Board u/s 37B curtailing the powers of the CEO specified in section 11A is

invalid. The circular issues is invalid. The action of the DC is in accordance with the law.

36

[2005] 184 ELT 120 (SC)

15

Section 2(b) – Central Excise Officer

CEO means the Chief Commissioner, Commissioner, Commissioner (Appeals), Additional Commissioner, Joint

Commissioner, Assistant Commissioner or Deputy Commissioner; of Central Excise or any other officer of the Central

Excise Department or any person37

(including an officer of the State Government) invested by the CBEC with any of

the powers of a Central Excise Officer under the Act.

Section 11A - Show cause notice

Held38

that tax dues recoverable under provisions of Central Excise Act, 1944 do not have priority of claim over claim

of secured creditors or debt which is secured or which by reason of provisions of statute becomes first charge over

property. The Court held that Excisable goods would have priority of claim only if there is specific provision giving

such priority to State dues and if dues are to be recovered merely as a arrears of land Revenue passed on certificate

issued then those debts cannot have priority of claim over dues of a secured creditor.

Section 11AC - Penalty

CBEC39

has clarified that the benefit of 25% penalty is applicable only when the assessee has paid duty, interest and

the reduced penalty within 30 days of communication of the order passed by the adjudicating authority. However, if

the penalty amount is increased at the appellate stage, in that case the 25% of differential amount of penalty can be

paid within 30 days of communication of said appellate order.

Therefore when the assessee does not pay the duty demanded under the SCN within 30 days due to the reason that

on appeal a stay of demand was obtained in terms of section 35F, then if the appellate order holds the demand as

correct, the assessee would not get the benefit of reduced 25% of penalty even if the demand alongwith interest and

penalty is paid within 30 days of the communication of the appellate order.

(v) Held40

order of settlement is different from adjudication order. Powers of Central Excise Officer vested in

Settlement Commission to give finality to its orders. However, order of settlement is different from

adjudication order as adjudicating Central Excise Officer not empowered to grant immunity from prosecution

while determining duty liability. The benefit of 75% waiver under Section 11AC could have been availed

before Central Excise Officer but the same or the conditions for such benefit is not attracted to cases of

settlement. The order of settlement commission is a complete package and full waiver of penalty may be

granted.

Appeal to the Supreme Court

Any person aggrieved by the following orders may file an appeal to the Supreme Court

(ii) any order passed by the Appellate Tribunal involving determination of rate of duty of excise or the value of

goods for purposes of assessment

Held41

“determination of a rate of duty” has been deemed to include the question whether any goods are

covered or not covered by a particular notification issued by Central Government granting total or partial

exemption from duty. Therefore a question, whether exemption can be granted under a notification when

party debits the credit availed on inputs falls within ambit of “determination of rate of duty” hence can be

appealed only to the Supreme Court and not the High Court.

37

Commissioners of Customs (Appeals) shall be vested with the powers of Commissioners of Central Excise (Appeals), to decide such cases in appeal as may be

assigned to them by the Chief Commissioners of Central Excise within their respective jurisdictions - Notification No. 3/2010-C.E. (N.T.), dated 10-2-2010 38

UOI v. Krishna Lifestyle Technologies Ltd 2009 (242) E.L.T. A118 (S.C.) 39

Circular No. 898/18/2009-CX., dated 15-9-2009 F.No. 4/2/2009-CX.1 40

ASHWANI TOBACCO CO. PVT. LTD. v UOI 2010 (251) E.L.T. 162 (Del.) 41

CCE v CHHABRA TUBE PRODUCTS (P) LTD. 2010 (252) E.L.T. 63 (H.P.)

16

Samples

There is no specific provision in Central Excise Rules governing drawl and testing of „samples‟ of manufactured goods

or inputs to ascertain their correct identity or classification or eligibility of any exemption. However, under various

procedures, such as relating to exports, assessment etc. drawal of samples is required. The Board vide its

instructions issued on 1.9.2001 dealt with samples separately.

(i) Categorization of samples - The samples can be categorized, as follows:

(a) Trade samples sent to customers for trial;

(b) Samples for test purposes;

(c) Samples for supply against sale contracts or for enforcement of control measures;

(d) Samples for display at exhibitions, fairs and in show-cases; and

(e) Samples for market inquiries by Central Excise Officers.

(ii) Procedure for the drawal and accounting of samples

(a) Trade Samples

A. The manufacturers‟ generally give such samples to their customers for „trial and approval‟.

The removal shall be in the same manner as the removal of goods for home consumption.

The manufacturer shall prepare an invoice under Rule 11 of the said Rules and record the

details in his Daily Stock Account. He shall discharge duty in the manner specified in Rule 8

of the said Rules unless the removal of samples are exempted from duty by a notification

issued under Section 5A of the Central Excise Act.

B. Samples of certain goods sent to the trade by manufacturers are likely to be returned. In

such cases, the procedure specified in Rule 16 of the said Rules and the instructions

relating thereto shall be followed.

(b) Samples for test purposes

The samples of this category will generally include:

A. Samples drawn by in-house laboratory for testing quality and adherence to product

specifications;

B. Samples drawn for preservation for investigation of complaints;

C. Samples drawn for test at other concerns and independent testing agencies;

D. Samples required to be sent to Government Test Centers including the Chemical

Examiners for test.

The assessee is required to maintain a proper account of receipts and the utilisation of samples in

the test in the laboratory. The removal shall be in the same manner as when the goods are removed

for home consumption. The manufacturer shall prepare invoice under Rule 11 the said Rules and

make issue entries for the goods (samples) in the Daily Stock Account. Appropriate duty shall be

paid by the assessee on these samples before their removal for test purposes unless otherwise

exempted by a duty exemption notification.

(c) Samples for other purposes

Where samples are required for the purposes specified in point (c), (d), and (e) above, the procedure

specified at earlier shall be followed. However, it is clarified that when a manufacturer preserves the

samples of their product for some period for investigation of complaints, if any, no duty should be

charged on these samples considering that the goods remain within the factory. Duty shall be

charged, unless exempted by a notification, once the samples are cleared from the factory. If at any

time the manufacturer desires to destroy these samples, procedure specified in Rule 21 of the said

Rules shall be followed.

17

(iii) Quantity of samples

Samples should be drawn in reasonable quantity. However, in some cases a specific quantity is asked for

which should be supported by requisition order from the Chemical Examiner. An account of all departmental

samples drawn and sent to the Chemical Examiner should be maintained by the Range Officer.

(iv) Test Memo

A test memo should always be prepared in triplicate, the original to be sent to the Chemical Examiner,

triplicate to the Deputy/Assistant Commissioner and duplicate retained on the Range Officer‟s record.

(v) Preservation of samples

The samples drawn by the Range staff but not sent for test to laboratories should be preserved for six months

from the date of analytical report on the sample tested. In case of any discrepancy being noticed, the samples

have to be preserved till the period of appeal or revision application is over or till disposal of appeal/revision

application. The remnants, which are not required by the concerned assessee, may be destroyed soon after

the parties specially inform that they accept the analytical report furnished by the Chief Chemist or after

completion of the period of appeal or revision petition is over, as the case may be.

(vi) Cost of samples when drawn by the Department

In respect of samples drawn by the officers of the Central Excise Department for ascertaining the identity of

goods/its classification or any other official purposes relating to Central Excise, the cost of samples may be

reimbursed on manufacturer‟s request out of the contingency by the divisional officer. The cost of the

containers required for drawl of samples may not be much and if the same cannot be borne by the assessee

through persuasion the same should be borne by the Department.

(vii) Procedure for testing and re-testing of samples drawn by the Department

A. Except where there are special instructions for particular kind of samples, the representative

samples from such or any lot must be drawn in quadruplicate in the presence of the owner/manager

of the factory or his representatives.

B. The quantities of excisable goods or materials taken for testing should be the minimum necessary

for testing and the Commissioner will, in consultation with the Chemical Examiner concerned,

specify for each kind of excisable goods or materials the size of samples for this purpose.

C. The samples should be sealed with Excise seals and a declaration obtained from the owners

(manufacturers) to the effect that the samples drawn are representative of the lot. The assessee, if

he so desires, may also be permitted to affix his seal on the samples.

D. The four samples drawn for test should be clearly marked as:

(a) Original for Chemical Examiner (to be despatched to him along with the declaration and the

relative test memorandum under intimation to the Assistant/Deputy Commissioner

concerned).

(b) Duplicate to be sent to the Deputy/Assistant Commissioner of Central Excise (to be

forwarded to him for safe custody for further use in case a dispute arises).

(c) Triplicate for Range Officer (to be retained for any future reference or to cover loss by post

or other emergency).

(d) Quadruplicate to be given to the manufacturer (for his own record).

E. Before despatch of sample to the Deputy/Assistant Commissioner of Central Excise and the

Chemical Examiner, the samples should be packed properly, sealed and marked in such a way that

they suffer no loss or deterioration in transit or subsequent storage.

F. The Chemical Examiner after test, will return the remnant sample, if fit for re-test and not in other

cases, together with his test report, to the Assistant Commissioner concerned. The Chemical

Examiner will be in position to indicate whether or not a remnant is fit for re-test and the

18

Deputy/Assistant Commissioner of Central Excise or other adjudicating authority will in most cases

be able to anticipate whether the assessee will demand a re-test or not. The test results should be

speedily communicated to the Assessee.

G. The Department shall carefully preserve the remnant sample.

H. Whenever the assessee is dissatisfied with the test carried out by the Chemical Examiner he can

apply to the Deputy/Assistant Commissioner of Central Excise concerned, after payment of the

prescribed test fees, for a retest within 90 days from the date on which the test result was

communicated to the him.

I. Where the remnant sample is available in sufficient quantity in its original state, re-test should

ordinarily be on such remnant sample. Where such remnant sample was received from the Chemical

Examiner but it is not in sufficient quantity or in original state, or where the party concerned desires,

for one or the other reasons, a re-test on duplicate or triplicate sample, Deputy/Assistant

Commissioner of Central Excise, the adjudicating authority or, as the case may be, the appellate

authority should pass an appropriate order for re-test on duplicate or triplicate sample.

J. Where an assessee requests for re-test in a laboratory other than a Control Laboratory (“outside

laboratory”) whether on the remnant or the duplicate or triplicate sample, such request may be

allowed for testing the sample from an outside Government or Semi-Government laboratory with the

prior permission of the Commissioner or the Appellate or the reversionary authority, as the case may

be after Chief Chemist has confirmed that the departmental laboratories do not have the facilities for

performing the particular test in question. The request for re-test in outside laboratories will be

conditional upon the party concerned meeting the cost of the re-test.

K. It is always open to the assessee concerned to get the authenticated sample, in its possession,

analysed in any laboratory of his own choice and submit the findings of such laboratory for due

consideration on merits of each case, by the appropriate adjudicating/appellate authority. However,

the assessee should ensure that the laboratory which analyses the samples indicates clearly in its

test report the full particulars of the samples and whether the central excise seals affixed to the

samples were intact or not at the time of its receipt by such laboratory.

L. The payment of a fee for re-test does not entitle the assessee to a copy of chemical report. The

result of any such retest must however be communicated to the owner at the earliest.

M. Where a copy of the test report is to be furnished to the assessee at its request, the Department

shall have the option to provide only a concise edited form of the Test Report. The editing of the Test

Report should be done in consultation with the Chemical Examiner.

N. For the purpose of market enquiries regarding the value of excisable goods, samples can be drawn

by Central Excise Officer on written order of the Deputy/Assistant Commissioner of Central Excise,

on returnable basis. There is no need to make any issue entries in Daily Stock Account for such

samples as the same are to be returned to the factory. The Range Officer should maintain a simple

account showing the date of taking the sample, quantity taken and date of return. There should be

proper acknowledgement of drawl and return of sample. The officer who draws sample, will also give

acknowledgement to the assessee and take acknowledgement when he returns the sample.

(viii) Clearance of model/proto-type without payment of duty for trial etc.

Where a finished excisable goods falling in the category of model/proto-type are to be sent out for trail

purposes by actually putting them to effective use after conducting certain test to ensure that they meet with

certain standard/specified norm, clearance may be allowed on payment of duty. Their subsequent return to

the factory may be regulated in terms of CE Rule 21.

19

Samples drawn at the time of export of goods

Three sets of samples are drawn at the time of examination or sealing of export goods. Two sets of samples,

duly sealed, are handed over by the Central Excise Officer examining the consignment to the exporter or his

authorised agent for delivery to the Custom Officer at the point of export. The Central Excise Officer for his

record retains the third set of sample.

The Customs Officer will check the export goods with the sample before allowing export.

Central Excise

The samples shall be dealt with in accordance with instructions/standing orders of the Board or the

Commissioner of Customs.

Central Excise (Removal of Difficulties) Rules, 2005

In each of the rules made under section 37 of the Central Excise Act, and in each of the notifications issued under

these rules, for any reference to the Chapter, heading or sub-heading of the First Schedule or the Second Schedule

to the Central Excise Tariff Act, 1985, as the case may be, relating to any goods or class of goods, wherever referred

to in the said rules or notifications, the corresponding reference to the Chapter, heading or sub-heading or tariff item,

of the First Schedule or the Second Schedule to the Central Excise Tariff Act, as amended by the Central Excise

Tariff (Amendment) Act, 2004 (5 of 2005) shall be deemed to have been substituted42

.

CBEC clarification in relation to Ceramic Industry43

Notification No. 5/2006-C.E., dated 1-3-2006 stipulates that Central Excise duty at 8% will be charged on Ceramic

tiles manufactured in a factory not using electricity for firing the kiln on the condition that “if no credit of the duty paid

on the inputs used in or in relation to the manufacture of such ceramic tiles has been taken under rule 3 or rule 13 of

the CENVAT Credit Rules, 2004.

(i) Till the operation of 6 digit CETA (1985), Abrasive stones were classifiable under 680110 and was covered

under the definition of capital goods as per Rule 2(a)(A)(i) of CENVAT Credit Rules, 2004. However, after

the introduction of 8 digits CETA (2005), with effect from 28-2-2005, abrasive stones were classified under

6805. Therefore, a view was taken that the abrasive stones came out of purview of capital goods after 28-2-

2005.

(ii) A view a come up that these goods are in the nature of „input‟, therefore, the credit taken on such abrasive

stones during this period, disentitles the units from availing benefit of notification no. 05/2006-CE.

Removal of difficulties rules was issued to take care of such issues arising due to transition from 6 digit to 8 digit CET.

The said Rules provides that the reference to erstwhile chapter, headings, sub-heading or tariff item under 6 digit

CET shall be deemed to have been substituted by the corresponding new chapter, headings, sub-heading or tariff

item under the 8 digit CET in any of the rules made under Section 37 of the Central Excise Act. The Cenvat Credit

Rules have also been framed under Section 37, therefore, it is clarified that abrasive stones which were classified

under heading 680110 under 6 digit tariff, would be treated as capital goods even though the same were classified

under heading 6805 in the eight digit tariff for the period 28-2-2005 to 21-2-2007.

42

Notification No. 7/2005-C.E. (N.T.), dated 24-2-2005 43

Circular No. 899/19/2009-CX., dated 25-9-2009 F.No. 267/90/2009-CX-8 (Pt. 1)

20

Audit under Central Excise

Departmental audit by the Central Excise Department – (Excise Audit)

1.1.1. Background of Excise Audit

(i) For Central Excise purposes “audit” means scrutiny of the records of assessee and the verification of the

actual process of receipt, storage, production and clearance of goods with a view to check whether the

assessee is paying the central excise duty correctly and following the central excise procedures.

(ii) Under the conventional /traditional system of central excise audit, audit parties visit assessees unit without

much preparation and verify all the statutory records (i.e. those prescribed under the Central Excise law) to

check compliance of procedures and also leakage of revenue, if any. Experiences show that such audits do

not result in detection of major aberrations. Most of the audit objections pertain to either minor procedural

irregularity or duty short payment of small amounts mostly due to human error. Further, this method of

auditing does not envisage checking of the internal records of the assessee as well as those records which

are maintained by the assessee under the other laws like Income-tax Act, Sales Tax Act, Companies Act etc.

Under the present system the assessees are now allowed to maintain all their records in whichever form

they like (including maintenance of the entire records in electronic form) provided the essential information

required for calculation of central excise duty liability can be obtained from such records, make self

assessment of duty and file self prepared returns. Under these circumstances it becomes necessary for the

auditors to look into the assessees own (private) records to verify whether the assessee is paying central

excise duty correctly and following the laid down procedures.

The departmental officers only scrutinise this return to check for any apparent mistake made by the

assessee. They are not required to carry out detailed verification. Therefore, the entire burden of checking

whether the assessee actually paying his taxes correctly, now lies with audit.

1.1.2. Excise Audit 2000 (EA 2000)

Traditional audit will eventually be replaced by Excise Audit 2000 (EA 2000), a new system of audit. This new system

was initiated from 1st December 1999 when it was implemented in case of all assessees paying cash duty of over

Rs.5 crores per annum. In September 2000, the Central Board of Excise and Customs made this audit applicable in

case of all assessees paying cash duty of over Rs. 1 crore per annum. Under Excise Audit (EA 2000), units paying

cash duty of Rs.10 lakhs or more but less than Rs.1 crore per annum are audited once in two years. Units paying

cash duty of less than Rs.10 lakhs per annum are audited once in 5 years. Units paying cash duty of more than Rs.1

crore per annum are audited once a year.

The essential philosophy of EA 2000 is that this audit is based on the scrutiny of business records of the assessee.

This is a more systematic form of audit wherein the auditors are required to gather basic information about the

assesee and analyze them to find out vulnerable areas before conducting the actual audit. The audit is therefore

more focused and in-depth as compared to the traditional audit. Further, at every stage of audit, the assessee is

consulted. This makes EA2000 audit user friendly.

21

1.1.3. Audit Procedure

(i) Selection of Assessee

The process of EA 2000 begins with identification of a unit to be audited. Normally, there are about 1000 to

1500 assessees under the jurisdiction of a Central Excise Commissionerate. It is not possible for the audit

staff to conduct audits of all the units every year. Therefore, depending upon the manpower availability,

about 300 to 400 units are selected for conducting audit during a financial year. The selection of the unit is

based taking into account in the 'risk-factors'. This means that the assessees who have a bad track record

(having past duty evasion cases, major audit objections, past duty dues etc.) are given priority for conducting

audit over those having clean track record.

(ii) Desk Review

The auditors are assigned the assessees to be audited at the beginning of the financial year. The auditors

are required to gather as much information about the assessee as possible. They can gather information

from the departmental records, published documents like balance sheets annual statements etc., and

through market enquirer. Since this can be done without interacting with the assessee, this step called as

'desk-review'.

(iii) Documenting Information

At the stage of „Desk Review‟ the auditors may have already identified certain areas, which warrant closer

examination. The auditor may also require certain documents or information from the assessee to complete

his preliminary investigation. For this he may write letter to the assessee or send him a questionnaire to

obtain this information. This step is called 'gathering and documenting assessee information'.

(iv) Touring

The auditor then visits the unit of the assessee to see the actual running of the unit, the systems that are

followed for maintaining records in various sections and the system of movement of goods and the related

documents within the unit.

This step is called 'touring of the premises'. This gives the auditors a general overview about the procedure

adopted by the assessee and the possible loopholes through which revenue leakage can take place.

(v) Audit Plan

Based on his experiences and the information gathered so far about the assessee, the auditor now makes a

'audit plan'. The idea of developing audit plan is to list the areas which, as per the auditor are the vulnerable

areas from the revenue point of view. Since number of documents/records maintained by assessee is huge

in number, it also necessary that the auditor should select only some of them for the actual verification. The

preparation of audit plan helps him to do that. It must be remembered that audit plan is not rigid but a

dynamic concept. During the course of audit if the auditor notices certain new facts or new aspects of the

planned area of audit, he can always alter the audit plan accordingly, with the approval of his supervisor.

Similarly, during the actual audit, if the auditor is convinced that any area which was earlier planned for

verification does not require in-depth scrutiny, he may alter the plan midway after obtaining approval of the

superior officers.

(vi) Verification

The most important step of audit is the conduct of actual audit, which in technical parlance is called

'Verification'. The auditors visit the unit of the assessee on a scheduled date (informed to the assessee in

advance) and carry out the scrutiny of the records of the assessee as per the audit plan. The auditor is

required to compare the documentation of a fact from different documents. For example, the auditor may

check the figures of clearance of finished goods showed by the assessee in central excise return with the

sales figures of the said goods in Balance Sheet, Sales Tax Returns, Bank statements etc. The auditor may

22

also enquire about the entries which appear vague (say an entry like 'Misc. Income') in various records and

documents. The idea behind conduct of verification is to reasonably ensure that no amount, which as per the

Central Excise law is chargeable to duty, escapes taxation. The process of verification is always carried out

in presence of the assessee so that he can clarify the doubts and provide required information to the auditor.

(vii) Audit Objection and Audit Para

Where the auditor finds instances of short payment of duty or non-observance of Central excise procedures,

he is required to discuss the issue with the assessee. After explanation provided by the assessee, if the

auditor is satisfied that such non-tax compliance has occurred, he records the same as an 'Audit Objection'

or 'Audit Para' of the 'draft audit report' that he would be preparing at the end of the verification process.

Auditor is advised not to take formal objections to mere procedural lapses/ infractions/ adoption of wrong

procedures, which do not result in any short payment of duty or do not have bearing upon the duty payment.

In such cases the auditor is required to discuss the matter with the assessee and advise him to follow the

correct procedure in future. Further, while making an audit para, attempt should be made to tabulate the duty

short paid by the assessee at the spot and incorporate it in the para itself. However, if this is not possible for

the paucity of time or for the want of some information not available at that time, the auditor should make a

note of the same in his report.

(viii) Audit Report

At the end of the process of verification the auditor prepares an 'Draft Audit Report' which incorporates all the

audit objections/audit paras. An audit report provides (issue or para wise) the issue in brief, the reply or the

explanation of the assessee, the reason for the auditor not being satisfied with the reply, the amount of short

payment (if tabulated) and the recoveries of the same (if could be made at the spot). The draft audit report is

then submitted to the superior officers for review, who examine the sustainability of the objections raised by

the auditors. After such review, the audit report becomes final and in cases where the disputed amounts

have not already been paid by the assessee at the spot, demand notices are issued by the department for

their recoveries.

(ix) Conclusion

EA 2000 is a modern, transparent and interactive method of audit wherein the auditor proceeds with audit

fully conversant with the business of the assessee. On his part, the assessee is given full opportunity to

explain his stand on any particular matter so that matters are resolved in full appreciation of legal position.

EA 2000 is thus a participative audit.

A requirement of EA 2000 is that the auditors must be thorough in their knowledge of Central Excise law and

procedures, notifications, instructions and circulars issued by the Finance Ministry and the judicial decisions

on issues relating to central excise laws. To be successful auditor, knowledge about financial bookkeeping,

accountancy and proficiency in understanding commonly used commercial books and documents is of great

help. Further, being computer literate is an added requirement while auditing an assessee who maintains his

accounts in electronic format.

23

1.1.4. Computer Assisted Audit Programme Centre (CAAP)44

CAAP has been set up in the Head Quarters of Pune Commissionerate for the purpose of conduct of audit in respect

of those assessees who use computers to record their business transactions/activities and keep such data in

electronic form. The following guidelines is provided for creating awareness and facilitating working of CAAP.

(i) The Departmental Audit under CAAP will involve examination and analysis of business (private) records that

are maintained electronically. Under CAAP, all or a part of the audit could be completed using electronic

records. Trained in auditing of electronic records, the Central Excise officers who shall conduct Computer

Assisted Audit shall use commercial and custom software on secure departmental computers for this

purpose.

(ii) Computer Assisted Audit saves time both for the assessee and department as most of the records are made

available to the auditor in an electronic format which are examined using a secure departmental computer. It

also saves paper as the electronic audit reduces the amount of paper normally needed, produced or

photocopied during an audit. The auditors spend less time at the assessee‟s premises.

(iii) The procedure followed in the Computer Assisted Audit is that Computer Assisted Audit starts with a meeting

between the CAAP Auditor and assessee‟s accounting/systems staff. During the meeting, the CAAP Auditor

will request for several kinds of information to determine the feasibility of a Computer Assisted Audit. The

questions are part of a Computer Assisted Audit feasibility survey and include information about:

(a) Hardware and Peripherals

(b) Operating System used by the assessee‟s computer system

(c) Accounting software used by the assessee

(d) Accounting Information - like chart of accounts

(e) Details of information in the assessee‟s electronic records

(f) Back-up and Data retention methods used by the assessee

(g) Data export options supported by the assessee‟s system

(h) Conversion of the assessee‟s data to a format readable by departmental computers

(iv) The CAAP Auditor will identify specific computer files and records, he/she requires for the audit and ask the

assessee to provide a copy of those records on a disk or a Compact Disk (CD). He/she might also have to

ask the assessee to convert the data to a format that is not proprietary and should be readable by

departmental computers. The assessee can make a second copy of the same records provided to the CAAP

Auditors.

(v) The auditor would next copy these records to a secure departmental computer and analyze/verify them using

a combination of commercial and custom software. The assessee‟s data is not altered during the

examination. Rather the auditor reviews these, validates that all of the records are included in the data,

summarizes them, and extracts a copy of selected records of interest to a number of reports.

(vi) The assessee‟s records are handled with extreme care and are encrypted during transfer and storage. Such

records obtained from the assessee are accessible by only the authorized Central Excise officers. Upon

completion of an audit or upon conclusion of any appeal or judicial review, the records provided are securely

erased and CDs are destroyed. The assessee may advise the CAAP auditors in case he (the assessee)

wishes to have his CD returned back. The Computer Assisted Audit in no way causes any risk to the

assessee‟s computer or electronic records. The CAAP auditor would only ask the assessee to make a copy

of the assessee records.

44

Commissioner of Central Excise, Pune-III, Trade Notice No. 24/2008, dated 17-10-2008

24

(vii) In short, Computer Assisted Audit works by analyzing a copy of assessee‟s electronically stored records that

are provided to the CAAP auditor on a disk of Compact Disk (CD). The original records of the assessee are

not “touched” or altered in any ways. The assessee‟s original records are not altered in any manner during

the Computer Assisted Audit process. In fact, the commercial software used by the CAAP auditor is

designed specifically to never alter any audit records.

2. Small Scale Industries

Where the specified goods are in the nature of packing materials, namely, printed cartons of paper or paper board,

metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks, metal labels and plastic bags,

printed laminated rolls, plastic containers and plastic bottles.

However, in respect of plastic containers and plastic bottles, the notification shall apply only where such

plastic containers or plastic bottles are packing materials used by the person whose brand name such goods

bear.

3. Rule 11 - Invoices

Earlier, each foil of the invoice had to be pre-authenticated by the assessee-i.e. by owner, working partner, Managing

Director or the Company Secretary or any person duly authorized for this purpose, before being brought to use.

This Requirement has now been done away with. In other words the Invoice counterfoil is no longer required to be

pre-authenticated.

25

Electronic filing and payment

Procedure for electronic filing of Central Excise and Service Tax returns and for electronic payment of excise duty

and service tax45

1. Modules of ACES

(i) Access Control of Users (ACL);

(ii) Registration (REGN): Registration of assessees of Central Excise & Service Tax including on-line

amendment;

(iii) Returns (RET): Electronic filing of Central Excise & Service Tax Returns;

(iv) CLI : Electronic filing of claims, intimations and permissions by assessees and their processing by the

departmental officers;

(v) Refund (REF): Electronic filing of Refund Claims and their processing;

(vi) Provisional Assessment (PRA): Electronic filing of request for provisional assessment and its processing by

the departmental officers;

(vii) Assessee Running Account;

(viii) Dispute Settlement Resolution (DSR): Show Cause Notices, Personal Hearing Memos, Adjudication Orders,

Appellate and related processes;

(ix) Audit Module;

(x) Export Module for processing export related documents.

2. Benefits to the Assessees from ACES

(i) Reduce Physical Interface with the Department;

(ii) Save Time;

(iii) Reduce Paper Work;

(iv) Online Registration and Amendment of Registration Details;

(v) Electronic filing of all documents such as applications for registration, returns [On-line and off-line

downloadable versions of ER 1,2,3,4,5,6, Dealer Return, and ST3], claims, permissions and intimations; provisional

assessment request, export-related documents, refund request;

(vi) System-generated E-Acknowledgement;

(vii) Online tracking of the status of selected documents;

(viii) Online view facility to see selected documents;

(ix) Internal messaging system on business-related matters.

3. Registration Process

To transact business on ACES a user has to first register himself/herself with ACES through a process called

„Registration with ACES‟. This registration is not a statutory registration as envisaged in Acts/Rules governing Central

Excise and Service Tax but helps the application in recognizing the bonafide users. Described below are steps for

taking registration by a new assessee, existing assessee, non-assessee and a Large Tax Payer Unit (LTU).

The existing assessees will not have to take fresh registrations. They will have to only register with the ACES

application. This can be done in the following manner :

(i) ACES application will automatically send mails to the e-mail IDs of the assessee, as available in the existing

registration data base, indicating a TPIN number, and password. The mail will contain a hyperlink to the

website;

(ii) Assessee clicks on the hyperlink and is taken to ACES application;

45

Circular No. 919 / 09 / 2010 – CX dt 23.3.2010

26

(iii) Assessee submits the form after filling the requisite information including the password provided in the e-mail,

a new User ID and new password. User ID, once chosen is final and cannot be changed by the assessee in

future;

(iv) On successful registration with ACES, the assessee can transact business through ACES.

3.1 Existing assessee

Existing assessees should note that they should register with ACES by following the prescribed procedure and they

should not register with ACES through the direct method, meant for new assessees, as discussed under (a) above.

They should also not fill-in registration forms again as it will lead to allotment of new registration numbers by the

system.

Assessees should ensure that their contact details in the department‟s registration data base are updated to include

their valid and current e-mail ids, otherwise they will not receive any such mail. Those assessees who have not yet

furnished their email IDs to the department or even after furnishing the ID have not received the TPIN mail from

ACES are advised to contact the jurisdictional Range Officers or LTU Client Executives and furnish their email IDs in

writing. The officer will thereafter incorporate the email ID in the ACES registration database of the assessee and

arrange to send the TPIN mail to the assessee‟s email ID.

3.2 Non-Assessee

The Non-assessees46

are not required to file any tax returns.

Where such persons desire to seek non-assessee registration they follow same steps as in case of new assessee

except that while choosing the registration form they have to choose and fill in the Non-assessee form.

In case the assessee is taking such registration for claiming any refund or rebate it is mandatory to furnish his/her

valid PAN.

A Non-assessee registration can also be done by the designated officer of the Commissionerate, on behalf of the

non-assessee.

3.3 Large Tax Payer Unit (LTU) Assessee/Client

The consent form will have to be submitted manually by the New LTU assessees to the jurisdictional LTU office which

will be processed off line

4. E-filing of Returns

The assesses can electronically file statutory returns of Central Excise and Service Tax by choosing one of the two

facilities being offered by the department at present:

(a) they can file it online; or

(b) download the off-line return utilities which can be filled-in off-line and uploaded to the system through the

internet.

4.1 Steps for preparing and filing returns

(i) Assessee logs in using the User ID and password.

(ii) Selects RET from the main menu and uploads the return. Instructions for using the offline utilities are given in

detail in the Help section, under „Download‟ link and assessees are advised to follow them.

(iii) Returns uploaded through this procedure are validated by the ACES before acceptance into the system which

may take up to one business day. Assessee can track the status of the return by selecting the appropriate

option in the RET sub menu. The status will appear as “uploaded” meaning under process by ACES, “Filed”

46

such as (a) merchant exporter, (b) co-noticee, (c) refund applicant, (d) persons who have failed to obtain CE/ST registration as required under the law and against

whom the Department has initiated proceedings and (e) persons who are required to tender any payment under CE/ST Act /Rules.

27

meaning successfully accepted by the system or “Rejected” meaning the ACES has rejected the return due to

validation error. The rejected returns can be resubmitted after corrections.

(iv) Once the Central Excise returns are filed online in ACES or uploaded to the system using the off-line utility,

the same can not be modified or cancelled by the assessee. The Service Tax returns, however, can be

modified once as per rules up to 90 days from the date of filing the initial return.

(v) Self-assessed CE returns, after scrutiny by the competent officer, may result into modification. Both the

„Original‟ and the „Reviewed‟ return can be viewed by the assessee online.

4.2 Filing of return

Merely uploading the returns will not be considered as returns having been filed with the department. A return

will be considered as filed, when the same is successfully accepted by the application as „Filed‟ and the

relevant date for determining the date of filing of return will be the date of uploading of such successfully „filed‟

returns. In case a return is „rejected‟ by the application, the date of uploading of the rejected return wi ll not be

considered as the date of filing, rather the date of uploading of the successfully „filed‟, return (after the

assessee carries out necessary corrections and uploads it again) will be considered as the actual date of

filing.

4.3 Difficulty in filing Return

If the difficulty is not on account of problems at the assessee‟s end, and can be clearly attributed to the

department‟s IT infrastructure such as problems in accessing CBEC‟s ACES application due to server,

network or application being down, proportionate time will be deducted from the date of uploading of

successfully „filed‟ returns to ascertain the actual date and time of filing of the return. Since the department

maintains logs of such technical failures, in case of any dispute, the decision of the department will be final.

4.4 Digital Signatures

The ACES application is designed to accept digitally signed documents. However, in the beginning this functionality is

not going to be activated. Pending its activation the electronic returns will be filed into ACES without digital

signatures. Hence, wherever the returns are submitted through ACES there will not be any requirement to submit

signed hard copy separately.

5. Using XML Schema for filing Dealers Return

Currently, the ACES Application allows on-line filing of Quarterly Returns by the Registered Dealers accessing the

site www.aces.gov.in by using the excel utility. Some assesses who use their own software application in their offices

find the process of manual entry of data in the excel format of Returns as a time consuming and avoidable exercise.

A new feature of XML schema has now been introduced. Now using the schema, assessees, after making necessary

modifications in their own software application, can generate their return from their application. Below mentioned

steps elaborate the process to prepare, validate and upload the Dealer‟s Return.

Steps to prepare the XML

(i) ACES application accepts the return in XML format. Prepare the Dealer return XML and validate it against the

schema ACES_DLR.xsd provided.

(II) Login to the ACES application and upload the XML for processing. XML will be again validated against same

XSD again before processing.

28

6. E-payment

Procedure for e-Payment

(i) To pay Excise Duty and Service Tax online, the assessee has to enter the 15 digit Assessee Code allotted by

the department under erstwhile SACER/SAPS or the current application ACES.

(ii) There will be an online check on the validity of the Assessee Code entered.

(iii) If the Assessee code is valid, then corresponding assessee details like name, address, Commissionerate

Code etc. as present in the Assessee Code Master will be displayed.

(iv) Based on the Assessee Code, the duty / tax i.e. Central Excise duty or Service Tax to be paid will be

automatically selected.

(v) The assessee is required to select the type of duty / tax to be paid by clicking on Select Accounting Codes for

Excise or Select Accounting Codes for Service Tax, depending on the type of duty / tax to be paid.

(vi) At a time the assessee can select up to six Accounting Codes.

(vii) The assessee should also select the bank through which payment is to be made.

(viii) On submission of data entered, a confirmation screen will be displayed. If the taxpayer confirms the data

entered in the screen, it will be directed to the net-banking site of the bank selected.

(ix) The taxpayer will login to the net-banking site with the user id/ password, provided by the bank for net-

banking purpose, and will enter payment details at the bank site.

(x) On successful payment, a challan counterfoil will be displayed containing CIN, payment details and bank

name through which e-payment has been made. This counterfoil is proof of payment made.

29

Chewing Tobacco, Unmanufactured Tobacco and Jarda scented Tobacco Packing Machines (Capacity

Determination and Collection of Duty) Rules, 2010

1. Factor relevant to production. - The factor relevant to the production of notified goods shall be the number

of packing machines in the factory of the manufacturer.

2. Declaration to be filed by the manufacturer.

(a) A manufacturer of notified goods shall, immediately on coming into force of these rules, declare in Form 1:

(i) the number of single track packing machines available in his factory;

(ii) the number of packing machines out of (i), which are installed in his factory;

(iii) the number of packing machines out of (i), which he intends to operate in his factory for production

of pouches of notified goods with lime tube and without lime tube, respectively;

(iv) the number of multiple track or multiple line packing machine available in his factory;

(v) the number of multiple track or multiple line packing machines out of (iv), which are installed in his

factory;

(vi) the number of multiple track or multiple line packing machines out of (iv), which he intends to

operate in his factory for production of pouches of notified goods without lime tube and with lime tube;

(vii) the name of the manufacturer of each of the packing machine, its identification number, date of its

purchase and the maximum packing speed at which they can be operated for packing of pouches of

notified goods, with lime tube and without lime tube, of various retail sale prices;

(viii) description of goods to be manufactured including whether unmanufactured tobacco or chewing

tobacco or both, their brand names, whether pouches shall contain lime tube or not;

(ix) denomination of retail sale prices of the pouches to be manufactured during the financial year;

(x) the plan and details of the part or section of the factory premises intended to be used by him for the

manufacture of notified goods of different denomination of retail sale prices and the number of

machines intended to be used by him in each such part or section, to the jurisdictional AC/DC, with a

copy to the jurisdictional Superintendent of Central Excise.

However, a new manufacturer shall file such declaration at least 7 days prior to the commencement

of commercial production of notified goods in his factory.

(b) On receipt of the declaration AC/DC shall, after making such inquiry as may be necessary including physical

verification, approve the declaration and determine and pass order concerning the annual capacity of

production of the factory within 3 working days in accordance with the provisions of these rules.

The AC/DC may direct for modifications in the plan or details of the part or section of the factory premises

intended to be used by the manufacturer for manufacture of notified goods of different retail sale prices, as he

thinks proper, for effective segregation of the parts or sections of the premises and the machines to be used

in such parts or sections before granting the approval.

If the manufacturer does not receive the approval in respect of his declaration within the said period of three

working days, the approval shall be deemed to have been granted subject to the modifications, if any,

communicated later on but not later than thirty days of filing of the declaration.

(c) The annual capacity of production shall be calculated by application of the appropriate quantity that is

deemed to be produced by use of one operating packing machine as specified in rule 5 to the number of

operating packing machines in the factory during the month beginning which the capacity is being

determined.

In case a new manufacturer commences production of notified goods, his annual capacity of production shall

be calculated on the pro-rata basis of the total number of days in that year and the number of days remaining

in that year starting from the date of commencement of the production of such notified goods.

30

(d) The number of operating packing machines during any month shall be equal to the number of packing

machines installed in the factory during that month.

(e) The machines which the manufacturer does not intend to operate shall be uninstalled and sealed by the

Superintendent of Central Excise and removed from the factory premises under his physical supervision.

(f) In case a manufacturer wishes to make any subsequent changes with respect to any of the parameters which

has been declared by him and approved, such as changes relating to addition or removal of packing

machines in the factory or making alterations in any part or section of the approved premises or in the number

of machines to be used in such part or section or commencing manufacture of goods of a new retail sale price

or discontinuation of manufacturing of goods of existing retail sale price, and similar other details, he shall file

a fresh declaration to this effect at least three working days prior to such subsequent changes to the AC/DC,

who shall approve such fresh declaration and re-determine the annual capacity of production.

3. Alteration in number of operating packing machines

(a) In case of addition or installation or removal or uninstallation of a packing machine in the factory

during the month, the number of operating packing machines for the month shall be taken as the

maximum number of packing machines installed on any day during the month.

(b) In case a manufacturer commences manufacture of goods of a new retail sale price during the

month on an existing machine, it shall be deemed to be an addition in the number of operating

packing machine for the month.

(c) In case of non-working of any installed packing machine during the month, for any reason

whatsoever, the same shall be deemed to be a operating packing machine for the month.

4. Manner of payment of duty and interest

(a) The monthly duty payable on notified goods shall be paid by the 5th day of the same month and an

intimation in Form - 2 shall be filed with the Jurisdictional Superintendent of Central Excise before

the 10th day of the same month.

(b) If the manufacturer fails to pay the amount of duty by the due date, he shall be liable to pay the

outstanding amount along with the interest at the rate specified by the Central Government vide

notification under section 11AB of the Act on the outstanding amount, for the period starting with the

first day after the due date till the date of actual payment of the outstanding amount.

(c) In case of increase in the number of operating packing machines in the factory during the month on

account of addition or installation of packing machines, the differential duty amount, if any, shall be

paid by the 5th day of the following month.

(d) In case a manufacturer permanently discontinues manufacture of goods of existing retail sale price

or commences manufacture of goods of a new retail sale price during the month, the monthly duty

payable shall be recalculated on the pro-rata basis of the total number of days in that month and the

number of days remaining in that month starting from the date of such discontinuation or

commencement and the duty liability for the month shall not be deemed to have been discharged

unless the differential duty is paid by the 5th day of the following month and in case the amount of

duty so recalculated is less than the duty paid for the month, the balance shall be refunded to the

manufacturer by the 20th day of the following month.

(e) If there is revision in the rate of duty leviable under section 3A of the Act, the monthly duty payable

shall be recalculated on the pro-rata basis of the total number of days in that month and the number

of days remaining in that month counting from the date of such revision and the duty liability for the

month shall not be discharged unless the differential duty is paid by the 5th day of the following

month and in case the amount of duty so recalculated is less than the duty paid for the month, the

balance shall be refunded to the manufacturer by the 20th day of the following month.

31

(f) In case it is found that a manufacturer has manufactured goods of those retail sale prices, which

have not been declared by him in accordance with provisions of these rules or has manufactured

goods in contravention of his declaration regarding the plan or details of the part or section of the

factory premises intended to be used by him for manufacture of notified goods of different retail sale

prices and the number of machines intended to be used by him in each of such part or section, the

rate of duty applicable to goods of highest retail sale price so manufactured by him shall be payable

in respect of all the packing machines operated by him for the period during which such

manufacturing took place.

If a manufacturer uses an operating machine to produce pouches of different retail sale prices

during a month, he shall be liable to pay the duty applicable to the pouch bearing the highest retail

sale price for the whole month.

(g) In case a manufacturer does not pay the duty payable by the due date, and continues to operate any

packing machine, then till the time such non-payment continues, he shall be liable to pay the

monthly duty based on the number of operating packing machines declared in the month for which

duty was last paid by him or the total number of packing machines found available in his premises at

any time thereafter, whichever is higher.

(h) In case a new manufacturer commences production of notified goods in a particular month, his

monthly duty payable for that month shall be calculated on the pro-rata basis of the total number of

days in the month and the number of days remaining in that month starting from the date of such

commencement and shall be paid within five days of such commencement.

5. Abatement in case of non-production of goods

In case a factory did not produce the notified goods during any continuous period of fifteen days or more, the

duty calculated on a proportionate basis shall be abated in respect of such period provided the manufacturer

of such goods files an intimation to this effect with the AC/DC, with a copy to the Superintendent of Central

Excise, at least three working days prior to the commencement of said period, who on receipt of such

intimation shall direct for sealing of all the packing machines available in the factory for the said period under

the physical supervision of Superintendent of Central Excise, in the manner that the packing machines so

sealed cannot be operated during the said period. During such period, no manufacturing activity, whatsoever,

in respect of notified goods shall be undertaken and no removal of notified goods shall be effected by the

manufacturer except that notified goods already produced before the commencement of said period may be

removed within first two days of the said period.

When the manufacturer intends to restart his production of notified goods, he shall inform to the AC/DC, of the

date from which he would restart production, whereupon the seal fixed on packing machines would be

opened under the physical supervision of Superintendent of Central Excise.

6. Retail sale price to be declared on the package

Every manufacturer shall declare the retail sale price of the notified goods on the package of such goods. If

the manufacturer fails to declare the retail sale price before removing the goods from the place of

manufacture or declares a retail sale price which is not the retail sale price as required to be declared under

the provisions of these rules or tampers with, obliterates or alters the retail sale price declared on the package

of such goods after their removal from the place of manufacture, then, such goods shall be liable to

confiscation and the retail sale price of such goods shall be ascertained in the manner specified in these rules

and such price shall be deemed to be the retail sale price for the purposes of these rules.

32

7. Determination of retail sale price in case of non-declaration, obliteration, tampering, etc.

Where a manufacturer removes the notified goods in the manner and circumstances specified in proviso to

rule 11, then, the retail sale price of such goods shall be ascertained by the AC/DC, in the following manner,

namely:

(a) If the manufacturer has manufactured and removed identical goods, within a period of one month,

before or after removal of such goods, by declaring the retail sale price, then, the said declared retail

sale price shall be taken as the retail sale price of such goods;

(b) If the retail sale price cannot be ascertained in terms of (i), the retail sale price of such goods shall

be ascertained by conducting the enquiries in the retail market47

where such goods have normally

been sold at or about the same time of the removal of such goods from the place of manufacture.

(c) If more than one retail sale price is ascertained under (i) or (ii), then, the highest of the retail sale

price, so ascertained, shall be taken as the retail sale price of all such goods.

(d) Where a manufacturer alters or tampers the retail sale price declared on the package of goods after

their removal from the place of manufacture, resulting into increase in the retail sale price, then, such

increased retail sale price shall be taken as the retail sale price of all goods removed during a period

of one month before and after the date of removal of such goods.

(e) Where the manufacturer alters or tampers the declared retail sale price resulting into more than one

retail sale price available on such goods, then, the highest of such retail sale price shall be taken as

the retail sale price of all such goods;

(f) If the retail sale price of goods cannot be ascertained under (i) to (iii), the retail sale price shall be

ascertained in accordance with the principles of this rule.

8. Addition or removal of packing machines and other restrictions

(i) In case a manufacturer does not intend to further operate a packing machine, he shall intimate the

same to the AC/DC, at least three working days in advance from the date so intended, whereupon

the same shall be uninstalled and sealed by the Superintendent of Central Excise and removed from

the factory premises under his physical supervision. In case it is not feasible to remove such packing

machine out of the factory premises, it shall be uninstalled and sealed by the Superintendent in such

a manner that it cannot be operated.

Unless otherwise specified in these rules, for the purposes of these rules, the goods shall be

deemed to have been manufactured or produced with the aid of a packing machine, if they are

cleared from a factory where a packing machine is installed, irrespective of whether it is in use or

not, or is in working condition or not.

(ii) In case a manufacturer wants to add or install a packing machine in his premises, he shall give a

notice to this effect at least three working days in advance from the date of such addition or the

installation of the packing machine to the Deputy Commissioner of Central Excise or the Assistant

Commissioner of Central Excise, as the case may be, who shall allow the addition or installation, as

the case may be, under the physical supervision of Superintendent of Central Excise.

(iii) No manufacturer shall be allowed to keep in his factory any stock of packing material for goods of

those retail sale prices which have not been declared by him in accordance with provisions of these

rules.

(iv) No manufacturer shall be allowed to trade in notified goods of retail sale prices not declared by him

in accordance with provisions of these rules, from his factory premises.

47

When retail sale price is required to be ascertained based on market inquiries, the said inquiries shall be carried out on sample basis.

33

(v) In case a manufacturer permanently discontinues manufacture of goods of existing retail sale prices,

he shall declare the balance stock of notified goods of existing retail sale prices and their packing

material on the day he discontinues manufacturing of goods of existing retail sale prices.

9. Rebate of duty

Except in accordance with such terms and conditions as the Central Government may by notification specify

in this behalf, no rebate of excise duty shall be granted under rule 18 of the Central Excise Rules, 2002, in

respect of notified goods on which duty has been paid under notification No. 16/2010-Central Excise and

exported out of India.

10. Export without payment of duty

This sub rule shall override all other rules including Central Excise Rules

(a) no notified goods shall be exported without payment of duty; and

(b) no material shall be removed without payment of duty from a factory or warehouse or any other

premises for use in the manufacture or processing of notified goods which are exported out of India.

11. Cenvat credit admissible on chewing tobacco in bulk packs

(i) A manufacturer of chewing tobacco notified under section 3A of the Act shall be allowed to take

credit (hereinafter referred to as the CENVAT credit) of:

(a) the duty of excise specified in the First Schedule to the CETA, leviable under the Act;

(b) the National Calamity Contingent duty;

(c) the education cess on excisable goods;

(d) the Secondary and Higher Education Cess;

(e) the additional duty of excise leviable under section 85 of Finance Act, 2005, paid on

chewing tobacco in bulk packs received in his factory on or after the 8th day of March, 2010 for use

in manufacture of chewing tobacco notified under section 3A of the Act.

(ii) Except as provided under sub-rule (1), no CENVAT credit of duty paid on any input, capital goods or

input services used in or in relation to manufacture of the notified goods shall be taken under the

provisions of CENVAT Credit Rules, 2004.

(iii) The CENVAT credit under sub-rule (1) may be taken immediately on receipt of bulk packs of

chewing tobacco and may be utilised for payment of duty leviable under section 3A of the Act on

chewing tobacco.

While paying duty, the CENVAT credit shall be utilized only to the extent such credit is available on

the last day of the month preceding the month for which duty is paid.

(iv) The CENVAT credit under sub-rule (1) shall be taken by the manufacturer on the basis of an invoice

issued by a manufacturer for clearance of bulk packs of chewing tobacco from his factory.

(v) The manufacturer shall maintain proper records for the receipt, disposal, consumption and inventory

of the bulk packs of chewing tobacco used for manufacture of chewing tobacco notified under

section 3A in which the relevant information regarding the value, duty paid, CENVAT credit taken

and utilised, the person from whom such bulk packs have been procured is recorded and the burden

of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer taking such

credit.

(vi) Where the CENVAT credit has been taken or utilised wrongly, the same along with interest shall be

recovered from the manufacturer and the provisions of sections 11A and 11AB of the Act, shall apply

mutatis mutandis for effecting such recoveries.

All such bulk packs of chewing tobacco on which credit has been wrongly taken or utilised wrongly

shall be liable to confiscation and the manufacturer shall be liable to a penalty not exceeding the

duty on such bulk packs of chewing tobacco.

34

Where the CENVAT credit has been taken or utilized wrongly on account of fraud, wilful mis-

statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or

the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also

be liable to pay penalty in terms of the provisions of section 11AC of the Act.

(vii) Except as provided in this rule, no other provisions of CENVAT Credit Rules, 2004 shall apply in

relation to the notified goods.

12 Factories ceasing to work

Notwithstanding anything contained in these rules, where a manufacturer permanently ceases to work48

in

respect of all the machines installed in the factory and who has filed an intimation for surrender of registration

with the AC/DC, with a copy to the Superintendent of Central Excise, for this purpose, the duty payable by

him for the month in which he so ceases to work permanently shall be calculated on the pro rata basis of the

total number of days in the said month and total number of days before the date of receipt of said intimation

with the AC/DC, and the duty paid for the month in accordance with the notification referred to in rule 7 shall

be adjusted towards the duty so calculated and on such adjustment, if there is any excess payment, it shall

be refunded to the manufacturer by the 20th

day of the following month and deficiency, if any, shall be payable

by him by the 5th day of the following month.

15. Packing Machine based Rate of Duty prescribed for unmanufactured tobacco, bearing a brand name49

and chewing tobacco

I

48

Ceases to work shall not include a manufacturer who ceases to operate his factory for one or two shifts only. 49

Brand name means a brand name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which

is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and a person using such name or mark with

or without any indication of the identity of that person. 50

Retail sale price means the maximum price at which the specified goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight,

transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like and the price is the sole consideration for the

sale. 51

Packing machine includes all types of Form, Fill and Seal (FFS) machines and Profile Pouch Making Machine, by whatever names called, whether vertical or horizontal, with or

without collar, single-track or multi-track, and any other type of packing machine used for packing of pouches of notified goods.

S. No Retail sale price

50 (per

pouch)

Rate of duty per packing machine51

per month (Rs. in lakh)

Unmanufactured Tobacco Chewing Tobacco

Pouches not

containing

lime tube

Pouches

containing

lime tube

Pouches not

containing

lime tube

Pouches

containing

lime tube

1 Up to Rs. 1.50 8.50 8.00 12.00 11.50

2 From Rs. 1.51 to Rs. 2.00 10.25 9.75 14.25 13.50

3 From Rs. 2.01 to Rs. 3.00 15.25 14.50 21.5 20.25

4 From Rs. 3.01 to Rs. 4.00 19.00 17.75 26.75 25

5 From Rs. 4.01 to Rs. 5.00 23.75 22.25 33.50 31.25

6 From Rs. 5.01 to Rs. 6.00 28.50 26.75 40.00 37.50

7. Above Rs.6.00

28.59 + 4.51 x

(P - 6), Where

P represents

retail sale

price of the

pouch

26.71 + 4.26 x (P - 6),

Where P represents

retail sale price of the

pouch

40 + 6.33 x (P -

6), Where P

represents

retail sale price

of the pouch

37.46 + 5.98 x

(P - 6), Where P

represents retail

sale price of the

pouch

35

llustration : The rate of duty per packing machine per month for a chewing tobacco pouch not containing lime tube

and having retail sale price of Rs.8.00 (i.e. „P‟) shall be = Rs. 40 + 6.33*(8-6) lakhs = Rs. 52.66 lakhs.

If there are multiple track or multiple line packing machines, each such track or line shall be deemed to be one

individual packing machine for the purposes of calculation of the duty liability.

Where on the package, more than one retail sale price is declared, the maximum of such retail sale prices shall be

deemed to be the retail sale price. If the goods are cleared in wholesale packages containing a number of standard

packages with retail sale price declared on them, then, such declared retail sale price shall be taken into

consideration for determining the rate of duty under respective serial numbers referred to in Table-1.

In terms of Rule 18 of the CER read with Rule 14 of these Rules the Central Government vide this notification52

grants

rebate53

of duty paid on the excisable goods, on their exportation out of India, to any country except Nepal and

Bhutan.

Rebate would be available subject to fulfillment and satisfaction of the following conditions:

(i) The duty has been paid on the said excisable goods under section 3A of the Central Excise Act;

(ii) No rebate of duty paid on the materials used in such excisable goods shall be claimed;

(iii) The excisable goods shall be exported directly from a factory or a warehouse;

(iv) The excisable goods shall be exported within 6 months from the date on which they were cleared for

export from the factory of manufacture or warehouse or within such extended period as the

Commissioner may allow;

(v) The claim or the supplementary claim for rebate of duty, as the case may be, shall be lodged with the

AC/DC having jurisdiction over the factory of manufacture or warehouse, together with the proof of due

exportation, within the time limit specified in section 11B of the Central Excise Act;

(vi) The market price of the excisable goods at the time of exportation is, in the opinion of the AC/DC is not

less than the amount of rebate of duty claimed;

(vii) The amount of rebate of duty admissible is not less than Rs. 500;

(viii) If the excisable goods are not exported or the proof of export thereof is not furnished to the satisfaction

of the AC/DC in the manner and within the prescribed time-limit, the said officer on an application being

made by the exporter or otherwise, shall cancel the export documents;

(ix) The procedure as laid down for export of goods (ARE-1) shall be followed, mutatis mutandis;

(x) The exporter shall also indicate the number of pouches of excisable goods exported in the invoice, ARE 1

and any other document used for export.

Exemption to packaged software or canned software

Central Government has exempted54

packaged software or canned software55

from Excise Duty to the extent of

consideration (AV calculated under section 4) which represents the consideration paid or payable for transfer of the

right to use such goods.

The person providing the right to use shall make a declaration to this effect to the AC/DC, in respect of such transfer

of the right to use for commercial exploitation.

The person providing the right to use service should be registered under the Service tax Rules.

52

Notification No. 22 /2010-Central Excise (N.T.) dt 18 May 2010 53

Monthly average rate of rebate per pouch‟ subject to a „maximum amount of rebate per pouch’. 54

Notification No. 17/2010-Central Excise 27.2.2010 55

Packaged software or canned software means software developed to meet the needs of variety of users, and which is intended for sale or capable of being sold off the shelf.

36

Customs Section 3(5) – CVD (VAT)

The Central Government has exempted56

the goods falling within the First Schedule to the CTA, when imported into

India for subsequent sale, from the whole of this CVD. The exemption shall be available if the following conditions are

fulfilled:

(i) the importer shall file a claim for refund of the said additional duty of customs paid on the imported

goods with the jurisdictional customs officer before the expiry of one year from the date of payment

of duty;

Import Procedures

(iv) Contents of IGM - According to Section 2(24) "Import Manifest" or "Import Report" means the manifest or

report to be delivered u/s 30.

(a) The manifest/report should be delivered in duplicate and should cover all the goods carried in the

aircraft/vessel/vehicle.

(b) The manifest/import report has to be in four parts as under:

1 General declaration.

2. Cargo declaration.

3. Vessels stores list.

4. A list of private property in the possession of the master, officers and crew.

5. Passenger manifest in case of aircrafts.

(c) The cargo list is categorized in the manifest/report into the following categories and shall be delivered in

separate sheets.

1. cargo to be landed;

2. unaccompanied baggage;

3. goods to be transshipped; (4) same bottom or retention cargo.

4. In the cargo declaration, there should be separate mention about

(i) arms (ii) ammunition (iii) explosives (iv) narcotics (v) dangerous drugs (vi) gold and

(vii) silver.

(d) This declaration should be given irrespective of whether these are for landing, or for transshipment, or for

being carried as same bottom cargo. The details about the above should be given in separate sheets and

should be set out in the order of ports of loading. If the vessel/vehicle does not carry any of these cargo a

nil declaration should be made.

(e) The person delivering the import manifest or report should subscribe in the declaration as to the truth of

its contents.

(f) The general declaration will give particulars about name of the vessel, nationality, tonnage, name of the

shipping line, last port of call, port arrival and date and time of arrival, name of the master, nationality of

the master, name and address of the local steamer/shipping agent, ports called during the present

voyage, number of crew, number of passengers and the following documents are to be enclosed with the

general declaration:

(a) cargo declaration; (b) store list (c) private property list; (d) crew list (e) passenger list (f) maritime

declaration of health.

56

Notification No. 102/2007-Customs dated 14th September, 2007

37

Section 45 - Custody and removal of imported goods

(i) All imported goods unloaded in customs area shall remain in the custody57

of such person as may be

approved by the Commissioner of Customs until they are cleared for home consumption or are warehoused or

are transshipped.

(ii) The person approved by the Commissioner or under any law for the time being in force having custody of any

imported goods in a customs area:

(a) shall keep a record of such goods and send a copy thereof to the proper officer;

(b) shall not permit such goods to be removed from the customs area or otherwise dealt with, except

under and in accordance with the permission in writing of the proper officer.

(iii) If any goods are pilfered after unloading in a customs area while in custody of the referred person, that

person shall be liable to pay duty on such goods at the rate prevailing on the date of delivery of an IGM/IGR

for the arrival of the convenience in which the said goods were carried.

Some imported goods after unloading were taken under custody by the Port authorities. While in custody

some goods were pilfered. The moot question was whether the Port Trust liable to pay duty on goods pilfered

while in their possession.

Held58

Section 45(1) contemplates two situations i.e. custody in hands of approved person and custody

pursuant to any law. Person referred to in Section 45(1) can only be person approved by Commissioner

having warehouses. It excludes a body of persons who by virtue of a law for the time being in force is

entrusted with the custody of goods by incorporation of law under another enactment, i.e. Port Trusts Act.

Possession of goods by Port Trust is by virtue of powers conferred under Port Trusts Act. Port Trust neither

approved person nor can be notified one.

Section 45(3) of Customs Act, 1962 inserted to provide for recovery of duty from person incharge of such

imported goods in Customs area. Liability to pay duty only of persons approved by Commissioner of

Customs. Section 45(3) is to be restricted to mean persons approved who have approved warehouses and

not statutory bodies like Port Trusts. Port Trust is a statutory body controlled by G.O.I., hence no purpose

served by imposition of duty on one arm of Govt. by another discharging statutory duties. Therefore Port Trust

not liable to duty for the goods pilfered while in their possession. However, the Port Trust would be a bailee of

goods liable for value of the goods to the importer.

The Supreme Court has held59

that if the custodian has no explanation at all to show how the loss occurred in

respect of goods in its custody, the custodian is liable for loss of goods.

Section 41 - Delivery of export manifest/report.

(i) The person-in-charge of a conveyance carrying export goods shall, before departure of the conveyance from

the customs station, deliver to the proper officer, in case of a vessel or an aircraft an export manifest, and in

case of vehicle an export report.

(ii) The procedure for preparation of EGM/ER is as follows:

(a) In the case of shipment by sea, the ship‟s officer gives a receipt after he has received the consignment

on board the ship. This receipt is called mate receipt. It is surrendered to the steamer agent or the agent

who issues the bill of lading.

(b) In the case of shipment by air, after the cargo is delivered to the airways for loading, the airways issues

an air consignment note.

57

The responsibility of the custodian commences in respect of imported goods the moment the ship is berthed in the harbour or the goods are ready for unloading from the aircraft.

In major ports, the custodian is the Port Trust. In other places, the custodian are the ware house keepers. In Inland Container Depots, the Container Corporation of India is the

custodian of the imported cargo. In case of air cargo, the custodian is the National Airport Authority. For goods brought by rail, the custodian is the Station Master. 58

BOARD OF TRUSTEES OF THE PORT OF BOMBAY v UOI 2009 (241) E.L.T. 513 (Bom.) 59

IAAI v. Ashok Dhawan, 1999 (106) E.L.T. 16 (SC)

38

(c) In the case of train and lorry a railway receipt or a lorry receipt as the case may be is issued as soon as

the consignment is received by the carrier.

The export general manifest or report is the consolidated report of all such Bills of Lading/air consignment

notes/railway receipts/lorry receipts issued.

(iii) If the proper officer is satisfied that the export manifest or export report is incorrect or incomplete, and there

was no fraudulent intention, he may permit it to be amended or supplemented. [Section 149]

(iv) Contents of the EGM

1. The manifest/report shall be delivered in duplicate.

2. It shall consist of:

(a) Cargo report;

(b) Vessel‟s store list;

(c) Private property list of master, officers and crew;

(d) In case the vessel/aircraft/conveyance carries passengers, a passenger manifest.

3. The cargo list shall give the following details in separate sheets.

(a) Cargo shipped;

(b) Cargo transshipped;

(c) Cargo lying in the vessel/aircraft, but not landed or transshipped (same bottom cargo);

(d) Cargo in respect of which drawback is claimed.

(e) In case of the vessel, the dutiable goods, including arms and ammunition forming part of

the ordinary equipment of a vessel.

4. Specific declaration should be made in respect of the following cargo, irrespective of whether it

comprises same bottom cargo, shipment or transshipment

(i) arms (ii) ammunition (iii) explosives (iv) narcotics (v) dangerous drugs or (vi) gold.

If the vessel/aircraft does not carry any such cargo, a nil report should be furnished.

Preventive Officers of Customs, who do the executive duties like

(i) Boarding and checking ships and aircrafts;

(ii) Clearing passengers and crew and their baggage;

(iii) Surpervision and control over loading and unloading of cargo;

(iv) Preventing smuggling by checking suspects, patrolling the customs area, searching suspected premises, persons

and vehicles.

(v) Interrogating suspects/witnesses and investigation.

Transhipment of good regulations

Procedures relating to the transhipment of goods are governed by the regulations60

prescribed in this regard. The

procedure prescribed is as follows:

(i) Transhipment Permit

A 'transhipment permit' is the permission granted by the Customs, at the port/airport of unloading of imported goods,

to shipping agents for carriage of goods to another port/airport/ICD/CFS in India. The shipping agent submits an

application alongwith transhipment forms (5 copies), sub-manifest and a copy of IGM to the Customs. The Customs

scrutinizes the details furnished by the shipping agents in the application for transhipment. In case, the documents

are in order, permission for transhipment is granted by the Customs.

(ii) Execution of Bond and Bank Guarantee

60

Goods Imported (Conditions of Transhipment) Regulations, 1995

39

To ensure that imported cargo, on which duty has not been paid, are not pilfered en-route to another

port/airport/ICD/CFS and reach there safely, a bond with bank guarantee (@ 25% of bond value) is executed by the

carrier engaged for the transhipment of the goods. The carriers in public sector i.e. CONCOR and CWC are

exempted from the requirement of bank guarantee for transhipment of goods. The terms of the bond is that if the

carrier produces a certificate from Customs of the destination port/airport/ICD/CFS for safe arrival of goods there, the

bond stands discharged. In case such certificate is not produced within 30 days or within such extended period as the

proper officer of Customs may allow, an amount equal to the value, or as the case may be, the market price of the

imported goods is forfeited.

(iii) Sealing of goods

After issuance of transhipment permit and execution of bonds as mentioned above, containers are sealed with 'one

time bottle seal' by the Customs.

In case, containers are already sealed with 'one time bottle seal' by the shipping agents, containers are not required

to be sealed again by the Customs. In such cases, shipping agents are required to inform the serial number of seals

to Customs, which is just verified by the Customs.

Section 24 - Power to deal with postal articles containing goods contraband or liable to duty

Except as otherwise provided in this Act, where a postal article suspected to contain any goods of which the import by

post or the transmission by post is prohibited by or under any enactment for the time being in force, or anything is

liable to duty, writing to the addressee, initiating him to attend, either in person, or by an agent, within a specified time

at a post office, and shall in the presence of the addressee, or his agent, or if the addressee or his agent fails to

attend as aforesaid, then in his absence open and examine the postal article.

Power of Postal authorities to deal with post parcels:

(i) The post office authority has a right and duty to open and examine a postal article.

(ii) The right can be exercised only if he has a reasonable suspicion that the goods contained in the postal

article are:

(a) liable to duty of customs, or

(b) subject to a prohibition under any law in force.

(iii) Before opening and examining the postal article he should issue a notice in writing to the addressee asking

him to be present at an appointed time and place for the opening of the postal article.

(iv) The addressee can be present either in person or by an agent; and if the addressee or his agent does not

turn up at the appointed time and place, the postal authorities are entitled to open and examine the postal

article in his absence.

40

Procedure for clearance of post parcels

The boxes or bags containing the parcels would be labelled, like “Postal Parcels” “Parcel Mail” “Letter Mail” . They

would be allowed to land at the regional GPO. The procedure to be followed is as under:

1. The Postmaster at Foreign Post Department will prepare in relation to all post parcels subject to customs

scrutiny a list or sheeet containing :

(i) Parcel Nos.;

(ii) Parcel Bills/sender‟s declarations/labels/despatch notes;

(iii) Any other information relevant to the assessment of the parcels.

2. The mail bags other than those containing registered mail are checked in the sorting office as soon as they

are received in India, to eliminate and detail mail containing dutiable or prohibited goods.

3. On receipt of the parcels, the customs appraiser would segregate them into the following:

(a) those that can be assessed to customs duty on the basis of the label or customs declaration;

(b) those that can be assessed to customs duty after opening the parcel and physical examination of the

goods;

(c) those for which further information or further documents are necessary for determining the customs

duty, restrictions on importation etc. These documents will be called from the addressee of the

letter mail article.

4. The parcels to be opened will be opened by the postal authorities in the presence of the customs authorities

and after the customs authorities have ascertained the necessary details for determination of the duty and

prohibition aspects they shall close the letter mail articles or the parcels as the case may be.

5. In the case of parcels, letter mail articles, detained for further details or information a letter of call will be

issued by the customs authorities. The postal articles will be presented to the customs authorities once again

as soon as the requisite information is received.

4. As soon as the parcels are assessed to duty, the customs will indicate on the parcel assessment sheet, the

value of the goods, description of the goods and the duty recoverable on the goods. The postal authorities

shall inscribe the duty amount on the label of the parcel.

5. The postal authorities will collect the duty when the parcels are delivered to the addressee.

6. The duty amount is credited to the customs authorities periodically. The duty amount is collected at the time

of delivery of the postal article to the addressee.

Customs duty paid as postage is recoverable as postage. This provision states that when a postal article, on which

any duty of customs is payable, has been received by post from any place beyond the limits of India, and the duty has

been paid by the postal authorities, at any customs port or elsewhere, the amount of duty shall be recoverable as if it

were postage due under the (Post Office) Act.

Valuation of Motor Cars

Depreciation will be allowed on value of old machinery/car, as below :

(i) For every quarter61

in 1st year - 4%.

(ii) For every quarter in 2nd year - 3%.

(iii) For every quarter in 3rd year - 2.5%.

(iv) For every quarter in 4th and subsequent year - 2%.

However, the depreciation allowable shall be limited to 70% of the value.

61

Every quarter has to be understood as each completed quarter.

41

Held62

the assessee brought a car in India mis-declaring the model of 2002 vehicle as a 1998 model imported under

Transfer of Residence scheme. The PO noted that description of vehicle and its registration papers do not conform to

vehicle actually imported. The court ruled that since registration papers of vehicle do not match the vehicle imported,

the provisions of Customs (Valuation) Rules could not be applied and normal value of vehicle in accordance with

Rules 5, 6 and 7 cannot be applied. The valuation shall be done under the residuary Rule 9.

Warehousing

(ii) Procedure63

to be followed for granting license to a Private Warehouse. The applications for such licences

have been classified into two categories viz., storage of sensitive goods such as liquor, cigarettes, foodstuffs,

consumables, etc. and other non-sensitive goods.

Guidelines in case of storage of sensitive goods

(a) Applicants should produce a Solvency Certificate from a Scheduled Bank of repute for a value not less

than Rs. 50 lakhs;

(b) Such warehouses may not be located in residential areas;

(c) The premises should be secure, possess fire-fighting provisions and be easily accessible to the Customs

Officers;

(d) Goods deposited should be fully insured for a value at least equal to the customs duty;

(e) The proprietor/partner/director must not be involved in any Customs or Excise offence . In case of any

involvement in such offences, the licence may be terminated after following the prescribed procedure;

(f) In the case of individual consignments to be warehoused, a double duty-bond as prescribed under

section 59 should be given by the licencee. In case of sensitive goods, a cash deposit/ bank guarantee

equal to 25% of the duty liability (effective duty foregone) will be taken for each consignment. At the

same time, a revolving bond with a single bank guarantee for a higher amount can be accepted if so

requested for a number of consignments.

Following precautions are to be taken for a place to be declared as Warehouse :

(v) The warehouses should be situated in a warehousing station;

(vi) The ground plan of the warehouse should be scrutinized for suitability and security of the building;

(vii) There should be sufficient light and ventilation for proper storage of goods;

(viii) The windows should be secured with shutters and stout iron bars. Superfluous windows should be closed up

with brick work;

(ix) The entrances should have strong and secured doors with strong locks. They should be capable of periodical

check from outside and the doors are locked;

(x) There should be proper and prominent name board, showing the full name and full address of the warehouse.

(xi) The warehouse keeper should also ensure that the goods are properly stored, tagged and every facility is

made available for handling it without damage to the goods.

(xii) The warehouse authority shall bind itself to make good the revenue loss to the government, in respect of

warehoused goods, lost or damaged during their custody in the warehouse.

62

HARISH CHAPPA HASSAN v CC 2010 (250) E.L.T. 517 (Ker.) 63

Circular No.99/95 dated 20.9.1995

42

Warehousing Bond

(iii) According to Section 73, the proper officer shall cancel the bond as discharged64

in full

(a) all imported goods which have been warehoused have been duly accounted for in the proper manner

provided therefore. The whole of the goods covered by the Bond have been cleared for home

consumption or exported or are otherwise duly accounted for;

(b) all the consequential charges on the goods as well as the owner of the goods like warehouse rent,

warehouse charges, interest on the duty amount, penalty etc., leviable from the importer have been paid;

(c) all the conditions and obligations undertaken under the warehousing bond have been compiled with or

duly fulfilled.

Section 67 - Removal of goods from one warehouse to another

The owner of any warehoused goods may, with the permission of the proper officer, remove them from one

warehouse to another, subject to such conditions as may be prescribed for the due arrival of the warehoused

goods at the warehouse to which removal is permitted.

The CBEC in exercise of the powers conferred by section 157 regulations65

for the purposes of this section.

(i) Where the goods are to be removed from one warehouse to another in the same town, the proper officer may

require that the transport of the goods between the two warehouses be under the supervision of an officer of

Customs, the owner meeting the cost of such supervision.

(ii) Where the goods are to be removed from one warehouse to another in a different town the proper officer may

require the person requesting removal to execute a bond in a sum equal to the amount of import duty leviable

on such goods and in such form and manner as the proper officer deems fit.

(iii) The terms of the bond shall be that if the person executing the bond produces to the proper officer, within

three months or within such extended period as such officer may allow, a certificate issued by the proper

officer at the place of destination that the goods have arrived at that place, the bond shall stand discharged,

but otherwise an amount equal to the import duty leviable on the goods in respect of which the said certificate

is not produced shall stand forfeited.

(iv) The proper officer may require that the bond shall be with such surety or security or both as is acceptable to

him.

The use of manufacture-in-bond facility is now being resorted to less and less, the reasons are:

(a) there is step-by-step control and interference by Customs Authorities;

(b) the double duty bond under section 59 and the bond under section 65 cause undue financial burden on

the manufacturers;

(c) the maintenance of detailed accounts and the control of Customs Officers over them is cumbersome;

(d) the looking of the imported material storage room by customs and issue of such material for manufacture

at the discretion and control of the customs causes undue operational bottlenecks

(e) finally, the duty liability of imported material in the waste is another source of irritation.

64

The bond gets discharged and the proper officer shall formally endorse cancellation thereof. Thereafter if the person who had executed the bond or any other person entitled to

receive it demands the return of the cancelled bond, the proper officer shall return to that person. Otherwise the cancelled bond shall remain with the proper officer. 65

Warehoused Goods (Removal) Regulations, 1963

43

Section 85 – Warehousing of Ship Stores

(i) Where any imported goods are entered for warehousing and the importer makes and subscribes to a

declaration that goods are to be supplied as stores to vessel or aircrafts without payment of import duty, the

proper officer may permit the goods to be warehoused without the goods being assessed to duty.

(ii) A regulation66

has been made to regulate such warehousing of ship stores and is called the. The regulation

provides that,

(a) Whenever any imported goods intended for supply for use in a foreign going aircraft are to be

entered for warehousing, an application under the prescribed form should be made to the AC/DC;

(b) This application will be treated as a Bill of Entry;

(c) On receipt of the said application, the AC/DC may permit the goods specified in the application to be

warehoused without the goods being assessed to duty.

(d) If the warehoused goods are to be cleared for use as stores in a foreign going aircraft, an application

has to be made to the AC/DC in the prescribed form;

(e) This application will be treated as a Shipping Bill;

(f) On receipt of the said application, the AC/DC may permit clearance of the warehoused goods

specified in the application for being taken on board the foreign going aircraft as stores.

(iii) According to Section 88 the provisions of Section 69 (exportation of warehoused goods) shall equally apply to

stores. However, for these provisions the words "exported to any place outside India" or the word "Exported"

shall be taken as and mean "taken on board of any foreign going vessel or aircraft as stores".

Section 27 - Claim for refund of duty

(i) Any person claiming refund of any duty and interest (interest paid on such duty),

(a) paid by him in pursuance of an order of assessment; or

(b) borne by him,

may make an application67

for refund of such duty and interest to the AC/DC in the prescribed form and

manner. The application shall be accompanied by documentary or other evidence establishing, such duty or

interest was collected from or has been paid by, him and the incidence of such duty has not been passed

on by him to any other person.

(xiii) Supreme Court in the case of Flock (India) Private Ltd.68

has ruled that if an appealable order passed by an

authority is not challenged by filing an appeal, it is not open to the assessee to question the correctness of

the order subsequently by filing a refund claim.

(xiv) The Supreme Court in the case of Priya Blue Industries Ltd. v CC69

has stated that once an order of

assessment has been passed, the duty would be payable as per that order. Unless that order of assessment

66

Bonded Aircraft Stores (Procedure) Regulations, 1965 67

Application for refund should be accompanied by the following documents:

1. Letter of authorisation from the importer or buyer if the applicant is an agent;

2. Triplicate copy of the bill of entry/Post parcel wrapper/Shipping bill/Baggage receipt or the purchase invoice;

3. Duty challan or other document as evidence of duty paid;

4. Signed working sheet for the amount of refund claimed;

5. Customs attested invoice;

6. Customs attested packing list;

7. Document for establishing the applicant‟s eligibility to receive the refund, - that he has borne the duty incidence including documents for the purposes of sections 28C and 28D;

8. Contract and purchase order;

9. CENVAT credit certificate from the Central Excise Authorities;

10. Short delivery certificate from custodian;

11. Short shipment certificate from the supplier;

12. Survey report 68

2000 (120) ELT 285 (SC) 69

(Preventive) 2004 (172) E.L.T 145 (S.C.)

44

has been reviewed under section 28 and/or modified in an appeal, that order would be enforceable. So long

as the order of assessment is effective, the duty would be payable as per that order of assessment. A refund

claim is not an appeal proceeding. The officer considering a refund claim cannot not sit in appeal over an

assessment made by a competent officer. The officer considering the refund claim can also not review an

assessment order.

The Apex Court clarified that as the words “in pursuance of assessment order” come after the words “Any

person claiming refund of any duty and interest, if any, paid on such duty paid by him”, they only indicate the

party/person who can make a claim for refund. Thus, these words must be understood in the limited context

only. They enable a person who has paid duty in pursuance of an order of assessment to claim refund.

These words does not lead to the conclusion that a claim for refund can be maintained without modifying the

order of assessment in an appeal or reviewing the same under section 28.

The Supreme Court held that a refund claim cannot be filed against an assessment order, which has not been

modified in an appeal or reviewed under section 28.

Further, CBEC70

has clarified that Refund claim is not maintainable when assessment order is not

challenged.

(xv) Held71

reference to the language of Section 27, makes it clear that the duty which is paid is not necessarily

pursuant to an order of assessment but can also be „borne by him‟. Clauses (a) and (b) of section 27(1) are

clearly in the alternative as the expression „or‟ is found in between clauses (a) and (b). The object of Section

27(a)/(b) is to cover those classes of case where the duty is paid by a person without an order of

assessment, i.e. in a case like the present where the assessee pays the duty in ignorance of a notification

which allows him payment of concessional rate of duty merely after filing a Bill of Entry. In fact, such a case

is the present case in which there is no assessment order for being challenged in the appeal which is passed

under Section 27(1)(a) of the Act because there is no contest or lis and hence no adversarial assessment

order. Non-filing of appeal against assessed B/E where there is no lis between importer and Revenue at time

of payment of duty will not deprive importer of his right to file refund claim. Hence in this case the assessee

would be entitled to refund.

(xvi) In the case of Hero Cycles Ltd. v UOI, the Bombay High Court observed that CVD was paid erroneously

(inspite of exemption notification) which the assessee claimed it as refund, without challenging the original

assessment order. The Department declined refund on the basis of the settled law enunciated by the

Supreme Court. The Court ruled that power to assess implies power to assess duty in accordance with the

law. Inadvertence cannot result in being assessed and be liable to duty, which otherwise was never payable

due to the exemption notification, would result in injustice. The court directed to amend the assessment

order (without which the refund could not granted) and grant refund.

(xvii) In the case of Bansal Alloys & Metals Pvt Ltd. v CC [2009] 240 ELT 483 (P&H), the assessee has deposited

the duty on the imported goods without examination thereof. On subsequent physical examination the

Examination Report revealed that it was a case of short landing.

The court ruled that assessee was entitled to refund of the excess duty without taking recourse to filing of

appeal against the assessment order. The Court pointed out that as per section 17, assessment includes re-

assessment. The proper course of action for the Custom authorities was to require amendment of the

BoE through section 149 and re-assess the same for grant of refund.

70

M.F. (D.R.) Circular No. 24/2004 – Cus., dated 18.03.2004 71

AMAN MEDICAL PRODUCTS LTD. v CC 2010 (250) E.L.T. 30 (Del.)

45

(xviii) Supreme Court in the case of Solar Pesticides72

has held that refunds will not be allowed on captive

consumption of inputs.

Further, held73

doctrine of unjust enrichment would be applicable in case of imported capital goods used

captively for manufacture of excisable goods.

In case of exports where goods loaded and shipped, are less than what is mentioned in the Shipping Bill, the exporter

u/s 51 is required to intimate such short shipment to the custom authorities within 7 days from the date of departure of

the conveyance. After such intimation export duty if any, paid on unshipped goods shall be refunded. The time limit

for claiming refund of export duty in case of short-shipment is thus correlated to short-shipment application.

Section 102 - Persons to be searched may require to be taken before gazetted officer of customs or magistrate

(i) When any officer of customs is about to search any person under the provisions of section 100 or section

101, the officer shall, if such person so requires, take him without unnecessary delay to the nearest gazetted

officer of customs or magistrate.

(ii) If such requisition is made, the officer of customs may detain the person making it until he can bring him

before the gazetted officer of customs or the magistrate.

(iii) The gazetted officer of customs or the magistrate before whom any such person is brought shall, if he sees

no reasonable ground for search, forthwith discharge the person but otherwise shall direct that search be

made.

(iv) Before making a search under the provisions of section 100 or section 101, the officer of customs shall call

upon two or more persons to attend and witness the search . He may issue an order in writing to them or any

of them so to do; and the search shall be made in the presence of such persons and a list of all things seized

in the course of such search shall be prepared by such officer or other person and signed by such witnesses.

Section 103 - Power to screen or X-ray bodies of suspected persons for detecting secreted goods

(i) If the proper officer has reason to believe that any person making a requisition under section 100(2) has any

goods liable to confiscation secreted inside his body, he may detain such person and produce him without

unnecessary delay before the nearest magistrate.

(ii) A magistrate before whom any person is brought shall, if he sees no reasonable ground for believing that

such person has any such goods secreted inside his body, forthwith discharge such person.

(iii) If any such magistrate has reasonable ground for believing that such person has any such goods secreted

inside his body and the magistrate is satisfied that for the purpose of discovering such goods it is necessary

to have the body of such person screened or X-rayed, he may make an order to that effect.

(iv) If a magistrate has made any order, in relation to any person, the proper officer shall, as soon as practicable,

take such person before a radiologist possessing qualifications recognized by the Central Government for

the purpose of this section. Such person shall allow the radiologist to screen or X-ray his body.

(v) A radiologist before whom any person is brought shall, after screening or X-raying the body of such person,

forward his report, together with any X-ray pictures taken by him, to the magistrate without unnecessary

delay.

72

2000 (116) ELT 401 73

SRF Ltd. v. CCus. Chennai 2006 (193) ELT 186 (Tri. - LB)

46

(vi) Where on receipt of a report from a radiologist or otherwise, the magistrate is satisfied that any person has

any goods liable to confiscation secreted inside his body, he may direct that suitable action for bringing out

such goods be taken on the advice and under the supervision of a registered medical practitioner.

(vii) If any person is brought before a magistrate under this section, such magistrate may for the purpose of

enforcing the provisions of this section order such person to be kept in such custody and for such period as

he may direct.

(viii) The above procedures shall not apply to any person, who admits that goods liable to confiscation are

secreted inside his body, and who voluntarily submits himself for suitable action being taken for bringing out

such goods.

Section 105 - Power to search premises

(i) If the AC/DC or in any area adjoining the land frontier or the coast of India an officer of customs specially

empowered by name in this behalf by the Board, has reason to believe that any goods liable to confiscation,

or any documents or things which in his opinion will be useful for or relevant to any proceeding under this

Act, are secreted in any place, he may authorise any officer of customs to search or may himself search for

such goods, documents or things.

(ii) The provisions of the Code of Criminal Procedure, relating to searches shall, so far as may be, apply to

searches under this section subject to the modification that as if for the word “Magistrate”, wherever it

occurs, the words Commissioner of Customs were substituted.

The power of CBEC u/s105(1) i.e. power to search premises, may be exercised by Commissioner of Central

Excise who are Commissioners of Customs by virtue of Notification issued in this regard74

.

Procedure for disposal of the seized goods:

(i) In case the seized goods are perishable in or hazardous in nature, or where there is shortage of space for

storage of seized goods, the following procedure may be adopted for disposal of the seized goods:

(a) He shall prepare and inventory of such goods containing such details relating to their description, quality,

quantity, mark, numbers, country of origin, and other particulars as he may consider relevant to the

identity of the goods in any proceeding under the Act;

(b) He shall make an application to the magistrate for the purpose of :

A. Certifying the correctness of the inventory so prepared;

B. Taking in the presence of the Magistrate, photographs of such goods, and certifying such

photographs as true; or

C. Allowing to draw representative samples of such goods, in presence of the Magistrate and certifying

the correctness of any list or samples so drawn;

(c) When the application is made to the Magistrate, the Magistrate shall allow the application as soon as

possible and the proper officer will proceed to dispose off the goods by way of sale.

(ii) Where any goods are seized and no notice for adjudication in respect thereof is given to the assessee within

6 months of the seizure, the goods shall be returned to the person from whose possession they were seized.

However, the Commissioner may on sufficient reasons extend the period by further 6 months75

.

(iii) The person from whose custody any documents are seized shall be entitled to make copies thereof or take

extracts therefrom in the presence of an officer of customs.

74

M.F. (D.R.) Notification No.22-Cus, dt 6-2-1965 as amended by Notification No.54-Cus., dt 24-5-1965 75

Held that the time limit is to be computed from the date of seizure and not from the date of detention – J.K. Bardolia Mills v CC [1994] 72 ELT 813 (SC)

Further this time limit is only for seizure not for confiscation or penalty.

47

(iv) As per section 110A any goods, documents or things seized under section 110, may, pending the order of the

adjudicating officer, be released to the owner on taking a bond from him in the proper form with such security

and conditions as the Commissioner may require.

Section 111 – Confiscation

(d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters

for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law

for the time being in force;

Held76

foreign currencies, remitted in contravention of Section 11 into the account of the petitioner,

should be confiscated in terms of Section 111(d) read with Section 120 of the Customs Act, 1962. As

goods include currency, negotiable instruments and any kind of movable property, the amounts

remitted into the petitioner’s account are “imported goods” within the said meaning. In as much as

the petitioner had illegally brought foreign currency into their account, in the guise of sale proceeds,

they have contravened the provisions of Section 11 of the Customs Act. Since the amounts remitted,

though not relatable, were routed in the guise of sale proceeds with the sole purpose of getting DEPB

benefits in a fraudulent manner, they were illegally imported into India. As foreign exchange has been

remitted into India, in the guise of sale proceeds, the prohibition envisaged under Section 111(d) is

attracted and, consequently, such illegal foreign exchange remittances into the petitioner’s account is

liable to be confiscated under Section 111(d) of the Customs Act.

Section 113 – Confiscation of Export Goods

(viii) any goods entered for exportation which do not correspond in respect of value or in any material particular

with the entry made under this Act or in the case of baggage with the declaration made in respect thereof;

Held77

A false entry made in the shipping bill, empowers Customs officers to confiscate the goods.

The liability of fraudulently exported goods to confiscation arises, under Section 113, as soon as the

goods are attempted to be exported which, necessarily, precedes its actual export. There is no

provision in the Customs Act to suggest that this accrued liability is wiped out or is extinguished with

the exportation of the goods. It may be that, after the goods are exported, the liability for confiscation

may not be enforceable by physical confiscation of the goods. Personal penalty under Section 114 is

attracted as soon as the goods incur liability to confiscation under Section 113 and such liability

arises when the goods are attempted to be exported contrary to any “prohibition”. The liability of

personal penalty provided in Section 114 of the Act, which arises with the accrual of the liability of the

goods to confiscation under Section 113 of the Act at the stage of the attempt to export the said

goods, clearly remains and the said liability is capable of enforcement.

The mere fact that the DGFT is empowered to confiscate the goods or impose penalty would not,

denude Customs officers of the powers of confiscation under Section 113(i) of the Customs Act or to

demand, under Section 28 of the Customs Act, repayment of the Customs duty benefits extended

earlier to the petitioner on the erroneous premise that the fraudulently over-invoiced goods

represented the true value of exports made by them.

Section 125 – Option to pay fine in lieu of confiscation (Redemption fine)

(i) Whenever confiscation of any goods is authorised by this Act, the officer adjudging it

76

SRAVANI IMPEX P. LTD. v ADDL. DIR. GENERAL 2010 (252) E.L.T. 19 (A.P.) 77

SRAVANI IMPEX P. LTD. v ADDL. DIR. GENERAL 2010 (252) E.L.T. 19 (A.P.)

48

(a) may, in the case of prohibited goods, the importation or exportation whereof is prohibited under this Act;

and

(b) shall, in the case of any other goods;

give to the owner of the goods or, where such owner is not known, the person from whose possession or

custody such goods have been seized an option to pay in lieu of confiscation such fine as the said officer

thinks fit.

Held78

insofar as the prohibited goods are concerned, there is discretion in the officer to release the

confiscated goods in terms as set out therein. Insofar as other goods are concerned, the officer is bound to

release the goods.

Held79

that where the goods have been abandoned by the importer, there is no scope for payment of any fine

in lieu of confiscation. Hence, when goods have been abandoned by the importer, the redemption fine paid

thereon is liable to be refunded.

Held80

, the fine payable to get possession of the goods under Section 125 is distinct and different from the

duty of goods which are to be imported or exported. It is the nature of recompense to the state for goods which are

vested in it and on sale would have realized the value of the goods and from that to recover the duty which is

unpaid as also fine. In these circumstances, where the goods are confiscated and fine is not paid, the duty is

payable as assessed.

(ii) Such fine shall not exceed (market price of the goods confiscated - in the case of imported goods the duty

chargeable thereon).

(iii) If any fine in lieu of confiscation of goods is imposed, the owner of such goods or the other person shall, in

addition, be liable to pay duty and charges payable in respect of such goods.

Held81

that the mere fact that the goods were released on the bond being executed would not take away the

power of the customs authorities to levy redemption fine. The court held that it is an admitted fact that the

goods were released to the appellant on an application made by it and on the appellant executing a bond, it is not a

case that redemption fine could not be imposed because the goods were no longer in the custody of the

respondent authority.

Under these circumstances, if subsequently it is found that the import was not valid or that there was any

irregularity which would entitle the customs authorities to confiscate the said goods, then the mere fact that

the goods were released on the bond being executed would not take away the power of the customs authorities

to levy redemption fine.

(iv) In certain cases, the assessee has the option of provisionally releasing such confiscated goods before

adjudication. The goods pending adjudication may be provisionally released upon execution of a bond.

However, once the goods have been provisionally released on payment of Redemption Fine, they cannot

again be seized or confiscated.

78

CC v ALFRED MENEZES 2009 (242) E.L.T. 334 (Bom.) / Anoop Kumar v CC 2002 (148) ELT 48 (Cal) 79

Purfina Chemicals Pvt. Ltd. v CEGAT [2004] 167 ELT 145 (MAD) 80

POONA HEALTH SERVICES v CC(Airport) 2009 (242) E.L.T. 335 (Bom.) 81

Weston Components Ltd. v CC 2000 (67) ECC 201 (SC)

49

Section 74 – Duty Drawback

(v) CBEC has clarified that clarified that in situations where the buyer and the exporter have contracted the

goods on f.o.b. basis and the same is reflected in the contract and the LC, but the exporter is forced to send

the goods by air at his own expense due to an exigency such as contractual obligation to deliver the goods

within a certain period of time, it would not be justified to rework the drawback amount by deducting freight

element from the contracted FOB value. However, in order to obviate misuse the benefit of this circular shall

be limited to only 3% of the shipments in a financial year82.

(vi) As per section 74(3) the Central Government may make rules83

for Duty Drawback so as to carry out the

provisions of this section and, in particular, such rules may:

(a) provide for the manner in which the identity of goods imported in different consignments which are

ordinarily stored together in bulk, may be established;

(b) specify the goods which shall be deemed to be not capable of being easily identified; and

(c) provide for the manner and the time within which a claim for payment of drawback is to be filed.

The Central Government can relax the provisions of these rules, in appropriate cases, on sufficient cause

being shown by the exporter in individual cases.

(vii) In terms of the Rules for drawback the manner of filing drawback claim is enumerated here under:

(a) In the cases of exports other than by post, a formal drawback claim, in the prescribed form, should be

filed with the proper officer of customs, within three months of the date of let export order ( under section

51) and the claim should be accompanied by

1. triplicate copy of the Shipping Bill or Bill of Export in proof of export;

2. Bill of entry or other document in proof of payment of import duty

3. Export invoice and packing specification

4. Bill of lading or airway bill as proof of effective export

5. Permission of RBI etc.

6. Import invoice and packing specification

7. Any other document necessary.

(b) The drawback department shall scrutinise these documents and issue a deficiency memo for further

details or documents required and the exporter shall furnish them forthwith.

(c) The customs department shall pay to the exporters, or an agent specially authorised by the exporter

to receive the drawback amount, the eligible drawback and interest if any.

(d) If there is any erroneous or excess payment of drawback, it shall be demanded and if the exporters

fails to pay the demand, it can be recovered in the manner prescribed under section 142.

Section 75 – Duty Drawback

(iii) Where any drawback has been allowed on any goods and the sale proceeds in respect of such goods are not

received by or on behalf of the exporter in India, within time allowed under FEMA, such drawback shall be

deemed never to have been allowed.

CBEC has clarified84

that „Drawback‟ would not be payable in cases where export proceeds have not been realised

in accordance with the provisions of the Foreign Exchange Management Act, 1999 even if the claim has been

settled by ECGC or realisation waived by RBI.

82

Circular No. 24/2009-Cus., dated 3-9-2009 F.No. 609/09/2008-DBK 83

Re-Export of Imported Goods (Drawback of Customs Duties) Rules 1995 – This rule provides the drawback only for the Customs duty portion. 84

Circular No. 7/2010-Cus dt 23.3.2010

50

CBEC Circular

CBEC has clarified85

that rebate is admissible for supplies made from DTA to SEZ.

The circular affirmed that rebate under rule 18 of the Central Excise Rules, 2002 is admissible for supplies made from

DTA to SEZ even though rule 18 does not refer to such supplies in clear terms.

Further, section 26 of the Special Economic Zone Act, 2005 allows the clearance of duty free goods for authorized

operations in the SEZ and the procedure laid down under rule 18 of the Central Excise Rules, 2002 gives effect to the

said provision of the SEZ Act

85

Circular No. 06 /2010 – CUS dt 19.3.2010

51

Service tax

Service tax applies to the whole of India which includes installations, structures and vessels in the continental

shelf of India and the exclusive economic zone of India86

except the State of Jammu and Kashmir.

So far as the areas in the Continental Shelf and the Exclusive Economic Zone of India is concerned the Service tax

law would apply to the extent mentioned hereunder87

:

Sl No. The areas in the Continental Shelf and the

Exclusive Economic Zone of India

Purpose

1 Whole of continental shelf and exclusive economic

zone of India

Any service provided for all activities pertaining

to construction of installations, structures and

vessels for the purposes of prospecting or

extraction or production of mineral oil and

natural gas and supply thereof.

2 The installations, structures and vessels within the

continental shelf and the exclusive economic zone of

India, constructed for the purposes of prospecting or

extraction or production of mineral oil and natural

gas

Any service provided or to be provided by or to

such installations, structures and vessels and

for supply of any goods connected with the said

activity.

(i) Central Government has exempted88

fully the taxable service provided to any person, by any other person

for transmission of electricity.

Business auxiliary Services

(ix) Central Government has fully exempted89

service provided by any person, to a client in relation to the

manufacture of pharmaceutical products, medicines, perfumery, cosmetics or toilet preparations

containing alcohol, which are charged to excise duty under Medicinal and Toilet Preparations (Excise

Duties) Act, 1955.

(x) The Central Government, has exempted90

fully services provided by a person to any other person, during the

course of manufacture or processing of alcoholic beverages by the service provider, for or on behalf of the

service receiver, from so much of value which is equivalent to the value of inputs, excluding capital goods, used for

providing the same service, subject to the following conditions, namely:

(a) that no Cenvat credit has been taken;

(b) that there is documentary proof specifically indicating the value of such inputs; and

(c) where the service provider also manufactures or processes alcoholic beverages, on his or her own

account or in a manner or under an arrangement other than as mentioned aforesaid, he or she shall

maintain separate accounts of receipt, production, inventory, despatches of goods as well as

financial transactions relating thereto.

86

Notification No. 14/2010- ST dated 27.2.2010 87

Notification No. 14/2010 – ST dt 27.2.2010 88

Notification No. 11/2010-ST dt 27.2.2010 89

Notification No. 32/2009-Service Tax dt 1 September 2009 90

Notification No. 42/2009-Service Tax dt 12.11.09

52

(xi) The Central Government, has exempted91

fully services provided by a person to any other person, in relation

to one or more of the specified process during the course of manufacture of parts of cycles or sewing machines,

subject to the following conditions, namely:

(a) the aggregate value of taxable service in relation to one or more of the specified process92

provided

by a service provider, does not exceed Rs. 150 lakhs during the preceding financial year;

(b) the exemption shall be restricted to the first clearances, wherein the aggregate value of taxable

service in relation to one or more of the specified process provided by a service provider does not exceed

Rs. 150 lakhs, made on or after the 1st day of April in any financial year.

However, exemption shall be restricted to the clearances, wherein the aggregate value of taxable

service in relation to one or more of the specified process provided by a service provider, does not exceed

Rs. 63 lakhs from 12.11.09 to 31.3.10; and

(c) where the service provider also undertakes one or more of the specified process in relation to

manufacture of parts or whole of goods leviable to Central Excise duty, such service provider shall

maintain separate accounts of receipt, production and clearance of exempted and dutiable goods

and services.

(xii) Central Government In exercise of the powers conferred by section 11 C of the Central Excise Act, read with

section 83 of the Finance Act, has exempted service tax on services under the category „business auxiliary

service‟, provided during the course of manufacture or processing of alcoholic beverages by the service

provider, for or on behalf of the service receiver, which was not being levied in accordance with the said

practice, shall not be required to be paid in respect of such business auxiliary service provided during 1.9.09

to 22.9.0993

.

(xiii) Central Government has exempted94

fully the taxable service provided in relation to business auxiliary

services, by any Indian news agency, subject to the fulfilment of the following conditions, namely:-

(a) If such new agency is notified as a news agency set up in India solely for collection and distribution of

news.

However, this exemption shall be available only to news agencies which are specified under section 10(22B)

of the Income Tax Act; and

(b) such news agency applies its income or accumulates it for collection and distribution of news and does

not distribute its income in any manner to its members.

Clause (zzd) – To a customer by a erection commissioning or installation agency

(iv) Central Government has exempted95

fully the taxable services in relation to the following:

(a) erection, commissioning or installation of mechanised food grain handling systems;

(b) erection, commissioning or installation of equipment for setting up or substantial expansion of cold

storage;

(c) installation and commissioning of machinery or equipment for initial setting up or substantial expansion

of units for processing agricultural, apiary, horticultural, dairy, poultry, aquatic and marine products and

meat.

91

Notification No. 42/2009-Service Tax dt 12.11.09

92 Specified process means electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black.

93 Notification No. 43/2009-Service Tax dt 2.12.09

94 Notification no 13/2010 dated 27.2.2010

95 Notification No. 12/2010-ST dt 27.2.2010

53

Clause (zzh) – To any person by technical testing and analysis agency

(v) The Central Government, has exempted96

fully the taxable service provided by a Central or State Seed

Testing Laboratory and Central or State Seed Certification Agency notified under the Seeds Act, 1966 to any

person, in relation to technical testing and analysis.

Clause (zzi) – To any person by technical inspection and certification agency

(iii) The Central Government, has exempted97

fully the taxable service provided by a Central or State Seed

Testing Laboratory and Central or State Seed Certification Agency notified under the Seeds Act, 1966 to any

person, in relation to technical inspection and certification of seeds.

Clause (zzp) - To a customer, by a goods transport agency

(ii) The Central Government has exempted98

fully the service provided by a goods transport agency to any

person, in relation to transport of fruits, vegetables, eggs, milk, food grains or pulses99

by road in a goods

carriage.

Clause (zzzp) – To any person in relation to transport of goods in containers by rail

(i) Services to any person, by any other person, in relation to transport of goods by rail, in any manner.

(ii) Central Government has notified100

that taxable service provided to any person by any other person, in

relation to transport of goods by rail shall be exempt from so much of the service tax leviable on such

service, as in excess of the amount of service tax calculated on 30% of the gross amount charged from any

person by such commercial concern. However, the exemption shall be available only if the following

conditions are met:

(a) the gross amount charged shall include the value of goods and materials supplied or provided or

used by the provider of the service;

(b) no credit of duty paid on inputs or capital goods or credit of service tax on inputs services has been

taken under the provisions of the Cenvat Credit Rules; and

(c) such commercial concern has not availed exemption for value of goods supplied under other

exemption notification.

(iii) Central Government has fully exempted101

service provided or to be provided by government railway

to any person in relation to transport of goods by rail.

This notification (providing exemption has been withdrawn w.e.f. 1.7.2010) - Notification No. 07/2010-

ST dt 27.2.2010 further amended by Notification No. 20/2010 dt 30.3.2010.

(iv) Central government has fully exempted102

service provided to any person in relation to transport of

goods (as described in the table) by rail w.e.f. 1 July 2010.

96

Notification no 10/2010 dated 27.2.2010 97

Notification no 10/2010 dated 27.2.2010 98

Notification No. 33/2004 - ST 03rd

December 2004 99

Notification No. 04/2010-SST dt 27.2.2010 100

Notification 20/2006 dt 25 April 2006 as amended by Notification No. 20/2006-S.T. dated 25-04-2006, Notification No. 29/2009-S.T., dated 31-8-2009, Notification

No. 09/2010-ST dt 27.2.2010 and Notification No 22/2010 - Service Tax, dated 30-03-2010. 101

Notification No. 33/2009 - Service Tax dt 1st September, 2009 102

Notification No. 08/2010-ST dt 27.2.2010 as amended by Notification No. 21/2010 - Service Tax, dated 30-03-2010

54

Valuation

(ii) The value of any taxable service, as the case may be, does not include:

the taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or

the invoice for such ticket, issued to the passenger103

.

Furnishing of Return

Rule 7

Every assessee shall submit a half-yearly return104

by 25th

of the month following the particular half year, alongwith a

copy of GAR-7 Challan, in triplicate for the months covered in the half-yearly return. In case 25th

of the month is a

public holiday, return may be filed on the next working day.

As per Rule 9(10) of the CCR the input service distributor, shall furnish a half yearly return, giving the details of credit

received and distributed during the said half year to the Superintendent of Central Excise, by the last day of the

month following the half year period.

If an assessee has paid a total service tax of Rs. 10 lakh or more including the amount paid by utilisation of CENVAT

credit, in the preceding financial year, he shall file the return electronically105

.

Rules for services provided from outside India

These rules may be called the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

Rule 3 - Taxable services provided from outside India and received in India

(i) Subject to section 66A of the Act, the taxable services provided from outside India and received in India106

shall, in relation to taxable services:

Export of services

For the purposes of Export Rule India includes the installations structures and vessels located in the continental shelf

of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of

mineral oil and natural gas and supply thereof.

103

Notification No. 15/2010-ST dt 27.2.2010 104

In Form 'ST-3' or 'ST-3A' 105

Inserted by Notification No. Notification No. 01/2010 – Service Tax dt 19.2.2010 106

India includes the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of

prospecting or extraction or production of mineral oil and natural gas and supply thereof.- Notification No. 16/2010-S.T., dated 27-2-2010

55

Case Law – November 2010

1. Pleasantime Products 2009 (243) E.L.T. 641 (S.C.)

PP is a proprietary firm engaged inter alia in the business of manufacture and trade of toys, games and puzzles of various

kinds. The goods are manufactured by the assessee either under their own brand name of “United Toys” or under different

brand names. One of the items manufactured by the assessee is “Scrabble” which is a registered brand name owned by M/s.

JWSS.

The dispute involved was whether the manufactured item was classifiable under Chapter 95 CHAPTER 95 TOYS, GAMES AND

SPORTS REQUISITES; PARTS AND ACCESSORIES THEREOF, heading 9503.00 – as Other toys; reduced-size models and

similar recreational models, working or not; puzzles of all kinds carrying NIL rate of duty or under Heading 9504 – as Articles for

funfair, table or parlour games, including pintables, billiards, special tables for casino games and automatic bowling alley

equipment – 9504.90 Others (residuary category) carrying 16% rate of duty.

According to the assessee, “Scrabble” is a puzzle or in the alternative it is an educational toy falling under sub-heading 9503.00

of the CETA.

The Department was of the opinion that “Scrabble” was not a puzzle, it was not a toy but a game and, therefore, it could not be

classified under sub-heading 9503.00; that, all games which contain boards and pieces were classifiable under sub-heading

9504.90 and since “Scrabble” has board(s) and pieces it was classifiable under sub-heading 9504.90 of the CETA, attracting

duty @ 16%. Accordingly show cause notices were served on the assessee for short payment of duty.

On appeal the SC ruled that

There are two subject-matters, namely, Toys on one hand and Articles meant for funfair, table or parlour games on the other

hand.

The difference between a “game” and a “puzzle” is brought out by three distinct features, viz., outcome, clue-chance and skill. In

a puzzle outcome is pre-determined and fixed. It is not so in “Scrabble”. For example, in crossword, outcome is pre-determined

or fixed. In a crossword puzzle, there is a grid of squares and blanks into which words crossing vertically or horizontally are

written according to clues. Similarly, a jigsaw puzzle is a contrivance for testing ingenuity. In jigsaw puzzle there is a set of

varied, irregularly shaped pieces, which when properly assembled form a map or picture. These are examples to demonstrate

that in a puzzle the outcome is fixed or pre-determined which is not there in “Scrabble”. A person solving a puzzle, unlike

games, does not aim at wining by scoring more points but aims at arriving at the solution by finding the correct answer or by

putting it together properly, and winning or losing can only come by way of time taken in solving the puzzle.

The other important difference is that in a “Scrabble” there are no clues whereas in crossword puzzle, as stated above, words

are written according to clues.

One more distinguishing feature to be kept in mind is, in “Scrabble” there is an element of chance and ski ll. The player in

“.Scrabble” gets lettered tiles to create words by chance. “Scrabble” is defined as a board game in which players use lettered

tiles to create words in crossword fashion. These tiles are initially kept in a pouch from which every player picks up the tiles.

This is pure matter of chance. Further, apart from the element of chance there is also an element of skill involved in “Scrabble”.

Each lettered tile has an assigned value and the player has to create words. He tries to create words which attain maximum

value; tries to gain maximum value from the lettered tiles which come by chance to him. This is where skill comes in. Each

player uses his skill to achieve the highest value. In other words, if a player has command over language, he can coin or create

words with highest maximum value. Thus, these two elements of chance and skill are the key elements of a “Scrabble”. In

“Scrabble” no clues are given as in the case of crossword or jigsaw puzzles. In “Scrabble”, outcome is not fixed or pre-

determined as in the case of puzzle. The essential characteristic of crossword to lay down clues and having a solution is absent

from “Scrabble”. It involves a lot of luck. One of the crucial ingredients is that one does not know what tiles are on the

56

opponent‟s rack or which one would be drawn next. So, aided by artful strategy there is a good chance of beating someone with

a better vocabulary. Hence, it is seen that luck lacks in a puzzle unlike in the game of “Scrabble” as an essential constituent.

Further, in a game there is a trial of skill or chance between two or more contesting parties according to some rule(s) by which

one may succeed or fail. It is a contest for success, for a trial of chance or skill. These are the various dictionary meanings of

the word “game”. Applying the dictionary meaning, we are of the view that “Scrabble” is a board game. It is not a puzzle. In the

circumstances, it falls under Heading 95.04 and not under sub-heading 9503.00 of the CETA.

As regards the alternative argument, of “educational toy” one finds that “educational toys” remain even today tools of

amusement. They remain an object for a child to play with. One needs to apply the predominant test in such cases. As stated

earlier, the two main elements of “Scrabble” are - chance and skill. These elements are absent in a toy. Hence even a “Junior

Scrabble” is not an educational toy. It is a game. It remains a board game and in the context of the placement of the entries in

Chapter 95. Applying these tests, we are of the view that even a “Junior Scrabble” will not fall in the category of “educational

toys”.

2. Collector v. Associated Stone Industries (Kotah) Ltd. - 2010 (251) E.L.T. A147 (S.C.)

The Supreme Court while dismissing the appeal ruled that cutting, edging, trimming, polishing and other processes on the

marble slabs amount to a process of manufacture as it does not bring in a distinct product. Hence, this appeal is dismissed.

3. SANGHI POLYESTERS LTD. v Sup of CE 2010 (251) E.L.T. 504 (A.P.)

The assessee deposited duty by cheque for the months of January by 5 February. However, the cheque was bounced and

resulted in non-payment. The non-payment was eventually made good by payment upon utilizing the account current.

The Department almost after 3 years initiated recovery proceedings under section 11, asking the assessee to pay duty which

was paid by utilizing the account current earlier alongwith interest under Rule 8 for the defaulted period. The Department was of

the view that Rule 8 provided that if default in payment of duty continues beyond 30 days, the defaulter is not entitled to avail

Cenvat credit during the period of default. However, while the default continued beyond 30 days, the duty was paid only after 15

days by utilizing account current and that therefore the consignment wise clearance ought to have been made during the

defaulted period. In terms of section 11 the Department also ordered detention of excisable goods.

On appeal the High Court ruled that

A plain reading of Sections 11 and 11(A) would reveal that the provisions of Section 11 are attracted where duty and any other

sums are payable to the Central Government and the officer empowered in this behalf is entitled to recover such duty through

one of the prescribed modes. However, Section 11(A) is attracted where the duty was either not levied or not paid or short

levied or short paid or erroneously refunded.

The facts of this case show that the dispute pertains to the entitlement of the assessee to avail Cenvat credit during the period

when duty was due and payable by it and was defualted. It is not a case where the Department is seeking to recover the duty,

payment of which was defaulted by the petitioner. This dispute is thus clearly comprehended by Rule 14 of the Cenvat Credit

Rules.

Since the dispute between the parties is governed by the special rules, which specifically applied Section 11(A) for effecting

recoveries, consequently it is incumbent upon the Department to issue a show cause notice to the petitioner calling upon it to

pay the duty in respect of which Cenvat credit was availed. The procedure followed by the Department to invoke section 11 is

not in accordance with the scheme of the law.

57

4. AURAM JEWELLERY EXPORT (P) LTD. v UOI 2010 (251) E.L.T. 365 (All.)

The issue before the High Court was whether an appeal is maintainable against the order of the CESTAT regarding pre-deposit

of duty.

The High Court ruled that section 130 of the Customs Act (35G of the Central Excise Act) provides that the words “every order

passed in appeal by the CESTAT” “an appeal can be filed to the High Court”, do not apparently exclude the jurisdiction of the

High Court in determining the question of pre-deposit as under Section 129E of the Act. Question of appeals etc. are to be

governed by Chapter XV of the Act, which includes both, the final order and any order in connection with the appeal. Therefore,

unless it is specifically excluded under such Chapter, an appeal against the pre-deposit order cannot be negated.

Had it been the case of only final order, which was to be considered as appellable, there was no scope for the Legislature to

incorporate the aforesaid words under Section 130 that “every order passed in appeal” is appealable, because solitary final

order is required for disposing the appeal. Hence the High Court would have jurisdiction to entertain appeal even against the

pre-deposit order.

The respondent is an owner of a building. One Mr N through his three firms fraudulently obtained drawback amounts under the

Customs Act. Mr N from the money so received parted with the substantial part of the money in favour of a relative Smt V. M/s.

Utopian Financial Solution Pvt. Ltd. whose only Directors were Smt. V and her minor son A, from the sum of Rs. 3 crores

received by Smt V, paid Rs. 90.93 lacs to M/s. Gem Nuts & Products Exports Co. Pvt. Ltd. (respondent herein) as earnest

money for purchase of a office premises. However, the respondent had called upon M/s. Utopian Financial Solution Pvt. Ltd. to

complete the transaction and make payment of the balance consideration which was not replied to by M/s. Utopian Financial

Solution Pvt. Ltd. Accordingly the respondent terminated the agreement for sale and forfeited the earnest money as per the sale

agreement.

In the meanwhile the appellant on coming to know of the fraudulent act of Mr N initiated proceedings for recovery of the

drawback amount fraudulently received. The Commissioner of Customs by his order was pleased to confirm the demand of

drawback. In the order it was also noted that all proceeds and/or deposits against the properties surrendered amongst others by

Smt. V shall be appropriated and adjusted against the demand through prescribed procedure. In the said order of attachment,

the name of the owner was shown as the respondent herein along with M/s. Ankit Constructions Pvt. Ltd. and M/s. Utopian

Financial Solution Pvt. Ltd. We may at this stage mention that the order of attachment was also passed against M/s. Utopian

Financial Solution Pvt. Ltd. The respondent aggrieved by the said order filed a writ petition.

The High Court observed that there is no dispute that the respondent is not defaulters under the Customs Act. The entire

contention has been that the respondent has received monies from a defaulter and in these circumstances, the applicant was

entitled to attach the property of the respondent, in terms of section 142(1)(c)(ii).

The Court pointed out that Section 142 starts with the word “any sum payable by any person.” The expression “person” can

include a person other than the defaulter and may include a person like the respondent who had received moneys for purchase

of a flat purportedly out of the drawable amount.

The Court ruled that the respondent terminated the agreement and forfeited the earnest money deposit much before the notice

for order of attachment. The respondent, therefore, appropriated the money by way of penalty for breach of the contract. There

is no decree of a court or any authority holding that the transaction itself was fraudulent and/or the money could not have been

forfeited by way of penalty. As long as the respondent holds on the money as its own and not on behalf of the defaulters, in the

absence of any finding against the respondent that the act of forfeiture of the earnest money deposit is not legal, it cannot be

said that the respondent would be that “other person” from whom recovery could be made of the money which was the subject

matter of the fraud. If the money cannot be attached, the property which belongs to the respondent who is not a defaulter

cannot be attached. The property admittedly belongs to the respondent and would not be the subject matter of attachment

under Section 142(1)(c)(ii).

58

5. CCE v TYRE TOPS 2010 (250) E.L.T. 338 (H.P.)

The question before the High Court was whether a manufacturer who has obtained credit of the CENVAT paid by him in respect

of the raw material and inputs lying in stock or in process or contained in the final product lying in stock is required to

refund/repay the credit when the final product is exempted from excise, where the assessee opts for SSI exemption.

The assessee from 1st April opted for the benefit of SSI exemption notification 08/03. The Department asked the assessee to

reverse the credit of inputs in respect of the items which were lying in stock or had been used in the manufacture of the finished

goods on which the assessee which were exempt from duty. Relying upon Rule 9(2), the Assessing Officer issued a show

cause notice asking assessee to reverse the credit. Rule 9(2) of the Cenvat Rules reads as follows :-

“A manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a

notification based on the value or quantity of clearances in a financial year, and who has been taking of cenvat credit on inputs

before such option is exercised, he shall be required to pay an amount equivalent to the cenvat credit, if any, allowed to him in

respect of inputs lying in stock or in process or contained final products lying in stock on the date when such option is exercised

and after deducting the said amount from the balance, if any, lying in his credit, the balance if any, still remaining shall not be

allowed to be utilized for payment of duty on excisable goods, whether cleared for home consumption or for export.

On appeal the Court ruled that

A manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable

product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at

any time thereafter when making payment of excise duty on the excisable product. There is no provision in the rules which

provides for a reversal of the credit by the Excise Authorities except where it has been illegally or irregularly taken, in which

event it stands cancelled or, if utilized, has to be paid for. Credit that has been validly taken, and its benefit is available to the

manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its

excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no corelation of the raw material

and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the

particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product

manufactured on the very day that it becomes available.

Even though the final product may be exempt from payment of excise, the assessee cannot be asked to reverse the CENVAT

credit already taken by it.

59

6. AMAN MEDICAL PRODUCTS LTD. v CC 2010 (250) E.L.T. 30 (Del.)

Assessee paid higher duty by inadvertence without taking benefit of notification due to ignorance. Subsequently assessee filed

refund claim for the excess duty paid. Department denied the refund claim under the argument that section 27 which provides

that the refund claim should be „in pursuance to an order of assessment‟ necessarily implies that a payment of duty must be

pursuant to an assessment order, before a refund in appeal can be asked for under Section 27. The assessee was of the

contention that in the present case no „order‟ has been passed because the assessee simply filed the bill of entry and paid the

customs duty in mistake without taking the benefit of the exemption Notification due to ignorance.

On appeal the Court ruled that:

Reference to the language of Section 27, makes it clear that the duty which is paid is not necessarily pursuant to an order of

assessment but can also be „borne by him‟. Clauses (a) and (b) of section 27(1) are clearly in the alternative as the express ion

„or‟ is found in between clauses (a) and (b). The object of Section 27(a)/(b) is to cover those classes of case where the duty is

paid by a person without an order of assessment, i.e. in a case like the present where the assessee pays the duty in ignorance

of a notification which allows him payment of concessional rate of duty merely after filing a Bill of Entry. In fact, such a case is

the present case in which there is no assessment order for being challenged in the appeal which is passed under Section

27(1)(a) of the Act because there is no contest or lis and hence no adversarial assessment order. Non-filing of appeal against

assessed B/E where there is no lis between importer and Revenue at time of payment of duty will not deprive importer of his

right to file refund claim. Hence in this case the assessee would be entitled to refund.

7. NATRAJ AND VENKAT ASSOCIATES v ACST 2010 (249) E.L.T. 337 (Mad.)

Service tax paid on construction activity undertaken in Sri Lanka and refund thereof claimed as erroneously paid - Service tax

paid on 4-7-2005 - Refund claim filed on 20-9-2006 and claim beyond period of limitation - Rejection of refund claim on time-bar

appears to be as per provisions - money realized in excess of what is permissible in law is outside the provisions and such

money not covered under “duty of excise” - Limitation under Section 11B of Central Excise Act, 1944 not applicable to amount

paid which cannot be taken as duty of excise - High Court empowered to entertain refund claim as what was paid was not

Service tax - Refund directed - Section 11B ibid as applicable to Service tax.

It has been settled by this Court that where excess duty was not payable by the party under the provisions of a statute but had

in fact been paid under a mistake of law, the party has a right to recover it and there is a corresponding legal obligation on the

part of the Government to refund the excess duty so collected because the collection in such cases would be without the

authority of law. The payment and recovery of excess excise duty was thus on account of a mutual mistake. We are, therefore,

of the opinion that the High Court, while disposing of the writ petition under Article 226 of the Constitution of India, was perfectly

justified in holding that the bar of limitation which had been put against the respondent by the Collector of Central Excise

(Appeals) to deny them the refund for the period 1-9-1970 to 28-5-1971 and 1-6-1971 to 19-2-1972 was not proper as

admittedly the respondent had approached the Assistant Collector Excise soon after coming to know of the judgment in Voltas

case and the assessee was not guilty of any laches to claim refund.

60

8. PTC INDUSTRIES LTD. v UOI 2010 (252) E.L.T. 42 (All.)

Some goods were exported under the DEPB benefit of the FTP. Held whenever a dispute arises as to the classification of the

goods, other than its description, quantity and FOB value, the customs authorities have to refer the dispute for adjudication to

DGFT. Goods do not become prohibited just because of improper classification. It is not a case involving misdescription or false

declaration. It is only if the DGFT as the licensing and also adjudicating authority decides against the licensee, that the customs

authorities will get jurisdiction to confiscate and levy penalty on such goods.

DEPB benefit is not extended under the provisions of Customs Act. It has its origin under export import policy pronounced

periodically and that the benefit is administered entirely by DGFT under Ministry of Commerce of the Central Government. The

question whether the goods were actually exported or to be exported would fall under any classification and the correctness of

the rates to be followed can be decided only by the licensing authority i.e. DGFT The customs authorities have no jurisdiction to

issue any notice or to adjudicate on the basis of wrong classification. Further held that customs authorities can only make a

reference to DGFT for examination of the classification. It is for the DGFT to give an opportunity of hearing and to pass

necessary orders. The customs authorities can only report to DGFT, when there is a discrepancy between the goods declared

and the exported.

9. ISPAT ALLOYS LTD. v UOI 2010 (249) E.L.T. 504 (Bom.)

Notification No. 208/88-Cus., dated 29th June 1988 specifically stated that the notification would be valid up to and inclusive of

31st March 1989. However, the Government withdrew the notification w.e.f. 1.3.1989. When the assessee had placed the order

the exemption notification was in force however, pre-mature withdrawal resulted in denial of exemption when the goods landed

at the Customs Port. On appeal by the assessee the High Court ruled that exemption notification can be withdrawn in public

interest and in such an event, principle of promissory estoppel would not apply to action of withdrawal. Keeping in view the

public interest of providing adequate incentive/protection to the domestic manufacturers, notifications were

withdrawn/superseded w.e.f. 1-3-1989. Protection of domestic industry is certainly in public interest and extent of protection is a

matter of public policy.

10. SHREE RAJASTHAN TEXCHEM LTD. v UOI 2010 (252) E.L.T. 8 (Bom.)

Held where an exemption notification exempting the duty does not specifically provide for the exemption of Cess and unless it is

established that the Cess formed an integral part of the duty itself, exemption from Cess would not be available.

11. SRAVANI IMPEX P. LTD. v ADDL. DIR. GENERAL 2010 (252) E.L.T. 19 (A.P.)

Held foreign currencies, remitted in contravention of Section 11 into the account of the petitioner, should be confiscated in terms

of Section 111(d) read with Section 120 of the Customs Act, 1962. As goods include currency, negotiable instruments and any

kind of movable property, the amounts remitted into the petitioner‟s account are “imported goods” within the said meaning. In as

much as the petitioner had illegally brought foreign currency into their account, in the guise of sale proceeds, they have

contravened the provisions of Section 11 of the Customs Act. Since the amounts remitted, though not relatable, were routed in

the guise of sale proceeds with the sole purpose of getting DEPB benefits in a fraudulent manner, they were illegally imported

into India. As foreign exchange has been remitted into India, in the guise of sale proceeds, the prohibition envisaged under

Section 111(d) is attracted and, consequently, such illegal foreign exchange remittances into the petitioner‟s account is liable to

be confiscated under Section 111(d) of the Customs Act

61

12. SRAVANI IMPEX P. LTD. v ADDL. DIR. GENERAL 2010 (252) E.L.T. 19 (A.P.)

Held A false entry made in the shipping bill, empowers Customs officers to confiscate the goods. The liability of fraudulently

exported goods to confiscation arises, under Section 113, as soon as the goods are attempted to be exported which,

necessarily, precedes its actual export. There is no provision in the Customs Act to suggest that this accrued liability is wiped

out or is extinguished with the exportation of the goods. It may be that, after the goods are exported, the liability for confiscation

may not be enforceable by physical confiscation of the goods. Personal penalty under Section 114 is attracted as soon as the

goods incur liability to confiscation under Section 113 and such liability arises when the goods are attempted to be exported

contrary to any “prohibition”. The liability of personal penalty provided in Section 114 of the Act, which arises with the accrual of

the liability of the goods to confiscation under Section 113 of the Act at the stage of the attempt to export the said goods, clearly

remains and the said liability is capable of enforcement.

The mere fact that the DGFT is empowered to confiscate the goods or impose penalty would not, denude Customs officers of

the powers of confiscation under Section 113(i) of the Customs Act or to demand, under Section 28 of the Customs Act,

repayment of the Customs duty benefits extended earlier to the petitioner on the erroneous premise that the fraudulently over-

invoiced goods represented the true value of exports made by them.

13. SRAVANI IMPEX P. LTD. v ADDL. DIR. GENERAL

The assessee had exported goods by over invoicing the same and in turn availed DEPB scripts. The scripts were partly sold

and were partly utilized for adjusting the import duty on imported articles. The Customs department raised SCN for evading

Customs Duty through false DEPB scripts. The assessee was of the view that Customs officers had no jurisdiction to deal either

with grant of DEPB credit or its withdrawal even when it was established that such DEPB credit was granted without

justification, that the DEPB licence had been granted, by the DGFT, and that, it was only the licencing authority i.e., DGFT who

had the power to grant credit at the rates notified, that, in case of violation, the DGFT alone had the power to withdraw or claim

back the credit and that the impugned notices were, therefore, without jurisdiction.

Held under Section 28(1) of the Customs Act, when any duty has not been levied, or has been short levied, the proper officer

may serve a notice on the person chargeable with the said duty requiring him to show cause why he should not pay the amount

specified in the notice. DEPB scrips are Customs duty exemption benefits in as much as they are utilized for import of goods

and, to the extent of credit available in the DEPB scrips, goods can be imported without payment of import duty on such goods.

As Customs duty was not paid, to the extent of credit available in DEPB scrips issued on the basis of fraudulent over-invoicing

of export goods, the Customs Officer is entitled, under Section 28(1) of the Customs Act, to demand payment thereof. As the

DEPB scrips have, admittedly, been sold to third parties, the only course open to the Customs Officers is to demand repayment

of DEPB credit (i.e., Customs (Import) duty) from the petitioner.

The purpose of framing the DEPB scheme would be defeated if such power to demand absent. Power to exempt by customs

duty exemption notification includes power to demand if exemption misused. The show cause notices, which propose a demand

for repayment of DEPB credit under Section 28(1) as it was availed by resort to fraudulent over-valuation of export

consignments, cannot be said to have been issued without jurisdiction.

62

14. Unison Electronics Pvt. Ltd. v CCE 2009 (235) ELT 206 (SC)

The SSI Exemption Notification which provides exemption to the excisable goods manufactured by a SSI unit provides that the

exemption shall not apply to goods bearing the brand name or trade name, whether registered or not, of another persons.

Explanation to Notification defines the brand name as a name or mark, such as a symbol, monogram, label, signature or

invented word or writing which is used in relation to the specified goods for the purpose of indicating a connection in the course

of a trade between specified goods and some person using such name or mark with or without any indication of the identity of

that person.

According to the assessee they manufacture ice-cream makers cooler and Popcorn makers and avail of the benefit of SSI

Exemption Notification and sell ice cream maker in their own brand name “CREMICA” and sell the same to different customers

including United Tele Shopping (in short UTS‟) and Tele Shopping Network (in short „TSN‟) and that in respect of sale to UTS &

TSN the goods were being examined by the Supervisors of these customers before dispatch from their factory and stickers

bearing UTS/TSN were being affixed and these sticker bear the words “Checked Sl. No. Do not remove this sticker” and that

the Department has treated the words UTS and TSN as brand name belonging to other and has disallowed the benefit of small

scale exemption notification. It was submitted that the words UTS and TSN are not brand names but are the abbreviations of

the name of the marketing companies which does not amount to use of the brand name. Further, the brand names do not apply

to the same goods. It essentially is the brand name of another person

Stand of the department was as follows :

The excisable goods before clearance from their factory premises bear stickers of UTS/TSN and as per definition of the brand

name given in SSI Exemption Notification, “brand name” means any name, symbol, monogram, label, signature or invented

word or writing which indicates connection in the course of trade between excisable goods and same person using such name

and that the words UTS/TSN mentioned on the packaging of the products indicate the connection in the course of trade with

UTS and TSN.

The Supreme Court relying on its earlier judgement ruled that SSI exemption will not apply if the specified goods bear a brand

or trade name of another person. Notification does not provide that the specified goods must be the same or similar to the

goods for which the brand name or trade name is registered. It is to be seen that there may be an unregistered brand name or

an unregistered trade name. These might not be in respect of any particular goods. Even if an unregistered brand name or

trade name is used, the exemption is lost. This makes it very clear that the exemption would be lost so long as the brand name

or trade name is used irrespective of whether the use is on same goods as those for which the mark is registered.

Further the benefit of exemption is also denied if someone else's name is used with the intention of indicating or in a manner so

as to indicate a connection between the assessees goods and such other person. There is no requirement for the owner of the

trade mark using the name or mark with reference to any particular goods. The object of the exemption notification was neither

to protect the owners of the trade mark/trade name nor the consumers from being misled. The object of the Notification is

clearly to grant benefits only to those industries which otherwise do not have the advantage of a brand name.

The Supreme Court ruled that stickers with words UTS and TSN affixed on impugned goods would be treated as brand name of

others and hence the benefit of exemption notification shall not be available.

63

15. CCE v Kulcip Medicines (P) Ltd 2009 (14) STR 608 (P & H)

The assessee is holding registered as „clearing and forwarding agent‟. The assessee entered into an agreement with M/s. Cipla

for handling and distribution of their products and were entrusted with the job of receiving, storing and distributing Cipla

products to their authorised stockists and distributing centres. For the service so rendered, the assessee was entitled for

commission based on agreed percentage of sales figures and also for reimbursement of recurring expenses.

The issue involved is whether a person (agent) who has entered into an agreement with principal (owner) for handling and

distribution of the products of the principal and entrusted with the job of receiving, storing and distributing the products of the

principal to his authorised stockists and distributing centers is liable to pay Service tax under the category of „Clearing and

Forwarding Agent” when no clearing activity from the manufacturer‟s (Principal) premises is directly undertaken by the agent or

Service Tax is leviable under the category “Clearing and forwarding” only if an agent renders both clearing forwarding services.

The Department was of the opinion that the assessee failed to submit the half yearly return for the relevant period therefore a

show cause notice was issued as to why penalty be not imposed for contravention of Section 70. A penalty of Rs. 1000/- was

imposed and the assessee was directed to pay service tax on the taxable service rendered by them alongwith interest, by

holding that assessee has been correctly treated as “C&F agent”.

On appeal to the Tribunal observed that in order to attract the levy, the service must be in relation to clearing and forwarding

agents limited to “clearing and forwarding operations”. With regard to Board‟s circular the Tribunal has observed that when a

C&F agent carries out both clearing and forwarding, the levy would be attracted whereas in the instant case the assessee-

respondent did not attend to the clearing of medicines; consignment were cleared from the factory by the manufacturer and

delivered to the premises of assessee-respondent and as there was no clearing by the assessee therefore that service

rendered did not satisfy the requirement of clearing and forwarding.

The Tribunal held that levy of service tax is attracted in respect of service rendered „in relation to clearing and forwarding

operations‟. According to the Tribunal the definition is patent in its meaning that all services rendered by the clearing and

forwarding agent were not within the scope of the levy of service tax which is limited to clearing and forwarding operations.

On appeal the High Court pointed out that the word “and” “is positioned, being sandwiched between the words “clearing” and

“forwarding” has to be looked into, while interpreting the meaning. Like the legendary Trishanku, the word “and” is dangling

between “clearing” and “forwarding” - neither divorcing from the Heavens, nor from the Earth. In such a positioning, it is not

possible to segregate the holistic concept of “clearing and forwarding” into divisible activities, either or both of which can be

provided for answering the customers needs.

The provisions show that taxable service has been defined to mean any service provided or to be provided to a client by a

„clearing and forwarding agent in relation to clearing and forwarding operations in any manner‟. If the clearing operation are

separated from forwarding operations, the levy of tax would not be attracted if it only involves one of the two activities. The

expression „a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner‟ contemplates only

one person rendering service as „clearing and forwarding agent‟ in relation to „clearing and forwarding operations‟. To say that if,

one person has rendered service as „forwarding agent‟ without rendering any service as „clearing agent‟ and he be deemed to

have rendered both services would amount to replacing the conjunctive „and‟ by a disjunctive which is not possible. In view of

the above discussion and findings, we hold that the “C&F Operations” cannot be dissected into “Clearing” and “Forwarding” as

they fall in the common category and hence all or any of the services of that category will be services provided by a “C & F

Agent”, connected with “C&F Operations” and would attract levy of service tax.

64

While arriving at this conclusion, we also go by the trade understanding based on sheer common sense, which is often

uncommon. Because a buyer buys only rice and not wheat in a grocery shop, which claims to sell “wheat and rice”, the shop

cannot cease to be a shop selling “wheat and rice”. In the same-way, rendering only “forwarding” service cannot make the

appellant ceases to be “Clearing and Forwarding Agent”, so as to save him from the tax. Some customers may want only

clearing operations, while some forwarding, and others both. The expression “clearing and forwarding operations” is a

compendious expression of nature of services offered any of which will bring the service providers in the tax net of this

category.

In this instant case the trade practice does not show to infer that service of one kind rendered to be considered as comprising

both clearing and forwarding.

It is clear from the terms of the agreement that appellant herein does not attend to the clearing of the medicines manufactured

by Cipla. Consignments of medicines are cleared from the factory by the manufacturer and delivered to the appellant at his

premises. In this factual situation, it has to be held that there is no clearing by the appellant and for that reason, the service

rendered by the appellant does not satisfy the requirement of clearing and forwarding. We, therefore, are of the view that the

demand is not sustainable.

16. CCE v Schott Glass India Pvt Ltd 2009 (14) STR 146 (Guj)

Taxable event occurred already and raising of invoices and/or making payment cannot be considered as taxable event. Taxable

event is providing taxable services. Raising invoice and/or making payment cannot be considered taxable event. Neither

Section nor Rule suggest that taxable event is raising of an invoice for making payment

17. Magnus Construction Pvt. Ltd. v UOI 2008 (11) STR 225 (Gau)

The assessee is engaged in construction of premises/flats for sale to persons with whom agreement entered. The assessee

was asked to obtain registration under commercial or industrial construction service and construction of complex service.

Agreement indicating that impugned transaction is one of sale and purchase of premises and not for carrying out construction

activity on behalf of prospective buyer. Documents treated as agreement for sale of flat/premises by registering authorities and

stamp duty levied on sale consideration. The construction was carried out by petitioner-company for its own self and

relationship of service provider and service recipient absent. Advance amount given by prospective buyer is against sale

consideration of flat/building and not for obtaining service.

The company is not shown to have undertaken any construction work for and on behalf of proposed customer/allottees and the

title in the flat/apartments so constructed, passes to the customer only on execution of sale deeds and registration thereof. Until

the time the sale deed is executed, the title and interest, including the ownership and possession in the construction is made,

remain with the petitioner-company. The payments made by prospective purchasers, in instalments, are aimed at facilitating

purchase of the flat/premises. From the condition so incorporated in the relevant agreement for sale, it cannot be inferred that

the petitioner-company is making construction for and on behalf of the probable allottees or purchasers.

The assessee is engaged in the business of development and sale of immovable property, i.e., real estate, The petitioner-

company constructs buildings and sells premises/flats in such buildings. During the course of development of such property and

construction of buildings thereon and also after completion of such construction, the petitioner-company enters into “flat

purchase agreements” with various premises/flat purchasers, whereunder the petitioner-company allots and sells flat/premises,

in such buildings, to the purchasers. The said transaction is a transaction of sale of flats/premises and the consideration is

payable to the petitioner-company in instalments as per the terms, which may be mutually agreed upon, though the terms of the

agreement are, usually, co-related to the extent and the stage of the development of the constructional work. The agreement for

65

sale of such flats is stamped as sale of flat/premises for the entire consideration. Before accepting money as advance payment

or deposit out of the sale price, the petitioner-company enters into an agreement for sale, which is registered. The agreement

contains various details and price including area of the flat, the price of the flat (the price of common areas and facilities being

shown separately) and various other facilities concerning the flat, etc. For the purposes of carrying out construction work of the

buildings, the petitioner-company engages various contractors for obtaining construction related services to the petitioner-

company. Thus, in their various projects, the petitioners have engaged reputed contractors. The petitioners, at times, engage

contractors, who supply labour. Sometimes, the petitioners carry out part of the constructional activities. However, the

petitioners carry out such constructional activities for themselves and for their own purposes and not for any one else. The

transaction between the petitioners and the flat purchasers is purely a transaction for sale of the flat/premises and cannot be

treated as a contract for rendering of service of any nature whatsoever. On certain occasions, instead of purchasing the land

from the owners, the petitioners enter into agreements with the owners of the land, such agreements being popularly known as

“development agreement”. Under such agreements, the petitioners become entitled to construct a building on the land and sell

the flats, which may be constructed thereon. The petitioners acquire all the rights, title, interest and advantages of the owners

including the entitlement to sell, transfer, deal with, dispose of all the premises and areas in the building or structures to be

constructed by the petitioners. The petitioners are given the right to enter upon the land, to raise constructions thereon and sell

flats constructed on such land. Even after execution of such agreements, the constructional activities, carried out by the

petitioners, are mostly through other persons working as external contractors. In any case, such constructional/developmental

activities are carried out by the petitioners for themselves and for their own benefits and not for any other entity or person.

The Court ruled as under:

A combined reading of the various clauses of the agreement for sale makes it abundantly clear that the transaction between the

petitioners, on the one hand, and the flat purchaser, on the other, is that of purchase and sale of premises and not for carrying

out any constructional activities on behalf of the prospective buyers. What the petitioner-company sells is, thus, the

flat/premises and the entire transaction is nothing, but sale and purchase of immovable property. The flat purchasers are

entitled to seek specific performance of the contract and there is an obligation, on the part of the petitioner-company, to refund

any part of money received together with interest if possession is not handed over to the prospective buyers in time. There is

also an obligation, on the part of the petitioner-company, to register sale deeds and agreements. Even the registering

authorities concerned treat these documents as agreements for sale/purchase of flats/premises inasmuch as the consideration

is for sale and not for carrying out constructional activities. Stamp duty is, therefore, levied on the sale consideration.

Service, can be defined “service” as an act of helpful activity, an act of doing something useful, rendering assistance or he lp.

Service does not involve supply of goods; “service” rather connotes transformation of use/user of goods as a result of vo luntary

intervention of “service provider” and is an intangible commodity in the form of human effort. To have “service”, there must be a

“service provider” rendering services to some other person(s), who shall be recipient of such “service”.

In the present case, the petitioner-company is not shown to have undertaken any construction work for and on behalf of

proposed customer/allottees and the title, in the flat/apartments so constructed, passes to the customer only on execution of

sale deeds and registration thereof. Until the time the sale deed is executed, the title and interest, including the ownership and

possession in the constructions made, remain with the petitioner-company. The payments made by prospective purchasers, in

instalments, are aimed at facilitating purchase of the flat/premises by these probable purchaser so that they may not be

required to pay whole of the price at a time. From the condition so incorporated in the relevant agreement for sale, it cannot be

inferred that the petitioner-company is making construction for and on behalf of the probable allottees or purchasers.

When a builder, promoter or developer undertakes construction activity for its own self, then, in such cases, in the absence of

relationship of “service provider” and “service recipient”, the question of providing “taxable service” to any person by any other

person does not arise at all. In the present case too, the materials placed by the writ petitioners clearly show that the

construction activities, which the petitioners have been undertaking, are in respect of the petitioners‟ own work and it is only the

completed construction work, which is sold by the petitioner-company to the buyers, who may have made agreements for sale

66

before the construction had actually started or during the progress of the construction activity or at the end or completion of the

construction activity. Any advance, made by a prospective buyer, or deposit received by the petitioner-company, is against

consideration of sale of the flat/building to such prospective buyer and not for the purpose of obtaining “service” from the

petitioner-company.

The impugned notice is hereby set aside and quashed. The company is not liable to service tax.

18. Shabir Ahmed Abdul Rehman v UOI 2009 (235) ELT 402 (Bom)

The petitioner on his arrival from Muscat was apprehended at the Airport as he was carrying 41 gold bars valued at Rs.

18,88,337/- (international market value)/Rs. 23,16,500/- (local market value) concealed in a pouch,. The said gold bars were

seized from the petitioner on the reasonable belief that they are liable to be confiscated.

Thereafter, on completion of investigation, a show cause notice was issued to the petitioner and by an order it was ordered that

the seized gold bars are liable to be confiscated and penalty of Rs. 3,00,000/- was also imposed.

Being aggrieved by the aforesaid order, the petitioner filed an appeal before the Commissioner of Customs (Appeals) who

directed reshipment of the gold in question subject to payment of reshipment fine of Rs. 6,00,000/-. The Commissioner (A)

reduced the personal penalty from Rs. 3,00,000/- to Rs. 1,00,000/-.

The petitioner filed revision application before the Government of India. In the revisionary order it was held that the petitioner is

entitled to redeem the confiscated gold subject to payment of duty and also fine and penalty imposed by Commissioner (A). As

the gold was already disposed off, the Commissioner was directed to return the sale proceeds subject to payment of duty, fine

and penalty. Challenging the aforesaid order, the present petition is filed. The revenue has accepted the decision of the

revisional authority.

The petitioner had informed the customs authorities that the petitioner is filing an appeal against the adjudication order and the

confiscated gold should not be disposed of. As per CBDT circular the customs authorities ought not to have disposed of the

confiscated gold during the pendency of the appeal. It was submitted that the petitioner is entitled to the market value of the

confiscated goods together with interest thereon at the rate fixed by this Court from the date of auction till payment.

The Court ruled that no doubt that the customs authorities had informed the petitioner that the confiscated gold has already

been handed over for disposal. Handing over the confiscated gold immediately after serving the order of confiscation itself was

improper. In any event after receiving letter from the petitioner, the customs authorities ought to have stopped the auction sale

of the confiscated gold. However, the gold was sold during the pendency of the appeal filed by the petitioner before

Commissioner (A).The finding recorded by the revisional authority and accepted by the revenue is that the action of the

customs authorities in selling the gold during the pendency of the appeal is against the existing departmental instructions and is

not in good taste.

Since the petitioner is seeking redemption of the confiscated gold, he cannot escape payment of fine and penalty. In fact,

counsel for the petitioner offered to pay fine and penalty. As regards payment of duty is concerned, in our opinion, duty would

be payable only if the gold was actually allowed to be redeemed. In the present case, what is being given is the sale proceeds

and not the gold as such. In such a case, the question of paying duty in respect of the sale proceeds would not arise.

The customs authorities are liable to return the entire sale proceeds without deducting therefrom the duty but subject to

deduction of fine of Rs. 6,00,000/- and penalty of Rs. 1,00,000/- imposed by the Commissioner (A) with interest.

67

19. CC v India Sales International 2009 (241) E.L.T. 182 (Cal.)

The assessee was an exporter of goods and had been held guilty of exporting „prohibited goods‟. One of its consignment was

confiscated. The assessee requested for redemption of goods by paying fine in lieu of confiscation. The Department was of the

opinion that section 125 does not permit redemption of prohibited goods.

The High Court rejected the Revenue‟s contention that word „prohibited‟ as used by legislators under section 125 of the

Customs Act, 1962 could be read as „prohibited absolutely‟. It held that the Court cannot insert the word which has not been

used in section 125 by legislators. Further, the option given under section 125 in respect of the prohibited goods and the right

given to the authorities for redemption of the confiscated goods in question cannot be taken away by the Court by inserting a

particular word therein.

Hence, the Court viewed that redemption of such goods were possible by paying fine in lieu of confiscation of goods.

20. Commissioner of Customs v. Filco Trade Centre (P) Ltd. 2009 (239) E.L.T. 19 (Guj.)

On a search conducted in the premises of the assessee, different varieties of ball bearings of foreign make were recovered. As

per Revenue, the said goods were not imported under valid import documents. Hence, it seized the goods. Thereafter,

confiscation of seized goods was ordered under section 111(d) of the Customs Act, 1962, redemption fine was fixed and

penalties were levied.

The High Court observed that undoubtedly, goods, import of which is prohibited, either by the provisions of the Act or any other

law in force, can be confiscated and consequential actions initiated under the provisions of the Act. However, in the present

case, as noted by the Tribunal, there was no restriction on the goods in question and hence, it could not be stated that

respondent assessee had committed any act of illegal import of prohibited goods.

Resultantly, the Court ruled that a negative burden could not be cast on respondent assessee that although ball bearings were

neither prohibited goods nor restricted goods, the respondent-assessee should show that import was permissible.

21. Era Infra Engineering Ltd. v. UOI 2008 (11) S.T.R. 3 (Del.)

The petitioner entered into a construction contract with NTPC. Materials were supplied free of cost by NTPC to the assessee for

the purposes of completing the contract.

The High Court opined that for the purposes of determining the value of taxable service, the value of materials supplied free of

cost by NTPC shall not be included in the value of taxable services and to this extent the abatement notification providing for

abatement only if the value of materials is included in the gross value of taxable services, shall not be called into operation to

the detriment of the assessee. In other words the benefit of abatement would still be available where the materials were

supplied by the contractee and were not included in the value of the taxable services.

22. Ambuja Cements Ltd. v. UOI 2009 (14) S.T.R. 3 (P & H)

The assessee was engaged in the business of manufacturing and selling of cement and had been duly paying the excise duty

in respect of cement produced by it. The assessee claimed that it supplied cement to its customers “FOR destination” and bore

the freight up to the door steps of the customer i.e. the destination point. The assessee had taken the CENVAT credit of the

service tax paid on the aforementioned freight by it.

68

The Department contended that the payment of service tax on the freight incurred by the assessee was not input service as per

rule 2(l) of the CENVAT Credit Rules, 2004 and hence the CENVAT credit was not admissible on it under the said rules.

The High Court observed that the „input service‟ has been defined under rule 2(l) to mean any service used by the manufacturer

whether directly or indirectly and also includes, inter alia, services used in relation to inward transportation of inputs or export

goods and outward transportation up to the place of removal.

For transportation purposes insurance cover has also been taken by the appellant which further shows that the ownership of the

goods and the property in the goods has not been transferred to the seller till the delivery of the goods in acceptable condition

to the purchaser at his door step. Accordingly, the second condition also stood fulfilled.

Since, the delivery of the goods is “FOR destination‟ price, the third condition that the freight charges were integral part of the

excisable goods also stood fulfilled.

In view of above discussion, the High Court opined that the questions of law deserved to be answered in favour of the

assessee-appellant and against the Revenue. Hence, it held that the assessee was entitled to the credit of the service tax paid

on the freight up to the door steps of the customer.