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Prof Dippak /IDT Latest Cases/Central Excise

 JUDICIAL SNIPPETS

Rule 3(2) provides for valuation of notified goods at such value as notified by CG. When the goods are
notified u/s 3(2), then Sec 4(1) [Concept of valuation of goods at „transaction value‟] is not applicable
thereon. Some apparel articles have been notified u/s 3(2) and CG has notified that their AV shall be taken
as “60% of the Retail Sale Price affixed for such goods”. In this case, assessee did not mention any „Retail
Sale Price‟ on such goods. The issue was as to how the valuation shall be done in such situation.
, held that “provisions of sec 3(2) will have overriding
effect over Sec 4(1). Sec 4(1) is not applicable for determination of value of goods which have been
notified u/s 3(2). In such case, price list issued to dealer can be taken to determine Retail Sale Price of the
goods and 60% of such price shall be acceptable as AV u/s 3(2).”
Author Notes: Had it been the case of Sec 4-A goods, then Sec 4-A(4) exists to take care of the situation. Sec 4-A(4)
provides that where goods are cleared without declaring MRP thereon, then “MRP” shall be determined by CEO
in accordance with rules made by CG specifically for this purpose. Unfortunately, there exist no corresponding
provisions in respect of Sec 3(2) goods

Rule 2(a) of CCR, 2004 defines “capital goods” which are eligible for cenvat credit. It lists certain goods
which covers, interalia, goods falling under Chapter 84. Assessee has purchased industrial type garment
machine (industrial washing machine) for washing of employees uniform. The said machine is falling under
Chapter 84. Assessee was manufacturer of drugs and is required under Drugs and Cosmetics Act to provide
clean uniforms to employees. Issue was as to admissibility of cenvat credit on such machines.
held that “The said machinery can be said to be one used in manufacture
of final product and it is falling under Chapter 84 also, and thus credit is admissible.
Author Notes: Even if the said machinery is proved to be not used in manufacture of final product, even then credit
shall be admissible as the only condition for taking the credit is that it shall be used in the factory of the
manufacturer.

Rule 2(l) of CCR, 2004 defines „input service‟ to include any service used in relation to business. Thus,
coverage of input service is of widest magnitude. Issues arises as to eligibility of “technical testing and
analysis services” taken during the trial manufacturing process and R&D activities.
held that “the manufacturing process of medicine is not
comparable to other products. A medicine before it is released in the market has to undergo several stages
of testing and analysis and it is clear that all the products taken up by the manufacturer for production
which did not reach to the customers as a commercial production as such, at all. Even the trial
manufacture and research and development conducted in respect of such drugs which did not reach the
market has to be considered as part of manufacturing process and business activity”.
Author Notes: Even if the said machinery is proved to be not used in manufacture of final product, even then credit
shall be admissible as the only condition for taking the credit is that it shall be used in the factory of the
manufacturer.

Rule 6(2) & (3) of CCR, 2004 provides option for allowance of credit of input service used in manufacture
of dutiable as well as exempted goods. Assessee was manufacturing dutiable goods as well as trading in
some goods. Common input service used. Issue was as to admissibility of cenvat credit. Assessee contended
that traded goods cannot be said to be exempted goods and hence, full credit shall be admissible.
, held that “Prima facie, credit not admissible on
service used in traded goods. CG is not empowered to make rules to provide for credit of service tax paid on
input service which are neither used in or relation to MANUFACTURE OF GOODS nor used for providing
OUTPUT SERVICE.”..”
Author Notes:
Sec 37 of the CEA, 1944 allows the CG, inter alia, to make rules for the following:
 “provide for credit of duty paid on the goods used in, or in relation to, manufacture of excisable goods;
 “provide for credit of ST paid on the taxable services used in, or in relation to, manufacture of excisable
goods;
Similar powers are available under Section 94 of the FA, 1994 to make rules to provide for credit in respect of goods
Prof Dippak /IDT Latest Cases/Central Excise

and services used for providing taxable services.


Tribunal, thus, took a stand there is no power with the CG to make rules to provide for credit in respect of goods or
services used neither in or in relation to manufacture of excisable goods nor for providing taxable service. Hence,
credit in respect of input service used in relation to trading goods not admissible.
In the humble opinion of the Author, credit of service used exclusively for trading goods shall not be allowed. But in
respect of common input service, some credit shall be allowed (proportionate credit determined on basis of
trading turnover and dutiable goods turnover shall be considered)

Central Excise Act makes provision for obtaining “advance ruling” by the applicant (non-resident applicant
or notified resident applicant). It provides that advance ruling can be obtained only in relation to an activity
which is proposed to be undertaken by the applicant. Issue is whether “creation of additional capacity of
production” can be treated as “proposed activity” entitling the applicant to obtain advance ruling from
Advance Ruling Authority..
, held that “Advance Ruling is defined in
Section 23-A of the CEA, 1944 to mean “the determination, by the Authority, of a question of law or fact
specified in the application regarding the liability to pay duty in relation to an activity proposed to be
undertaken, by the applicant.” Read together, the above provisions imply that in order to be eligible for a
ruling, the activity of production/manufacture of goods for which a ruling is sought, has to be a “proposed”
activity and not an ongoing one. In the present application, the activity of manufacture of cement in respect
of advance ruling has been sought, appeared to be for an activity which is already being undertaken by
the applicant in its existing factory. The department also confirmed that the applicant is registered with the
Central Excise Department for manufacture of cement and that the new plant is to be located within the
same factory. In the instant situation, creation of additional capacity for manufacture of cement by
expanding the plant cannot be considered to be a “proposed” activity qualifying for pronouncement of a
ruling. Production of the same goods, namely cement, in the expanded plant is only a repetition or
continuation of the past activity”

Central Excise Act provides that where the order of CESTAT involves an issue relating to VALUATION or
RATE OF DUTY of goods, then such order shall be directly appealable to SC. The dispute arises as to
whether the dispute relating to interpretation of exemption notification (whether the assessee‟s product is
covered under the tariff entries mentioned in the exemption notification) can be said to be one relating to
RATE OF DUTY ON goods.
, held that “dispute as to whether the assessee is
covered by an exemption notification relates directly and proximately to the rate of duty applicable. Hence,
the appeal shall not lie before the HC. The order is challengeable to SC”

 DETAILED CASE LAW

Facts Solidmec Company was


issued a SCN alleging that it
was engaged in the
manufacturing of
[ASPHALT BATCH MIX,
DRUM MIX/HOT MIX
(*See below)
PLANT ] by
assembling and installing the
parts and components
manufactured by the
manufacturing units of the
group.
According to SCN, the
process of assembly of the
parts and components at the
site provided by the
purchasers of such plants
was tantamount to manufacture of such plants as a distinct product with a new name,
Prof Dippak /IDT Latest Cases/Central Excise

quality, usage and character emerged out of the said process. Resultantly the end-
product; namely, Asphalt Drum/Hot Mix Plants became exigible to Central Excise duty,
which duty Solidmec had successfully avoided.
Assessee had challenged the duty liability on ground that the resultant plant is not
‗excisable goods‘ being immovable property. In support of his ground, he had submitted
that this plant is required to be fixed to a foundation that is 1 and ½ ft. deep for the sake of
stability of the plant which causes heavy vibrations while in operation. He has argued is
that they become immovable as they are permanently imbedded in earth in as much as
they are fixed to a foundation imbedded in earth no matter only 1½ feet deep.

Issue Whether setting up of an Asphalt Drum Mix Plant by using duty paid components
tantamounts to manufacture of EXCISABLE GOODS within the meaning of Section 2(d) of
the Central Excise Act, 1944?
In other words, whether the plant is movable property (and thus goods, liable to Excise duty)
or immovable property (and thus, not goods, not liable to excise duty)?

Relevant Provisions:

“EXCISABLE GOODS” means goods specified in the First and Second Schedule to CETA, 1985 as being subject
to a duty of excise and includes salt.
Explanation : For the purposes of this clause, “goods” includes any article, material or substance which is
capable of being bought and sold for a consideration ad such goods shall be deemed to be
marketable.”

“MOVABLE PROPERTY” shall mean property of every description, except immovable property.

“IMMOVABLE PROPERTY” shall include


- land, benefits to arise out of land, and
- things ATTACHED TO THE EARTH, OR permanently fastened to anything ATTACHED TO THE EARTH.

“ATTACHED TO THE EARTH”:


(a) , as in the case of trees and shrubs;
(b) , as in the case of walls and buildings;
(c) for the permanent beneficial enjoyment of that to which it is
attached.”
Held that Plant is immovable property – ED leviable
 It is evident from the above that the expression “attached to the earth” has three distinct
dimensions, viz. (a) rooted in the earth as in the case of trees and shrubs (b) imbedded in
the earth as in the case of walls or buildings or (c) attached to what is imbedded for the
permanent beneficial enjoyment of that to which it is attached
 Attachment of the plant in question with the help of nuts and bolts to a foundation not
more than 1½ feet deep intended to provide stability to the working of the plant and
prevent vibration/wobble free operation does not qualify for being described as attached
to the earth under any one of the three clauses extracted above. That is because
attachment of the plant to the foundation is not comparable or synonymous to trees and
shrubs rooted in earth. It is also not synonymous to imbedding in earth of the plant as in
the case of walls and buildings, for the obvious reason that a building imbedded in the
earth is permanent and cannot be detached without demolition. Imbedding of a wall in the
earth is also in no way comparable to attachment of a plant to a foundation meant only to
provide stability to the plant especially because the attachment is not permanent and what
is attached can be easily detached from the foundation. So also the attachment of the
plant to the foundation at which it rests does not fall in the third category, for an
attachment to fall in that category it must be for PERMANENT BENEFICIAL
ENJOYMENT of that to which the plant is attached
 It is nobody‟s case that the attachment of the plant to the foundation is meant for
permanent beneficial enjoyment of either the foundation or the land in which the same
is imbedded

Applying the above tests to the case at hand, we have no difficulty in holding that the
manufacture of the plants in question do not constitute annexation hence cannot be termed
Prof Dippak /IDT Latest Cases/Central Excise

as immovable property for the following reasons :


(i) The plants in question are not per se (*in itself) immovable property.
(ii) Such plants cannot be said to be “attached to the earth” within the meaning of that
expression as defined in Section 3 of the Transfer of Property Act.
(iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep
its operation vibration free.
 (iv) The setting up of the plant itself is not intended to be permanent at a given place.
The plant can be moved and is indeed moved after the road construction or repair
project for which it is set up is completed

Tutorial Note: Facts of each case shall be considered independently to decide „movability‟ of any article.

Facts Assessee is manufacturing FOOTWEAR. For the manufacture of footwear, various raw
materials are purchased by the assessee such as fabrics, rubbers, chemicals, solvents etc.
During the process of manufacturing of footwear various chemicals / rubbers / solvents
etc., are mixed together and a thin layer of such mixed materials is sandwiched in
between two sheets of textile fabric, in running length, through a calendering machine.
The product is later cut and stitched according to the assessee's requirements and in-
process materials are used as shoe-uppers in the footwear.
The fabric sandwiched with the mixed materials are inputs of the INTERMEDIATE
STAGE during the course of manufacture of footwear. VULCANIZATION (*refer below) of
the foot wear takes place only after completing the entire process and then it would be a
finished product as a footwear, made available in the market and acquires commercial
identity and turns out to be a commercially known product.
Dept has raised demand of the DOUBLE TEXTURED FABRIC which has arisen
during the manufacture of footwear, contending that this double textured fabric is a
distinct product with specific properties and character other than that of original fabric
used as input which is known in commercial trade parlance as double textured fabric
which is used in considerable quantities for making rain-coats, holdalls, hand bags etc.
* Vulcanization is a chemical process for converting rubber (or related polymer) into more durable
material (by adding sulphur)

Issue Whether this double textured fabric can be said to be „marketable‟?


Held that NO
“-- The burden to show that the product in question is marketed or capable of being bought or
sold in the market so as to attract duty is entirely on the Revenue.
-- Marketability is essentially a question of fact to be decided on the facts of each case and
there can be no generalization, and the fact that goods are not in fact marketed is of no
relevance and the question whether they are capable of being marketed.
-- Dept in this case has not produced any material before the Tribunal to show that the
product is either been marketed or capable of being marketed but expressed its opinion
unsupported by any relevant materials.
-- No evidence has been produced by the Revenue to show the product UNVULCANISED
sandwiched fabric as such is capable of being marketed, without further processing. The
question is not whether there is a hypothetical possibility of a purchase and sale of the
commodity but whether there is sufficient proof that the product is commercially known.
Without proof of marketability the intermediate product would not be goods much less
excisable goods. Such a product is excisable only if it is a complete product having
commercial identity capable of being sold to a consumer which has to be established by
the Revenue.”

Facts Assessee is 100% subsidiary of Oracle Corporation, USA. It is incorporated with the
object of developing, designing, improving, producing, marketing, distributing, buying,
selling and importing of computers softwares.
Assessee imports Master Media of the software from Oracle Corporation, USA which
is duplicated on blank discs, packed and sold in the market along with relevant
brouchers. The only right which the assessee has is to replicate or duplicate the software.
They do not have any right to vary, amend or make value addition to the software
Prof Dippak /IDT Latest Cases/Central Excise

embedded in the Master Media.


Issue Whether the process of duplication of master CD, i.e., converting blanks CDs into recorded
CDs shall amount to „manufacture‟?
Held that Yes
“If an operation/process renders a commodity or article fit for use for which it is otherwise
not fit, the operation/process falls within the meaning of the word “manufacture”. Applying
the above test to the facts of the present case, we are of the view that, in the present case, the
assessee has undertaken an operation which renders a blank CD fit for use for which it was
otherwise not fit. The blank CD is an input. By the duplicating process undertaken by the
assessee, the recordable media which is unfit for any specific use gets converted into the
programme which is embedded in the Master Media and, thus, blank CD gets converted into
recorded CD by the afore-stated intricate process. The duplicating process changes the basic
character of a blank CD, dedicating it to a specific use. Without such processing, blank CDs
would be unfit for their intended purpose. Therefore, processing of blank CDs, dedicating
them to a specific use, constitutes a manufacture”

Tutorial Note: SC held that Judgment of SC in case of GRAMOPHONE CO. OF INDIA LTD.- 1999-SC would apply. In
that case, the question which arose for determination was whether recording of audio cassettes on duplicating music
system amounts to manufacture. The answer was in the affirmative. It was held that a blank audio cassette is distinct
and different from a pre-recorded audio cassette and the two have different use and name. Applying that test to the
facts of the present case, we hold that a blank CD is different and distinct from a pre-recorded CD. In Gramophone
Co. of India Ltd. (supra), it was held that an input/raw-material in the above process is a blank audio cassette. It was
further held that recording of an audio cassette on duplicating music system amounts to manufacture because blank
audio cassette is distinct and different from prerecorded audio cassette and the two have different uses and names”


Facts Assessee was extracting marble stones from mines and carrying out the process of
sawing, sizing and polishing the same. The resultant slabs/tiles sold by it into the market.

Marble Stone Cutting/Sawing/ Sizing Polishing

Issue Whether activity of assessee (cutting, sawing, sizing and polishing) amounts to
manufacture?
Held that YES
“-- blocks converted into polished slabs and tiles after undergoing process of cutting,
sawing, sizing, polishing certainly results in emergence of a new and distinct
commodity. The original block does not remain the marble block, it becomes a slab or
tile. In the circumstances, there is manufacture”
Tutorial Note: Earlier, SC held in case of AMAN MARBLES-2004 that „these processes do not amount to
manufacture. With due respect to SC, that decision was erroneous. Arihant decision represents the correct position of
law. [At the same point of time, it shall be noted these processes have been mentioned in Section/ Chapter Notes to
CETA as amounting to manufacture (Deemed Manufacture u/s 2(f)(ii)]

Facts

* Crude bitumen is a sticky, tar-like form of petroleum that is so thick and heavy that it must be heated or diluted
before it will flow. The first thing that comes to mind when you hear Bitumen is roads. But the versatility of Bitumen
makes it the ideal material for other applications and locations: from driveways to runways, from the barn floor to the
ocean floor.
Prof Dippak /IDT Latest Cases/Central Excise

Issue Whether the process of conversion of 'Straight Grade Bitumen' (OBTAINED directly from
refineries) into 'Blown Grade Bitumen' does not amount to manufacture;
Held that Yes
“-- CBEC has earlier issued a CIRCULAR (on 1st July, 1988), it was held that the process of
converting straight grade bitumen into blown grade bitumen through Oxidation, known as
blowing process, does not amount to manufacture and therefore, exempted from payment
of Excise duty.
-- Revenue cannot be permitted to take a stand contrary to its own stand in the said circular,
thus, no ED can be demanded.


Facts M/s Tarpaulin International is carrying on the business of producing and selling
`TARPAULIN MADE-UPS'.
Process of making Tarapulin Made-ups:
1) Solution of wax, aluminum stearate and pigments is made (mixing, heating)
2) Solution is then transferred to a tank.
3) Grey cotton canvas fabric is then dipped into this solution and passed through
two rollers, where after the canvas is dried by exposure to atmosphere.
4) Thereafter, the cloth is cut into various sizes, stitched and eye-lets are fitted.

* Tarapulin: It is a material, such as waterproofed canvas, used to cover and protect things from moisture.

Issue Whether the process of cutting, stiching and fitting eye-lets would amount to manufacture?
Held that NO
“-- The process of stitching and fixing eyelets would not amount to manufacturing process,
since tarpaulin after stitching and eyeleting continues to be only cotton fabrics. The
purpose of fixing eyelets is not to change the fabrics. Therefore, even if there is value
addition the same is minimum. To attract duty there should be a manufacture to result in
different Goods and the Goods sought to be subject to duty should be known in the market
as such.
Manufacture implies a change but every change is not manufacture and yet every
change of an article is the result of treatment, labour and manipulation. But something
more is necessary and there must be transformation, a new and different article must
emerge having a distinctive name, character or use.”

Facts Assessee imported recorded audio and video discs in boxes of 50 and packed each
individual disc in transparent plastic cases known as jewel boxes. An inlay card containing
the details of the content of the compact disc was also placed in the jewel box. The whole
thing was then shrink wrapped and sold in wholesale. The Department contended that
the said process amounted to manufacture.
Issue Does the activity of packing imported compact discs in a jewel box along with inlay card
amount to manufacture under section 2(f) of the Central Excise Act, 1944 ?
Held that NO
“-- none of the activity that the assessee undertook involved any process on the compact discs
that were imported. It held that the Tribunal rightly concluded that the activities carried
out by the respondent did not amount to manufacture since the compact disc had been
complete and finished when imported by the assessee. They had been imported in finished
and completed form”
Prof Dippak /IDT Latest Cases/Central Excise


Issue WHAT IS SCRABBLE? ”Scrabble” in general consists of a box,
board, tiles, racks, instructional booklet, bag and pad. The booklet
describes it as a “word game” for 2, 3 or 4 players and consists of
forming interlocking words, crossword fashion on the Scrabble
playing board using letter files with various letter values. Each
player competes for high score by using its letters in combination
and location that takes best advantage of letter values and
premium squares on the board. The objective is to score as many
points as possible and at the end of the game, the player with the
highest score is the winner

Held that Games of Chance


 Scrabble is neither an educational toy nor a puzzle. It is not a toy to be played with, but
it is a game which is played by one or more individuals.
 Chambers 20th Century Dictionary defines Scrabble as a word-building game. It is
meant for two or three or four players; there can be one winner and one or more losers -
the person who gets the highest points will be declared the winner. Scrabble is played in
clubs, and tournaments are held regularly to award championships and prizes. It is
understood as a word game. On the other hand, a puzzle involves only one individual
who solves a puzzle. There is, therefore, no question of gain or loss as only one individual
is involved.
Further, there is only one solution to a puzzle while in the case of Scrabble there is
no single solution as different words can be formed on the Scrabble board depending
upon the lettered tiles drawn by each player. Additionally, in a puzzle the outcome is
predetermined and fixed. It is not so in case of „scrabble”. Thus, scrabble cannot be said
to be a ‗puzzle‖—rather it is a GAME.


Facts Assessee is manufacturing carpets. In such carpets, jute predominates by weight (around 75%).
However, the upper surface (the exposed surface) is entirely of polyproplyne fibre (which is also a
textile material).
Related Section/Chapter Note:
Goods falling under Chapter 57 (Carpets) and consisting of more than two or more textile materials
and hence, to be classified based on textile material which predominates by weight over other single
textile material.
Assessee Arguments: It shall be classifiable as ‗jute carpet‘ in
view of clear wordings of associated Chapter Note (as Rule 1 of
GIR provides that classification of goods shall be determined by
wordings of Heading and related Section/Chapter Notes).
Dept Arguments: It shall be classifiable as other carpet due to
following reasons:
(a) The exposed surface of the carpet is polypropylene fiber and
not jute, these goods cannot be classified as jute carpets. It
was also argued if these goods are to be classified as jute
carpets, then the exposed surface of the carpets must be of
jute.
(b) The common parlance test should be applied for classifying
the carpets as the carpets to the common man would not
appear to be jute carpet but polypropylene carpet.
Issue What should be the exact classification?
Held that Shall be classified as JUTE CARPET
 “GIR framed under Central Excise Tariff Act, 1985 are statutory in nature. In terms of
Rule 1, for the purposes of classification primacy should be attached to the Section and
Chapter notes along with terms of the headings. If on application of Section and
Chapter Notes, „no clear picture emerges‟ then only can one resort to those rules.
In the instant case, it is clear from a perusal of the Chapter and Section Note, that the
goods can be classified as jute carpets. Thus, arguments of Revenue cannot be accepted.”
Tutorial Note:
1. SC made following important observations in this decision:
Prof Dippak /IDT Latest Cases/Central Excise

* Common parlance test is helpful in classification but primacy shall be given to Statutory Principles (GIR).
* Even essential character test is not applicable to the case as essential character test has been provided in
Rule 3 (b) of GIR and Rule 3 is applicable only when classification cannot be decided by Rule 1 (i.e., in terms
of terminology of Heading and the related Section/Chapter Notes.
2. SC reaffirmed its aforesaid decision in case of UNI PRODUCTS (I) LTD-2009.

Facts Assessee is engaged in the manufacture and sale of ball-bearings and textile machine
parts. It sold goods manufactured by it on certain prices on payment of excise duty
leviable on the price on which the goods were sold. Later on, there was a revision of
prices with retrospective effect. Following the revision the assessee demanded from its
customers the balance of the higher prices and issued to them supplementary invoices. At
the same time it also paid the differential duty on the goods sold earlier. The Revenue
took the view that the assessee was liable to pay interest on differential duty .
Issue When the differential duty is paid immediately upon the recovery of price difference
through issuance of supplementary invoice, whether interest shall still be payable on such
differential duty?
Held that YES
“- The assessee was able to demand from its customers the balance of the higher prices by
virtue of retrospective revision of prices. It, therefore, follows that at the time of sale of
goods the goods carried a higher value and those were cleared on short payment of
duty. The differential duty was paid only when the assessee issued supplementary invoices
to its customers demanding the balance amounts. Seen thus it was clearly a case of short-
payment of duty though indeed completely unintended and without any element of deceit
etd. Thus, it will attract interest liability”.
Tutorial Note: Regarding chargeability of interest, Larger bench of Tribunal also made an interesting
observation in case of LUCAS TVS-2009. It noted that “A manufacturer who, at the time of removal of excisable
goods, forsees or anticipates price revision, normally resorts to provisional assessment at the time of removal of goods
and, when the assessement is finalized on the basis of price increase at a later point of time, he pays differential duty
alongwith interest vide Rule 7(4) of CER, 2002. In doing so, he accepts the fact that there is a short-levy or short-
payment and deems that the differential duty is a duty which is ought to have been paid at the time of removal of
goods. Where, instead of following the normal statutory procedure, he ascertains the differential duty (payable on
account of price enhancement), interest shall also be payable in that situation.”


Sequence of Events Rule Treatment
Goods manufactured in Pune Unit and to Rule 8 ED paid [Sec 4(1)(b) read with CEVR,
another unit 2000]

Goods returned on „logistic reasons‟ (lack of Rule 16(1) Credit taken of duty paid earlier
storage space at other unit) [“For any other reason” in Rule 16 shall
not be read „ejusdem generis‟]

Subsequently, returned goods sold as such Rule 16(2) Issue: Whether “Amount payable in
(without doing any processing thereon) to terms of first part of Rule 16(2)” or
another buyer “Re-assessed Excise duty payable in
terms of Second part of Rule 16(2)”?

Held that  First part of Rule 16(2) pre-supposes that the goods received by the assessee under Rule
16(2) should be subjected to some process.
 The expression “IN ANY OTHER CASE” found in the second part of Rule 16(2) is
significant.
 In a case in which the manufacturer of final product receives the goods back from the
customer under Rule 16(1) and removes the same without undertaking any process
thereon is covered by second part of Rule 16(2). The expression “IN ANY OTHER
CASE” is apparently wide enough to cover such a case.”
Prof Dippak /IDT Latest Cases/Central Excise


Facts Assessee purchased capital goods (falling into Eligible Chapter) and used them at
CAPTIVE MINES.
Issue Whether credit on capital goods (covered by Rule 2(a)) is admissible when used in CAPTIVE
MINES?
Held that YES
“- if the mines are captive mines so that they constitute one integrated unit together with the
concerned cement factory, (Modvat)/CENVAT credit on capital goods will be available to
the assessee.;
- If the mines are not captive mines but they supply to various other cement companies of
different assessees, and it is found that the said goods were being used in the lime stone
mines outside the factory of the assessee, (Modvat)/CENVAT credit on capital goods used in
such mines will not be available to the concerned assessee under the appropriate
(Modvat)/CENVAT Rules.”

Facts Assessee was having a captive power generating plant within its factory. It produced goods,
received them into its factory and used them in captive power generating plant for
generation of electricity and used the cenvat credit of excise duty paid on goods so used.
The electricity so generated was used for production of goods and for other purposes (say,
general lighetening within the factory). However, surplus electricity so generated was sold
to third parties at contractual rates. Department sought to recover the credit on inputs to
the extent it had been used in generation of electricity which was sold to third parties.
Issue Whether action of department is valid in law?
Held that YES
“- the definition of “input” brings within its fold, inputs used for generation of electricity or
steam, provided such electricity or steam is used within the factory of production for
manufacture of final products or for any other purpose. Thus, assessee is entitled to cenvat
credit to on eligible inputs utilized in the generation of electricity to the extent to which
they are using the produced electricity within their factory (i.e., for captive consumption).
They are not entitled to cenvat credit to the extent of excess electricity cleared at the
contractual rates in favour of joint ventures, vendors, etc. which is sold at a price”.


Facts Coca Cola India (Pvt) Ltd (the assessee) was manufacturing alcoholic beverage base (i.e.,
Concentrates). It had entered into franchise agreement with some other persons (referred
as Bottlers) under which it sold concentrate to bottlers. The bottlers were diluting them
and then selling the same after filling them into the bottles with the brand name of Coca
Cola India (Pvt) Ltd.
Assessee took advertisement services from advertisement agency advertising the soft-
drinks (bottled drinks). It booked cenvat credit of same after making payment of such
service. Department sought to recover cenvat credit on the ground that such service is not
eligible service as advertisement was of SOFT-DRINKS (final product of bottlers) and not
that of CONCENTRATES (final product of Coca Cola India (Pvt) ltd).
Issue Whether action of department is valid in law?
Held that YES
“ - The word “BUSINESS” is to be understood as s continuous activity and not confined or
restricted to mere manufacture of the product. Activities in relation to the business cover
all activities that are related to the FUNCTIONING OF THE BUSINESS.
In a case like the present, business of assessee being an integrated activity comprising
of manufacture of concentrate, entering into franchise agreement with bottlers permitting
use of brand name by bottlers promotion of brand name, etc. the expression will have to be
seen in that context.
 Words „RELATING‟ further widens the scope of expression „ACTIVITIES
RELATING TO BUSINESS‟.
 Similarly, the use of the word „ACTIVITIES‟ in the phrase „activities relating to
business‟ further signifies the wide import of the phrase “activities relating to business.
The Rule making authority has not employed any qualifying words before the word
activities, like main activities or essential activities etc. Therefore, it must follow that all
Prof Dippak /IDT Latest Cases/Central Excise

and any activity relating to business falls within the definition of input service
provided there is a relation between the manufacturer of concentrate and the activity.
Therefore, the phrase “activities relating to business” are words of wide import.
-- The advertisement of soft drink enhances the marketability of Concentrate. Thus, it
definitely is an activity relating to business of assessee. Thus, the advertisement or sales
promotion of AERATED WATERS (soft-drinks) undertaken by manufacturer of
CONCENTRATE is covered by the inclusive part of the definition of “input service”
contained in Rule 2(l) of the CCR, 2004.”


Facts Assessee engaged in manufacture of iron and steel ingot. They purchased duty paid inputs
and availed credit thereon. GTA service was availed by them for brining those inputs into
the factory and credit was also availed of the service tax paid on GTA service (Inward
transportation of inputs being eligible ‗input service‘ within the meaning of Rule 2(l) of
CCR, 2004). Subsequently, the inputs were removed as such from the factory and amount
equal to credit availed thereon was duly paid by the assessee. Department has issued SCN
demanding recovery of credit relating to GTA service taking a stand when inputs had been
removed as such not only credit relating to input but that of related input service should
also be paid back..
Issue Whether action of department is valid in law?
Held that YES
“- Rule 3(5) in plain and literal sense means that when inputs are removed as such from the
factory, then manufacturer shall pay an amount equal to the cenvat credit taken thereon.
There is no provision to reverse the credit of service tax availed in relation to such inputs
when removed from the factory.
Moreover Rule 14 of CCR, 2004 provides for recovery of cenvat credit taken or utilized
wrongly. In the instant case, the assessee had taken the credit correctly. No provision exists
which would render utilization of such credit erroneous for the reason that inputs, transport
of which yielded GTA service tax credit are returned”


Facts Assessee was engaged in manufacturing of goods, which were exempted from duty.
Assessee had exported the goods, which were exempted from payment of duty. The duty
paid inputs (and tax paid input services) were used in manufacture of exported goods.
The assessee had booked cenvat credit of inputs and claimed refund of that in terms of
Rule 5 of CCR, 2004. CEO denied refund taking a stand that goods which were exported
were already exempted so assessee not entitled to any credit at all. However, assessee
counter-argued that in view of Rule 6(6) [which lifts bar on availment of cenvat credit on
input in relation to certain clearances (including export clearances)] he is entitled to
credit and thus, entitled to refund thereof.
Issue Whether contention of assessee is valid in law?
Held that YES
“- No doubt, Rule 6(1) of CCR, 2004 provides that input credit is not available in respect of
input used in manufacture of exempted goods. However, this provision is not applicable
for goods cleared for export [Rule 6(6) specifically provides so]. Thus, manufacturer is
entitled to credit on inputs used in export goods, whether dutiable or exempted.”
Tutorial Note: Bombay HC in case of REPRO INDIA LTD-2009, has also held that “even exempted final product
can be exported under Bond in terms of Rule 19 of CER, 2002. And in respect of inputs used in manufacture of such
exempted final products, input credit is admissible (in terms of Rule 6(1) read with Rule 6(6) of CCR, 2004).

Facts  The assessee, a manufacturer of packaged drinking water, was availing of SSI-
exemption and was clearing its goods to its buyer at a price of Rs. 43 per case of 12
bottles of 500 ml.
 Proceedings were initiated against the assessee fro denying SSI-exemption; hence, the
assessee started paying duty under protest.
 When the assessee sought to claim increase in price from its buyer to bear the burden
of duty, the buyer, by way of a letter, made it clear that:
―We wish to inform you that we cannot absorb any additional duties and levies etc. on
Prof Dippak /IDT Latest Cases/Central Excise

the agreed prices. In view of this, you have to bill to us at the same prices which were
charged/billed earlier.‖
Therefore, the assessee continued to clear its product at earlier rate of Rs. 43 per case
of 12 bottles.
 The assessee informed the Department that they are not passing the burden of duty
paid under protest to their buyer and they will be claiming the refund in due course,
if the proceedings against them were dropped subsequently.
 Later on, the adjudicating authority dropped the proceedings initiated against the
assessee. Accordingly, the assessee filed a claim for refund of duty paid under
protest, which was rejected on the ground of unjust enrichment.
Issue Whether the Department had rightly denied refund to the assessee?
Held that NO
“- Even though the assessee had to pay the duty under protest, the buyer had made it clear
that they would not absorb any additional duties and levies. The price was kept at the same
level as earlier. Hence, the burden of duty was not, and could not have been, passed onto
the buyer. The burden of duties paid under protest was borne by the assessee itself.
- Therefore, there is no bar of unjust enrichment at all. Hence, the Department couldn‟t
deny refund”.
Tutorial Note: In simple words, when the prices before and after demand of duty remains the same on account &
buyer denying to bear the burden of any additional duty, the principal of unjust enrichment cannot be applied to deny
the refund.

Facts Assessee, a 100% subsidiary of a foreign company, was manufacturing cement in its
registered factory. It proposed to expand its capacity by installing another plant. It
sought advance ruling on the question whether cenvat credit of excise duty paid on
cement and steel used in building foundation for plant and machinery will be eligible in
either capacity (i.e., either as inputs or as capital goods
Issue Whether application for advance ruling is maintainable?
Held that NO
“- In order to be eligible for a ruling, the activity of production or manufacture of goods for
which advance ruling is sought, has to be a “proposed activity” and not an ongoing one.
In this case, creation of additional capacity for manufacture of cement by expanding the
plant cannot be considered to be a “proposed activity” eligible for procurement of a
ruling. Production of the same goods, namely cement, in the expanded plant is only a
repletion or continuation of a past activity.”

Facts The SCN issued to the applicant didn‟t propose any imposition of penalty.
Any reference to penalty was neither contained in the application for settlement nor in any
report of the Commissioner called for by the Settlement Commission.
However, the Settlement Commission imposed penalty on the ground that applicant had
taken inconsistent stands before the Commission (i.e. first of all, applicant admitted duty of
Rs. 1.26 crores, thereafter claiming mistake in calculation, admitted duty of Rs, 1.16 crores
and, at last, paid duty of Rs. 1.21 crores as calculated by the Department).
The assessee-applicant challenged imposition of penalty by the Commission.
Issue Whether imposition of penalty in the given case is bad in law?
Held that YES
“- Section 32-F(5) provides that the Settlement Commission may, in accordance with the
provisions of this Act, pass such order as it thinks fit on –
(I) The matters covered by the application and
(II) Any other matter relating to the case not covered by the application, but
referred to in the report of the Commissioner or or the Commissioner
(Investigation).
Since the matter relating to imposition of penalty was neither contained in the
application nor in the report of the Commissioner, hence, the Settlement Commission
didn‟t have any jurisdiction to impose penalty in the matter.

 Further, even if it is assumed that since section 32-(1) gives the Commission all the
powers which are vested in a CEO, hence, it will have the power to impose penalty;
then also, such power should be exercised by the Commission only giving the
Prof Dippak /IDT Latest Cases/Central Excise

applicant an opportunity of being heard, which has not been done in this case.
Therefore, the imposition of penalty is bad.
 Even otherwise, because a inconsistent stand is taken the Commission, assuming it to
be so, that cannot result in imposing penalty, because no provision is made under the
Act for imposing penalty on that count.
Author’s The best the Settlement Commission could have done in this situation was that it should
Comment have send back the case back to the CEO [Sec 32-L]. Then, the CEO would have disposed
off the case in accordance with provisions of CEA as if no settlement application had been
made.


Facts Assessee was manufacturing ‗Khaini‘ under the brand name ‗Madhu‘. He was served
with SCN with allegation of fraud. He approached Settlement Commission admitting the
duty liability. Settlement Commission pass settlement Order settling the duty liability. It
did not grant any immunity of penalty. Sec 32-F of CEA provides for payment of duty,
interest and penalty payable in pursuance of settlement order within 30 days, failing
which it shall be treated as recoverable as excise arrears.
Assessee prayed the Settlement Commission to grant him the benefit of ‗reduced
penalty in terms of Sec 11-AC of CEA‘ on payment of dues within 30 days. He relied on :

(1) In addition to the powers conferred on the Settlement Commission under this Chapter,
it shall have all the powers which are vested in a Central Excise Officer under this
Act or the rules made thereunder.
(2) Where an application made under section 32E has been allowed to be proceeded with,
the Settlement Commission shall, until settlement order is passed, have exclusive
jurisdiction to exercise the powers and perform the functions of any Central Excise
Officer, under this Act in relation to the case.

Issue Is the Settlement Commission empowered to grant the benefit under the proviso to
section 11AC in cases of settlement?
Held that NO
“-- The expression “settlement” before the Settlement Commission is in contradistinction to
“adjudication” before a Central Excise Officer. The very scheme of the provisions of
[Chapter V: Settlement Order] is settlement and not, adjudication.
-- Under the scheme of settlement as contained in Chapter V of the Excise Act, the Settlement
Commission makes an order on the application after examination of the records, the
report of the CCE and after affording an opportunity to the applicant and the CCE to be
heard, and after examining evidence as may be placed before it or obtained by it. The
expression “powers which are vested in a Central Excise Officer under this Act” as
stated in Section 32-I of the Excise Act has to be read in accordance with the scheme of
Chapter V and its objects. We find that they are basically to give finality to the order of
the Settlement Commission as an order under the provision of the Act and similar to
what an adjudicating officer does. In fact, the expression empowers the Settlement
Commission to basically look at the evidence and call for such evidence in order to
determine whether the Settlement Commission should or should not accept the application
for settlement made by the applicant. Therefore, the Settlement Commission cannot be
said to lie a CEO only by virtue of the powers provided in Section 32-I of the Excise Act.
-- An order of settlement is obviously distinct from an adjudication order of a CEO, who has
no power to accord immunity from prosecution while determining duty liability under the
Excise Act. The order of settlement is in the form of a package and takes into
consideration all the aspects of the case in a holistic manner before determining the issues
of penalty and interest as well as the extent of immunity therefrom. It is in this context that
Sec 32F confers on the Settlement Commission the powers to “pass such order as it thinks
fit on the matters covered by the application...........”. It is, therefore, observed that, the
scheme of settlement, as contained in Chapter-V of the Excise Act is distinct, from the
adjudication undertaken by a CEO under the other Chapters of the Excise Act.
Therefore, once the Petitioner has adopted the course of settlement he has to be
governed by the provisions of the said Chapter. Resultantly, the benefit, under the
proviso to Section 11AC of the said act. which could have been availed when the matter
of determination of duty was before a CEO is not attracted to the cases of a settlement,
undertaken under the provisions of Chapter-V of the Act.
Author’s Students shall note that order of Settlement Commission is conclusive and non-appealable
Comment [Sec 32-M]. However, it shall be appreciated that Constitutional Remedy is always
Prof Dippak /IDT Latest Cases/Central Excise

available. Even settlement commission order is subject to „Writ Petittion‟ before HC.


Facts Assessee filed an application with the Settlement Commission u/s 32-E of Central Excise
Act, 1944. However, as the applicant was not willing to accept the duty liability settled by
the Commission, it sent the case back to the adjudicating authority in terms of section 32-
L(1) of the Act. It directed the adjudicating officer to dispose the case in accordance with
the provisions of the Act as if no application had been made to Settlement Commission .
When case came up before Revenue for adjudication, it decided that since as per
section 32-M, any order made by the Settlement Commission was conclusive; the figure
of duty liability fixed by the Settlement Commission had attained finality. Hence,
assessee was required to make payment of the said amount along with penalty and
interest.
Issue Whether Revenue was justified in considering the order passed by the Settlement
Commission to be the final order of adjudication?
Held that NO
“-- Sec 32L provides that if Set Comm sends back the case back to the CEO because of non-
coperation by assessee, then the adjudicating officer shall dispose off the case as if no
settlement application has been made. If there is no application before Settlement
Commission, there can be no question of any final order of adjudication. Consequently,
the order passed by the Settlement Commission cannot be considered to be the final order
of adjudication.
Revenue shall continue the adjudication proceedings from the stage at which the
proceedings before Settlement Commission commenced.

Facts Appeal filed with CCE (Appeal) but belatedly – much beyond the 30 periods period for
which condonation can be given by CCE(Appeals).
Issue Whether CCE(Appeal) has a right to condone the delay beyond the period of 30 days?
Held that NO
“- the proviso to Sec 35(1) makes the position crystal clear that the CCE(Appeals) has no
power to condone the delay beyond the period of 30 days and that the language used
makes the position clear that the Legislature intended to entertain the appeal by
condoning the delay only upto the 30 days and not 60 days”

 (Expected)

Facts Assessee filed an appeal with Tribunal alongwith a request for waiver of pre-deposit.
Tribunal rejected the waiver request and asked appellant to make pre-deposit failing
which its appeal will be dismissed.
Issue Whether rejection order of Tribunal can be further appealed before HC - such order being
an interim order (technically called “INTERLOCUTORY ORDER”) and not a final order?

Relevant Provision
Sec 35: Appeal to the High Court
(1) Any person aggrieved by ANY decision or order of the Appellate Tribunal may file an appeal to the
High Court within 60 from the date of communication of the decision or order of the Appellate
Tribunal to him on any question of law arising out of such order.

Held that YES


“- Right of appeal conferred on aggrieved person from any (every) order of Appellate
Tribunal and restricted meaning not to be given. Any order or decision of Appellate
Tribunal means ALL decisions or orders of Appellate Tribunal.
- In a case where right of appeal is limited only from a final order or judgment and not
from interlocutory order, the Statue creating such rights makes it clear. It had not been
done so in the case before us. Thus, even interlocutory order is appealable.

Author’s This judgment is a landmark judgment as it is in stark contrast to the previous judgments.
Prof Dippak /IDT Latest Cases/Central Excise

Comment Earlier View: Interim orders were non-appealable under the statue.
[However, they were amenable to Writ Jurisdiction of HC – thus, no
STATUTORY REMEDY (appeal channel as provided within the statute) was
available against them, however, CONSTITUTIONAL REMEDY (Writ
Petition / Special Leave Petition) was available against them]
Now, New Principle: Even, interim orders are appealable within the Statue itself. Thus,
statutory remedy is available against them.

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