Top Stories CESTAT Weekly Round-Up This weekly round-up analytically summarizes the key stories related to the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) reported at Taxscan.in during the previous week 13th October 2024 to 19th October 2024 By Kavi Priya – On October 20, 2024 11:06 am – 6 mins read CESTAT quashes SCN and Order demanding Service Tax on Works Contract M/s Vital Paper Products Pvt Ltd vs Commissioner of Central Tax Tirupati CITATION: 2024 TAXSCAN (CESTAT) 865 A Show Cause Notice (SCN) was issued to recover Rs. 25,97,840 in irregularly availed CENVAT credit following an audit. The dispute primarily centered on whether the appellant improperly claimed service tax credit of Rs. 17,01,848 for infrastructure development services under a works contract. The department argued that the services were provided outside the factory premises and thus fell under the excluded category of input services as per the CENVAT Credit Rules.

However, the Tribunal quashed the SCN and the order, concluding that the demand of Rs. 17,01,848 for infrastructure development services was unsustainable. It noted that the classification of services under a works contract could not be substantiated, and there was no transfer of property in goods involved, which is a key criterion for such contracts under Section 65B(4) of the Finance Act. Consequently, the demand for service tax on these works contracts was dismissed, offering relief to the appellant. Service Tax not leviable for Rental Agreements in Name of Individual Partners for Jointly Owned Property: CESTAT Sidhi Vinayak Associates vs Commissioner of Central Excise, Customs And Service Tax CITATION:   2024 TAXSCAN (CESTAT) 866 The partnership firm, comprising four partners, had been providing “Renting of Immovable Property Services” but was found to have not paid the required service tax. Following an investigation, the department issued a demand for ₹16,44,367, which was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals). The assessee contended that the property was owned and rented by individual partners, with rent received separately, and thus argued that the firm was not liable for the tax.

The Tribunal observed that since the rental agreements were in the names of individual partners who jointly owned the property, no service could be rendered to oneself. It ruled that service tax was not applicable in this scenario. Packaging Activity Amounts To ‘Manufacturing’, Service Tax Not Payable: CESTAT Captain Vilas Waman Katre vs Additional Commissioner of Income tax CITATION:   2024 TAXSCAN (CESTAT) 867 The appellant, engaged in segregating metal and slag, sizing, and packaging for their clients, was initially issued a Show Cause Notice by the department, which classified these activities under “business auxiliary service” and demanded service tax accordingly. The Commissioner of Central Excise confirmed the demand, imposed interest, and levied penalties on the appellant under Sections 77 and 78 of the Finance Act, 1994. However, the appellant argued that their activities segregating, sizing, and packaging—amounted to “manufacture” as defined under Section 2(f) of the Central Excise Act, 1944, making the product marketable and saleable. The Tribunal agreed with this stance, noting that since the activity is considered manufacturing, it falls outside the scope of service tax under the definition of “business auxiliary service.”

Therefore, the demand for service tax, along with interest and penalties, was deemed unsustainable, providing relief to the appellant. No Service Tax u/s 66E(b) of Finance Act Leviable if Partial Completion & Occupancy Certificates received on Flat Project: CESTAT MCK PGE Projects LLP vs Commissioner of C.G.S.T. CITATION:   2024 TAXSCAN (CESTAT) 870 The appellant, involved in constructing a residential project in Kolkata, received both certificates on 24.05.2016. However, the Revenue demanded service tax of Rs. 38,11,194 on the sale of flats, based on Section 66E(b) and a related notification, which was confirmed by the Commissioner (Appeals) along with penalties. The appellant argued that since they had received the necessary certificates and had not availed of any CENVAT credit for the sale of flats, they were not liable to pay the service tax. The Tribunal agreed with the appellant, emphasizing that once the Partial Completion and Occupancy Certificates are issued, and no CENVAT credit is utilized, service tax does not apply under Section 66E(b).

Consequently, the demand for service tax, along with interest and penalties, was set aside, and the appellant’s appeal was allowed, providing relief from the tax liability. Ground Different from SCN: CESTAT quashes Confirmation of Service Tax Cenvat Credit Demand M/s Vital Paper Products Pvt Ltd vs Commissioner of Central Tax Tirupati CITATION:  2024 TAXSCAN (CESTAT) 865 The appellant had been issued an SCN on 25.05.2017 after an audit of their accounts, seeking recovery of Rs. 25,97,840 in irregularly availed CENVAT credit. The Department claimed that certain credits were inadmissible, especially regarding input services used for the initial setting up of a factory, amounting to Rs. 5,06,401. The adjudicating authority confirmed the demand and imposed penalties, including appropriating Rs. 3,05,547 that the appellant had reversed. The CESTAT bench, however, ruled that the confirmation of the demand was untenable because it was based on grounds different from those stated in the SCN. The bench noted that while the SCN sought to deny credit based on it being used for initial setup, the adjudicating authority had confirmed the demand by stating there was no nexus between input and output services.

This discrepancy led the Tribunal to conclude that the demand, especially the Rs. 13,050 portion, was unsustainable Services have no Nexus with the Output Service”: CESTAT upholds Cenvat Credit Demand M/s Vital Paper Products Pvt Ltd vs Commissioner of Central Tax Tirupati CITATION:  2024 TAXSCAN (CESTAT) 865 The appellant received a Show Cause Notice (SCN) on 25.05.2017 following an audit, which demanded the recovery of Rs. 25,97,840 in irregularly availed CENVAT credit, along with interest and penalties under Section 78 of the Finance Act, 1994. The Department argued that the input services were either excluded from the definition of “input services” or had no connection with the output services, particularly regarding terms like “setting up,” which had been removed from the definition. The appellant contended that the adjudicating authority had gone beyond the SCN by focusing on the alleged lack of nexus between input and output services, a point not originally raised in the SCN. However, the Tribunal upheld the demand for Rs. 84,044, agreeing with the Department’s view that the input services had no relation to the output services. Consequently, the original authority’s decision to recover the amount from the appellant was affirmed.

Non Payment of Basic customs duty and IGST at Time of Filing BEs Bars availment of Refund Benefit: CESTAT Mapaex Consumer Healthcare Private Limited vs Commissioner of Customs,CGST & Central Excise CITATION:  2024 TAXSCAN (CESTAT) 868 The appellant had filed four BEs for importing “Isomalt ST-M” between May and October 2020, availing an IGST exemption under an Advance Authorisation. Later, the appellant sought to amend the BEs to forego this exemption and claim IGST refund on exports, as allowed under Section 16 of the IGST Act, 2017, and Rule 96 of the CGST Rules. However, Rule 96(10)(a) restricts such refunds if IGST exemption was claimed at the time of import. The adjudicating and appellate authorities had previously rejected the appellant’s request for amendment, arguing that the appellant could not change its decision after filing the BEs without paying customs duty and IGST. They ruled that the appellant had already exercised the option to avail the exemption, and later payment of duties would not enable a refund claim.

The Tribunal, however, set aside the impugned order, directing the appellant and the Revenue to provide information on other similar cases where amendments were permitted, ensuring consistency in the adjudicating authority’s decision-making. The appeal was allowed. Non-Mentioning of Tobacco Gradation In Invoices Not a Ground For Defend Confirmation of Excise Duty Demands: CESTAT Arvind N. Patel vs Commissioner of Central Excise CITATION:   2024 TAXSCAN (CESTAT) 869 The appellant, a proprietorship firm with four units manufacturing unmanufactured branded tobacco under the brand name “Om Special Pandharpuri Tambakoo No. 1,” faced a Show Cause Notice (SCN) related to alleged clandestine clearance of tobacco using superior-grade tobacco in place of inferior grades. The SCN, issued after a search and investigation, accused the firm of diverting higher-grade tobacco to evade excise duty, resulting in a demand of Rs. 31,11,78,562 for the period from June 2008 to August 2012. The Tribunal found that the adjudicating authority could not confirm the demand based on new grounds not included in the SCN, as this would go beyond the scope of the initial allegations. Furthermore, the Tribunal held that the charges of clandestine clearance could not be substantiated as the Revenue failed to provide any concrete documentary evidence.

The two-member bench, consisting of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member), set aside the excise duty demands. Statement made during investigation before Central Excise Officer not reliable unless examined as witness: CESTAT sets aside Penalty Imposed Sharp Mint Ltd vs Commissioner, Central Excise CITATION:   2024 TAXSCAN (CESTAT) 871 The appellant, Sharp Mint Ltd., a manufacturer and exporter of Menthol Crystal and Essential Oils, claimed CENVAT credit for raw materials purchased from suppliers in Jammu, including Amarnath Industries, who were operating under a duty refund scheme. The Directorate General of Central Excise Intelligence (DGCEI) conducted a 26-month investigation, during which the statements of various employees and directors were recorded, leading to a Show Cause Notice being issued in 2008. The Commissioner denied the appellant’s entire CENVAT credit claim and imposed penalties. The appellant argued that the statements relied upon were inadmissible as they did not comply with Section 9D of the Central Excise Act, which requires that such statements be examined in person as witnesses during adjudication.

The Tribunal, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), agreed with the appellant, noting that the procedure outlined in Section 9D had not been followed. As a result, the Tribunal set aside the Commissioner’s order, including the penalties imposed on the Managing Director, ruling that the reliance on inadmissible statements invalidated the adjudication Declared Value in Bills of Entry cannot be Rejected Relying on Proforma Invoice, Penalty u/s 114AA not Imposable: CESTAT M/s.Sunny Sales vs Commissioner of Customs CITATION:   2024 TAXSCAN (CESTAT) 873 The appellant had imported 130 consignments of sewing machinery and parts between 2012 and 2014, with all the Bills of Entry being assessed and accepted at the declared transaction value. However, following a Directorate of Revenue Intelligence (DRI) investigation, the appellant was issued a Show Cause Notice alleging undervaluation and demanding differential customs duty, along with interest and penalties under Sections 112(a) and (b) and 114AA of the Customs Act. The tribunal found that the evidence presented by DRI, such as a proforma invoice and email correspondence, was insufficient to justify rejecting the declared value.

The bench, comprising Shri Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member), held that these documents could not override the assessed value in the Bills of Entry without a direct challenge to the original assessments. Furthermore, it was observed that the necessary elements to impose a penalty under Section 114AA were absent. As a result, the tribunal set aside the penalty imposed on the appellant.