KSB Pumps Ltd. vs Commissioner of Central Excise, Pune-I

We admit the Appeal on the following substantial question of law:

(a) Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in directing the Appellant to deposit 60% of the amount of duty u/s 35F of the Act?

With the consent of both the counsel the Appeal is taken up for hearing and final disposal.

This Appeal by the Revenue u/s 35-G of the Central Excise Act, 1944 arises out of an order passed by the Customs, Excise and Service Tax Appellate Tribunal on 7 March 2011 2011 (24) S.T.R. 501 on an application for stay of an order passed by the Commissioner (Appeals) at Pune on 7 January 2010. The Appellant who is engaged in the manufacture of excisable goods falling under Chapter 84 of the First Schedule to the Central Excise Tariff Act, 1985 had availed of CENVAT credit. A notice to show cause was issued to the Appellant alleging that during the period between January 2005 to December 2007 the Appellant had availed of CENVAT credit in the amount of Rs. 24,49,475/- though it was inadmissible. The case of the department was that the Appellant had availed of credit of service tax paid on outward freight services to which it was not entitled. The Additional Commissioner of Central Excise by his order dated 30 September 2009 confirmed the demand. This was followed by the order of the Commissioner (Appeals) against which as noted earlier an appeal has been filed before the Tribunal. The Tribunal held that no case was made out for the grant of a total waiver of the amount demanded and accordingly directed the Appellant to deposit 60% of the amount of duty. The amount of interest and penalty was, however, waived till the disposal of the Appeal.

Before the Tribunal it was urged on behalf of the Appellant that proceedings on the same issue were pending before the Karnataka High Court and hence an application for an adjournment was made. The Tribunal declined to accept that request holding that it was its duty to decide the matter as and when it was brought before the Tribunal on the basis of the settled position in law. The case of the Appellant is that since the judgment of the Tribunal which is impugned in these proceedings both the Karnataka and the Gujarat High Courts have placed a construction on the provisions of Rule 2(1) of the CENVAT Credit Rules, 2004 as they stood before 1 April 2008 which supports the case of the assessee.

The Division Bench of the Karnataka High Court in a judgment dated 23 March 2011 rendered in the Commissioner of Central Excise and Service Tax, LTU. Vs. ABB Ltd., had occasion to consider the following question of law :

whether the service tax paid on transportation charges from the assessee place, such as a factory warehouse, depot, till the manufactured goods are delivered to the customer falls within the meaning of ''input service'' as defined under the Rules and can the assessee be allowed to take Cenvat credit?

The question related to the period prior to 1 April 2008 in relation to the unamended provisions of Rule 2(1), which defines input service. The Karnataka High Court answered the question of law in favour of the assessees and against the Revenue. A similar view has been taken by a Division Bench of the Gujarat High Court in a judgment delivered on 6 April 2011 in Tax Appeal 419 of 2010 and companion appeals. The issue before the Gujarat High Court was also whether CENVAT credit on service tax paid on services rendered by a Goods Transport Agency on outward transportation of the goods beyond the place of removal was admissible under Rule 2(1). The question of law has been answered in favour of the assessee and against the Revenue. The Gujarat High Court also dealt with the period prior to 1 April 2008 when Rule 2(1) was amended. Counsel appearing on behalf of the Revenue has fairly not disputed the applicability of the judgments of the Gujarat and Karnataka High Court, atleast at this stage for the purposes of the application for stay.

In that view of the matter, we are of the view that having regard to the fact that a prima facie case has been made out by the assessees, the interference of the Court would be warranted. The Appellant would be entitled to a complete waiver of the amount of duty in addition to the waiver of interest and penalty granted by the Tribunal. There shall be an order accordingly. The question of law is accordingly answered in favour of the assessee and against the Revenue. However, it is clarified that the observations contained in this order are confined to determining the question as to whether a case was made out for the grant of a stay of the order which has been appealed against before the Tribunal. The appeal which is pending before the Tribunal shall be disposed of on its own merits. The present Appeal is accordingly disposed of.

There shall be no order as to costs.