CENTRAL EXCISE ACT

17. Whether remission of duty of Central excise is allowable under Rule 49(1) of Central Excise Rules and Rule 21 of Central Excise Rule, 2002 in the event of fire in the premises of the company?

Held : Yes.

The facts in brief are: The appellant was having its factory of plastic articles at 502, GIDC, Halol, Distt. Panchmahal (Gujarat). Information was received from the appellant vide its letter dated 28-3-1996 that a fire accident took place at its registered premises. The factory was visited by the Range Officer on 28-3-1996, and drew Panchnama wherein it was stated that assembly department, where the assembling and packing was done, and shed No. 2, where finished goods and semi-finished goods were stored were destroyed in fire along with excise records. The statement of Shri T. Radhakrishanan, who looked after the work of excise godown, was recorded and stated, that goods were destroyed in fire. He submitted that the reason of fire seems to be short circuit in the assembly section and fire took place on the night of 27-3-1996. As there was wind in the direction of east side, the fire engulfed the 2nd shed also. He stated that it is not possible to ascertain the figure of loss. Under their letter dated 17-6-1997, the appellant submitted the required information to the Central Excise Officer under which they stated that, in the fire accident, finished goods covered under Chapters 39 and 84.96 were totally burnt/ destroyed. The quantity of finished goods was 4,20,249 and the duty thereon worked out to Rs. 32,34,885.57. A demand show cause notice was issued to the appellant on 18-6-1998, asking it, why the Central Excise duty amounting to Rs. 32,34,885.57; i.e., the duty on finished products destroyed in the fire should not be recovered under rule 49 of the Central Excise Rules, 1944?

The department alleged that the fire broke out in the factory of the appellant not on account of natural cause or unavoidable accident, but it was due to negligence/mistake of one of its employees as they had not switched off the electrical switch at the time when the factory was closed at 17.30 hrs. This led to the fire accident. They had the obligation to ensure that all precautions were taken to avoid any accident, which could cause loss to them as also to the revenue of the Government.

The Tribunal observed that the main issue is, whether the fire accident that took place in the factory of the appellant was due to natural cause or by unavoidable accident.

The Tribunal observed, that from the records it is evident that there is neither any evidence nor any observation in any of the Panchnama or in the statements that the light was kept open by the employee of the appellant. There is no such evidence or observation in any of the certificates and reports issued by various authorities of Gujarat Police as well as of the Fire Brigade authorities. They had submitted various documentary evidences, such as, FIR filed with the Police Department, Police Report, Certificate of Fire Insurance etc. and nowhere it has been observed that there was any negligence on the part of the appellant or its employees. It relied upon the decision of the Tribunal in the case of M.J. Electrical Pvt. Ltd. vs.. CCE, 1993(63) E.L.T. 193 (T) and R.B.N.S. Sugar Mills Ltd. vs. CCE, 1996 (87) E.L.T. 687 (T), wherein it was held that when the assessee had informed the police and Fire Brigade and taken all reasonable action, there was no negligence.

Therefore, in the absence of any evidence to contrary, it cannot be said that the fire was not accidental.

The Tribunal further held that in the case of Mangal Sen Lal Man vs. Union of India, 125 ELT 61, which was relied upon by the learned SDR, the fire in that case was due to an act of arson and deliberate by one person named Bashir, therefore, it was not an accidental fire. Whereas, in the present case, whatever evidence is available on record shows that fire was accidental. Therefore, remission of duty on goods destroyed due to fire is fully covered by the Proviso to Rule 49(1) of the Central Excise Rules as the goods were destroyed due to unavoidable accident. Since the appellant had given all the details of the goods destroyed and the demand notice was issued only for that duty and for those goods which were quantified by the appellant. The Department had no other information that the goods shown, as destroyed by the appellant, was not the correct quantity. The certificate dated 15-2-1999 (page 180 of the paper book) issued by the New India Insurance Company Ltd., shows that no element of Modvat excise portion of the relevant stock of raw material, bought out parts, semi-finished goods and finished goods were included in the full and final settled amount of damage loss payment.

It was therefore, held that the appellant is entitled for remission of duty under Proviso to Rule 49(1) of the Central Excise Rules.

Milton Plastic Industries vs. CCE Vadodara 188 ELT 206 (Tri - Mumbai)

SERVICE TAX

18. Whether recipient of service is liable to service tax prior to the amendment of Rule 2(1)(b) of the Service Tax Rules, 1994.

Held : No.

The lower service tax authority levied service tax and penalty on the recipient of services for the period July 1997 to September 2001, on the ground that appellant received services of Consulting Engineers from Cadbury Schweppes Overseas Ltd. (CSOL).

The appellant made the following two arguments.

1. CSOL is not an engineering company and did not supply any advice/consultancy/technical assistance in any discipline of engineering and hence Service Tax is not leviable as CSOL cannot be considered as a Consulting Engineer in terms of section 65(18) of the Finance Act, 1994. CSOL merely supplied technical know-how in the form of specifications, recipies and procedures.
    

2. During the disputed period July 1997 to September 2001, the recipient of a service was not liable to pay service tax. Only with effect from 16-2-2002; i.e., after the amendment of Rule 2(1)(b) of the Service Tax Rules, 1994, a person receiving taxable service became liable to pay Service tax on behalf of the service provider.

The Tribunal also relied on the decisions of Bajaj Auto Ltd. vs. CCE Aurangabad 179 ELT 179 ELT 481 and Navion Ltd. vs. CCE Mumbai IV 172 ELT 400.

The Tribunal observed that we find that the period of dispute is clearly prior to amendment of Rule 2(1)(b) of the Service Tax Rules, 1994. Since only through this amendment liability to pay service tax was fastened unto a service recipient and the said amendment is prospective, the appellants cannot be made to pay any service tax for the period July 1997 to September 2001 which is prior to the amendment of the Rules. Therefore, we are of the view that the impugned demand and penalty cannot be sustained.

Cadbury India Ltd. vs. CCE, Mumbai 188 ELT 166 (Tri - Mumbai)

SERVICE TAX

19. Whether “Other Expenses” recovered from group company for services rendered towards publicity, freight, travelling, power and fuel, rent and miscellaneous expenses are chargeable under Management Consultancy Services?

Held: No.

Whether staff cost incurred for 8 marketing teams allocated to Group Company being executory cost and advisory cost for marketing products of groups company liable under management Consultancy Services?

Held : No, but liable under “Business Auxiliary Service”

M/s. GlaxoSmithKline Pharma-ceuticals Ltd. and M/s. Burrough Welcome India Ltd. are subsidiaries of Glaxowellcome Pvt. Ltd. U.K. Glaxo pending merger with Burrough Welcome undertook certain joint operation and the cost incurred for Burrough are allocated and reimbursed as per agreement.

Glaxo’s notes of accounts of Balance Sheet mentioned recovery of “Other Expenses” and “Staff Cost” from Burrough Welcome.

The “Other Expenses” as certified by CA consisted of

Other Expenses	Rs. in lakhs
Publicity	164.29
Freight	8.23
Travelling	243.51
Power & Fuel	0.20
Rent	4.36
Miscellaneous Expenses	167.48
___________________ Total ___________________	________ 588.47 ________

The Tribunal held that service tax is not payable on reimbursement/out of pocket expenses charged on actual as per clarifications of the department. Besides none of the above heads could be covered by the definition of “Management Consultancy Services” Therefore the levy of service tax on these costs cannot be upheld.

Staff costs as per CA’s certificate were costs incurred on 8 marketing teams, which had been allocated to BWIL, based on budgeted turnover of each team. Further, cost of the staff members in Glaxo payroll, working involving exclusively for BWIL, had not been directly cross charged.

It was argued that these charges are executory cost and not advisory cost for marketing the products of Burrough Welcome. Attention was drawn to CBECS circular, which mentioned that intention was to tax advisory services, by consultant and not executory services provided by consultant.

The Tribunal held that these executory services provided by the marketing team staff would appropriately fall under Business Auxiliary Services & not Management Consultancy Service. They further held that on the facts of this case, the levy of service tax on staff costs paid by Burrough Welcome under the heading ‘Management Consultancy Service’ cannot be upheld. Levy on such costs could be under Business Auxiliary Service, which was not a taxable service prior to 2003 and appellant is not a service provider as Management Consultant.

Once that is found, the appellant cannot be classified as a service provider under the head of ‘Management Consultant.’

The appeal of the appellant was allowed.

Glaxo SmithKline Pharmaceuticals Ltd. vs. CCE, Mumbai IV 188 ELT 171 (Tri-Mumbai).

SERVICE TAX

20. Whether transfers of know-how vide an agreement, which was in the nature of a license agreement, can be treated as a service rendered as a Consulting Engineer?

Held : No.

Pfizer Ltd. engaged in the manufacture of medicaments, entered into an agreement with M/s Pfizer Inc U.S.A for a technical-knowhow in relation to certain pharmaceutical products and allowed the use of patents held for the products.

The department issued a notice alleging to pay service tax on the amount paid as “Engineering Consultancy” to Pfizer USA. The Commissioner (A) dismissed the appeal.

The appellants submitted that Pfizer USA is admittedly engaged in the the manufacturing and marketing of medicaments and cannot be understood as an ‘Engineering firm by a common man. On perusal of the Agreement entered into, which has caused for the payments, reveals that the same licenses, with conditional rights, it cannot be considered to be tendering any service. The lower authorities have relied upon the stipulation in the Agreement to the effect that the appellant will bear the taxes. The mere agreement to bear the incidence of tax, if any, cannot render the consideration of a service receiver taxable and become and be understood as ‘service provider’, especially in light of the decision by the Apex Court in the case of Laghu Udyod Bharati & Ors-, 1999 (112) ELT 365 (S.C.).

It is submitted that Pfizer is not engaged in the profession of “consulting” and accordingly is not a Service Provider as defined under the Act.

They further referred to the Trade Notice No. 7/97-ST dated 4-7-1997 issued by the Commissionerate-I wherein it was mentioned that the services which attract the levy to include all the services which are rendered in the capacity of a professional person and specifically include the services pertaining to structural engineering works, civil/mechanical /electrical works or relating to engineering construction management. All services rendered within the above scope of the term ‘engineering’ attract service tax, provided they are rendered in the capacity of a consulting engineer.

It was finally submitted that transfer of know-how made under the aegis of the agreement entered into by the Pfizer with the appellant, was in the nature of a license agreement. It was submitted that the activities contemplated under the agreement were clearly in the nature of a license with transfer of know-how and not that of a service and consequently, Pfizer has rendered no taxable service to the appellant. There is a clear distinction between a license and an agreement for Service, which the learned. Commissioner (Appeals) has failed to appreciate. It was respectfully submitted that as there is not taxable service rendered by the Pfizer to the appellant under this agreement, the question of levying service tax on the transaction does not arise. The impugned order not having appreciated this fact, it is bad in law and deserves to be set aside.

It is submitted that in the instant case, the transaction in question took place between a licensor supplying certain technical know-how and a licensee who is the recipient of such know-how. The relationship between a licensor-licensee is quite different from the relationship between consultant-clients. It was respectfully submitted that the learned. Commissioner (Appeals) had failed to appreciate that for Service Tax to be payable, a service provider- client relationship has to exist, which is clearly not the case in the transaction between the appellant and Pfizer.

The Tribunal accepted the contentions of the appellant on this ground and also on the fact that the period of dispute is prior to introduction of Rule 2(1)(d) for taxing on reverse charge mechanism.

Pfizer Ltd. vs. CCE Mumbai 188 ELT 456 (TRI- Mumbai)

CUSTOMS ACT

21. (i) Whether Cross examination in quasi-judicial proceedings is essential in all situations?

Held : No.

(ii) Can the statements given by the witness when they cannot be produced for cross examination without considerable expenses and time be relied upon based on principles of sec. 138 of Customs Act?

Held : Yes.

(iii) Merely because trial court acquits for lack of evidence, whether departmental proceed-ings should also result in acquittal?

Held : No.

(iv) What is the evidential value of uncorroborated witness? Can a single trustworthy witness establish a fact and it is not necessary that crime has to be witnessed by many.

Held : Yes.

Costao Fernandes was a junior officer in Marmagoa Custom House. He gathered secret intelligence that a huge quantity of gold was going to be smuggled into the country. The landing would take place near Fartade beach, one of those lonely beaches of Goa.

Churchill Alemao started his life as a tea boy and rose to become Chief Minister of the State of Goa. Ciabro Alemao, Joaquim Alemao, Late Alvarnez Alemao, all brothers of Churchill Alemao had equally humble beginning and rose to become rich and famous of Goa.

Churchill Ciabro, Joaquim Alemao and their associates Rodrigues & Subhas Pandey are person penalized under section 112(a) and (b) of Customs Act for smuggling and hence these appeals.

The narration of the events as available on record are as under:—

On the night of 15th May, 1991, the one-man army was keeping a nightly vigil on Fartade Beach from a secret place. He was pointedly asked during his cross-examination as to where the secret place was. He refused to divulge it. Some places have to remain secret. They would be useful for other officer to keep similar vigils if they are so inclined. Costao observed Joaquim, Ciabro, and Alvarnez and their associates coming to the site of construction around 8.30 pm in various vehicles on that night. They proceeded towards the beach and after a while left the place. Nothing much happened that night. The officer continued to keep his lonely watch. Next day morning (16th May, 1991), he saw Churchill, Ciabro, and Joaquim and two to three other persons visiting the site of construction. Costao thought that no smuggler however influential would dare to land contraband goods in broad daylight so he went home. He was wrong.

Around 10.30 am, he received call that a great deal of activity was going on at Carmona Beach. The lone ranger hurled himself in the direction of the beach on his motorcycle. He noticed Ciabro standing near Luis Bar close to the beach. At that time, a white Contessa car (hereafter referred to as the “car”) bearing number “GA-02-A-4567” and a Maruti car bearing plate “DAC-5492” were parked near the beach. Costao saw four heavy battery-type boxes being loaded in the car under the supervision and directions of Alvarnez. He also saw one such box being loaded in the Maruti car driven by Subhash Pandey. Costao decided to follow the vehicle, which had more boxes and therefore, followed the car. On the way, he instructed Samaritan to inform his wife (Costao’s) to telephone the Custom office about his movements and proceeded in pursuit of the car.

Costao intercepted the car at Verca village, jumped into the front seat and requested the driver, Alvarnez to stop the vehicle (with politeness). The latter did not oblige. There was a scuffle. A knife was pulled by Alvarnez and in the ensuing struggle, Alvarnez was grievously hurt. The officer took out the ignition key, opened the dickey, managed to open one of the battery-type boxes, pulled out a gold biscuit, showed it to the crowd which had gathered by then and requested for help and for some water. Neither of which was given. So he threw the gold biscuit back into the dickey, locked it, deflated the tyres of the vehicles, threw the key away, and walked away in his blood-stained clothes in the general direction of one Mrs. Antonite’s house (these Customs officers live rather dangerously). Meanwhile, Alvarnez died.

The above narration of events is based on the statement of Costao Fernandez recorded u/s 108 of Customs Act and the affidavit filed before the Tribunal.

There are witnesses to the struggle in the front seat of the car and to the fact that Costao was attempting to open the dickey. After he left the scene, he was not privy to the events that took place later. There were 3 witnesses who saw the events that took place after Costao’s departure from the scene. The following narration is based on the evidence tendered by the three, Vincy Soarces, Baptista Fernandez, and Sebastina Fernandez. Their statements were recorded under section 108 of the Custom Act.

Within 10-15 minutes of the departure of Castao, the Churchill brothers arrived on the scene, the first to come it appears was Joaquim Alemao and his associates. They had one look at the driver and proceeded to force open the dickey, removed at least two battery-type boxes from the dickey one of which was taken away by one Roy Miranda along with another person and the second one by Rodrigues in the general direction of Verca village. There are witnesses who saw these persons carrying the boxes on the scooters, one of which was later traced and seized. The said witnesses say that Ciabro and Churchill were also present when the boxes were being removed from the dickey. The brothers also attended on the injured person and took him away from the car. The three also say that Costao identified himself as a Customs officer after he got down from the front seat in blood-stained clothes and was trying to fiddle with the dickey before he left the scene. Thus there appears to be some discrepancy between Costao’s version and that of the witnesses. We may recall that Costao in his statement and in the affidavit filed before the Tribunal says that he took out a gold biscuit from the battery–type box and showed it to the crowd, whereas the witnesses say that they have seen him only fiddling with the dickey. The Commissioner relied on the version given by these three persons even though they did not turn up for cross-examination before him. The Churchill brothers themselves have denied removing any boxes from the dickey of the car.

During the course of investigation, the Customs officers recorded statements of several persons. There are witnesses to the fact that two battery-type boxes were carried on the scooters. The owner of Luis Bar testified that Ciabro Alemao came near Carmona beach around 10.30 am on 16-5-1991 and went towards the beach before he left the place. These version coupled with the statement of Costao under section 108 were the main planks on which the Commissioner’s case rested.

On the other hand when customs were investigating offence committed by Churchill brothers, CBI was appointed to investigate and prosecute custom officer Costao Fernandez for killing Alvernez because of some old grudge.

Costao, being a custom officer took protection u/s 155 of customs Act which affords protection to a customs officer against civil and criminal liabilities if such officer is discharging function entrusted to him under the Custom Act. Trial court rejected his plea and no relief was granted under this section. He pursued the matter up to the Supreme Court.

The Supreme Court observed “A valiant and a dutiful Customs officer risked his life to fight the mighty underworld of smugglers unarmed and single-handedly. And see! He succeeded after hard chase on his motor cycle- smuggler being in a car. The result was smuggling of gold worth Rs. 8 crores was prevented. The reward? He has been made to face a prosecution under section 302 of the IPC at the behest of the CBI who is brought hurriedly and for undisclosed reasons to investigate…”

The Supreme Court concludes that there was gold worth Rs. 8 crores in the car intercepted by Costao. Such conclusion was arrived at on the basis of record maintained in the Custom House, the statement of Costao Fernandez and statement of person who saw the boxes removed from the dickey of the car. The Apex Court was aware that except Costao nobody else saw the gold nor any gold was seized subsequently.

The counsel for the appellant, being Alemao brothers and their associates argued as under—

1. Principles of natural justice are violated inasmuch as the key witnesses (Vincy, Baptista & Sebastin) were not produced for the cross-examination.
    

2. Commissioner relied solely on the testimony of Costao, the Custom officer.
    

3. No gold was seized and due to lack of evidence the Chief Metropolitan Magistrate discharged the appellants in a prosecution case of department and they did not succeed in higher forum also and hence no penalty can be levied concluding that no offence has been committed.
    

4. The appellant relied on various cases, the ratio of these decisions being “It is impermissible to apply the ratio of a decision of a case involving identical situations factual and legal without a close examination of the rational of the decision which is cited as precedent.

The department also argued extensively and after hearing both sides the Tribunal observed as under.

“There is no gainsaying the fact that the evidence in this case is only circumstantial. The appellant's contention that the evidence tendered by Vincy, Sebastin, and Baptista should not have been relied upon as these witnesses were not produced for cross-examination is carefully considered by us. The Commissioner made every attempt to summon these persons repeatedly. He was informed that these persons were living abroad. The Commissioner observed that section 138B of the Custom Act permits the prosecution to rely on the statements given by the witnesses if such witnesses cannot be produced without considerable expense and time. Though these provisions are applicable in a case of prosecution under the Customs Act, we see no reason as to why the same principle should not apply in the proceedings before an adjudicating authority. These person clearly stated that the Churchill brothers and Rodrigues removed the boxes from the dickey. Costao saw the boxes being put in the dickey at Carmona beach. The car was intercepted for the first time only in Verca village. There is evidence in the form of the panchnama drawn by the police after the incident to the effect that the dickey of the car was broken open. The Churchill brothers admit that they had visited the scene of the accident on May 16th, 1991 around 1.00 pm. It is also a fact that the boxes in the dickey were not found by police later. In the light of these events, it is safe to conclude that the battery-type boxes were in the dickey, that they were removed from there and that no one else could have removed them without the consent of the owner of the car. It was on record that the car belonged to Churchill Alemao. We agree with the Commissioner’s contention that cross-examination in quasi–judicial proceeding is not essential in all situations.

The circumstances under which the battery–type boxes were removed clearly indicate that the boxes contained something very valuable. Nobody would have bothered to remove some trash from the dickey in such a hurry when grievously injured person was lying in the front seat of the car. It still remains to be seen whether the boxes contained gold. The Commissioner relied on the version given by the Costao that he had opened one of the battery-type boxes, took out the gold biscuit and showed it to the crowd. He also relied on the statement of Costao where he narrated the conversation between him and Alvarnez. The latter seem to have said that he was carrying gold and that he was prepared to share it with Costao. The Supreme Court also believed that gold worth Rs. 8 crores was being smuggled in the car. The evidence before the Apex Court is no better or worse than what we have before us in this regards. It is therefore safe to rely on the finding of the Apex Court that the appellant asked Costao as to how he knew that what he handled was gold in the absence of any chemical analysis of the metal. Costao replied that he knew it was gold out of his experience. When we agree that something valuable was removed from the dickey of the car there is no reason for us to disbelieve that what Costao handled was not gold.

We have considered the contention that since the trial court acquitted the appellant for lack of evidence; the departmental proceeding should also result in such acquittal. We are unable to agree. Appreciation of evidence in departmental proceeding stands on a different footing. The Bombay High Court in the case of Cyrus Nazar Kolah vs. UOI [1988 (37) E.L.T. 515] has held that acquittal in a criminal proceeding cannot be a ground for setting aside a penalty imposed in departmental proceedings.

On the issue of, that the Commissioner relied on the uncorroborated evidence of Costao for coming to a conclusion that the boxes contained gold, we observe that the learned advocate for the department had rightly pointed out that it is not necessary under the Evidence Act that every statement of a witness has to be corroborated to establish a fact. Costao all along maintained that he saw the gold in the battery-type box. When he was cross-examined before us by the appellant he maintained the same version. He was allowed to file an affidavit as to the facts, by the Hon’ble High Court of Bombay. We have no reason to disbelieve the version given by Costao. We observe that the affidavit itself is based on the contemporaneous record maintained in the Marmagoa Custom House. The theory that there was no gold at all was debunked by the Supreme Court. A single trustworthy witness can establish a fact. It is not necessary that a crime has to be witnessed by many in order to result in a conviction. In a different context the Supreme Court in the case of K.I. Pavunni vs. Assistant Collector, Cochin [1997 (90) E.L.T. 241] has held that a person’s evidence recorded under section 108 can be relied upon even when he is an accused in that case. Costao tendered his evidence under section 108 of the Customs Act and his testimony can be relied upon even without any corroboration.

There is enough circumstantial evidence to indicate that Churchill Ciabro, Joaquim, and Rodrigues indulged in the acts of commission and omission rendering themselves liable to penal action under sections 112(a) and (b) of the Customs Act.

Joaquim Alemao vs. CCE Goa 188 ELT 231 (Tri – Mumbai)