Imperial Fragrance & Flavours Pvt. Ltd. Vs Commissioner of Customs (CESTAT Kolkata)
Summary: M/s. Imperial Fragrance & Flavours Pvt. Ltd. imported ‘Gurjon Oil’ and ‘Patchouli Oil’ from Indonesia under Bill of Entry No. 4012164 dated 11.07.2019. The Bill of Entry was assessed after examination and Out-of-Charge was granted on 19.07.2019. The appellant claimed exemption from Basic Customs Duty (BCD) under Notification No. 46/2011-Cus. dated 01.06.2011, as amended by Notification No. 82/2018-Cus. dated 31.12.2018.
During audit in 2021, an objection was raised that the appellant had paid IGST at 12% whereas 18% was required. The appellant accepted that differential IGST was payable but requested permission to file a supplementary Bill of Entry so that the differential IGST could be taken as input tax credit. A show cause notice dated 09.07.2021 was subsequently issued proposing revision of the classification of the imported oils, denial of the concessional BCD benefit and recovery of differential IGST. The adjudicating authority confirmed BCD of Rs.7,46,325/- and SWS of Rs.74,632.50/- together with differential IGST. The Commissioner (Appeals) dismissed the appellant’s appeal.
Before the Tribunal, the appellant contended that the Bill of Entry and connected documents, including the certificate of origin and invoice, had been duly produced at the time of import. It was submitted that the amended Notification No. 46/2011-Cus. covered goods under Chapter Heading 3301 irrespective of the applicable sub-heading. On IGST, the appellant submitted that the 12% payment was a bona fide error, that it had voluntarily agreed to pay the differential amount when pointed out in audit, and that the requested supplementary Bill of Entry was not considered. Since the differential IGST would be available as input tax credit, the appellant argued that the situation was revenue neutral.
The Revenue submitted that the classification adopted at import was subsequently found to be incorrect and that, on the revised classification, the appellant was not entitled to the concessional BCD rate. It also relied on the appellant’s admission that an incorrect IGST rate had been adopted.
On the BCD and SWS issue, the Tribunal examined the Bill of Entry and noted that the appellant had claimed exemption under CTH 33019079 and had submitted the certificate of analysis, invoice and other documents showing Indonesia as the country of origin. The Tribunal found that assessment had taken place on 11.07.2019, examination was undertaken on 19.07.2019 and Out-of-Charge was issued on the same date. It held that Customs had cleared the goods only after being satisfied with the classification and documentary evidence. On examining the notifications, the Tribunal found that the BCD exemption was available for CTH 3301 irrespective of the sub-heading applicable to the goods. It therefore set aside the BCD and SWS demand.
As regards differential IGST, the Tribunal found that there appeared to be a genuine error in the payment of IGST. Had IGST been paid at 18% at import, the appellant would have been eligible to take input tax credit. The Tribunal also considered the appellant’s conduct in volunteering to pay the differential amount and requesting a supplementary Bill of Entry for taking credit. It observed that the taking of IGST credit was an indefeasible right when the inputs were used and the finished goods suffered Excise Duty/GST at the time of clearance, and stated that the Audit/GST officials should have considered the request.
The Tribunal then relied upon the principle of revenue neutrality and referred to Chiripal Polyfilms Ltd. v. Commissioner of C.Ex. & S.T., Vadodara-I, Asmitha Microfin Ltd. v. Commissioner of Cus., C.Ex. & S.T., Hyderabad-III and Jet Airways (I) Ltd. v. Commissioner of Service Tax, Mumbai. The cited decisions were considered to support the proposition that where the differential duty or service tax would accrue as CENVAT credit to the assessee, the situation is revenue neutral and the demand is not legally sustainable.
Applying that reasoning, the Tribunal held that the cited case-law was squarely applicable and set aside the confirmed differential IGST demand. Consequently, the impugned order was set aside, the appeal was allowed and consequential relief, if any, was directed to follow as per law.
Cases Discussed
- Chiripal Polyfilms Ltd. v. Commissioner of C.Ex. & S.T., Vadodara-I, 2022 (67) G.S.T.L. 454 (Tri.-Ahmd.)
- Asmitha Microfin Ltd. v. Commissioner of Cus., C.Ex. & S.T., Hyderabad-III, 2020 (33) G.S.T.L. 250 (Tri.-Hyd.)
- Jet Airways (I) Ltd. v. Commissioner of Service Tax, Mumbai, 2016 (44) S.T.R. 465 (Tri.-Mum.)
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT KOLKATA
The appellant has imported ‘Gurjon Oil’ and ‘Patchouli Oil’ from Indonesia and has filed Bill of Entry No. 4012164 dated 11.07.2019 by claiming exemption from payment of Basic Customs Duty (BCD) in terms of Notification No. 46/2011-Cus. dated 01.06.2011 as amended by Notification No. 82/2018-Cus. dated 31.12.2018. The said Bill of Entry was assessed after examination and Out-of-Charge was granted on 19.07.2019.
2. Thereafter, during the course of audit of the unit in 2021, an objection was raised by the Audit team on ground that the appellant has paid I.G.S.T. at the rate of 12% whereas I.G.S.T. at the rate of 18% is required to be paid. The appellant made a submission that they were ready to pay the differential duty on account of I.G.S.T., but requested that they may be allowed the facility of filing a supplementary Bill of Entry so as to enable them to take the input tax credit of the differential I.G.S.T. being so paid by them. This request was not considered.
3. A Show Cause Notice came to be issued on 09.07.2021 on the ground that the classification of ‘Gurjon Oil’ and ‘Patchouli Oil’ is required to be revised whereupon the appellant would be ineligible for the concessional rate of BCD under Notification No. 46/2011-Cus. dated 01.06.2011 as amended by Notification No. 82/2018-Cus. dated 31.12.2018. The SCN also demanded the differential IGST between the 12% adopted by the appellant and 18% as per the Revenue.
4. The appellant filed a detailed reply in defence of their case.
5. However, the ld. adjudicating authority confirmed the demand of BCD of Rs.7,46,325/- + SWS of Rs.74,632.50/-, along with the demand of differential I.G.S.T.
5.1. The appellant filed an appeal before the Ld. Commissioner (Appeals), which was dismissed by him.
5.2. Being aggrieved, the appellant is before the Tribunal.
6. The Ld. Consultant appearing on behalf of the appellant submits that the Bill of Entry was assessed after examination and Out-of-Charge was granted on 19.07.2019. He takes us to Page number 58 (i.e., the Bill of Entry) to fortify this submission. He also takes us through the Bill of Entry and the connected documents thereto, which show that the certificate of origin, invoice, etc., were properly placed before the Customs authorities at the time of import. He further took us through the relevant Notification, as amended on 31.12.2018, and submitted that all the goods covered under Chapter Heading 3301, irrespective of the sub-heading, would be eligible for concessional rate of BCD. In view of these submissions, he prays that the confirmed demand of BCD of Rs.7,46,325/- along with SWS of Rs.74,632.50/- be set aside.
6.1. In respect of the differential duty demanded and confirmed under I.G.S.T., the Ld. Consultant for the appellant has submitted that the appellant was under the bonafide belief that they were required to pay I.G.S.T. at the rate of 12%; subsequently, on being pointed out about this issue by the Audit, they have also verified, checked and found that I.G.S.T. is payable by them at the rate of 18%. As a matter of fact, he submits that the appellant agreed to pay this amount, with a request that they may be allowed to file Supplementary Bill of Entry so that the differential I.G.S.T. could be taken as input tax credit; this request was made even before the lower authorities, which was not considered. The Ld. Consultant further submits that since the appellant himself would be eligible to take the input tax credit for the differential I.G.S.T. paid, the same results in a revenue neutral situation. He relies on various case-law wherein it has been held that if credit is available to the appellant himself, in such cases, the demand cannot be legally sustained. On the basis of these submissions, he prays that the differential demand confirmed on account of I.G.S.T. may also be set aside.
6.2. Finally, he prays that the impugned order be set aside in toto.
7. The Ld. Authorized Representative of the Revenue submits that admittedly the appellant has filed all the documents at the time of the imports; however, subsequently, it was found that the classification adopted by the appellant in respect of the said imports was not correct. He submits that if the classification is changed, the appellant would not be eligible for the concessional rate of BCD as claimed by them. Thus, he justifies the confirmed demand on this count.
7.1. In respect of the demand made under I.G.S.T., it is contended by him that the appellant himself has admitted that they had adopted an erroneous percentage of I.G.S.T. at the time of the imports. Therefore, he justifies the confirmed demand on account of I.G.S.T.
8. Heard both sides, perused the appeal papers and the documents placed before us.
9. We have gone through the Bill of Entry in question. The relevant portions of the same are extracted below: –
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9.1. A careful reading of the above documents, would clarify that the appellant has claimed the exemption under CTH 33019079 and have submitted all the documents, including the certificate of analysis, invoice, etc., showing the country of origin as “Indonesia”.
10. It is also seen that the assessment was done on 11.07.2019, the examination thereof was taken up on 19.07.2019 and Out-of-Charge was issued on 19.07.2019. Thus, it becomes clear that the Customs had cleared the goods only after being satisfied with the classification adopted by the appellant and the documentary evidence placed by them towards the country of origin. On going through the Notifications, it is seen that the exemption towards BCD is available for CTH 3301 irrespective of the sub-heading applicable for the goods. Therefore, we do not find any merits in the confirmation of demand of BCD and SWS. Therefore, we set aside the same.
11. Coming to the differential I.G.S.T. demanded and confirmed, we find that there seems to be a genuine error on the part of the appellant in the payment of I.G.S.T. made while clearing the goods for imports. Admittedly, had they paid I.G.S.T. at the rate of 18% at the time of imports, they would have been eligible to take input tax credit. Even when the error was pointed out by the Audit, the appellants have shown their bonafides by volunteering to pay the same, with the request to allow them to file a Supplementary Bill of Entry so as to take the input tax credit, which was not considered at any stage. Since the taking of I.G.S.T. credit is an indefeasible right of the appellant when they use the inputs and the finished goods suffers Excise Duty / GST at the time of clearance from the appellant’s factory, the Audit / G.S.T. officials should have considered the request of the appellant.
11.1. We also find that Tribunals and Courts have been consistently holding that when the differential duty / service tax accrues as CENVAT Credit to the assessee, the same results in a revenue neutral situation. Accordingly, it has been held that the confirmed demand is not legally sustainable. In this regard, we have for reference the case-law of M/s. Chiripal Polyfilms Ltd. v. Commissioner of C.Ex. & S.T., Vadodara-I [2022 (67) G.S.T.L. 454 (Tri. – Ahmd.)], wherein has been held as under: –
“5.5 Similarly, on revenue neutrality, appellant submitted that if they had paid Service Tax of Rs. 2.96 crores, it would have been available as Cenvat credit to them only and consequently they would have paid less duty from PLA when appellant has paid duty from PLA/Cash Account for the amount of Rs. 17.43 crores during the period in question. Government does not get any extra revenue in such a revenue neutral situation. It is settled law on revenue neutrality that there can’t be wilful suppression of facts or intent to evade payment of Service Tax when whatever Service Tax if paid by appellant was available to themselves as Cenvat Credit. Plethora of Decisions relied upon by appellant In their submissions in this case, on Revenue Neutrality and on time limitation support their case. The Order-in-Original has rejected submission on Revenue neutrality with illogical, incorrect and unjustified observation that if argument of revenue neutrality as a permissible defence is accepted, entire scheme of payment of taxes on reverse charge basis will become irrelevant. However, the facts of payment of substantial amount of Excise duty from PLA during the period in question cannot be ignored, while considering revenue neutrality. Revenue has not adduced any evidence to show that appellant had not paid disputed Service Tax with intention to evade payment of Service Tax, when it was available as credit to appellant themselves under RCM. We also find force in the submissions of appellant on both these points. The demand of entire Service Tax is not sustainable on time limitation.”
[Emphasis supplied]
11.2. A similar view has also been expressed by the Tribunal in the case of M/s. Asmitha Microfin Ltd. v. Commissioner of Cus., C.Ex. & S.T., Hyderabad-III [2020 (33) G.S.T.L. 250 (Tri. – Hyd.)]. The relevant portion of the said order is reproduced below: –
“6. However, we find that the demand is for the period April, 2009 to March, 2012 and the show cause notice was issued invoking extended period of limitation on 17-10-2014. The entire demand is under reverse charge mechanism and if the appellant had paid the service tax under reverse charge mechanism, they would have been entitled to Cenvat credit of exactly the same amounts. Therefore, the revenue neutrality in this case is evident. It has been well settled at the hands of the Apex Court in the case of Jet Airways (supra) that extended period of limitation cannot be invoked in revenue neutral cases. Therefore, the entire demand is hit by limitation and therefore needs to be set aside. The impugned order is set aside and the appeal is allowed.”
[Emphasis supplied]
11.3. The above issue has also been examined in the case of M/s. Jet Airways (I) Ltd. v. Commissioner of Service Tax, Mumbai [2016 (44) S.T.R. 465 (Tri. – Mum.)]. The relevant paragraph of the said order reads as follows: –
“10.4 In our considered view the appellant could have availed Cenvat credit of the service tax paid on reverse charge mechanism as they are liable to pay tax on output service hence, Revenue neutral situation arises wherein appellant pays the tax and takes the credit. We note that the issue as to confirmation of service tax liability arose on the payment made to CRS Company, as decided by majority decisions, in three cases namely British Airways, Thai International Public Co. Ltd. and Austrian Airways wherein the question of revenue neutrality arose, which was answered in favour of assesses therein. It is trait law that question of Revenue Neutrality is a good ground, more so when the tax liability is being discharged under reverse charge mechanism. This very plea of revenue neutrality in an identical issue was raised in British Airways case and decided also. It is settled law when an issue is raised and decided in a judgement, the ratio applies.”
[Emphasis supplied]
11.4. We find that the ratio laid down in these case-laws is squarely applicable in the present case. Therefore, we set aside the confirmed demand of differential I.G.S.T.
12. As a result, we set aside the impugned order and allow the appeal filed by the appellant. The appellant would be eligible for consequential relief, if any, as per law.
(Dictated and pronounced in the open court)
