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TMI Blog2024 (4) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... same impugned order dated 28.12.2022 and also similar issues involved, these appeals are taken up together for disposal by this common order. 2.1 The issue involved in the Appeal No. E/40118/2023 filed by the Appellant Assessee involves the alleged wrong availment of Notification No. 12/2012-CE dated 17.03.2012 in relation to food preparation supplied to Women Industrial Co-Operative Societies intended for free distribution to the economically weaker sections of the society and the Appeal No. ST/40150/2023 filed by the Commissioner of Central Excise, Salem involves non-payment of Service Tax on the alleged standalone services provided by the Respondent Assessee to the Women Industrial Co-Operative Societies in the manufacture of Complementary Weaning Foods. 2.2 Brief facts of the case, as ascertained from the appellate records are that M/s. Christy Friedgram Industries, Namakkal, is involved in manufacturing food preparations namely "Complementary Weaning Foods" (hereinafter referred as CWF) and "Blend of Critical Processed Materials" (herein after referred as BCPM), falling under heading No. 1901 of CETA, 1985. Both these products were exclusively sold to the Department of "Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of the exemption Notification No. 12/2012-CE dated 17.03.2012 for both the products. 2.4 The Department denied the benefit of the exemption contained in the impugned Notification to BCPM on the ground that the Appellant Assessee did not supply the same directly for free distribution to the economically weaker sections of the society and had supplied the BCPM only to WCS for further manufacture of Complementary Weaning Food. The WCF manufactured by the Appellant Assessee and packed in 1kg and 2kg bags alone was directly distributed to the economically weaker sections of the society and hence only the WCF directly supplied to ICDS was entitled for such exemption. The Department also alleged that the price of BCPM did not include the freight charges which was subjected to appropriate service tax, in spite of the place of removal being the WCS, should be included in the transactional value of BCPM. 2.5 Consequently, the Show Cause Notice No. 03/2021-CEX & ST dated 05.08.2021 was issued to the Appellant Assessee demanding central excise duty of Rs.47,16,57,863/- on the transaction value determined under section 4 of the Central Excise Act, 1944. The Notice also demanded servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t BCPM to the WCS. They submit that an expert committee has been constituted to evaluate, formulate and prescribe the procedure to implement the scheme of supply of nutritional food supplement to the weaker sections of the society. The expert committee introduced the subject product with the nomenclature BCPM along with the technical specifications and also suggested that BCPM shall be procured/purchased from competent, eligible Private Enterprises like the Appellant Assessee. The Committee advised that the WCS would add roasted wheat flour with BCPM in the ratio of BCPM - 58% and Wheat flour - 42%. The technical specification suggested by the Committee would clearly show that essential ingredients namely Malted Ragi which contributes amylase activity which is instrumental for digestion and easy absorption of nutrients and vitamin pre-mix, which contributes micronutrients, are contained only in BCPM. Thus, the committee assigned significance to BCPM. The technical specification for BCPM and CWF recommended by the Expert committee furnished by the Appellant Assessee in support of their contention that it contained all essential ingredients of a food preparation, is given below:- TE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted before the Court. As directed by the Hon'ble Madras High Court, an order (Ms) No. 146 dated 16.10.2006 incorporating the recommendation of the Expert Committee was issued by the Government of Tamilnadu. 4.3 The Expert committee visited all the premises of Women Development Industrial Co-Operative Societies and studied the process undertaken by the WCS, the infrastructure and the machinery installed there in. The defects in WCS were pointed out and the suggestions there upon to improve the quality of CWF to be supplied to the beneficiaries were also given by the Expert Committee. 4.4 The main suggestions of the Expert Committee relevant to the issue are furnished below:- a. Primary Defects in the Women Development Industrial Co-Operative Societies:- i. The production premises, Raw material, and finished product godowns are either not separately maintained or inadequate and also do not comply with IIS:2491-1998 FOOD HYGIENE-GENERAL PRINCIPLES-CODE OF PRACTICE as required for the manufacture of food items. ii. The societies do not have the basic infrastructure for the manufacture of the malted Ragi Flour, which is instrumental in providing the enzyme "Amylase" in the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.50 5 Full Fat Soya Flour 18.00 6 Jaggery 46.50 7 Minerals(Iron, Calcium) and Vitamins Pre-mix (Vitamin A&C, Thiamine, Riboflavin, Niacin, Folic Acid) 1.80 Specification for CWF : Roasted wheat flour : 42% and BCPM: 58% 4.5 Further, the Ld. Advocate submitted that the expert committee created a new product with nomenclature "Blend of Critical Processed Materials" containing the ingredients as per Technical Specification recommended therein. As the societies did not possess sufficient infrastructure and machinery to process raw materials and finished products especially for the manufacture of Malted Ragi, which is instrumental to contribute amylase activity, it was recommended to procure/purchase BCPM from qualified, competent and eligible private enterprises like the Appellant Assessee. Thus, they submit that the BCPM is a food preparation containing the essential ingredients classifiable under Chapter 1901 of the CETA, 1985, covered within the scope of the exemption provided in the Notification No. 12/2012 dated 17.03.2012. 4.6 It is submitted that Government of Tamilnadu represented by the Director, ICDS, floated tenders inviting tenders for supply of BCPM for the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WCS and Anganwadi Centers. The Appellant Assessee had also submitted the certificate duly issued by the competent authority to the effect that BCPM purchased from the Appellant Assessee has been used in the preparation of CWF, packed in 1kg and 2kg bags and distributed to the beneficiaries free of cost, to the jurisdictional Central Excise Officers, as per the condition No.5 stipulated in the said Notification No. 12/2012-CE dated 17.03.2012, once in a quarter. Thus, they contended that it has been proved beyond doubt that BCPM has been consumed ultimately by the beneficiaries under the ICDS scheme as mandated in the above said Notification. 5. Further, the contention of the Ld. counsel is that in order to avail the benefit of the notification the food preparation has to be supplied to the beneficiaries of a programme duly approved by the Central Government or State Government'. The necessity to supply the food preparation 'directly' to the beneficiaries of the programme does not find place in the notification. The Adjudicating Authority has wrongly interpreted the notification and given a finding in the impugned order that the benefit of the notification would be available only w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is utilised, is an essential part of the process of manufacture. I also hold that so much of the L.S.H.S./F.O. as is utilised for the purpose of manufacture of ammonia which is further processed, culminating in the manufacture of fertilizers, attract the benefit of exemption under the subject notification. However, so much of the L.S.H.S./F.O. as is utilised for the purpose of manufacture of Ammonia sold as such in the open market, will not qualify for total exemption under the subject notification and must be dealt with under the relevant notification". 7.1 The Ld. counsel for the Appellant Assessee has further contended that the term "intended for" having wide connotation has been narrowly interpreted by the Adjudicating Authority by importing the term "directly" into the ambit of the notification. The Adjudicating Authority ought to have interpreted the term "intended for" in the light of the decisions of various appellate forums. 7.2 The Ld. counsel has relied upon the decision of the Hon'ble High Court of Rajasthan in the case of M/s. Hindustan Zinc Limited, which dealt with an identical issue where the sulphuric acid manufactured and intended for use in the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than those of marble and granite or those which attract 12% rate of tax) afresh. He stated that in addition, the Fitment Committee examined a number of other issues referred to it by the States of Gujarat, Maharashtra and Uttar Pradesh and the recommendations on these issues were also presented before the Council for consideration. A record of discussion on these issues is as below: "28.1. Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme duly approved by the Central Government or any State Government (SI. No. 1): The Joint Secretary, TRU-1, CBEC informed that recommendation of the Fitment Committee was to reduce the rate of tax on food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme duly approved by the Central Government or any State Government from 18% to 5%, subject to the condition that the manufacturer of the food preparations produces a certificate from an officer not below the rank of Deputy Secretary to the concerned State Government or Government of India to the effect that such food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Chennai vide Letter No. 14077/SW7(1)/2020-3 dated 17.02.2021 communicated the clarification issued by the Commercial Tax Department which is reproduced below:- "c) As per the agreement entered into, the successful L-1 Tenderer i.e.M/s. Christy Friedgram Industry ,Thiruchengode supplies "Blend of Critical Processed Materials" to the 25 WDICS in the state. The WDICS in turn manufacture Complementary Weaning Food and supply it to ICDS for free distribution to the beneficiaries. Hence, the entire supply chain should be treated as part and parcel of the scheme without subjecting to differential levy of tax, and taxed uniformly at 5%-vide Central Notification No.39/2017-Central Tax (Rate) (CT&R Department Notification No.II(2)/CTR/868(f-1)/2017 dated 18-10-2017. d) It is mentioned that the present reduced rate of tax at 5% vide Central Notification No.39/2017-Central Tax (Rate) (CT&R Department Notification No.II(2)/CTR/868(f-1)/2017 dated 18-10-2017 is modelled on the earlier exemption available during the Central Excise Duty Regime-vide Notification No.12/2012-CE dated 17-03-2012. The only difference being the reduced rate of tax at 5% under GST so as to avail input tax credit" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cieties for the manufacture and supply of CWF to the beneficiaries. For implementing the scheme, Department of ICDS was nominated as the Nodal Agency. When the supply of CWF was found qualitatively defective, as per the direction of Hon'ble Madras High Court, an Expert Committee comprising of Experts in Nutritious food preparations was constituted to provide technical opinion for successful implementation of the scheme and to supply qualitative CWF to the beneficiaries. The Expert Committee visited those 25 WCS and studied the process of manufacture of CWF, inspected the infrastructure/machinery/equipments available in those societies for storing the raw materials, finished goods and processing the materials and found that the WCS did not have sufficient godowns/store rooms for storing raw materials. WCS did not have sufficient equipment/machinery to process Ragi malt, which is instrumental for amylase activity and for uniform dilution and distribution of Vitamin Pre- mix which is an essential ingredient to provide micronutrients. Accordingly, the Expert Committee introduced a new product in the name of BCPM and also the role of Private Enterprise in the manufacturing activity, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/2012-CE dated 17.03.2012:- Sl. No. Tariff item, sub-heading, heading or Chapter Description of Goods Condition (1) (2) (3) 4 27 1901 Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programmme duly approved by the Central Government or any State Government. 5 5. If the manufacturer of the food preparations produces a certificate from an officer not below the rank of the Deputy Secretary to the Government of India or not below the rank of the Deputy Secretary to the State Government concerned to the effect that such food preparations have been distributed free to the economically weaker sections of the society under a programme duly approved by the Central Government or the State Government concerned, within five months from the date of clearance of such goods or within such further period as the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction may allow in this regard. 14.2 The above Notification provides exemption to food preparations falling under heading No. 1901, put up in an unit container ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not ordinarily come into existence during the course of manufacture of CWF. BCPM, as a separate product, has been introduced only by the Expert Committee suggesting the Technical Specification for BCPM. It is observed that all the essential ingredients such as Malted Ragi and vitamin premix which are instrumental to contribute amylase activity and micronutrients are contained only in BCPM. CWF has come into existence by mere addition of wheat flour in the ratio of 58:42 in the premises of WCS. The addition of roasted wheat flour with the BCPM does not transform it into a new product with new character and quality. BCPM manufactured by the Appellant Assessee and supplied to WCS has also been converted into CWF by addition of wheat flour, we observe that BCPM should also be considered as a food preparation packed in unit container and intended for free distribution to the beneficiaries through WCS and Anganwadi Centers. We also find that the Appellant Assessee has submitted the certificate duly issued by the competent authority to the effect that BCPM purchased from the Appellant Assessee and supplied to WCS has been used in the preparation of CWF by the WCS and then packed in 1kg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 'directly' supplied to the ICDS. But, we observe that there is no such stipulation in the notification that the benefit would be applicable only if the food preparations are 'directly' supplied to the ICDS. The Notification clearly states that the benefit would be applicable if the food preparations manufactured are 'intended' for supply to the scheme formulated by the Central government or State Government. 15.1 We observe that the Appellant Assessee has been awarded the contract to manufacture BCPM and supply the same to WCS for further manufacture of CWF, by adding wheat flour. A copy of the invoice raised by them for the sale of BCPM to ICDS and supplied to WCS for further manufacture of CWF is reproduced below:- 15.2 Perusal of the invoice scanned and reproduced above clearly reveals that the invoice was raised to 'The Mission Director, ICDS' and delivered to the WCS. The BCPM has been packed in 50kg HDPE sacks and sold to ICDS and delivered to WCS as directed by ICDS. The WCS mixes the BCPM with roasted wheat flour in the ratio of 58%: 42% and packed the same in 1kg and 2 kg bags. The WCS further sold the CWF to ICDS and delivered the same to Anganwadis for free distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.3 A perusal of the specifications and the constituent materials for manufacture of BCPM furnished by the Expert Committee would reveal that the combination of the ingredients would make it a food preparation classifiable under chapter heading No. 1901. It is found that the Appellant Assessee supplied BCPM in 50kg bags, which can be termed as a Unit container as per the definition under section-V of the Central Excise Tariff Act, 1985. The BCPM manufactured has been exclusively sold to ICDS and delivered to WCS for manufacture of CWF. The certificate issued by the competent authority confirms the receipt of CWF manufactured by WCS using the BCPM supplied by the Appellant Assessee, which were distributed to the intended beneficiaries under the ICDS Scheme. For the sake of ready reference, a copy of the certificate issued by the competent authority is reproduced below:- 15.4 From the copy of the Certificate reproduced above, we find that the CWF manufactured by WCS using the BCPM supplied by the Appellant Assessee has been distributed to the intended beneficiaries under the ICDS Scheme. 15.5 Our view is further strengthened by the terms prescribed by ICDS, Government of Tamilnas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Notification No. 81/1975-CE dated 22-03-1975, which is available to sulphuric acid used in the manufacture of 'fertilizers'. The assessee in that case manufactured sulphuric acid and captively consumed the same in the manufacture of phosphoric acid which in turn has been cleared for the manufacture of fertilizer and claimed exemption from excise duty payable on sulphuric acid in terms of notification No. 81/1975-CE dated 22.03.1975, as it was intended for the manufacture of fertilizer. The Department denied the exemption contending sulphuric acid was not directly used in the manufacture of fertilizer. The Hon'ble High Court held that the assessee was entitled for the said exemption, as the sulphuric acid was ultimately used in the manufacture of fertilizer. While deciding the case, the Hon'ble High Court has relied upon the clarification issued by CBEC vide letter F.No. 345/17/86-TRU dated 12.12.1975, which explained the meaning of the term "intended for". For the sake of ready reference the contents of the said Letter is reproduced below:- Government of India Ministry of Finance (Department of Revenue), New Delhi F. No. 345/17/86-TRU Dated 12th December 1975 To C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to BCPM under Central Excise Act also. As the BCPM manufactured by the Appellant Assessee is intended for free distribution under the ICDS scheme and it was ultimately consumed by the beneficiaries, as evidenced by the certificates issued by the competent authority, we hold that the product BCPM supplied to WCS is entitled for the benefit of the exemption under Notification No. 12/2012-CE dated 17.03.2012. 19. Following the ratio laid down in the above decisions, the clarification issued by Board explaining the meaning of the term "intended for" and the view taken by the Commercial Tax Department on the same product, we hold that the BCPM manufactured by the Appellant Assessee and sold to ICDS, but delivered to WCS is 'intended for' free distribution to the weaker sections of the Society and hence entitled for the benefit of the exemption under Notification No. 12/2012-CE dated 17.03.2012. 20.1 We observe that the Adjudicating Authority has relied upon the decision of the Hon'ble Supreme Court in the case of Harichand Shri Gopal reported in [2010 (260) E.L.T. 3 (SC)] wherein it was held that in order to avail any condition-based exemption, the condition specified in the said noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of the Notification. Even otherwise, the Appellant Assessee has sold BCPM to ICDS and BCPM is also a food preparation and as being covered by the terms of Notification and the Certificate issued by the competent authority, exemption from payment of duty cannot be denied. 20.3 The Hon'ble Supreme Court in the case of Mother Superior Adoration Convent reported in [2021 (5) SCC 602] held that the beneficial purpose of an exemption notification should be given full effect. The relevant portion of the said decision is reproduced below: "it was, inter alia, held that the beneficial purpose of the exemption contained in section 3(1)(b) must be given full effect to.. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourself what is the object sought to be achieved by the provision, and construe the statute in accord with such object" 20.4 Therefore, the plain language of the impugned notification without any intendment of any other terms would reveal that BCPM can very well be concluded as supplied to the beneficiaries, as long as the competent authority issued certificate to the effect that BCPM has been us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no separate consideration received for the services rendered. In their grounds of appeal, the Ld. Commissioner of GST & Central Excise, Salem, contended that the Respondent Assessee has provided certain service activities to WCS as mentioned in the scope of work contained in Annexure-II to the tender document, to manufacture qualitative CWF using the BCPM supplied by the Respondent Assessee. Accordingly, it was contended that the Respondent Assessee is liable to pay service tax for the services rendered by them to WCS. We observe that the Respondent Assessee has provided certain assistance to the WCS as they were not having the required expertise to manufacture CWF from BCPM. We observe that these services are related to the manufacture of CWF by WCS and the cost of which forms an integral part of the CWF manufactured by the WCS. The Respondent Assessee has not received any separate consideration for the services rendered by them to the WCS. We observe that the Adjudicating Authority has dropped the demand of Service Tax of Rs.7,16,80,505/- proposed in the Show Cause Notice on the ground that the agreement entered into was a single contract for a single price for the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 15988/NC1(2)/2015 dated 01.02.2016, is only to facilitate the WCS and help them in ensuring the quality of the product. Regarding the taxable value for the service, we observe that no separate invoice was raised towards the consideration for the services rendered. The price quoted in the tender document is a single inbuilt price per kg, and the contract entered for supply of BCPM was a single composite contract. The composite contract cannot be vivisected artificially to arrive at the value of taxable services. We find that the Adjudicating Authority has rightly relied upon the decision of the Hon'ble Supreme Court in the case of BSNL reported in [2006 (2) S.T.R 161 (SC)] and the clarification contained vide Paragraph 2.6.3 of Education Guide issued by CBEC to drop the demand of service tax raised in the notice. 21.6 We observe that clause 35(iii) of the tender document categorically placed certain responsibilities upon the supplier of BCPM so that the CWF supplied by WCS should be confirming to the quality and standard specification and in case of any qualitative defects in CWF, the same shall be replaced and penalty shall also be levied upon the supplier of BCPM. Recur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.6.4 of the Education Guide issued by CBEC. Therefore, levy of service tax is not permissible on the value of goods on which VAT has already been paid. 21.9 In the above circumstances, we observe that the Lower Authority has rightly relied upon the decision of the Hon'ble Supreme Court in the case of BSNL reported in [2006 (2) S.T.R 161 (SC)] and held that the contract entered into by the Respondent Assessee is a composite contract for the supply of BCPM and no separate invoices were raised for the service charges and hence the inbuilt price cannot be vivisected, to demand Service Tax. The Adjudicating Authority also relied upon the clarification given vide Para 2.6.3 of Service Tax Education Guide issued by CBEC, which also discussed the decision of the Hon'ble Supreme Court in the case of BSNL. Accordingly, we hold that the decision of lower authority regarding dropping of the demand of Service Tax in the impugned order is in accordance with the law and it requires no interference as prayed for by the Department. Therefore, we dismiss the appeal preferred by the Department by upholding the decision of the Lower Authority in respect of dropping the demand of Service Tax in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, it has been held that the BCPM has not been supplied directly to the beneficiaries and hence the benefit of the exemption cannot be extended. There is no other ground raised in the impugned order for invoking the extended period of limitation. 22.4 We observe that the Appellant Assessee submitted ER-1 Monthly returns periodically containing all the details relating to BCPM including the fact that "BCPM has been supplied to WCS for the manufacture of CWF". The audit parties from Central Excise /Service tax Department and the Office of Accountant General visited their factory and scrutinized documents such as Tender documents/contracts/agreements, Monthly Returns, documents relating to exemption availed by them etc. No objection was raised by any of the Department officers about the availability of the benefit of the Notification to the Appellant Assessee. The Ld. counsel for the Appellant Assessee drew our attention to a letter issued by the Superintendent of Central Excise, Internal Audit, Group-IV, Salem informing that the internal audit party will take up the audit of accounts/ records for the period 2011-12 to 2014-15 (upto October 2014). The proforma attached to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at such food preparations have been distributed free to the economically weaker sections of the society under a programme duly approved by the Central Government or the State Government concerned,' as stipulated in condition no. 5 of the Notification No. 12/2012-CE. (vi) The BCPM manufactured and sold to ICDS, but delivered to the WCS are intended for free distribution to economically weaker sections of the society under a program duly approved by the Central Government or any State Government'. Accordingly, the BCPM manufactured and sold to ICDS, but delivered to the WCS, is eligible for the benefit of the exemption Notification No. 12/2012. (vii) The demand of duty along with interest confirmed in the impugned order is not sustainable, as the product BCPM manufactured and sold to ICDS, but delivered to the WCS is also eligible for the benefit of Notification No. 12/2012. (viii) Suppression of fact with an intention to evade payment of duty has not been established. Accordingly, extended period is not invocable. The demand confirmed in the impugned order by invoking the extended period is not sustainable. For the same reason the imposition of penalty under Section 11AC is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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