Case Law Details
Saiyam Silk Mills Pvt Ltd Vs Commissioner of CGST & Central Excise (CESTAT Ahmedabad)
In Saiyam Silk Mills Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, upheld the denial of Cenvat Credit amounting to Rs.15,64,330 availed by the appellant on invoices issued by suppliers subsequently found to be fake, bogus, and non-existent.
The appellant, engaged in processing man-made fabrics, had availed Cenvat Credit during December 2003, January 2004, May 2004, and June 2004 on invoices purportedly issued by six suppliers of grey fabrics. Following investigation, the department concluded that these suppliers were fictitious entities. A show cause notice dated 12.12.2008 proposed recovery of the credit along with interest and penalties. The Commissioner confirmed the demand, invoked the extended period of limitation, and imposed equal penalty on the company and its Director. While the Commissioner (Appeals) upheld the demand, interest, and penalty against the company, the penalty imposed on the Director was set aside.
Before the Tribunal, the appellant contended that the demand was time-barred since the ingredients necessary for invoking the extended period under Section 11A were absent. It argued that suppliers found non-existent during investigation in 2008 could not automatically render invoices issued in 2003-2004 fraudulent. The appellant further maintained that it had received grey fabrics through merchant exporters, possessed duty-paid documents, and had made payments through legitimate channels. It also alleged violation of principles of natural justice due to non-supply of relied-upon documents.
The Revenue argued that the transactions were fraudulent and involved fictitious entities. Reliance was placed on the Director’s statement acknowledging that grey fabrics were procured through brokers and that he did not know the identities or addresses of the suppliers. The Revenue submitted that once suppliers were found to be non-existent, the transactions stood vitiated and the appellant had failed to establish the genuineness of the transactions.
The Tribunal noted that this was the second round of litigation and that, in remand proceedings, the adjudicating authority had examined the issue in light of relevant judicial precedents. The Tribunal observed that Rule 7(2) of the Cenvat Credit Rules, 2002 cast an obligation on a credit claimant to take reasonable steps to verify the identity and existence of suppliers and ensure that appropriate duty had been paid on the goods. The Tribunal referred to decisions of the Gujarat High Court, including Prayagraj Dyeing & Printing Mills Ltd., Shiv Enterprises, and Rivaa Exports, which emphasized compliance with Rule 7(2) and denied benefits where transactions involved fictitious suppliers.
The Tribunal rejected the appellant’s plea regarding non-supply of documents, observing that the request for such documents was made after the adjudication order and had not been raised earlier during the proceedings. It further noted several discrepancies in the invoices and delivery documents, including abnormal valuation of grey fabrics, absence of details regarding fabric width and variety, common addresses of suppliers and merchants, lack of transport particulars, vague descriptions of goods, and illegible signatures without identification.
According to the Tribunal, these circumstances demonstrated that the appellant had availed credit on non-genuine documents despite evident irregularities. It held that the appellant failed to fulfil the obligations prescribed under Rule 7(2) and that positive conduct justifying invocation of the extended period was established. Consequently, the Tribunal upheld the denial of Cenvat Credit, recovery of interest, and imposition of equal penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act.
The appeal filed by the company was dismissed, and the order of the Commissioner (Appeals) was affirmed.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
1. M/s. Saiyam Silk Mills Pvt. Ltd, Surat (Appellant) was issued a show cause notice dated 12.12.2008 proposing recovery of Cenvat Credit of Rs. 15,64,330/- under proviso to Section 11A(1) of the Central Excise Act, 1944 read with Rule 14 of the Cenvat Credit Rules (CCR), 2004, along with interest under Section 11AB (now 11AA) of the Central Excise Act, 1944 and penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the said A separate penalty on Shri Deepak Bimalprasad Jain, Director of the appellant company, under Rule 15(1) of the CCR, 2004 was also proposed for his role in availment of inadmissible Cenvat Credit.
1.1 As per the facts, appellant is engaged in processing of man-made fabrics falling under CTH 5406 for which they procured grey fabrics from various suppliers, namely M/s. Paraswanath Impex, Surat; M/s. Shaan Enterprise; M/s. James Faiz Fabrics, Surat; M/s. R. R. Textiles, Surat; M/s. M. K. Textiles, Surat; and M/s. M. M. Textiles. In the month of December 2003, January 2004, May 2004, and June 2004, appellant availed Cenvat Credit of Rs. 15,64,330/-on invoices issued by above-mentioned suppliers, which upon inquiry, were found to be fake/bogus/non-existing units. The officers recorded the statement of Shri Deepak Bimalprasad Jain, Director of the appellant company, on 10.11.2008, wherein he stated to have received grey fabrics through brokers and not directly from the dealers/manufacturers; that they have correctly availed the Cenvat Credit on the strength of valid duty-paid documents, after furnishing registration certificate issued to the said dealers/manufacturers.
1.2 The show cause notice was decided by the Commissioner vide order dated 14.07.2021, wherein he confirmed recovery of above Cenvat Credit along with interest by invoking extended period of He also imposed equal penalty on the appellant under Rule 15(2) of the CCR, 2004 read with Section 11AC as well as a penalty of Rs.15,64,330/- on its Director. Aggrieved by the said order, the company as well as it’s Director filed appeals before the Commissioner (Appeals), who vide impugned order upheld the order of the Joint Commissioner confirming service tax demand along with interest and imposition of equal penalty on the company. He however allowed, appeal of Shri Deepak Bimalprasad Jain, by setting aside penalty imposed on him.
2. Aggrieved with the above findings of learned Commissioner (Appeals), the appellant company filed present appeal before this Tribunal taking the following grounds:-
- The demand of service tax is time barred as ingredients for invoking extended period of five years are absent in this case. Hon’ble Supreme Court in the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh-I reported at 2007 (216) ELT 177 (SC) held that for invoking proviso to Section 11A of the Act, it is to be established that duty is refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts with an intent to evade payment of duty. They also rely on the following decisions of Hon’ble Supreme Court-
a. CCE HMM – 1995 (76) ELT 497 (SC),
b. Commissioner of Central Excise, Belapur Vs. E. Merck India Ltd-2009 (238) ELT 386 (SC).
c. Pushpam Pharmaceuticals Vs. CCE – 1995 Supp (3) SCC 462, “Mere failure to declare does not amount to willful suppression”.
- Learned Commissioner (Appeals) has erred in not considering the ratio laid down by Hon’ble Gujarat High Court in M/s. Prayagraj Dyeing & Printing Mills Ltd. Vs. Union of India reported at 2013 (290) ELT 61 (Guj.).
- In Kirtida Silk Mills Vs. Commissioner reported at 2014 (303) ELT 530 (Guj), Hon’ble Gujarat High Court held that for denial of Cenvat Credit, extended period cannot be invoked unless positive evasion of duty is established. Revenue’s appeal against this order was also dismissed by Hon’ble Supreme Court vide order at 2018 (362) ELT A122 (SC).
- It is alleged that they are not entitled to Cenvat Credit as they did not receive goods directly from the suppliers for the purpose of job work. Several other processors also purchased Grey Fabrics from the same manufacturer(s) which shows existence of suppliers at some point of
- The show cause notice for disallowing Cenvat Credit on purchase of grey fabrics purchased in 2003-2004, was issued in 2008. Therefore, it cannot be assumed that the suppliers never In the case of CCE & ST Ludhiana Vs. Vallabh Steel (Appeal No. E/2308/2012), CESTAT, New Delhi held that “CENVAT credit cannot be denied merely on the ground that at the time of Investigation, the dealer was non-existent. When the goods were procured from them, they were registered with the department.” They also rely on the decision of CESTAT, New Delhi in Fortune Metaliks Ltd. and Ors. Vs. Commissioner of Central Excise, Raipur (Appeal No. 510455 of 2019), wherein it was held that, “Merely because the company issuing invoice was found non-existent, the appellant could not be denied availment of Cenvat Credit thereupon unless and until his involvement in terms of his knowledge about such non-existence and about the invoice to be bogus is not proved on record.”
- Hon’ble Supreme Court in CCE Vs. Chemphar Drugs & Liniments reported at 1989 (40) ELT 276 (SC) held that “it is cardinal postulate of law that burden of proving any form of malafide lies on the shoulders of the one alleging it.” They also relied on decision of Hon’ble Supreme Court in Union of India Ashok Kumar & Ors. reported at (2005) 8 SCC 760.
- Principles of natural justice have been violated in this case, as the report(s) of the Range Officer regarding fake and non-existent suppliers and the statement of the Director which have been relied upon, have not been provided to them. Vide letter dated 07.09.2021, they requested to provide copy of documents relied upon in the case but Adjudicating Authority passed the order without providing said
- Appellant prays to set aside the impugned order and allow the
3. During arguments, learned Advocate highlighted the points taken in their appeal to justify availment of Cenvat Credit on invoices of grey fabrics. He submits that this is the second round of litigation before the Tribunal. In first round, matter was remanded for re-adjudication keeping in view the decision in case of Bhagvati Silk Mills vide order A/55-185/WZB/AHD/2011 dated 24.01.2011. He further pleads that extended period of limitation is not invokable in the case and therefore, show cause notice dated 12.10.2008 for recovery of Cenvat credit taken during the period from December-2003 to June-2004 is time barred. Relying on the decision of Hon’ble Supreme Court in the case of Continental Foundation Jt. Venture (cited supra) and other decisions mentioned in their appeal, he pleaded that the entire demand is hit by time bar. Drawing support from various case laws, he pleads that fake/non-existent supplier found during investigation, does not establish that invoices issued by them in 2003-2004 were fraudulent. He argues that the suppliers existed when transactions happened and therefore, credit availed on such invoices, cannot be disallowed; that revenue in this case has not been able to produce any evidence that invoices were fake/ fraudulent and they never received the materials or made payment to suppliers. He therefore pleads that the impugned order of learned Commissioner (Appeals) is bad in law which needs to be set aside. He also challenges the order on the ground that the principles of natural justice were violated as the documents relied upon by the Adjudicating Authority for passing the order, have not been provided to the appellant.
4. Countering the arguments, learned AR submitted that the authorities have conclusively proved in this case that it was intentional fraud involving fake/ fictitious identities for availment of Cenvat Credit; that when the purported persons who issued invoices of grey fabrics are untraceable/ non-existent, the whole transaction gets vitiated; that the appellant knew that they were procuring grey fabrics from non-existent suppliers on fake papers; that the appellant has not submitted any documentary evidences in the form of affidavit of the suppliers, certifying genuineness of the transaction. He refers to the statement dated 10.11.2008 of Shri Deepak B. Jain, Director of the company wherein, he admitted to be not knowing the identity/ address of the persons who supplied them grey fabrics. Relying on the decision of this Tribunal in the case of Chintan Processors P Ltd. reported at 2008 (232) ELT 663 (Tri-Ahmd), he pleads that, “once the supplier is proved non-existent, it has to be held that goods have not been received.” He also relies on Final Order A/10956/2019 dated 03.06.2019 of this Tribunal in the case of Palav Synthetics Vs. CCE, Surat-I and the judgment of Hon’ble Gujarat High Court in the case of M/s. Prayagraj Dyeing & Printing Mills Pvt. Ltd. Vs. Union of India reported in 2013 (290) ELT 61 (Guj) .
4.1 Learned AR refers to para 6 of the show cause notice to justify invocation of extended period for recovery of Cenvat Credit for the larger He also relied on the decision of Hon’ble Supreme Court in the case of Rajasthan Spinning & Weaving Mills reported at 2009 (238) E.L.T. 3 (SC) wherein, in para 18 of the judgment, it has been held that:
’18. One cannot fail to notice that both the proviso to sub-section 1 of Section 11A and Section 11AC use the same expressions: “…by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with Intent to evade payment of duty ” in other words the conditions that would extend the normal period of oneyear to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted’.
4.2 Learned AR also pleads that Hon’ble Apex Court in the case of M/s. Alnoori Tobacco Products-2004 (170) E.L.T. 135 (SC.) held that Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. The following words of Lord Denning in the matter of applying precedents have become locus classicus:
“Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the “Precedent broad resemblance to another case is not at all decisive”. should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it.”
He prayed for dismissing the party’s appeal by upholding the impugned order.
5. Heard both the sides. I find that the appellant availed Cenvat Credit of Rs.15,64,330/- on the strength of invoices issued by suppliers, which on verification by the jurisdictional range, were found to be fake/ non-existent. Also, there was an alert Circular issued by the Directorate General of Central Excise Intelligence intimating above modus operandi adopted by various fabric processors in and around Surat.
5.1 In first round of litigation before this Tribunal, the matter was remanded vide Final Order No. A/773/WZB/AHD/2011 dated 09.05.2011 to the original Adjudicating Authority for fresh decision, by taking into account the observations made in the case of M/s. Bhagwati Silk Mills. In remand proceedings, the Adjudicating Authority after considering various decisions including decisions of Hon’ble Gujarat High Court in the case of M/s. Prayagraj Dyeing and Printing Mills Ltd. and M/s. Kirtida Silk Mills came to conclusion that appellant is not entitled to Cenvat Credit on invoices issued by non-existent manufacturers/ suppliers. In para-16, 17 and 18 of the order, he has discussed fake nature of invoices and failure of the appellant to take necessary steps as per Rule 7(2) of the CCR, 2002 for availing the Cenvat credit which mandated that the availer of the Cenvat Credit must verify the identity and duty paid nature of the goods. On appellant’s request for cross-examination of Central Excise officers, he held in para-15 of the order that such cross-examination is not required as, appellant has not made such request earlier either before the Adjudicating Authority or before the Commissioner (Appeals) or the Tribunal. He confirmed the demand of Cenvat Credit along with interest and imposed equal amount of penalty on the appellant which was also upheld by the learned Commissioner (Appeals).
5.2 Before the Tribunal, appellant have mainly contended that extended period, is not invokable in this case and therefore, the show cause notice issued on 12.12.2008 for recovery of Cenvat Credit availed by them in December-2003, January-2004, May-2004 and June-2004 does not survive being time Their second argument is that they had received grey fabric for job work from the Merchant Exporters and not directly from the manufacturers and since, they have all the required documents, Cenvat Credit cannot be denied to them. Their third contention is that multiple parties purchased raw materials from the same manufacturers which proves their existence. Also, verification process was under taken by the department in 2008 whereas, they had availed credit on invoices issued in 2003-2004. Their fourth contention is regarding non supply of documents relied upon by the Adjudicating Authority while passing the order. As far as last contention is concerned, I find that the appellant made request on 07.09.2021 which is after passing of the adjudication order, for providing copy of statement of their Director, for filing the appeal. They never took this ground while replying to the show cause notice and therefore, I do not find merit in this contention.
5.3 I find that in the case of M/s.Prayagraj Dyg & Ptg Mills P Limited reported at 2013 (290) ELT 61 (Guj), Hon’ble Gujarat High Court on reference made by the appellant has discussed the provisions of Rule 7 of the Cenvat Credit Rules, 2002 (now Rule 9 of Cenvat Credit Rules, 2004). It has observed that the provisions of Rules 7(2) required a manufacturer or producer taking Cenvat Credit on inputs or capital goods to take all reasonable steps to ensure that the inputs or capital goods in respect of which, he has taken Cenvat Credit are goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. The said Rule 7(2) is reproduced below:-
“(2) The manufacturer or producer taking CENVAT credit on inputs or capital goods shall take all reasonable steps to ensure that the inputs or capital goods in respect of which he has taken the CENVAT credit are goods on which the appropriate duty of excise as indicated in the documents accompanying the goods, has been paid.
Explanation. – The manufacturer or producer taking CENVAT credit on inputs or capital goods received by him shall be deemed to have taken reasonable steps if he satisfies himself about the identity and address of the manufacturer or supplier, as the case may be, issuing the documents specified in rule 7, evidencing the payment of excise duty or the additional duty of customs, as the case may be, either –
a. from his personal knowledge; or
b. on the strength of a certificate given by a person with whose handwriting or signature he is familiar; or
c. on the strength of a certificate issued to the manufacturer or the supplier, as the case may be, by the Superintendent of Central Excise within whose jurisdiction such manufacturer has his factory or the supplier has his place of business, and where the identity and address of the manufacturer or the supplier is satisfied on the strength of a certificate, the manufacturer or producer taking CENVAT credit shall retain such certificate for production before the Central Excise Officer on demand.”
After hearing contentions from both the sides, Hon’ble High Court in para 11 has held that the appellants are not entitled to the credit as they have not taken those steps required under Rule 7(2) of the Cenvat Credit Rules, 2002. The said para is reproduced as below:-
“11. We, therefore, find no substance in the contention of the learned counsel for the Revenue that simply because the original manufacturer is now not traceable, is sufficient for reversal of cenvat credit already taken by the appellants by virtue of the original invoices. However, at the same time, we find substance in the contention of Mr. Oza and Mr. Champaneri, the learned counsel appearing on behalf of the Revenue, that in order to get the credit of CENVAT, Rule 7(2) cast a further duty upon the appellants to take all reasonable steps to ensure that the inputs or the capital goods in respect of which the Appellants had taken the credit of CENVAT are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. The Explanation added to Rule 7(2) even describes the instances which are the reasonable steps. The Appellants in these cases, however, not having taken those steps, cannot get the benefit of the credit even though he is not party to fraud. In this connection, we fully agree with the views taken in the case of Sheela Dyeing (supra), and hold that the said decision supports the case of the Revenue and taking of all reasonable steps as provided in Rule 7(2) is an essential condition of availing the credit. The distinction sought to be made by Mr. Parikh that the period involved therein related to June, 2003 is not tenable because sub-rule (e) of Rule 7 was introduced even earlier with effect from April 1, 2003.”
5.4 I further find that Hon’ble Gujarat High Court in the case of Shiv Enterprises Vs. Commissioner of Central Excise & Customs reported at 2015 (322) E.L.T. 703 (Guj.) has held that Cenvat Credit availed by the appellant dealer on the basis of invoices of a manufacturer who committed fraud and given fictitious/ fake address while obtaining provisional registration. It is not available. It upheld the impugned order holding that the manufacturer’s fraud vitiates entire transaction. The appellant could not have availed credit on the basis of invoices issued by a fictitious firm. Para-5 of the said decision is reproduced below:-
“5. The authorities below as well as learned Tribunal while considering the aforesaid explanation tendered by the present appellant have recorded the finding that indisputably the present appellant has not denied the fact that registration certificate given by the department to M/s. Ankit Textiles is not disputed. It is also proved that cheques were being paid to the aforesaid M/s. Ankit Textiles. It is also not disputed that the present appellant maintained the record and has passed on the credit taken by them as a dealer. Rule 7(2) clearly provides that reasonable precaution should have been taken by the person who takes credit. When the present appellant has availed Cenvat credit without verifying genuineness of his counterpart M/s. Ankit Textiles itself is indicative of contravention of Cenvat Credit Rules, 2002. Rule 13 empowers for imposition of penalty not exceeding on excisable goods in respect of which any contravention has been committed.”
5.5 In the case of Kirtida Silk Mills (cited supra), Hon’ble Gujarat High Court, following its decision in M/s. Prayagraj Dyeing & Printing Mills Pvt. Ltd, held that for denial of Cenvat Credit, extended period cannot be invoked unless positive evasion of duty is established in terms of Section 11A of the Central Excise Act, In the case of Chintan Processors (P) Ltd. (cited supra), this Tribunal held that once supplier is proved non-existent, it has to be held that the goods have not been received. When invoice was received, only appellant could have been aware that the supplier was non-existent in addition to merchant manufacturer. Assessee claimed that they have received the goods, but how have they received from non-existent supplier, is not known. Credit cannot be taken on the basis of documents supplied by non-existent supplier as requirement of Rule 7(2) of the Cenvat Credit Rules, 2002 is not fulfilled.
5.6 I further find that in the case of Rivaa Exports Government of India reported at 2015 (316) ELT 26 (Guj.), Hon’ble Gujarat High Court held that there was no error and/or illegality in denial of rebate claim of exporter. It was immaterial that exporter had paid the suppliers by cheque as Rule 7(2) of the Cenvat Credit Rules, 2002 cast duty on them to take all reasonable steps to ensure that inputs or the capital goods in respect of which Cenvat Credit has been taken, are duty paid as indicated in accompanying documents. Relevant para 6, 6.1, 6.2 and 6.3 of the said decision are reproduced below:-
“6. Heard learned counsel appearing on behalf of respective parties at length. At the outset it is required to be noted that as such there are concurrent findings of fact given by all the authorities below that the invoices which were endorsed by the petitioners in favour of the processor who took the credit of duty reflected on processor were bogus, fake, fictitious and non-existing. It also appears that as such the alert circulars were issued by the Commissioner of Central Excise, Surat-I and also Director General Central Excise Intelligence declaring about 500 said units as fictitious, bogus, fake and the circulars were also issued for proper verification of claims of rebate. As observed by the revisional authority it appears that the said alert circulars were duly published and placed on a notice board and nobody challenged the same inclusive of the petitioners. The petitioners did not come forward with any evidence regarding any existence of said supplier of grey fabric. The petitioners also did not deny that the said suppliers are bogus, fake, fictitious and non-existing. It is also observed by the authorities below that the applicant had knowledge that no such suppliers existed, endorsed the fake invoices to the processors for facilitating availment of CENVAT credit and thereafter paying central excise duty therefrom. Considering the aforesaid facts and circumstances, it cannot be said that any error and/or illegality has been committed in denying the rebate claim with respect to those invoices which were found to be bogus, fake, fictitious and non-existent.
6.1 Now, so far as the contention on behalf of the petitioners that copies of the alert circulars relied upon by the department were not supplied to them is concerned, it is required to be noted that as such the alert circulars issued by Commissioner of Central Excise, Surat-I and also Director General Central Excise Intelligence were duly published and placed on a notice board. Even such a submission/objection was not raised by the petitioners either at adjudication stage or at appellate stage. It is required to be noted that at the adjudication stage no defence reply was filed to the show cause notices. Therefore, it is rightly observed by the revisional authority that there is no justification for raising such a plea at the revision application stage. The aforesaid contention has been dealt with by the revisional authority in extenso in Paras 8 and 9, which reads as under :
“8. Government notes that M/s. Rivaa Exports purchased grey fabrics from the suppliers of grey fabrics on Central Excise Invoices and sent the grey fabrics for processing to the processor after endorsing the said invoices. Commissioner of Central Excise, Surat-I and Director General Central Excise Intelligence had issued alert circulars declaring all the said units suppliers of grey fabrics in question as fake, fictitious and non-existing. The said circulars were duly published and placed on a notice board and nobody challenged the same. M/s. Rivaa Exports has not come forward with any evidence regarding existence of said suppliers of grey fabrics. Rather the applicant has not denied that the said suppliers are bogus, fake, fictitious and non-existing. Thus, the applicant has knowingly that no such suppliers existed, endorsed the fake invoices to the processors for facilitating availment of cenval credit and there after paying central excise duty therefrom. Applicants have contended that they have availed cenvat credit on the basis of duty paying documents and also cited C.B.E. & C. Circulars No. 703/19/2003-Ex, dated 25-3-2003. The applicant is ignoring the fact that C.B.E. & C. Circulars talks of genuine duty paying documents. In this case, the factitious duty paying documents are issued by bogus, fictitious and non-existing suppliers. No movement of goods have taken place as per finding in the investigations. The range Supdt. has also categorically stated that the grey fabrics suppliers are fictitious and non-existing. In such a situations, how the valid and genuine central excise invoices can be issued by such suppliers. As such, this argument of the applicant fails.
9. Applicants has also contended that the copies of alert circulars a relied upon documents were not supplied to them. In this regard, Government observes that the applicants have not raised this plea either at adjudication stage or at appellate stage. Rather it is noticed that at adjudication stage no defence reply was filed to the show cause notices. There is no justification for raising this plea at revision application stage. Moreover, they have never claimed that said grey fabrics suppliers ever existed. No such supplier was ever produced before either adjudicating authority or appellate authority. Government does not find any force in the said argument.”
6.2 Now, so far as the contention on behalf of the petitioners that they made the payment to the suppliers by cheques and the reliance placed upon the documents produced at Pages 159 to 310 is concerned, as such, such a contention came to be considered by the Division Bench of this Court in the decision in Prayagraj Dyeing & Printing Mills Pvt. Ltd. & Ors. v. Union of India & Ors. in Tax Appeal No. 1153/2011 [2013 (290) E.L.T. 61 (Guj.)] and in Special Civil Application No. 98/2012 with Special Civil Application No. 101/2012. After considering the relevant provisions of CENVAT Credit Rules, 2004 and on interpretation of Rule 7(2) of the CENVAT Credit Rules, 2004, it is held that Rule 7(2) cast a further duty upon the appellants to take all reasonable steps to ensure that the inputs or the capital goods in respect of which they have taken the credit of CENVAT are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. In the present case also, it has been found that no proper care and/or reasonable steps were taken to ensure the proper identity and existence of the suppliers. The petitioners did not produce any evidence to prove the transaction of grey fabrics as recorded in their books was genuine transaction. The petitioners have also not denied that the said suppliers are bogus, fake, fictitious and non-existing. It is observed that the petitioners were knowing that no such suppliers existed, still endorsed the fake invoices to the processors for facilitating availment of CENVAT credit. Under the circumstances, no error has been committed by the adjudicating authority in denying the part rebate claim with respect to the CENVAT credit with respect to those bogus, fake, fictitious and non-existing invoices and no error has been committed by the Commissioner (Appeals) as well as the revisional authorities in confirming the orders of rejecting the part rebate claim. No case has been made out to interfere with the impugned orders.
6.3 Now, so far as the reliance placed upon the documents produced at pages 159 to 310 are concerned, it is required to be noted that such documents were never produced before the adjudicating authority and/or even before the first appellate authority and/or even the revisional authority and they are relied upon and placed for the first time before this Court. It is also required to be noted that even before the adjudicating authority no defence reply was filed by the Therefore, it is not open for the petitioners now to rely upon those documents for the first time before this Court. Even otherwise the aforesaid issue is covered by the Division Bench of this Court in Prayagraj Dyeing & Printing Mills Pvt. Ltd. & Ors. (supra).”
5.7 Similar issue came up before CESTAT Ahmedabad in the case of M/s. Jai Hanuman & Ptg. Mills P. Ltd. (a processor of grey fabric) who had availed Cenvat Credit on non existence/ fake/ bogus invoices. During adjudication proceedings, credit was disallowed to them and equal penalty was imposed.
In an appeal against this order, learned Commissioner (Appeal) upheld disallowance of Cenvat Credit but instead of equal penalty under Section 11AC of the Central Excise Act, 1944, he imposed penalty under Rule 15(1) of CCR, 2004. This order was challenged by Revenue before the Tribunal and thereafter before Hon’ble Gujarat High Court for imposition of mandatory penalty, but there was no challenge to disallowance of Cenvat Credit by the appellant.
5.8 Above judicial pronouncements pertain to textile processing industry where a common modus operandi was adopted by various fabric processors by availing Cenvat Credit on the basis of invoices issued by bogus/ fake/ non-existent manufacturer. Hon’ble Gujarat High Court has consistently held in these cases that requirement of Rule 7(2) of the Cenvat Credit Rules, 2002 has not been satisfied by the Credit availers and therefore, Cenvat Credit is not admissible to them. Hon’ble Court has also observed that for invoking extended period for imposition of mandatory penalty, positive action by the appellant is necessary. I find that in first round of litigation, learned Commissioner (Appeals) in his order dated 02.06.2010 at para-6 had noted various discrepancies in the invoices and delivery challans on which Cenvat Credit was availed by the appellant. The said para-6 is reproduced below:-
“6. The appellant has produced copies of relevant invoices of grey fabrics, the delivery challans of merchants under which goods were purportedly delivered and the Central Excise invoices of grey fabrics. Following observation are made in this regard.
a. That value of grey fabrics in those invoices Range between Rs. 35 to Rs. 40/L.Mtrs. as against normal value of grey fabrics of about Rs. 10/L.Mtrs.
b. None of the invoices of grey fabrics indicate the width of the
c. There are no details of variety or detailed description of grey fabrics justifying such value.
d. Three purported writers viz. M/s. M. M. Textiles, M/s. M. K. Textiles and M/s. R. Textiles have same address. All movement are purportedly made in same vehicle. The invoices purportedly issued by these three persons are issued to two merchants by name M/s. Night Exports and M/s. Qadri Exports. Both these merchants have shown common address viz. 94-95B/GIDC, Pandesara and the documents purported to be delivery challans issued by these two merchants are signed illegibly without indicating identity or designation of the person and are similar. These challans bear no details of mode of transport nor fact of delivery.
e. The invoices of grey fabrics issued by m/s. James Faiz Fabrics do not indicate the Lorry No. under which goods were removed. The goods are purportedly sold to two merchants viz. M/s. Suraj Exports and M/s. Govinda Overseas. On verification of documents purported to be delivery challans of M/s. Govinda Overseas, the same are signed illegibly but in the manner in which delivery challans of M/s. Night Exports and M/s. Qadri Exports are signed. The person signing has neither disclosed his identity nor indicated the designation/authority under which he has The documents purported to be delivery challans of M/s. Suraj Exports are signed illegibly and without indicating designation/authority.
f. The invoice of M/s. Shaan Enterprise do not indicate the lorry No. under which goods were removed.
g. The invoice are signed illegibly without indicating the identity of the person signing and without indicating whether signed by the licensee or his authorized agent. The description of the goods is given vaguely as unprocessed grey The invoice are issued in favour of merchant M/s. Suraj Exports and M/s. Govinda Overseas. The documents purported to be delivery challans of M/s. Govinda Overseas are signed illegibly in the manner challan of M/s. Night Exports and M/s. Qadri Exports are signed. There is no disclosure of identity or designation of person signing.
h. M/s. Parasnath Impex the sixth supplier of the invoice of grey fabrics has issued the invoice directly in favour of Saiyam Silk Mills Ltd (the appellant). The invoice do not indicate the mode of transport and the appellant has issued the invoices of process fabrics in favour of M/s. Parasnath Impex. From the document it is seen that M/s. Parasnath Impex is registered with Excise as a manufacturer. Since M/s. Parasnath Impex is registered with Excise the law permitted him to send the goods for job work without an invoice and final stage duty paid by him. The arrangement is clearly abnormal and without explanation.”
5.9 Above clearly shows that the invoices on which appellant had availed Cenvat Credit, showed abnormally high value, without indicating width or the variety of the grey Some of the suppliers had same address and shown movement of goods in the same vehicle. Two of the merchant exporters had common address and delivery challans were signed illegibly without disclosing identity or designation of the person. The invoices of G. Shaan Enterprise do not indicate lorry number used for movement of goods. They used vague description of goods such as unprocessed grey cloth. The sixth supplier M/s. Paraswanath Impex (who has also been found to be non-existent) had issued invoices directly to the appellant without showing mode of transport. Therefore, it is clear that the appellant has taken wrong Cenvat credit knowingm fully well that the documents were not genuine. Thus, positive action on the part of appellant is clearly reflected in this case as held in various judicial pronouncements, some of which have been discussed above, for invocation of extended period of limitation. I therefore hold that the lower authorities have fully justified invocation of extended period in this case for denying Cenvat Credit availed by the appellant on invoices issued by bogus/ fake/ non-existent suppliers along with interest and equal penalty under Rule 15(2) of the CCR 2004 readwith Section 11AC of the Central Excise Act, 1944. Accordingly, I hold that the appeal is not maintainable and therefore, the same is dismissed and the order of learned Commissioner (Appeals) is upheld.
6. The party’s appeal is dismissed.
(Pronounced in the open court on 02.06.2026)
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