Case Law Details
New Modern Technomech Private Limited Vs Commissioner of CGST & CX (CESTAT Kolkata)
CESTAT Kolkata held that Cenvat Credit cannot be denied alleging non-existence of seller as the Appellant being a bonafide purchaser of goods for a price which included the duty element and payment made by cheque and availed CENVAT Credit based on Cenvatable documents.
Facts-
The Appellant purchased 15,711 Kilo Litres of Furnace Oil for an amount of Rs.7,28,978/- from one of the vendors viz. M/s. Sri Kamala Udyog who is also a registered assessee with the Central Excise Department and availed CENVAT Credit of Rs.92,660/- (including Cess).
Show Cause Notice dated 27.01.2016 was issued on the ground that M/s. Sri Kamala Udyog has no existence and no plant and machinery are there in their declared premises and they are not performing any manufacturing activities. It is alleged that said M/s. Sri Kamala Udyog had undertaken only paper transactions and issued fake Central Excise invoices. Hence the CENVAT Credit availed by the assessee against the invoice issued by the alleged fraud manufacturer cannot be treated as CENVAT in terms of Rule 3 and the invoices are not proper documents under Rule 9(1)(a) of CENVAT Credit Rules, 2004 for ailment of credit. So, the credit availed on the said documents are inadmissible and recoverable along with interest and penalty.
On appeal, Commissioner(A) rejected the Appeal. Hence the present Appeal before the Tribunal.
Conclusion-
Held that the Appellant being a bonafide purchaser of goods for a price which included the duty element and payment made by cheque, having received the inputs at his premise and entered into the statutory records maintained by the Appellant demonstrating transportation of goods from Rishra Road, Hooghly, West Bengal to Chancha Industrial Estate, Baripada, Mayurbhanj, the Appellant has rightly availed CENVAT Credit with the required Cenvatable documents.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Appellant is engaged in the manufacture of Galvanized Steel Tower, Transmission Line Towers, H.T. Stay Sets, L.T. Stay Sets, Clamps and Structural materials etc. The Appellant used various inputs and one among them is Furnace Oil. The Appellant is in Appeal before this Tribunal assailing the Order of the Ld. Commissioner(Appeals) for denial of CENVAT Credit on Furnace Oil. The facts of the case in brief are that during the month of September 2012, the Appellant purchased 15,711 Kilo Litres of Furnace Oil for an amount of Rs.7,28,978/- from one of the vendors viz. M/s. Sri Kamala Udyog having its factory at 1/A/29, S. S. Road (Extn.), Rishra, Serampore, Dist: Hooghly, who is also a registered assessee with the Central Excise Department vide Invoice No. SKU/205/1213 dated 22.09.2012 and availed CENVAT Credit of Rs.92,660/- (including Cess). Show Cause Notice dated 27.01.2016 was issued on the ground that M/s. Sri Kamala Udyog has no existence and no plant and machinery are there in their declared premises and they are not performing any manufacturing activities. It is alleged that said M/s. Sri Kamala Udyog had undertaken only paper transactions and issued fake Central Excise invoices. Hence the CENVAT Credit availed by the assessee against the invoice issued by the alleged fraud manufacturer cannot be treated as CENVAT in terms of Rule 3 and the invoices are not proper documents under Rule 9(1)(a) of CENVAT Credit Rules, 2004 for ailment of credit. So, the credit availed on the said documents are inadmissible and recoverable along with interest and penalty. Further, the Commissioner of Central Excise, Kolkata-IV Commissioner ate issued an alert notice No.01/2013 dated 30.07.2013 confirming that M/s. Sri Kamala Udyog, Rishra has no existence. The executing authority disallowed credit of Rs.92,660/- and ordered for recovery along with interest and also imposed penalty of equal amount under Section 11AC of the Central Excise Act, 1944 read with Rule 15 of the CENVAT Credit Rules, 2004. On appeal, the Ld. Commissioner(Appeals) rejected the Appeal before him and upheld the adjudication order. Hence the present Appeal before the Tribunal.
2. The Ld. Advocate appearing on behalf of the Appellant submits that the Appellant had procured the goods as per the invoice issued by M/s. Sri Kamala Udyog wherein all the duty payment particulars, Registration Number, address of Range Officer, Division Office as well as jurisdictional Commissioner ate in relation to M/s.Sri Kamala Udyog was mentioned and is therefore a valid document. The payment made to M/s.Sri Kamala Udyog has been made through cheques. The goods have been received in the factory premises and consumed towards manufacture of the final products.
3. The Ld.Advocate further submits that they had made a detailed representation before the Adjudicating authority, but he simply relied on the alert circular and proceeded to pass the adjudication order. He further submits that the Ld. Commissioner(Appeals) has simply brushed aside the evidences, written submissions, arguments advanced in the course of hearing and only referring and drawing adverse inferences on the way bill issued by the Sales Tax, Odisha, rejected the Appeal. He further submits that the Ld. Commissioner(Appeals) has not given specific findings as to how the invoices are fake and on the contrary has simply relied on the alert circulars and the way bills. He further prayed that the impugned order being devoid of merits, be set aside.
4. Advocate further submits that the invoice issued by the supplier, goods having been entered the state of Odisha on the strength of way bill, Vahan Website confirming the registration status as well as the type of the vehicle carrying the goods, cheques issued to the supplier and debit entries in the bank statement, speak of the genuineness of the transactions.
5. The Ld. Authorized Representative for the Department justified the impugned orders and prayed that the Appeal be dismissed, being devoid of merits.
6. Heard both sides and perused the appeal records.
7. The only dispute to be decided in the present Appeal is whether the Appellant can be denied CENVAT Credit of Rs.92,660/- only on the basis of alert circular. It is not in dispute that the Appellant is in possession of the Cenvatable invoice which satisfies all the conditions of the Rule 9(1) of the CENVAT Credit Rules, 2004 i.e. the invoice of manufacturer/supplier, mentioning the name of the supplier, factory and place of removal, Central Excise Registration Number, Range Office address, Division office address, Commissioner ate, VAT and CST Number, PAN, date and time of preparation of invoice, date and time of removal, mode of transportation, Registration Number, Central Excise Tariff Item, description of goods, quantity, rate per unit, total value, Excise duty and other Cesses, CST and declared Excise duty payable (in words), confirming to the requirement under Rule 11 of the Central Excise Rules, 2002 read with Rule 9 of the CENVAT Credit Rules, 2004. Further, the goods transferred from the dealer to the Appellant are under the cover of way bill in Form-VAT-402 issuing/approving office i.e. Mayurbhanj Circle of the State Tax Department generated electronically. The payment to the dealer supplier was made through banking channels. On receipt of the goods, necessary entry has been recorded in the entry book of Duty Credit Register and account of Raw Material and Components Register. Input goods received have been utilized in the manufacturing and processing of further goods in obtaining finished product. At the time of removal of finished products, necessary duty has been paid by the Appellant.
8. In the present case, the Appellant was a bona fide purchaser of the goods for a price which included duty element on the basis of a valid certificate of registration issued to the manufacturer/supplier by the Superintendent of Central Excise supported with Cenvatable invoice. The Appellant has substantively taken reasonable steps to comply with the provisions of Rule 9(5). Further, though the Cenvatable invoice was raised on 22.09.2012 and realized in September 2012, the material was received and entered on 25.09.2012; the payments were made by cheques in November and December 2012 and ER-1 returns for the period was filed on 09.10.2012; the alert circular was issued only on 30.07.2013 i.e. after a lapse of 10 months; the Show Cause Notice was issued on 27.01.2016 i.e. after a lapse of 39 months from the filing of ER-1; return for the quarter ending September 2012 was filed on 09.10.2012 and the normal period for issuance of Show Cause Notice expired on 08.09.2013. I find that the Appellant submitted copy of the invoice, screenshot of vehicle registration status on Vahan (Ministry of Road Transport and Highways), photocopies of the cheques issued to M/s. Sri Kamala Udyog, photocopy of the bank statements showing the debit entries of 3rd October 2012 for Rs.7,28,978/- and 12.10/2012 for Rs.12,117/-. The fact that the assessee made payments by cheque is held to be a proof of his bona fide. Further, the Revenue has failed to establish that the Appellant received any unlawful kickback for executing the alleged purchase.
9. The buyer can take only those steps which are within his control and can not be expected to verify the records of the supplier to check whether in fact he had paid duty on the goods supplied by him. The only reasonable steps which he can take is to ensure that the supplier is trust-worthy, as the inputs are in fact received and the documents, prima facie, appeared to be genuine. The Circular of the Central Board of Excise and Customs dated 15.12.2003 clarifying that CENVAT Credit should not be denied to a user manufacturer as long as bona fide nature of the consignee’s transaction is not doubted. Moreover, if the manufacturer supplier has received payment from the buyer in respect of goods supplied including excise duty, action should not be initiated against him under Section 11D and 11DD and CENVAT Credit should not be denied to the assessee.
10. I find that the Hon’ble Allahabad High Court in the case of Commissioner of Central Excise, Customs & Service Tax Vs. Juhi Alloys [2014 (302) E.L.T. 487 (All.)] held that the assessee has taken reasonable steps to ensure that the inputs in respect of which he has taken CENVAT Credit were goods on which appropriate duty of excise was paid. Once, it is demonstrated that reasonable steps had been taken which is a question of fact in each case it would be contrary to the Rule to cast impossible and impractical burden on the assessee. The relevant paragraphs are reproduced for ready reference:-
“3. This view has been affirmed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (in short ‘the Tribunal’) in its judgment. The Tribunal has found that the revenue has not disputed that the supplier from whom the assessee received the raw materials [MK Steels (P) Ltd.] has raised dealers invoices giving all the particulars required to be furnished in law. Moreover, it was also not disputed that the assessee had received the inputs and entered them in its records and these inputs were used in the manufacture of final products, which were cleared on payment of duty. The goods travelled from the dealer to the assessee under the cover of Form 31 issued by the Uttar Pradesh Trade Tax Department. The ledger account and RG 23A records prove the receipt of the goods. Further, the payments were made by cheque. The Tribunal was of the view that in terms of the provisions of Rule 7(4) of the Rules of 2002 and Rule 9(5) of the Rules of 2004, a manufacturer is required to check the particulars as mentioned in the invoice issued by the first stage dealer and he should be familiar with him. The Tribunal has also held that it would be impractical for an assessee to further check the records maintained by the first stage dealer and to verify its correctness. It would be sufficient for the assessee to buy the goods from the first stage dealer whose status he has checked and verified. There was no dispute that M/s. MK Steels (P) Ltd. was registered as a dealer with the revenue. In these circumstances, it was held that the denial of Cenvat credit to the assessee was improper. The order of the Commissioner (Appeals) was, accordingly, upheld by the Tribunal.
4. On behalf of the revenue, reliance has been placed on the provisions of Rule 9(3) of the Rules of 2004. According to the revenue, the assessee was obliged under Rule 9(3) to take all reasonable steps to ensure that the inputs 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. In the present case, it was urged that the assessee ought to have made an enquiry which would have indicated that SarlaIspat (P) Ltd. that had supplied the original raw material was a fictitious entity.
Rule 9(3) of the Rules of 2004, insofar it is material, provides as follows :-
“(3) The manufacturer or producer of excisable goods or provider of output service taking Cenvat credit on input or capital goods or input service, or the input service distributor distributing Cenvat credit on input service shall take all reasonable steps to ensure that the input or capital goods or input service in respect of which he has taken the Cenvat credit are goods or services on which the appropriate duty of excise or service tax as indicated in the documents accompanying the goods or relating to input service, has been paid.”
5. The Explanation to Rule 9(3) of the Rules of 2004 provides a deeming fiction where a manufacturer or producer of excisable goods who takes Cenvat credit on inputs, would be deemed to have taken reasonable steps, if he satisfies himself about the identity and address of the manufacturer or supplier or provider of input services, as the case may be, issuing the documents specified in sub-rule (1) on the basis of his personal knowledge or on the basis of a certificate given by a person with whom he is familiar or on the basis of a certificate issued to the manufacturer or the supplier by the Superintendent of Central Excise concerned. In other words, the Explanation to Rule 9(3) provides a deeming definition as to when a manufacturer or a purchaser of excisable goods would be deemed to have taken reasonable steps. However, even in a situation where Explanation to Rule 9(3) is not attracted, it would be open to an assessee to establish independently within the meaning of the substantive part of Rule 9(3) that he had in fact taken reasonable steps. Whether an assessee has in fact taken reasonable steps, is a question of fact.
6. In the present case, both the Commissioner (Appeals) and the Tribunal have given cogent reasons to indicate that the assessee had taken reasonable steps to ensure that the inputs 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. Admittedly, in the present case, the assessee was a bona fide purchaser of the goods for a price which included the duty element and payment was made by cheque. The assessee had received the inputs which were entered in the statutory records maintained by the assessee. The goods were demonstrated to have travelled to the premises of the assessee under the cover of Form 31 issued by the Trade Tax Department, and the ledger account as well as the statutory records establish the receipt of the goods. In such a situation, it would be impractical to require the assessee to go behind the records maintained by the first stage dealer. The assessee, in the present case, was found to have duly acted with all reasonable diligence in its dealings with the first stage dealer.
The view which the Tribunal has taken is consistent with the judgment of the Jharkhand High Court in Commissioner of C. Ex., East Singhbhum v. Tata Motors Ltd. – 2013 (294) E.L.T. 394 (Jhar.), where it was held as follows :-
“… Once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, the buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs. The buyer will be therefore entitled to claim Modvat credit on the said assumption. It would be most unreasonable and unrealistic to expect the buyer of such inputs to go and verify the accounts of the supplier or to find out from the department of Central Excise whether actually duty has been paid on the inputs by the supplier. No business can be carried out like this, and the law does not expect the impossible.”
7. The judgment of the Division Bench of the Himachal Pradesh High Court in A.B. Tools Limited v. Commissioner of Central Excise – 2010 (256) E. L. T. 382 (H.P.), on which reliance has been placed by the revenue, does not indicate that any contrary view of the law has been
8. Ultimately, the issue in each case is whether, within the meaning of Rule 9(3) of the Rules of 2004, the assessee has taken reasonable steps to ensure that the inputs in respect of which he has taken Cenvat credit were goods on which appropriate duty of excise was paid. Once it is demonstrated that reasonable steps had been taken, which is a question of fact in each case, it would be contrary to the Rules to cast an impossible or impractical burden on the assessee. For the aforesaid reasons, these appeals do not give rise to any substantial question of law. They are, accordingly, dismissed.”
Once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs. The buyer will be therefore entitled to claim CENVAT Credit on the said assumption. It would be unreasonable and unrealistic to expect the buyer of such inputs to go and verify all the supplier or to find out from the department of Central Excise whether actually duty has been paid on the inputs by the supplier. No business can be carried out like this, and the law does not expect the impossible.
11. The Appellant have vehemently fought on the issue of limitation. They pleaded that the Show Cause Notice was issued on 27.01.2016 whereas the normal period expired on 08.09.2013. Therefore, extended period cannot be invoked by alleging suppression and they were also submitting/filing the returns regularly. In support of their submissions, they have relied upon the following decisions :-
(a) Pad mini Products Vs. Collector [1989 (43) ELT 195 (SC)]
(b) Pushpam Pharmaceuticals Vs. Collector [1995 (78) ELT 401 (SC)]
In the present case, the Department has undertaken Audit of the Books of Account for the period 2012-13 to 2014-15 on dated 28.05.2016 i.e., much after the issue of Demand-cum-Show Cause Notice. However, no adverse inference has been drawn against the CENVAT Credit availed. Thus there is no failure and/or willful suppression of any fact of the transaction by the Appellant, having entered and recorded the transaction in its books of accounts. Therefore, no longer period could be invoked. In view of the same, I find that the Appellant have a strong case on limitation too and the Show Cause Notice is barred by limitation.
12. I also find that Central Excise Registration granted to M/s. Sri Kamla Udyog is bonafidely issued by the departmental authorities. Invoice was issued to the appellant by M/s. Sri Kamla Udyog fulfilling all the requirements of Central Excise Rules. It is further submitted by the Appellant that on the date of the visit of the Central Excise officers, they had recovered 40.73 lakhs from both the dealer i.e. M/s.Sri Kamla Udyog and M/s. Bedanta Petro. Therefore, it further strengthens the Appellant’s contention that M/s. Sri Kamala Udyog existed on 30.07.2013 even.
13. With all these undisputed facts, the Appellant being a bonafide purchaser of goods for a price which included the duty element and payment made by cheque, having received the inputs at his premise and entered into the statutory records maintained by the Appellant demonstrating transportation of goods from Rishra Road, Hooghly, West Bengal to Chancha Industrial Estate, Baripada, Mayurbhanj, the Appellant has rightly availed CENVAT Credit with the required Cenvatable documents.
14. It is pertinent to state here that the Central Excise & Service Tax Audit for the period 2012-13 to 2014-15 was undertaken by the department on 28.05.2016. Scrutinizing the Books have issued DAR No. BBS-II/GR-12/2015- 16/CE/49 & FAR No. BBS-II/GR-12/2015- 16/CE/55 issued by the Asst. Commissioner, Bhubaneswar-II Circle, which was placed & approved in the MCM. No adverse inference has been drawn against the CENVAT Credit availed & no cogent evidence contrary to the above submission has ever been established. In view of the above discussions, it is my considered view that the impugned orders cannot be sustained and are accordingly set aside. The Appeal filed by the Appellant is allowed with consequential relief, as per law.
(Order pronounced in the open court on 22 November 2022.)
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