Extended period of limitation cannot be invoked on a legitimate buyer

Jai Balaji Industries Limited Vs Commissioner of Central Excise (CESTAT Kolkata)

The CESTAT, Kolkata in M/s Jai Balaji Industries Limited v. Commissioner of Central Excise [Excise Appeal no. 9 of 2011 dated June 26, 2013] had set aside the order demanding excise duty and held that the buyer who has paid a valuable consideration could not be proceeded upon by taking the aid of a larger period of limitation as per Section 11A(1) of the Central Excise Act, 1944 unless it is proved that the buyer was also involved in fraud.

Facts

M/s Jai Balaji Industries Limited (“the Appellant”) purchased plant and machinery (“the Impugned Machinery”) from M/s Saha Industries (“the supplier”) which was duly registered with the Central Excise department on which the Appellant claimed CENVAT credit on the basis of the duty paid invoices.

An investigation dated January 30, 2008 (“the Investigation”) was carried out in the premises of the supplier in which the department concluded that the supplier did not have the proper infrastructure to manufacture the Impugned Machinery and the report of a chartered engineer in August 2008 was also obtained.

A Show cause notice dated March 10, 2010 (“the SCN”) was issued to the Appellant alleging that the Appellant had never received the Impugned Machinery and the Appellant had availed fake CENVAT credit on the basis of fake invoices, It was further alleged that the supplier did not have the infrastructural capacity to manufacture the Impugned Machinery and the Appellant had failed to verify the antecedents of the supplier which the Appellant was required to verify in order to avail the CENVAT credit as per Rule 7(2) and Rule 9(3) of the CENVAT Credit Rules, 2004.

The SCN raised a demand for excise duty of INR 1,43,31,998 which was confirmed by the Adjudicating authority vide order dated October 5, 2010 (“the Impugned Order”). Aggrieved by the Impugned Order the Appellant filed the present appeal before the CESTAT.

The Appellant submitted that the Impugned machinery was duly received for which payment was made through cheques and was subsequently entered into the statutory records and further, there was nowhere contended by the Adjudicating Authority that the supplier had not received inputs for manufacturing the Impugned Machinery.

Issue

Whether the extended period of limitation could be invoked in case of a buyer who has paid a valuable consideration for acquiring inputs and was not a party to fraud?

Held

The CESTAT, Kolkata in Excise Appeal No. 9 of 2011 ruled as under: