Brief Facts of the case:
The main appellant M/s. Shah Paper Mills Limited (assessee co.) the manufacturer of kraft paper from waste paper among other items. The assessee company claimed Cenvat credit with respect to duty paid Rs. 12,19,605/- on the waste kraft paper received from M/s. Shah Pulp and Paper Mills Limited(supplier).
Adjudicating authority vide OIO dated 26.4.2011 disallowed CENVAT credit of Rs. 12,19,605/- to the main appellant(assessee co.) M/s. Shah Paper Mills Limited (Unit-3), Vapi and confirmed the demand along with interest. Equivalent penalty of Rs. 12,19,605/- was also imposed by the Adjudicating authority upon the main appellant and a penalty of Rs. 4,00,000/- was imposed upon the other appellant Shri Hemant G. Modi, Director of the main appellant, under Rule 15(1) of the Cenvat Credit Rules. It was adjudicating authority view that that segregation of imported scrap does not amount to manufacture hence no excise duty was required to be charged by the supplier M/s. Shah Pulp and Paper Mills Limited. Thus, the assessee company had claimed credit of excise duty which was not even leviable on purchase. Aggrieved by the order of adjudicating authority, assessee company and its director jointly filed an appeal before CESTAT.
Contention of the Assessee:
The learned counsel for the assessee contended that credit cannot be denied if at the time of taking credit when duty paid nature of the inputs was established. He also contended that for any improper duty paid by the supplier without appellant’s knowledge, the appellant cannot be denied CENVAT credit and extended period cannot be invoked in the present proceeding as the appellant had paid duty and claimed credit in boanfide belief and there is nothing on the record which show that appellant was aware of the irregular duty levied by the supplier.
Contention of the Revenue:
The learned counsel for the revenue argued that segregation of imported scrap does not amount to manufacture hence no CENVAT was required to be shown on the invoices. He also pointed out that main appellant has not taken sufficient precautions to check that input obtained were not required to discharge duty and that extended period is invokable because the assessee company has claimed irregular credit.
Decision of the CESTAT:
The tribunal after considering the rival submissions observed that issue involved is whether main appellant was eligible to take credit on the basis of cenvatable documents showing payment of duty even if the duty chargeable in the invoice was improper as the same was infact not chargeable.
The crucial fact required to be seen is whether the main appellant should have enquired beyond the cenvatable document showing payment of duty that whether the inputs were due to the result of manufacture or not. The tribunal observed from the case records that an assessee taking cenvat credit is not required to go beyond the cenvatable document to know as to how it has arisen. What input recipient is required to verify is that the supplier of raw material is genuine and proper duty is paid.
Further, when the department did not dispute the classification of such manufacturer, accepted the declarations and duties, Cenvat credit on such duty cannot be declined to the purchaser of the goods who otherwise fulfilled all conditions stated in Rule 3 & 4(as to use) and Rule 9(as to taking credit under the cover of invoice).
Further, as regards to invocation of the extended period of limitation, the tribunal noted that the show cause notice was issued on 05.04.2010 for the period March 2005 to March 2007. No evidence could be brought on record that the main appellant and its Director were aware that inputs received was as a result of an activity not amounting to manufacture. The demand issued is clearly time barred as extended period is not imposable in this case and no penalties can be imposed upon the appellant.