ORDER
Jyoti Balasundaram, Vice President
1. The above appeal arises out of the order of the Commissioner of Central Excise (Appeals) upholding demand of duty of Rs. 7,56,221/- as representing cenvat credit wrongly availed on yellow phosphorous supplied by M/s. Pentafour Products Ltd., ordering for recovery of the same together with interest under Rule 12 of the CENVAT Credit Rules 2001 & 2002 read with Section 11A of the Central Excise Act and imposing a penalty of equal amount under Rule 13 of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act and of amount equal to duty under Rule 25 and 27 of the Central Excise Rules 2001/2002.
2. I have heard both sides.
3. Show cause notice was issued to the appellants on 4.4.2003 alleging that M/s. Pentafour Products Ltd. (manufacturer/supplier of the inputs) have not paid countervailing duty @ 16% on the inputs on which the assessee availed cenvat credit and that the assessee had not taken reasonable steps to ensure that appropriate duties of customs had been paid, resulting in contravention of the provisions of Rule 3 and Rule 7 of the CENVAT Credit rules 2001 & 2002, and raising a demand of duty by proposing recovery of wrongly availed credit and proposing imposition of penalty. The appellants’ plea that they had taken all reasonable steps and that the input supplier confirmed under cover of their letter dated 9.4.2002 that duty was paid on the inputs after the close of the month as permitted under Rule 8 of the Central Excise Rules 2001 & 2002, was rejected by the Joint Commissioner who confirmed the demand and imposed penalties. The Commissioner (Appeals) upheld the denial of credit on the ground that the manufacturer – supplier of inputs – was a 100% EOU which was therefore required to remove inputs on payment of appropriate duty before removal, by debiting account current, as per Rule 17 of the Central Excise Rules 2002. He also relied upon letter dated 6.11.2002 of the Superintendent of Central Excise, Cuddalore, having jurisdiction over the factory of the inputs supplier that CVD @ 16% had not been paid on inputs on which credit was taken by the appellants due to lack of correlation. I have carefully perused the relevant provisions of the Central Excise Rules 2001 & 2002. Rule 7 provides that cenvat credit can be taken by a manufacturer on the basis of certain documents such as invoice issued by manufacturer or importer or dealer, supplementary invoice, bill of entry etc. The Rule provides that the person taking credit on inputs shall take all reasonable steps to ensure that they are goods on which appropriate duty as indicated in the documents accompanying the goods has been paid. Rule 8 provides that duty on goods removed from a factory or warehouse during the first fortnight of the month shall be paid by the 20th of that month and the duty on the goods removed during the second fortnight shall be paid by the 5th of the following month. The goods were supplied by M/s. Pentafour Products Ltd. after obtaining necessary permission from Development Commissioner, goods were received under the cover of valid central excise invoices duly authenticated and signed showing inter alia the rate and amount of basic duty and CVD paid, the supplier vide letter dated 1.6.2002 confirmed payment of duty on the entire supply made to the appellants, copies of ER-1 return for the relevant period filed by the inputs supplier evidenced payment of duty on the inputs. Therefore, it is clearly established that the appellants took all reasonable steps to ensure that duty had been paid on the inputs received by them and on which they took credit. Further, the Indian Overseas Bank has clarified through its certificate that CVD was paid by M/s. Pentafour Products Ltd. In these circumstances, credit cannot be denied on the ground that the appellants had not taken reasonable steps to ensure that duty had been paid on the inputs in question which were used by them in the manufacture of phosphorous pentasulphide.
4. The finding of the Commissioner (Appeals) that the inputs supplier is a 100% EOU attracting the provisions of Rule 17 is factually incorrect for the reason that the Development Commissioner had granted permission to them to sell unutilised material in DTA on payment of applicable duty in terms of para 9.18 of the Exim Policy 1997-2002, vide letter dated 12.10.2001, i.e. prior to the supply of inputs to the appellants (the period of supply in this case is March 2002 to June 2002).
5. I also take note of the CBEC circular dated 15.12.2003 according to which where the supplier defaults any payment of duty outstanding together with interest is required to be recovered from him and action against the consignee to reverse/recover cenvat credit availed need not be resorted to as long as the bona fide nature of the transaction is not in dispute.
6. In the light of the above discussion, I hold that credit is admissible to the appellants, set aside the impugned order and allow the appeal.
(Operative part pronounced in court)