Gujarat High Court Case Information System
Print
TAXAP/197/2008 10/ 12 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 197 of 2008
=========================================================
SHEELA
DYEING & PRINTING MILLSP. LTD. - Appellant(s)
Versus
THE
COMMISSIONER OF CENTRAL EXCISE & CUSTOMS, SURAT-I - Opponent(s)
===============================================================
Appearance :
MR
HARDIK P MODH for Appellant(s) : 1,
MR HARIN P RAVAL for
Opponent(s) :
1,
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE D.A.MEHTA
and
HONOURABLE
MS.JUSTICE H.N.DEVANI
Date
: 23/07/2008
ORAL
ORDER
(Per
: HONOURABLE MS.JUSTICE H.N.DEVANI)
1 The
appellant-assessee has proposed the following two questions :
a. Whether the Tribunal was
right in holding that the Appellants failed to take reasonable steps
of Rule 7(2) when admittedly the Appellants received goods from
principal supplier on job work basis and principal supplier
purchased goods from the said Vendor?
b. Whether Appellants are
liable for amount of duty in a case where goods were purchased by
the principle Supplier and not by the Appellants?
2.
The facts in brief are that the appellant-assessee, at the relevant
time, was engaged in manufacturing processed fabrics on job-work
basis. During the course of its business, in June 2003, the appellant
had undertaken job work from one M/s Jhanwar International (the
principal manufacturer) for processing fabrics. The appellant
received grey fabrics for processing, under challans issued by the
principal manufacturer and invoices issued by M/s Muskan Prints who
had sold the grey fabrics to the principal manufacturer and consigned
the goods to the appellant. The appellant availed credit on duty paid
inputs used for the manufacture of processed fabrics. After
manufacturing the fabrics, the appellant sent the goods back to the
principal manufacturer and debited the amount of Central Excise duty
applicable on the processed fabrics.
3. On
scrutiny of E.R.1., for the month of June,2003, it was noticed that
the CENVAT credit availed by the appellant-assessee was on the basis
of invoices which were found to be fake and fictitious. Accordingly,
Show Cause Notice came to be issued against the appellant. The
Adjudicating Authority vide order dated 14.07.2004 held that the
appellant had not cared to verify the existence of the vendor M/s.
Muskan Prints and had therefore, not taken proper precautions to
ascertain as to whether the supplier of the materials has paid duty
of the materials, as required under Rule 7(2) of the CENVAT Credit
Rules 2002 (the Rules). He, accordingly, held that the charges
levelled against the appellant were proved and that the appellant was
liable to pay duty under section 11A(2) of the Central Excise Act,
1944 (the Act) as well as interest and penalty.
4. The
appellant carried the matter in Appeal before the Commissioner
(Appeals), Central Excise and Customs, Surat-1, who vide order dated
16.05.2005 confirmed the amount of duty but reduced the penalty to
Rs.1,00,000/- under section 11AC of the Act read with Rule 13 of the
Rules. The appellant carried the matter in further Appeal before the
Customs, Excise & Service Tax Appellate Tribunal (the
Tribunal). The Tribunal vide the impugned order dated 08.11.2006
confirmed the amount of duty and set aside the penalty. The
appellant thereafter moved an application for rectifying the
aforesaid order passed by the Tribunal, which came to be rejected by
the impugned order dated 25.05.2007.
5. Mr.
Hardik Modh, learned Counsel for the appellant has drawn the
attention of the Court to the provisions of sub-rule (2) of Rule 7
of the Rules to submit that under the said Rule the manufacturer or
producer taking CENVAT credit on inputs or capital goods is required
to take all reasonable steps to ensure that the inputs or the
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. Referring to
the Explanation to the said sub-rule, it is submitted that the
appellant has taken reasonable steps to satisfy itself about the
identity of the supplier as envisaged under the said rule. It was
pointed out that the appellant had procured stock declaration filed
by M/s. Muskan Prints stating that as on 31.03.2003 the goods were
available at the factory of Muskan Prints. As per the declaration,
M/s. Muskan Prints was entitled to avail the deemed credit on the
basis of declaration of stock. The appellant had also obtained an
undertaking of the principal manufacturer for payment of CENVAT
credit in case of any dispute in future. It was accordingly submitted
that in the circumstances the provisions of sub-rule (2) of Rule 7
had been substantially complied with, hence the appellant ought not
to have been held liable for payment of duty and interest.
6.
The only issue involved is as to whether the appellant who has taken
CENVAT credit on the inputs has taken reasonable steps to ensure that
the inputs in respect of which CENVAT credit has been taken, are
goods on which the appropriate duty of excise as indicated in the
documents accompanying the goods has been paid as envisaged under
sub-rule (2) of Rule 7 of the Rules.
7.
The Tribunal in its impugned order dated 01.12.2006 has recorded the
following finding :
?S6. It is not in dispute
that the credit has been taken on the basis of invoices issued by one
M/s. Muskan Prints of Surat. M/s. Muskan Prints did not exist in the
address given by them. There is a clear evidence of fraud on the part
of M/s. Muskan Prints. Any fraud vitiates the transaction. The
document cannot be held to be valid for the purpose of taking credit.
The appellant is the manufacturer; the duty liability and obligation
to follow the Central Excise law and procedure is on them. They are
the party who has taken the credit. It is seen that there is a clear
understanding between the appellant as a manufacturer and
M/s.Jhanwar International, the merchant manufacturer as to who shall
bear the burden in case the credit became ineligible. Did the
appellant and the merchant manufacturer had premonition or knowledge
about the non-existence of M/s. Muskan Prints? Surprisingly, a copy
of the stock declaration said to have been filed by M/s. Muskan
Prints was produced by the appellant. As a manufacturer who has
taken the credit he is required to know the supplier of raw
materials and not merely their merchant manufacturer. It is like a
buyer of stolen goods cannot claim ownership of the goods even if
he has purchased without knowledge. If he has purchased the stolen
goods with the knowledge that they are stolen, then he is liable ,
in addition, to penal action. Anyway, the appellant, in this case,
has taken an undertaking from the merchant manufacturer to
compensate him , in the event of credit being found not eligible.
Whether this was done out of abundant precaution or out of
knowledge is not clear. In this regard benefit of doubt naturally
goes to the appellant manufacturer.??
The
Tribunal found that the invoices raised by M/s. Muskan Prints are not
valid for the purpose of taking credit by the appellant and
accordingly, held that the appellant was liable to pay duty and
interest, but set aside the penalty.
8.
In its impugned order made in the rectification application, the
Tribunal has reproduced the aforesaid findings and thereafter
observed as follows:
?SThere are two major issues
discussed in the above paragraph. One relates to eligibility of
Cenvat credit on the basis of document vitiated by a fraud. The
second issue relates to penal action on the appellant manufacturer.
On the first issue, it has been held that the credit was not
available. As regards the second issue, though the conduct of the
appellant manufacturer was found to be suspicious but still the
benefit of doubt was given holding that the appellant did not have
knowledge or intention in wrongly availing the Cenvat credit. In the
light of the overall evidence and taking the entire facts and
circumstances of the case, it has been categorically held that the
invoices raised by M/s Muskan Prints based on which the appellant
manufacturer had taken credit is not valid for the purpose of taking
credit by the appellant. It was also directed that the appellant was
required to pay duty and interest as demanded by the original
authority and confirmed by the appellate authority. Granting benefit
of doubt the appellant might not be in collusion with the
non-existing Muskan Prints, the penalty was totally set aside. I do
not find any mistake apparent on the record of the case. Further the
order passed by the Tribunal was an appealable order. In the light of
the above, I do not find any merits in the application for
rectification of mistake. The application is rejected.??
9.
Sub-rule (2) of rule 7 of the Rules provides that 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.
10.
As to what are reasonable steps has been provided under the
Explanation thereto, which reads as under:
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.??
11.
Thus, ?Sreasonable steps?? as envisaged under the aforesaid
provision are that the manufacturer or producer taking CENVAT credit
on the inputs or capital goods received by him should satisfy himself
about the identity and address of the manufacturer or supplier, as
the case may be, who has issued the documents specified in rule 7,
either from his personal knowledge; or on the strength of a
certificate given by a person with whose handwriting or signature he
is familiar; or on the strength of a certificate issued to the
manufacturer or supplier, by the Superintendent of Central Excise
within whose jurisdiction such manufacturer has his factory or the
supplier has his place of business. According to the appellant the
steps taken by it are to the effect that the appellant has procured a
declaration filed by M/s Muskan Prints stating that at the relevant
time the goods were available at their factory and that Muskan Prints
was entitled to avail the deemed credit on the basis of declaration
of stock. The appellant also obtained an undertaking from the
principal manufacturer for payment of CENVAT credit in case of any
dispute in future.
12.
Examining the steps taken by the appellant in the light of the
aforesaid statutory provisions, it is apparent that the steps taken
by the appellant do not fall within any of the three categories
enumerated under the Explanation to rule 7(2) of the Rules, viz. the
appellant undoubtedly has not satisfied itself about the identity and
address of the supplier either from its personal knowledge, or on the
strength of a certificate given by a person whose handwriting or
signature it is familiar with, or on the strength of the certificate
issued to the supplier by the Superintendent of Central Excise as
envisaged under the said provision. It is, therefore, not possible to
state that the appellant has fulfilled the requirements of sub-rule
(2) of Rule 7 of the Rules.
13.
In the aforesaid set of facts and circumstances, it cannot be said
that there is any infirmity in the impugned orders of the Tribunal so
as to give rise to any question of law, as proposed or otherwise,
much less any substantial question of law. The appeal is,
accordingly, dismissed.
Sd/- Sd/-
(D.A.
Mehta, J) (H.N. Devani, J.)
M.M.BHATT
Top