2006 (3) TMI 596 - AT - Central Excise

Summary

Issues:
1. Availing of Modvat credit based on invoices from a supplier who did not pay duty.
2. Denial of credit by the Adjudicating Commissioner.
3. Applicability of time limitation for issuing Show Cause Notice.
4. Validity of demand under Rule 57-I.
5. Support for duty demand by the Department.

Analysis:
1. The appellants had availed Modvat credit based on invoices from a supplier who did not pay duty on goods cleared to another entity. The Settlement Commission ordered the supplier to pay the balance duty and interest. The advocate argued that the duty paid by the supplier included the duty amount for the inputs received by the appellants.

2. The Adjudicating Commissioner confirmed the duty demand, denying credit to the appellants due to the supplier's non-payment of duty on goods cleared using fake invoices. Despite this, no penalty or interest was imposed on the appellants, considering the Settlement Commission's order regarding the supplier's duty payment and interest recovery.

3. The advocate contended that the demand should be time-barred as the Show Cause Notice was issued beyond the normal limitation period. Additionally, it was argued that the appellants were not involved in the fraud perpetrated by the supplier.

4. Another argument raised was the validity of the demand under Rule 57-I, which was not in force when the notice was issued. Citing relevant decisions, the counsel sought to invalidate the demand based on this ground.

5. The Department supported the duty demand, emphasizing that the credit was taken based on fraudulent invoices where duty was not paid by the supplier. They argued for the application of the extended period and the validity of action under the substituted Rule, referencing a Supreme Court decision for support.

In the judgment, considering that the supplier had paid the duty and interest for the related consignment and the Adjudicating Commissioner found no involvement of the appellants in the supplier's fraudulent actions, the Tribunal allowed the benefit of duty credit to the appellants. Consequently, the impugned order was set aside, and the appeal was allowed.