2006 (12) TMI 408 - AT - Central Excise

Cenvat/Modvat - Duty paying documents - Penalty imposed - HELD THAT - 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. Thus hold that - (a) the invoices raised by M/s. Muskan Prints is not valid for the purpose of taking credit by the appellant; (b) the appellant is required to pay the duty and interest as demanded by the original authority and as upheld by the Commissioner (Appeals); (c) the penalty is not sustainable. The appeal is disposed off on the above terms.

Summary

Issues:
Recovery of wrongly taken Cenvat credit; Reduction of penalty imposed by the original authority.

Analysis:
The appeal was made against the Commissioner (Appeals) order upholding the recovery of wrongly taken Cenvat credit but reducing the penalty imposed by the original authority. The appellant, a processor based at Surat, received orders in June 2003 from a merchant manufacturer for processing fabrics. The alleged supplier, M/s. Muskan Prints, was found to have given a fake address, leading to the inadmissibility of Cenvat credit taken based on their invoices. The original authority demanded payment and imposed a penalty, which was partially reduced by the Commissioner (Appeals).

The appellant argued that they had no direct dealings with Muskan Prints, only with the merchant manufacturer, and had taken necessary steps to verify the legitimacy of the transactions. The Department contended that the appellant should have ensured that the supplier had paid the duty at their end. The Tribunal noted that the credit was based on invoices from Muskan Prints, a non-existent entity at the given address, indicating fraud. Despite an undertaking from the merchant manufacturer, the appellant, as the manufacturer, was held responsible for verifying the supplier's legitimacy. The Tribunal concluded that the invoices were invalid for credit purposes, upholding the duty demand and interest but ruling the penalty as unsustainable.

In light of the evidence of fraud and the appellant's responsibility as a manufacturer, the Tribunal held that the appellant must pay the demanded duty and interest. However, the penalty imposed was deemed unsustainable. The appeal was disposed of based on these findings.