2013 (11) TMI 1532 - HC - Central Excise

Rebate of excise duty - exports made under ARE-1 - CENVAT Credit claim - Bogus invoices - During verification of the rebate claim it was discovered that certain suppliers of grey fabrics were non-existent/fictitious persons. The processor took credit based on invoices purported to be issued by the suppliers who are found fictitious - Held that - After considering the relevant provisions of CENVAT Credit Rules, 2004 and on interpretation of Rule 7(2) of the CENVAT Credit Rules, 2004, it is held that Rule 7(2) cast a further duty upon the appellants to take all reasonable steps to ensure that the inputs or the capital goods in respect of which they have taken the credit of CENVAT are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. In the present case also, it has been found that no proper care and/or reasonable steps were taken to ensure the proper identity and existence of the suppliers. The petitioners did not produce any evidence to prove the transaction of grey fabrics as recorded in their books was genuine transaction. The petitioners have also not denied that the said suppliers are bogus, fake, fictitious and non-existing. - petitioners were knowing that no such suppliers existed, still endorsed the fake invoices to the processors for facilitating availment of CENVAT credit. Under the circumstances, no error has been committed by the adjudicating authority in denying the part rebate claim with respect to the CENVAT credit with respect to those bogus, fake, fictitious and non-existing invoices and no error has been committed by the Commissioner (Appeals) as well as the revisional authorities in confirming the orders of rejecting the part rebate claim. No case has been made out to interfere with the impugned orders. - Decided against Assessee.

Summary

Issues Involved:
1. Whether the alert circulars relied upon by the department were provided to the petitioners.
2. The legitimacy of payments made to the processor through account payee cheques and the authenticity of the Central Excise Invoices received by the petitioners from processors holding central excise registration certificates.
3. The validity of the rejection of the part rebate claim based on the alleged fictitious and non-existent nature of suppliers.

Issue-wise Detailed Analysis:

1. Provision of Alert Circulars:
The petitioners contended that the alert circulars relied upon by the department were not provided to them, which they argued invalidated the adjudication process. However, the court noted that these circulars were duly published and placed on a notice board, and no objections were raised by the petitioners at any stage of the proceedings. The court emphasized that the petitioners did not file any defense reply to the show cause notices during the adjudication stage, thus lacking justification for raising this plea at the revision application stage. The revisional authority addressed this issue extensively, stating that the petitioners failed to produce any evidence regarding the existence of the suppliers of grey fabrics and did not deny that the suppliers were bogus, fake, fictitious, and non-existent.

2. Legitimacy of Payments and Authenticity of Invoices:
The petitioners argued that payments to the processors were made through account payee cheques and that they received central excise invoices from processors holding central excise registration certificates. They relied on documents showing bank accounts of the weavers/processors to substantiate their claims. However, the court referred to a previous Division Bench decision which held that Rule 7(2) of the CENVAT Credit Rules, 2004, imposes a duty on the appellants to take all reasonable steps to ensure that the inputs or capital goods on which they have taken credit are genuine and that appropriate duty of excise has been paid. The court found that the petitioners did not take reasonable steps to verify the identity and existence of the suppliers, and no evidence was produced to prove the genuineness of the transactions. The court concluded that the petitioners knowingly endorsed fake invoices to facilitate the availment of CENVAT credit.

3. Validity of Rejection of Part Rebate Claim:
The court upheld the rejection of the part rebate claim, agreeing with the concurrent findings of fact by all authorities that the invoices endorsed by the petitioners were bogus, fake, fictitious, and non-existent. The alert circulars issued by the Commissioner of Central Excise, Surat-I, and the Director General Central Excise Intelligence declared about 500 units as fictitious, bogus, and non-existent. The petitioners did not challenge these circulars or provide any evidence to counter the findings. The court emphasized that the petitioners had knowledge of the non-existence of the suppliers and still endorsed the fake invoices. The court found no error or illegality in the denial of the rebate claim related to those invoices.

Conclusion:
The court dismissed both petitions, discharging the rule, and upheld the decisions of the adjudicating authority, Commissioner (Appeals), and the revisional authority in rejecting the part rebate claim. The court emphasized the importance of taking reasonable steps to verify the authenticity of suppliers and transactions when claiming CENVAT credit.