2015 (3) TMI 1210 - HC - Central Excise

Reversal of Cenvat credit - no disclosure made that M/s. BPCL the supplier of the inputs was visited with the penalty under Rule 173 Q - Held that - both the show cause cum demand notice to M/s. BPCL, and the Order-in-original passed against it do not contain the allegations and finding that there was any willful mis-statement or suppression of facts by M/s. BPCL or contravention of the provisions of the Central Excise Act, 1944, or the Rules framed thereunder with an intent to evade payment of duty. The Tribunal, therefore, rightly held that in the adjudication against the present assessee, the adjudicating authority could not have speculated about what the case against M/s. BPCL was, and what are the findings rendered against them. They ought to have been accepted and for what they are and once they do not contain any finding of the above nature, then, Rule 7(b) of the Cenvat Credit Rules, 2002, was not attracted. The Tribunal rightly held that by mere imposition of penalty under Rule 173 Q, the inferences drawn by the adjudicating authority, cannot be sustained. Those were mere conjectures and surmises on the part of the adjudicating authority. Since the ingredients of Rule 7(b) of the Cenvat Credit Rules were not attracted, the Order-in-original was rightly set aside. We do not see how the substantial questions of law can be answered except by upholding the order of the Tribunal. - Decided against the Revenue

Summary

Issues:
1) Jurisdiction of the adjudicating authority over the purchaser of inputs to reassess duty paid by the supplier and credit admissible.
2) CENVAT applicability when show cause notice does not mention suppression of fact or willful misrepresentation.
3) Denial of CENVAT credit on supplementary invoices when no penalty or interest imposed due to no suppression of facts.

Analysis:

Issue 1:
The judgment revolves around the jurisdiction of the adjudicating authority to reassess the duty paid by the supplier and the credit admissible to the purchaser of inputs. The appellant challenged the Tribunal's order based on substantial questions of law. The supplier, M/s. BPCL, supplied sulfur at nil excise duty rate, which was disputed by the Revenue. The duty liability was confirmed, and penalty imposed on M/s. BPCL. The appellant, a textile business, availed CENVAT credit based on supplementary invoices from M/s. BPCL. The appellant argued that the credit was not valid due to the penalty imposed on M/s. BPCL, indicating an intent to evade duty. The Tribunal's decision to interfere with the show cause cum demand notice was contested, emphasizing non-application of mind.

Issue 2:
The second issue pertains to the applicability of CENVAT when the show cause notice does not mention any suppression of fact or willful misrepresentation. The appellant argued that the absence of such allegations against M/s. BPCL in the notice meant that Rule 7(b) of the Cenvat Credit Rules, 2002, was not triggered. The Tribunal correctly held that the adjudicating authority could not speculate on the case against M/s. BPCL and must accept the findings as they are. The imposition of penalty alone was deemed insufficient to sustain inferences by the adjudicating authority, which were considered conjectural.

Issue 3:
The final issue involves the denial of CENVAT credit based on supplementary invoices due to the absence of penalty or interest imposed on M/s. BPCL for suppression of facts. The respondent supported the Tribunal's decision, highlighting that the attempt to reopen conclusions from the order against M/s. BPCL was rightly set aside. The Court examined the show cause cum demand notice and the order against M/s. BPCL, noting the absence of findings regarding willful misstatement or suppression of facts. Consequently, Rule 7(b) of the Cenvat Credit Rules, 2002, was deemed inapplicable to the situation. The Tribunal's decision to set aside the Order-in-original was upheld, leading to the resolution of the substantial questions of law in favor of the assessee.