2010 (2) TMI 847 - CGOVT - Central Excise

Revision application - rebate claim - no dispute on the export of the goods and no allegation that the applicant merchant-exporter has not purchased the exported goods from the manufacturer in normal course of business and have not paid the full amount of the Central Excise invoice including duty element - Held that - merchant-exporter cannot be held responsible for having not taken adequate reasonable steps in terms of sub-rule (3) of Rule 9 of Cenvat Credit Rules, 2004 which provides that any person taking credit is deemed to have taken reasonable steps if he satisfies himself about the identity and address of the manufacturer issuing the invoices evidencing payment of duty, manufacturers were duly registered with the Central Excise Department and there was no dispute about their identity and address as shown on documents supplied with the rebate claims. In the absence of any mala fide on the part of the applicant merchant-exporter, the rebate claim cannot be denied to him. Rebate claim is admissible to the applicant. The impugned orders are set aside and the revision application is allowed with consequential relief if any.

Issues Involved:
1. Validity of the deficiency memo-cum-show cause notice.
2. Rejection of rebate claims based on fraudulent Cenvat credit by manufacturers.
3. Timeliness and condonation of delay in filing the revision application.
4. Merchant-exporter's entitlement to rebate when manufacturers availed fraudulent Cenvat credit.

Issue-wise Detailed Analysis:

1. Validity of the Deficiency Memo-Cum-Show Cause Notice:
The applicant argued that the deficiency memo-cum-show cause notice dated 5-5-05 did not contain any allegations based on the Thane-I Commissioner's letter dated 2-5-05. The applicant contended that the findings by lower authorities considering this letter are not sustainable in law as it was not part of the show cause notice. The orders passed by the lower authorities were thus beyond the scope of the show cause notice and required setting aside in the interest of justice.

2. Rejection of Rebate Claims Based on Fraudulent Cenvat Credit by Manufacturers:
The rebate claims were rejected by the adjudicating authority on grounds that the manufacturer-suppliers had availed fraudulent Cenvat credit on the basis of invoices raised by non-existent companies. This credit was utilized for duty payment on goods cleared for export. The Commissioner (Appeals) upheld this rejection. The applicant argued that the orders did not dispute the export of goods under respective invoices and ARE-1s, and proof of export was submitted. Therefore, the rejection of rebate claims was contrary to the provisions of law laid down for the export of goods. The applicant also argued that they should not be punished for the supplier's wrong Modvat credit, as they had no control over it.

3. Timeliness and Condonation of Delay in Filing the Revision Application:
The revision application was filed after the expiry of the stipulated 3-month period under Section 35EE of the Central Excise Act, 1944. The application was filed on 26-4-2007 against the order-in-appeal received on 11-11-2006, resulting in a delay of 75 days. The applicant requested condonation of delay citing severe jaundice of the proprietor during the relevant period, supported by an affidavit. The revisionary authority, satisfied with the reasons for the delay, condoned it as it was within the condonable limit under Section 35EE(2) of the Central Excise Act, 1944.

4. Merchant-Exporter's Entitlement to Rebate When Manufacturers Availed Fraudulent Cenvat Credit:
The government observed that the applicant, a merchant-exporter, procured duty-paid goods from manufacturers M/s. Globe Traders and M/s. Mansa Traders and exported them under a rebate claim following proper procedures. The issue of rebate claims being denied due to fraudulent Cenvat credit by manufacturers had been previously decided in favor of the merchant-exporter in a similar case (GOI order No. 304-307/07, dated 18-5-2007). The government held that the merchant-exporter could not be denied rebate claims when the manufacturer availed Cenvat credit wrongly on the basis of bogus invoices, provided there was no mutuality of interest, financial control, flow back of funds, or non-bona fide nature of transactions between the merchant-exporter and the manufacturer. The government reiterated that sufficient legislative and machinery provisions exist to recover wrongly availed credit from the manufacturer along with interest and penalty, and the merchant-exporter should not be penalized if the transaction was bona fide and at arm's length. The government set aside the impugned orders and allowed the revision application with consequential relief if any.

Conclusion:
The revision application succeeded, and the government allowed the rebate claim to the applicant, setting aside the orders of the lower authorities. The merchant-exporter was not held responsible for the fraudulent Cenvat credit availed by the manufacturers, and the delay in filing the revision application was condoned.

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