2011 (4) TMI 844 - HC - Central Excise

Interest - Cenvat credit reversed - Petitioner has not received the challans within the period of 180 days from the date of despatch of the finished products from their Unit - Held that - Rule 4(5)(a) and 4(6) would make it clear that the non-receipt of challans within 180 days will not dis-entitle the petitioner to avail the Cenvat Credit and it has been made clear that even after the challans were received after 180 days, the manufacturer can take the Cenvat Credit again when inputs and capital goods are received back in their factory or in the premises of the provider of output service and they have to pay interest for the period - Therefore, there is no need to pass such an order on the assumption that the challans were not received within 180 days and if the petitioner is able to prove that he has received the challans within 180 days, he is entitled to avail the credit and even assuming that the challans were not received within 180 days he has to pay the interest or even after the receipt of the challans after 180 days he is entitled to take Cenvat Credit - There is no question of pre-determination of issue by the respondent and the respondent without affording opportunity passed the order, which has adverse effect of civil consequence on the petitioner there is violation of principals of natural justice and on that ground, the impugned order is liable to be set aside and it is set aside - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice directing the petitioner to reverse Cenvat Credit and pay interest.
2. Adherence to principles of natural justice.
3. Interpretation of Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules, 2004.
4. Maintainability of the writ petition given the availability of statutory remedies.
5. Allegation of pre-determination by the respondent.
6. Validity of internal communication sent by the respondent.

Detailed Analysis:

1. Validity of the Notice Directing Reversal of Cenvat Credit and Payment of Interest:
The petitioner challenged the notice dated 08.06.2010, which directed them to reverse the Cenvat Credit of Rs.315,91,42,459/- and pay interest of Rs.8,78,51,937/-. The notice was issued on the grounds that the petitioner failed to receive the job work challans within 180 days from the date of dispatch of finished products from their unit at Chinchpada, violating Rule 4(5)(a) of the Cenvat Credit Rules, 2004.

2. Adherence to Principles of Natural Justice:
The petitioner argued that the notice was issued without following the principles of natural justice, as they were not given an opportunity to show cause before the adverse order was passed. The court emphasized that even though Rule 4(5)(a) and Rule 4(6) do not explicitly require a show cause notice, the principles of natural justice should be read into these provisions due to the significant civil consequences of the order. The court concluded that the respondent should have afforded the petitioner an opportunity to show cause before directing the reversal of Cenvat Credit.

3. Interpretation of Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules, 2004:
The court noted the contention between the parties regarding whether Rule 4(5)(a) and Rule 4(6) are mutually exclusive or if Rule 4(6) is a relaxation of Rule 4(5)(a). However, the court refrained from deciding this issue, stating that it should be addressed by the appropriate statutory authorities after giving the petitioner an opportunity to present their case.

4. Maintainability of the Writ Petition Given the Availability of Statutory Remedies:
The respondent argued that the writ petition was not maintainable due to the availability of an efficacious statutory remedy. The court acknowledged the general rule that parties must exhaust statutory remedies before resorting to writ jurisdiction. However, the court cited exceptions to this rule, such as when there is a violation of principles of natural justice or when the order has been made without jurisdiction. Given the violation of natural justice in this case, the court held that the writ petition was maintainable.

5. Allegation of Pre-determination by the Respondent:
The petitioner claimed that the respondent had a pre-determined mind while issuing the impugned order. The court found no evidence of pre-determination in the respondent's actions. The respondent's conclusion that the challans were not received within 180 days was based on the facts available during the inspection and the subsequent seizure of challans. The court held that the respondent's reasoning could not be faulted and that the issue should be decided on its merits by the statutory authorities after providing the petitioner an opportunity to present their case.

6. Validity of Internal Communication Sent by the Respondent:
The petitioner also challenged an internal communication sent by the respondent to various Superintendents of Central Excise, alleging that it demonstrated a pre-determined mind. The court clarified that the communication was an internal exchange of opinions and not an order. However, the court acknowledged the potential for misinterpretation and misuse of the communication by other officials. Consequently, the court stayed the communication until the completion of the enquiry directed in the related writ petition.

Conclusion:
The court allowed the writ petition W.P.(MD)No.8123 of 2010, setting aside the impugned order dated 08.06.2010 due to the violation of principles of natural justice. The matter was remitted back to the respondent for a fresh decision after providing the petitioner an opportunity to show cause. The court also directed the Commissioner of Central Excise to assign a different Assistant Commissioner to conduct the enquiry to ensure fairness. The writ petition W.P.(MD)No.8135 of 2010 was disposed of with an order staying the internal communication dated 09.06.2010 until the completion of the enquiry.

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