2011 (8) TMI 926 - AT - Central Excise

Cenvat credit - On verification by the departmental officers it was found that the supplier did not have necessary infrastructure to manufacture and supply the goods and on that basis an alert notice was issued - The Cenvat credit has been denied and penalty has been imposed on the ground that the supplier did not have the infrastructure for manufacture of the goods - It also emerges that during the period supplier was a registered central excise assessee and was paying duty on the goods supposed to have been manufactured by them and there is no indication that the duty paid by the supplier was less than the Cenvat credit availed - The very fact that the supplier was in existence for 15 years, had availed Cenvat credit of more than Rs. 18 crores would show that the supplier did have some standing in the market - once it is held that there was no suppression or mis-declaration on the part of the appellants and no penalty is imposed on them, duty demand invoking extended period also cannot be sustained if challenged - Appeal is allowed

Summary

Issues:
Cenvat credit availed based on invoices from a supplier lacking necessary infrastructure for manufacturing and supplying goods; Demand for Cenvat credit repayment with interest and penalty under Section 11AC of Central Excise Act, 1944.

Analysis:
The appellant availed Cenvat credit based on invoices from a supplier, but it was discovered that the supplier did not possess the required infrastructure for manufacturing and supplying goods. Consequently, an alert notice was issued, leading to proceedings against the appellant resulting in a demand for repayment of the Cenvat credit with interest and imposition of penalty equal to the wrongly availed credit amount under Section 11AC of the Central Excise Act, 1944.

The appellant's representative argued that the credit was taken based on appropriate invoices and that the goods were received and installed by the appellant. The absence of a penalty on the appellant was highlighted as supporting evidence. It was contended that without suppression of facts or mis-declaration, duty demand beyond the normal limitation period cannot be sustained. Reference was made to relevant tribunal decisions to support the argument that any duty payment discrepancies should be addressed at the supplier's end.

The Departmental Representative (DR) countered by stating that proceedings against the supplier had concluded with a finding that the appellant did not have the necessary infrastructure for manufacturing the supplied goods. The supplier's claim of using job workers was debunked, indicating invalid documents and the appellant's failure to ensure goods' source legitimacy.

Upon considering both arguments, the judge observed that the supplier had a history of availing substantial Cenvat credit over several years, paying duty, and being a registered central excise assessee. The supplier had also received raw materials and had a functioning factory with machinery. The judge noted that the department failed to detect the absence of actual manufacturing by the supplier for five years. Given these circumstances, expecting the appellant to verify the supplier's manufacturing capabilities was deemed unreasonable. The judge agreed that without evidence of suppression or mis-declaration and in the absence of penalties on the appellant, duty demands beyond the normal period were not sustainable. Consequently, the appeal was allowed in favor of the appellant with consequential relief.

In conclusion, the judgment favored the appellant, emphasizing the importance of verifying suppliers' manufacturing capabilities and the inappropriateness of demanding duty repayment without evidence of wrongdoing or penalties imposed.