2014 (1) TMI 1475 - HC - Central Excise

Availment of CENVAT Credit - Reasonable steps / care to be taken before availing Cenvat Credit - Duty paying documents - Violation of the provisions of Rule 3 9(3) & Rule 7 of the Cenvat Credit Rules 2004 - Held that - both the Commissioner (Appeals) and the Tribunal have given cogent reasons to indicate that the assessee had taken reasonable steps to ensure that the inputs in respect of which he has taken the cenvat credit are goods on which the appropriate duty of excise as indicated in the documents accompanying the goods has been paid. Admittedly in the present case the assessee was a bona fide purchaser of the goods for a price which included the duty element and payment was made by cheque. The assessee had received the inputs which were entered in the statutory records maintained by the assessee. The goods were demonstrated to have travelled to the premises of the assessee under the cover of Form 31 issued by the Trade Tax Department and the ledger account as well as the statutory records establish the receipt of the goods. In such a situation it would be impractical to require the assessee to go behind the records maintained by the first stage dealer. The assessee in the present case was found to have duly acted with all reasonable diligence in its dealings with the first stage dealer - Decided against Revenue.

Summary

Issues:
1. Cenvat credit availed on fake invoices from non-existent manufacturer.
2. Violation of Rule 3, 9(3) & Rule 7 of the Cenvat Credit Rules, 2004.

Issue 1: Cenvat credit availed on fake invoices from non-existent manufacturer:
The case involves the appellant, engaged in manufacturing, who procured raw material through M/s MK Steels (P) Ltd., a first stage dealer. The original manufacturer, Sarla Ispat (P) Ltd., was found to be non-existent, leading to a demand of duty under Rule 14 of Cenvat Credit Rules, 2004. The Commissioner (Appeals) held that the appellant acted bona fide, making payments by cheque, and cleared goods against excise duty. The Tribunal affirmed this view, emphasizing the appellant's reliance on genuine dealer invoices and the impracticality of verifying the first stage dealer's records. The Tribunal upheld the Commissioner's decision, concluding that denial of cenvat credit was unwarranted.

Issue 2: Violation of Rule 3, 9(3) & Rule 7 of the Cenvat Credit Rules, 2004:
The revenue contended that under Rule 9(3), the appellant should have ensured that excise duty was paid on the inputs received. However, both the Commissioner (Appeals) and the Tribunal found that the appellant had taken reasonable steps to verify the duty payment, as evidenced by cheque payments, statutory records, and goods receipt under Form 31. The Explanation to Rule 9(3) provides a deeming fiction for reasonable steps, which the appellant satisfied. The Tribunal's decision aligned with precedents, emphasizing that expecting buyers to verify supplier duty payments is unreasonable. The judgment dismissed the appeals, as the appellant had demonstrated due diligence in ensuring excise duty payment on inputs.

In conclusion, the judgment addressed the issues of cenvat credit availed on fake invoices and the alleged violation of Cenvat Credit Rules comprehensively. It highlighted the importance of buyer diligence, upheld the appellant's bona fide actions, and emphasized the practicality of verifying duty payments. The decision ultimately dismissed the appeals, finding no substantial question of law.