2011 (1) TMI 1243 - Commissioner - Central Excise

Disallowance of Cenvat credit - Utilization on the strength of the fake invoices issued by their supplier - reasonable steps to be taken - Imposition of penalty - Held that - evidence on record indicates that the appellant was really engaged in the manufacturing activities and for the manufacture of the finished goods they needed copper rod/copper wire. Therefore, it cannot be said that copper rod/copper wire had not ever been received in their factory. The evidence brought on record shows that the copper rod/copper wire were received by them from their (the appellant s) job workers after the job workers had converted the same from the ingots. But the crucial question is whether the ingots which were received by the job workers were also of duty paid nature and whether the same were really covered by the invoices issued by M/s. VKM (VKMW). Impugned order has admitted itself that the goods in question (i.e. copper ingots) had been received by the appellant in the form of copper rod/copper wire after being converted (from copper ingots) by their job workers who had directly received the said copper ingots on these invoices from M/s. VKMW on behalf of the appellant. Further it has also been admitted in the impugned order that the appellant had discharged its contractual liability by making payment of these invoices through banking channel by cheques. Neither the show cause notice alleges any other source of procurement of the said copper ingots, received under these invoices nor the impugned order found any other source of procurement of such copper ingots. The provisions governing the availment of the credit envisages that the assessee availing the credit should ensure that the inputs should have suffered duty at the hands of the manufacturer and the inputs covered under the invoices have been received and the same have been utilized in the manufacture of their final goods. Appellant therefore, cannot be asked to go beyond the duty payment document in his hand. The appellant had checked the authenticity of the invoice issued by the manufacture and the latter is registered with the Central Excise. Thus, I find that the appellant have taken due care while procuring the duty paid inputs. Therefore, the Cenvat credit may not be disallowed on such inputs i.e. copper ingots received against these invoices simply on the ground that the goods were not the same. Thus, and impugned order is devoid of merit and the same is not sustainable - Following decision of M/s. Manaksia Ltd. v. C.C.E., Rajkot 2008 (6) TMI 149 - CESTAT AHEMDABAD and C.C.E, Chandigarh v. Hitkari Industries Ltd. 2008 (2) TMI 124 - CESTAT, NEW DELHI - Decided in favour of Appellant.

Summary

Issues Involved:

1. Alleged inadmissible Cenvat credit availed by the appellant.
2. Alleged fraudulent invoices issued by M/s. VKMW without actual receipt of goods.
3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.
4. Demand for recovery of Cenvat credit and interest under Rule 14 of the Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Alleged Inadmissible Cenvat Credit:
The appellant, engaged in manufacturing 'Power Cords', 'Connectors', and 'PVC Wire', availed Cenvat credit of Rs. 10,69,107/- based on invoices issued by M/s. VKMW. The Directorate General of Central Excise Intelligence (DGCEI) found that M/s. VKMW had no manufacturing facility and issued fraudulent invoices for fictitious production of copper ingots. A show cause notice was issued to the appellant for availing irregular Cenvat credit on these invoices.

2. Alleged Fraudulent Invoices:
The adjudicating authority confirmed that the appellant availed Cenvat credit on invoices issued by M/s. VKMW without actual receipt of goods. The appellant argued that materials were received and utilized in the final products, and payments were made through cheques. The appellant also contended that the show cause notice was based on assumptions and not on proven facts, as the matter involving M/s. VKMW was still under judicial proceedings.

3. Imposition of Penalty:
The adjudicating authority imposed a penalty of Rs. 10,69,107/- on the appellant under Section 11AC of the Central Excise Act, 1944. The appellant argued that penalty is not imposable in the absence of any proven deliberate violation or fraudulent activity. The appellant cited several case laws to support their claim that penalty cannot be imposed based on assumptions and without concrete evidence.

4. Demand for Recovery and Interest:
The adjudicating authority demanded recovery of the Cenvat credit along with interest under Rule 14 of the Cenvat Credit Rules, 2004. The appellant argued that they had taken reasonable steps to ensure the authenticity of the invoices and that the goods were received and used in the manufacturing process. The appellant cited evidence such as Form 38 issued by the U.P. Trade Tax Department, payment through cheques, and statutory records showing receipt and utilization of the inputs.

Discussion and Findings:
The appellate authority observed that the appellant was engaged in manufacturing activities and required copper rod/copper wire for their products. It was noted that the copper ingots were received by the appellant's job workers, converted into copper rod/wire, and used in the final products. The adjudicating authority admitted that the appellant made payments through banking channels, indicating the duty-paid nature of the ingots.

The appellate authority found no evidence of any other source of procurement of the copper ingots and concluded that the appellant had taken due care while procuring the duty-paid inputs. The authority relied on case laws and a Board circular to support the decision that the appellant is entitled to the Cenvat credit on these inputs.

Order:
The appellate authority set aside the impugned order, allowed the appeal, and held that the appellant is entitled to the Cenvat credit. Consequently, the demand for recovery and interest was deemed unsustainable, and the penalty imposed on the appellant was also set aside.