2014 (8) TMI 615 - HC - Central Excise

Denial of MODVAT Credit - split of consignment and transport in various vehicles against single Invoice - duplicate copy of invoice - In the facts and circumstances of the case, whether the first respondent was correct in denying the Modvat Credit to the extent of ₹ 4,63,570/- relating to the inputs received from Visakhapatnam Steel Plant, a Government of India undertaking, merely on the ground that the inputs covered under single invoice were transported by various vehicles by splitting up the consignment, as a matter of convenience for the supplier in transporting such inputs, which is merely procedural in nature - Held that - It is not in dispute that there is one invoice already produced which shows payment of duty on the goods removed from Visakhapatnam Steel Plant. But insofar as goods which have been split up into several smaller consignments, Rule 52A(4) of the Rules clearly mandates that if all the packages comprising a consignment are despatched in one lot at any one time, only one invoice shall be made out in respect of the consignment. It also provides that if, however, a consignment is split up into two or more lots each of which is despatched separately either on the same day or on different days, a separate invoice shall be made out in respect of each such lot. It further provides that in case a consignment is loaded on more than one vehicle, vessel, pack animal or other means of conveyance which do not travel together but separately or at intervals, a separate invoice shall be made out in respect of each vehicle, vessel, pack animal or other conveyance. The appellant in this case had not complied with the procedure contemplated under Rule 52A(4) of the Rules. Tribunal was correct in denying the Modvat Credit in respect of clearance made in violation of Rule 52A(4) based on photocopies of documents, which we hold is no document at all as per the Rules. - Decided against the assessee. Present case the goods have been supplied by Visakhapatnam Steel Plant, a Government of India Undertaking, and the department has accepted the plea that the entire inputs have suffered duty. However, the only reason attributable for levy of penalty is that the goods were not accompanied with proper invoices, as required under Rule 52A(4) of the Rules. From a reading of the orders of the Tribunal and the authorities below, it is clear that the appellant had no intention either to evade payment of duty or to avail duty wrongfully. In such view of the matter, we set aside the penalty imposed on the appellant in both the cases - Decided partly in favour of the assessee

Summary

Issues Involved:
1. Denial of Modvat Credit due to procedural lapses in transportation and documentation.
2. Denial of Modvat Credit based on the original invoice when the duplicate invoice is lost.
3. Levy of penalty on the appellant for procedural non-compliance.

Detailed Analysis:

Issue 1: Denial of Modvat Credit due to procedural lapses in transportation and documentation

The appellant challenged the denial of Modvat Credit amounting to Rs. 4,63,570/- for inputs received from Visakhapatnam Steel Plant, which were transported in split consignments under a single invoice. The Tribunal upheld the denial, citing non-compliance with Rule 52A(4) of the Central Excise Rules, 1944. The rule mandates separate invoices for consignments split into multiple lots. The appellant argued that this was a procedural lapse and cited the Allahabad High Court decision in Commissioner of Central Excise v. Hindalco Industries Limited, which held that procedural lapses should not deny Modvat Credit. However, the High Court distinguished this case, stating that the absence of proper invoices as prescribed under Rule 52A(4) was not a mere procedural lapse but a substantial non-compliance. Hence, the Tribunal's decision to deny credit was upheld.

Issue 2: Denial of Modvat Credit based on the original invoice when the duplicate invoice is lost

The appellant was denied Modvat Credit of Rs. 78,086/- because the credit was taken based on the original invoice instead of the duplicate, which was lost. Rule 57G(6) allows credit on the original invoice if the duplicate is lost, subject to the Assistant Commissioner's satisfaction. The High Court found that the original invoice accompanied the duty-paid inputs, fulfilling the conditions under Rule 57G(11). Citing the Hindalco Industries case, the court ruled that procedural lapses should not deny credit if substantial compliance is met. Thus, the denial of credit on this ground was overturned, and the question was answered in favor of the appellant.

Issue 3: Levy of penalty on the appellant for procedural non-compliance

The appellant argued against the penalty, asserting that there was no intent to evade duty, as the goods were duty-paid and supplied by a Government of India undertaking. The High Court noted that the procedural non-compliance did not indicate any fraudulent intent or wrongful availing of duty. Given the bona fide nature of the transactions and the absence of intent to evade duty, the court set aside the penalties imposed by the Tribunal. The question of penalty was answered in favor of the appellant, and the penalties were annulled.

Conclusion:

The appeals were disposed of with the High Court upholding the denial of Modvat Credit for procedural lapses in transportation documentation but reversing the denial based on the original invoice when the duplicate was lost. The penalties imposed were also set aside, recognizing the bona fide nature of the appellant's actions. No costs were imposed, and related civil miscellaneous petitions were closed.