2014 (9) TMI 450 - HC - Central Excise

Cenvat Credit - reasonable steps before availing credit - original manufacturer of fabrics were alleged to be fictitious - endorsed invoices - period of limitation - Whether the department can escape its liability to find out a person who was registered with them and to pursue him for payment of duty - Held that - Following decision of PRAYAGRAJ DYEING & PRINTING MILLS PVT. LTD. Versus UNION OF INDIA 2013 (5) TMI 705 - GUJARAT HIGH COURT - appeal is allowed, by clarifying that in case larger period of limitation as prescribed in section 11(A)(1) of the Central Excise Act has not been invoked, the matter can proceed in terms of the order impugned.

Issues:
1. Validity of show cause notice based on Alert Circulars.
2. Compliance with Rule 7(2) of Cenvat Credit Rules, 2002.
3. Interpretation of "reasonable steps" under Rule 7(2) of Cenvat Credit Rules, 2002.
4. Scope of the term "supplier" under Rule 7(1)(e) of Cenvat Credit Rules, 2002.
5. Relevance of original manufacturer's authenticity under Rule 7(1)(e) and Rule 7(2) of Cenvat Credit Rules, 2002.
6. Applicability of Rule 12(B) on duty chargeability.
7. Reliance on precedent with different facts.
8. Limitation period for the demand.

Analysis:

1. The appeal questions the validity of the show cause notice issued solely based on Alert Circulars. The Tribunal's decision was challenged for relying only on the circulars without additional evidence. The High Court referred to a previous judgment where a similar issue was addressed, clarifying that the show cause notice not being based on alert circulars rendered Question No.1 irrelevant.

2. The issue of compliance with Rule 7(2) of the Cenvat Credit Rules, 2002 was raised. The Tribunal's finding that the appellant did not take reasonable steps due to alleged fictitious original manufacturers was disputed. The High Court referred to a previous judgment and ruled in favor of the Revenue, emphasizing the negative stance on compliance with the rule.

3. The interpretation of "reasonable steps" under Rule 7(2) of the Cenvat Credit Rules, 2002 was scrutinized. The Tribunal's misinterpretation of this provision was contested. The High Court, following the previous judgment, ruled against the appellant, emphasizing the correct interpretation of the term.

4. The scope of the term "supplier" under Rule 7(1)(e) of the Cenvat Credit Rules, 2002 was examined. The Tribunal's decision regarding traders/merchants endorsing invoices was disputed. The High Court, aligning with the previous judgment, ruled against the appellant, clarifying the understanding of the term "supplier."

5. The relevance of the original manufacturer's authenticity under Rule 7(1)(e) and Rule 7(2) of the Cenvat Credit Rules, 2002 was discussed. The Tribunal's conclusion on the manufacturer's authenticity was challenged. The High Court, in line with the previous judgment, emphasized the irrelevance of the manufacturer's authenticity in the present case.

6. The applicability of Rule 12(B) on duty chargeability was raised. The Tribunal's decision not to consider this rule in the demand against the appellant was contested. The High Court, following the previous judgment, ruled against the appellant, highlighting the provisions of Rule 12(B).

7. The Tribunal's reliance on a precedent with different facts was questioned. The High Court, referring to the previous judgment, ruled against the appellant, emphasizing the distinction in facts and the inapplicability of the precedent.

8. The issue of the limitation period for the demand was analyzed. The Tribunal's decision on the limitation period was challenged. The High Court, following the previous judgment, ruled in favor of the Revenue, affirming the larger period of limitation's applicability.

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