2008 (9) TMI 106 - AT - Central Excise

Cenvat Credit of additional duty held that mere filing of application before Settlement Commission for waiver of interest, penalty and immunity from prosecution and suo motu payment of duty, not amounts to admission of guilt, fraud, collusion etc. - Inference in this regard (fraud) may be drawn from the pleadings of the applicant and finding of the Settlement Commission issue of admissibility of credit may be decided by the Division Bench at the stage of final disposal of the appeal.

Issues Involved:
1. Entitlement to Cenvat credit on the basis of supplementary invoice when additional duty is paid suo motu upon receiving a show cause notice alleging willful mis-statement or suppression of facts.
2. Whether filing an application before the Settlement Commission for waiver of interest and penalty and immunity from prosecution amounts to admission of the facts alleged in the show cause notice.
3. Requirement of a specific finding by the Settlement Commission regarding suppression of facts, and the implications of the absence of such a finding on the entitlement to Cenvat credit.

Detailed Analysis:

Issue 1: Entitlement to Cenvat Credit on Supplementary Invoice
The core issue is whether the assessee can take Cenvat credit based on a supplementary invoice when additional duty of excise is paid suo motu after receiving a show cause notice alleging willful mis-statement or suppression of facts. According to Rule 7 of the Cenvat Credit Rules, 2002 (now Rule 9), supplementary invoices are generally admissible for taking credit. However, there is an embargo: if the additional duty became recoverable due to fraud, collusion, willful mis-statement, or suppression of facts, the supplementary invoice cannot be used for Cenvat credit. This rule implies that the supplementary invoice is not admissible as proof for taking credit if the additional duty was paid due to any of these reasons.

Issue 2: Filing Application Before Settlement Commission
The second issue is whether filing an application before the Settlement Commission for waiver of interest and penalty and immunity from prosecution, after paying the entire duty demand as per the show cause notice, amounts to an admission of the facts alleged in the show cause notice. The appellant's counsel argued that mere filing of the application under Section 32E of the Central Excise Act does not constitute an admission of the allegations. The Settlement Commission's role is to assess the full and true disclosure of duty liability and the circumstances leading to the liability. The Division Bench observed that the payment of additional duty in terms of a show cause notice invoking the extended period under Section 11A(1) might amount to an admission of facts alleged, but this view was in conflict with the decision in Essar Steel Ltd. v. C.C.E.

Issue 3: Requirement of Specific Finding by Settlement Commission
The third issue revolves around whether the Settlement Commission must record a specific finding regarding suppression of facts and whether the absence of such a finding affects the entitlement to Cenvat credit. The law requires the applicant to make a full and true disclosure of duty liability and explain the circumstances of the liability. The Commission's decision should be based on the applicant's explanation and the Commission's findings. The Tribunal emphasized that the non/short payment of duty could be bona fide, and there may be valid reasons for opting for settlement instead of contesting the show cause notice. Therefore, the mere filing of an application before the Settlement Commission and payment of additional duty should not automatically be construed as an admission of guilt.

Conclusion:
The Tribunal concluded that mere filing of an application before the Settlement Commission and suo motu payment of duty as per the show cause notice may not necessarily be construed as an admission of the allegations regarding fraud, collusion, etc. Inferences should be drawn from the contents of the application and the findings of the Settlement Commission. The Tribunal answered Issue Nos. 2 and 3 in the negative, favoring the assessee. Issue No. 1, pertaining to the merits of the case, was left to be decided by the Division Bench at the final disposal of the appeal.

Disposition:
The reference was disposed of, and the appeal was listed for disposal before the Division Bench.

(Pronounced in the open Court on 30.9.2008)

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