2008 (8) TMI 195 - HC - Central Excise

Fraudulently availed Modvat credit SCN was issued with the clear allegation of fraudulently availing of the credit by the assessee - Whether non-invoking/quoting of extended period of limitation and by not quoting the relevant section or rule vitiates the proposed action when the charges of fraud practiced and suppression of facts resorted to by the party in wrong availment of Modvat credit have been discussed clearly in detail in the SCN held, no

Issues Involved:
1. Whether non-invoking/quoting of the extended period of limitation and not quoting the relevant section or rule vitiates the proposed action when charges of fraud and suppression of facts are clearly discussed in the show-cause notice.

Issue-Wise Detailed Analysis:

1. Non-Invoking/Quoting of Extended Period of Limitation and Relevant Section or Rule:

Facts and Background:
The revenue appealed against the Tribunal's order which had set aside the demand and penalties imposed by the Commissioner on the grounds that the extended period of limitation under Section 11A of the Central Excise Act, 1944, could not be invoked without explicit mention of fraud in the show-cause notice. The show-cause notices were issued on 17-6-1999 alleging fraudulent availment of Modvat credit by the respondents, discovered during inspections and searches conducted in July 1998.

Commissioner's Order:
The Commissioner confirmed the demand of Central Excise duty and imposed penalties on the assessees for fraudulently availing Modvat credit, as detailed in the show-cause notices. The Commissioner found that the respondents had not received the goods as claimed and had only received invoices, thus availing Modvat credit fraudulently. The Commissioner ordered the recovery of the duty and imposed penalties under relevant rules.

Tribunal's Decision:
The Tribunal, relying on the Supreme Court's judgment in CCE v. H.M.M Ltd., held that the extended period of limitation could not be invoked as the show-cause notice did not explicitly mention fraud, collusion, or suppression of facts. The Tribunal accepted the appeals of the assessees and set aside the Commissioner's order.

Revenue's Argument:
The revenue argued that the Tribunal's finding was contrary to the record and perverse, as the show-cause notice contained clear allegations of fraud. The revenue contended that the non-mention of fraud in the show-cause notice should not invalidate the notice when the facts stated clearly indicated fraudulent activity.

Court's Analysis:
The Court examined the show-cause notice and found that it contained multiple allegations of fraud against the assessees. The Court referred to Section 11A(1) of the Central Excise Act, which allows for a five-year limitation period in cases of fraud, collusion, or wilful misstatement. The Court noted that the show-cause notice clearly established that the assessees had fraudulently availed Modvat credit, which was not admissible under the Act and the Rules.

Legal Precedents:
The Court referred to the Supreme Court's judgments in H.M.M. Limited and Collector of Central Excise v. Chemphar Drugs & Liniments, which emphasized that the extended period of limitation could be invoked if the show-cause notice clearly indicated fraud, collusion, or suppression of facts. The Court highlighted that the extended period is provided to uncover and address fraudulent activities, which may take time to detect.

Conclusion:
The Court concluded that the Tribunal's order was not in conformity with the law, as the show-cause notice did contain allegations of fraud. The Court set aside the Tribunal's order and upheld the Commissioner's findings regarding fraudulent availment of Modvat credit and the imposition of penalties. The substantial question of law was answered in favor of the revenue, and the appeals were disposed of accordingly.

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