2017 (7) TMI 88 - AT - Central Excise

MODVAT credit - Rule 57(1) of erstwhile CCR - Investigations were carried out in the factory premises of the suppliers and it was detected by the Central Excise officers that those suppliers did not have the manufacturing facilities for the last two years - Held that - the fact of issuance of gate passes by the suppliers and receipt of the same by the appellant were known to the department during the relevant period - the SCN was issued after a lapse of almost three years from the relevant date, is barred by limitation - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Time limitation for proceedings initiation regarding availed modvat credit.
2. Validity of the show cause notice issued by the department.
3. Pre-authentication of gate passes by Central Excise authorities.
4. Admissibility of modvat credit and penalty imposition.

Analysis:

Issue 1: Time Limitation for Proceedings Initiation
The appellant contended that the proceedings were time-barred as the show cause notice was issued beyond the normal period of limitation. The advocate argued that the department was aware of the modvat credit availed on disputed goods since 1992-1993, and thus, invoking the extended period of limitation was unjustified. Citing the case of M/s. Em Ess Electricals Vs. CCE, Delhi, the appellant claimed that the proceedings should have been initiated within one year from the date of filing R.T. 12 returns.

Issue 2: Validity of the Show Cause Notice
The department had issued a show cause notice proposing the disallowance of modvat credit and imposition of penalties on the appellant. However, the appellant challenged the validity of the notice, arguing that it was time-barred. The notice was issued almost three years after the relevant period, which, according to the appellant, exceeded the permissible time limit for initiating such proceedings.

Issue 3: Pre-Authentication of Gate Passes
It was established that the gate passes used by the suppliers for the disputed goods were pre-authenticated by the Central Excise authorities having jurisdiction over the suppliers' factory. This pre-authentication indicated that the gate passes were legitimate and issued for the removal of goods. Furthermore, the gate passes were verified by the jurisdictional Central Excise authorities at the appellant's end, strengthening the authenticity of the transactions.

Issue 4: Admissibility of Modvat Credit and Penalty Imposition
The Tribunal noted that the modvat credit in question was availed by the appellant during a specific period, and the gate passes used were duly pre-authenticated by the relevant Central Excise authorities. Given these circumstances, the Tribunal concluded that the show cause notice was time-barred and, therefore, the proceedings against the appellant for recovery of modvat credit and penalties could not be sustained on the grounds of limitation. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant solely on the basis of the limitation issue, without delving into the merits of the case.

This detailed analysis of the judgment highlights the key legal issues involved and the Tribunal's decision based on the arguments presented by the appellant and the department.