2018 (3) TMI 249 - AT - Central Excise

CENVAT credit - inputs - MS scrap which was purchased/received from Simandhar Steel Movers (India) Private Ltd, a first stage dealer at Mumbai - whether under the facts and circumstances the Commissioner of Central excise is justified in holding that the proposed demand as per the SCN is not sustainable on merit under section 11 A(1) of the Act and accordingly have rightly dropped the charges in the SCN? Held that - the respondents have discharged the onus on them in terms of rule 7(2) of CCR 2002, which provides that the manufacturer or producer taking Cenvat credit on inputs or capital goods received by him shall be deemed to have taken reasonable steps if he satisfy themselves about the identity and address of the manufacturer or supplier, as the case may be, issuing the documents specified in Rule 7, evidencing the payment of excise duty or the additional duty of customs, as the case may be, either from his personal knowledge or on the strength of a certificate issued by person with whom he is familiar or on the strength of the certificate issued by the Range Supdt. of the factory of the manufacturer or supplier. We find that there is no allegation in the show cause notice that the appellant did not knew the supplier Simandhar and/or its proper address. Even in a situation where explanation to Rule 9(3) is not attracted it would be open to an assessee to establish independently within the meaning of the substantive part of Rule 9(3) that he had in fact taken reasonable steps - the respondents had purchased the goods for the price, which included the duty element, and the same was paid by cheque. Further there is no allegation that the respondents have sourced raw material in dispute, from some other source. We also find that under the scheme of the Act and the Rules, it would be impractical to require the assessee to go behind the records maintained by the first stage dealers. The respondent under the fact of this case were found to have duly acted with all diligence in their dealings with the first stage dealers Simandhar. The SCN are presumptive and not maintainable - appeal dismissed - decided against Revenue.

Issues Involved:
1. Whether the Commissioner of Central Excise was justified in holding that the proposed demand as per the show cause notices is not sustainable on merit under section 11 A(1) of the Act.
2. Whether the respondents have bonafidely taken Cenvat credit on the inputs MS scrap purchased/received from Simandhar Steel Movers (India) Private Ltd.

Issue-Wise Detailed Analysis:

1. Justification of the Proposed Demand:
The primary issue in these appeals is whether the Commissioner of Central Excise was correct in concluding that the proposed demand as per the show cause notices is not sustainable under section 11 A(1) of the Act. The Commissioner had dropped the charges in the show cause notices, leading to the revenue's appeal.

The learned Commissioner observed that as per Rule 9(5) of CCR 2002, a manufacturer is required to maintain proper records for the receipt, disposal, consumption, and inventory of inputs and capital goods. The burden of proof regarding the admissibility of the Cenvat credit lies upon the dealer taking such credit. The Commissioner noted that the respondents maintained proper records showing receipt of inputs, disposal, and payment made through cheques. The records were found to be in compliance with Cenvat provisions and CBEC manual instructions.

The Commissioner also noted that the revenue did not provide any adverse evidence like shortages in stock of raw materials. There was no positive evidence indicating that the respondents did not receive the inputs covered by the disputed invoices. Furthermore, there was no allegation of fabricated invoices by the respondents. Consequently, the Commissioner ruled that the extended period of limitation could not be invoked due to the absence of evidence of wilful suppression, misstatement, or fraud by the respondents.

2. Bonafide Cenvat Credit on Inputs:
The second issue is whether the respondents bonafidely took Cenvat credit on the MS scrap purchased from Simandhar Steel Movers (India) Private Ltd. The investigation revealed discrepancies, such as vehicle numbers on invoices being registered as tankers, tippers, ambulances, etc., which are not capable of transporting MS scrap. However, the respondents provided evidence of receipt of materials, including security inward registers, transaction details, and bank statements showing payments made by cheques.

The respondents argued that they had received the MS scrap under cover of invoices from Simandhar and availed credit accordingly. They maintained proper records, including form-IV register, Cenvat register, and production records, which showed the physical receipt of inputs in the factory premises. The respondents also contended that there was no evidence of any flow back of cash from Simandhar to them.

The learned Commissioner found that the respondents had taken reasonable steps to ensure that the inputs in respect of which credit was taken were goods on which appropriate duty of excise had been paid. The Commissioner noted that the respondents had purchased the goods for a price that included the duty element and paid by cheque. There was no allegation that the respondents sourced raw material from any alternative source.

The Commissioner concluded that the show cause notices were presumptive and not maintainable, and the demands were hit by the period of limitation in the absence of ingredients for invoking the extended period of limitation.

Conclusion:
The Tribunal upheld the findings of the learned Commissioner, stating that the respondents had discharged the onus on them in terms of Rule 7(2) of CCR 2002. The respondents had acted with due diligence in their dealings with the first stage dealers, Simandhar. The appeals by the revenue were dismissed, and the impugned orders passed by the Commissioner were upheld. The cross objections were also disposed of.

Pronouncement:
The judgment was pronounced in court on 16.2.2018.

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