2020 (1) TMI 543 - AT - Central Excise

CENVAT credit - duty paying documents - allegation of fake duty paying document fraudulently prepared and supplied by a number of registered dealers without actually supplying the corresponding input materials mentioned in the said duty paying documents - HELD THAT - It is apparent from the impugned order that the Learned Adjudicating Authority, in respect of specific direction from this Tribunal, failed to adhere to the remand direction regarding consideration of submission made by the appellant and also the legal provisions - this Tribunal in case of M/s. Vindhya Steel, who happened to be one of the supplier of the input material, has set aside the order. An appeal against that order was also sustained by Hon ble High Court of Kolkata. In the circumstances, we find that no charge against the appellant would sustain and the impugned order is bad in law. Time Limitation - HELD THAT - The appellant had been submitting the document such as RG23A part (1) and RG23 part (2) alongwith the invoices on which modvat credits had been taken alongwith monthly RT-12 reports. The duty paying documents has also been defaced by the departmental officers while assessing RT-12 return of the appellant unit. In such a circumstance there is no scope of invocation of extended period of limitation, which has been done in this case. The show cause notice has been issued on 02.05.2000 for the period 01.04.1995 to 28.01.1996 - The demand is therefore time bared and not sustainable at all. Retraction of statements - The department is alleging that there is no technical feasibility, infrastructural facilities available with the appellant for use of such input material also taking into the consideration of economic validity of use of such goods - HELD THAT - . This type of investigation is purely on the basis of imagination and without any legal basis. It is up to the manufacturer to use the goods as input or raw material in the process of manufacture and the department cannot force them to use a particular kind of input / raw material for the manufacture of finished product considering their economic viability, technical feasibility and infrastructural requirement. The department has also accepted the payment of duty on the goods sold by these dealers and hence it cannot deny the availment of modvat credit by the buyer of these goods, if put to use in the manufacturing. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Disallowance of Modvat credit and recovery under Rule 57I of the Central Excise Rules, 1994.
2. Imposition of penalty under Rule 173Q(bb) and Rule 57(I)(4) of the Central Excise Rules, 1994.
3. Appropriation of deposit towards Central Excise duty liabilities.
4. Imposition of penalty under Rule 209A on the Director of the appellant company.
5. Alleged use of fake duty-paying documents and non-receipt of actual input materials.
6. Technical feasibility and economic viability of using the input materials.
7. Validity of the extended period of limitation for issuing the show cause notice.
8. Reliability of statements obtained during the investigation.

Detailed Analysis:

1. Disallowance of Modvat Credit and Recovery:
The appeal challenges the order dated 02.05.2000, where the Commissioner of Central Excise disallowed Modvat credit of ?78,91,213 availed by the appellant and ordered recovery under Rule 57I of the Central Excise Rules, 1994, along with interest under Rule 57I(iii). The appellant contended that they had followed all legal requirements, maintained necessary records, and submitted them to the jurisdictional excise authority. The Tribunal found that the appellant had indeed submitted documents such as RG23A part (I) and (II) along with invoices and monthly RT-12 reports, which were defaced by departmental officers, indicating compliance with procedural requirements. Thus, the Tribunal concluded that the disallowance of Modvat credit was not sustainable.

2. Imposition of Penalty:
The Adjudicating Authority imposed penalties under Rule 173Q(bb) and Rule 57(I)(4) on the appellant. The Tribunal found that the penalties were unjustified as the appellant had acted in accordance with the legal provisions and the departmental officers had defaced the duty-paying documents, indicating no malfeasance on the appellant's part. Additionally, the Tribunal noted that the appellant had procured inputs from registered dealers and paid appropriate central excise duty, further invalidating the penalties.

3. Appropriation of Deposit:
The Commissioner appropriated ?50,00,000 deposited by the appellant towards the liabilities of central excise duty. The appellant argued that this amount was forcibly deposited during the investigation. Given the Tribunal's finding that the Modvat credit disallowance was unsustainable, the appropriation of this deposit was also deemed unjustified.

4. Penalty on Director:
A penalty of ?24,000 was imposed on the Director of the appellant company under Rule 209A. The Tribunal found no evidence of wrongdoing by the Director, especially since the primary disallowance of Modvat credit was found to be unsustainable. Therefore, the penalty on the Director was also set aside.

5. Alleged Use of Fake Duty-Paying Documents:
The investigation alleged that the appellant used fake duty-paying documents without receiving the actual input materials. The Tribunal noted that the appellant had received inputs from registered dealers, whose invoices were defaced by excise officials, and that the appellant had maintained all necessary records. The Tribunal referenced the decision in the case of Commissioner of Central Excise, Customs and Service Tax Vs. Juhi Alloys Limited, which held that a manufacturer is not required to verify the records of the first stage dealer beyond ensuring the identity and address. Thus, the allegation of using fake documents was not substantiated.

6. Technical Feasibility and Economic Viability:
The department argued that the use of the input materials by the appellant was neither technically feasible nor economically viable. The Tribunal dismissed this argument, stating that it is up to the manufacturer to decide the inputs used in the manufacturing process. The department cannot dictate the economic viability or technical feasibility of such decisions.

7. Extended Period of Limitation:
The show cause notice was issued on 02.05.2000 for the period 01.04.1995 to 28.01.1996, invoking the extended period of limitation. The Tribunal found that the appellant had regularly submitted all required documents to the excise authority, and the defacement of these documents by the officials indicated no suppression of facts. Therefore, the invocation of the extended period of limitation was deemed inappropriate, rendering the demand time-barred.

8. Reliability of Statements:
The statement of Shri Hardhan Dutta, relied upon by the department, was retracted during cross-examination, where he stated it was obtained under duress. The Tribunal found that this retraction further vitiated the proceedings and undermined the department's case.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals filed by the appellants with consequential benefits as per law. The decision emphasized that the appellant had complied with all procedural requirements and that the department's allegations were not substantiated by credible evidence. The judgment underscored the principle that manufacturers should not be burdened with impractical verification requirements beyond ensuring the identity and address of the suppliers.

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