2005 (7) TMI 117 - HC - Central Excise

Cenvat/Modvat - condonation of delay - reference application u/s 35H(1) of the Central Excise Act, 1944 - fake and bogus invoices - recovery of the amount under Rule 57-I of the Rules read with Section 38 - HELD THAT - It is evident from the impugned Order that the appellants have not committed any fraud, suppression, or wilful mis-statement as the Commissioner has given specific finding that no evidence has been brought on record to suggest active involvement of the appellants. Rule 57-I (1)(ii) clearly provides that where a manufacturer has taken a credit by reason of fraud, wilful mis-statement, collusion or suppression of fact or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty extended period of 5 years will be available for issuing show cause notice. It is apparent from the wordings of clause (ii) that fraud etc. has to be committed by the person against whom the show cause notice is being issued and not by the person at large. We, therefore, set aside the disallowance of the Modvat credit and recovery of the said amount from the appellants. All the appeals are thus allowed. The provisions of Section 35H contemplate a reference on a question of law which would arise from the order of the Tribunal. Every finding recorded by the Tribunal cannot be questioned before the High Court by way of reference. The findings which have been recorded are primarily findings of fact and in similar cases the view taken by the Tribunal has already been affirmed by this Court, as such we do not see any scope for interfering in the present reference application. The case of fraud or the case being of fake and bogus invoices, it was obligatory upon the Commissioner to rely on a definite evidence in that regard and conclusions could not be arrived at by inferences. The main emphasis of the order of the Assessing Authority was relatable to statement of other parties wherein they had accepted that they will reverse the Modvat credit within two-three months. The learned Counsel appearing for the appellant also contended that the findings recorded by the Commissioner, ought not to have been disturbed by the Appellate Tribunal as there was no occasion for the Department to file the cross-objections as the order was ultimately in favour of the Department. On principle of law, there may not be much dispute to this reposition but no such ground was urged before the Appellate Tribunal, as is clear from the order. No such ground has been taken even before us. No ground is stated in support of the Application for reference. Thus, we find no merit in this application. No question of law arises for consideration of the Court in the present appeal for which the direction to the Appellate Tribunal should be issued for making a reference. Appeal is accordingly dismissed, while leaving the parties to bear their own costs.

Summary

Issues:
Delay in filing reference application under Section 35H(1) of the Central Excise Act, 1944; Disallowance of Modvat credit on fake and bogus invoices; Recovery of wrongly availed Modvat credit; Imposition of penalties on individuals; Appellate Tribunal's decision on Modvat credit disallowance and recovery; Commissioner's findings on fraud and involvement of the industry; High Court's decision on the reference application.

The judgment dealt with an application for condonation of delay in filing a reference application under Section 35H(1) of the Central Excise Act, 1944. The delay of one day was condoned based on the reasons provided in the application, supported by an affidavit from the Commissioner of Central Excise, Delhi. The High Court found sufficient cause for granting the prayer made in the application and allowed it, disposing of the matter accordingly.

The Commissioner of Central Excise filed a reference application seeking direction for the Customs Excise and Gold Control Appellate Tribunal to refer a question of law to the court and grant a stay on the impugned order. The case involved M/s. Prerna Metal Industries availing Modvat credit under Rule 57 of the Rules. The Commissioner disallowed the Modvat credit, ordered recovery of the amount, imposed penalties, and charged interest based on findings related to fake and bogus invoices. The Appellate Tribunal accepted the industry's appeal, setting aside the disallowance of Modvat credit and recovery, emphasizing the lack of fraud or active involvement by the industry.

The High Court noted that the Appellate Tribunal's decision was based on the absence of evidence suggesting fraud or active involvement by the industry. Another concern's case with similar facts had a similar outcome, which was not interfered with by the Court. The Court emphasized that the receipt of goods and duty paying particulars on invoices supported the industry's entitlement to Modvat credit, dismissing the appeal against the Appellate Tribunal's decision.

Regarding the reference application, the High Court stated that not every finding by the Tribunal can be questioned, especially when primarily factual. The Court found no scope for interference as similar cases had been affirmed previously. The judgment highlighted the necessity for concrete evidence in cases of fraud or fake invoices, emphasizing the importance of not arriving at conclusions based on inferences.

Ultimately, the High Court found no merit in the reference application, stating that no question of law arose for consideration. The appeal was dismissed, with each party bearing their own costs. The judgment underscored the need for clear evidence in cases of fraud and the limitations on challenging factual findings before the High Court through a reference application.