1997 (5) TMI 166 - AT - Central Excise

Summary

Issues: Imposition of tax penalty on M/s. B.T. Steel Ltd. for wrongly availing Modvat credit; Failure to take reasonable steps as per Rule 173Q(1)(bb) of the Central Excise Rules; Consideration of penalty in the case of alleged bogus/fake documents; Interpretation of Rule 173Q(1)(bb) and its explanation; Assessment of the obligation on the beneficiary of Modvat credit to ensure genuineness of duty-paying documents.

The judgment pertains to an appeal filed by M/s. B.T. Steel Ltd. challenging the imposition of a tax penalty of Rs. 20,000 by the Collector Central Excise, Chandigarh. The Department alleged that the appellants wrongly availed Modvat credit based on allegedly fake documents related to steel scrap, failing to take reasonable steps to verify the identity and bona fides of manufacturers and suppliers as required under Rule 173Q(1)(bb) of the Central Excise Rules. The appellants contended that they received inputs through brokers and endorsed gate passes, making payments through legitimate means like A/c payee cheques or Demand Drafts, with no reason to doubt the authenticity of the documents or suppliers. They argued that trade practices allowed negotiation through brokers and cited previous Tribunal orders where penalties were quashed under similar circumstances.

The Department, represented by Shri Kilaniya, emphasized the legal obligation on Modvat credit beneficiaries to ensure that credit is claimed only on duty-paid inputs. The Collector's findings highlighted this obligation, supporting the rejection of the appeal. The Tribunal, after hearing both sides, focused on the interpretation of Rule 173Q(1)(bb) and its explanation, which require the assessee to verify the identity and address of manufacturers or suppliers on duty-paying documents. Referring to previous Tribunal decisions, the Tribunal acknowledged that in cases where gate passes pass through intermediary units, it may be impractical for the assessee to verify all manufacturers' genuineness. The Tribunal noted that the scheme of Modvat credit places the obligation on the credit claimant, allowing some discretion unless collusion or suppression of information is proven.

Ultimately, the Tribunal allowed the appeal, setting aside the impugned order imposing the penalty. The decision was based on the understanding that unless specific proof of failure to take reasonable steps or collusion is presented, penalties cannot be imposed solely for not ensuring the bona fide nature of all transactions. The judgment underscores the importance of the assessee's obligation to verify duty-paying documents while recognizing practical limitations and the beneficial nature of the Modvat credit scheme.