2011 (1) TMI 239 - AT - Central Excise

Fraudulent Cenvat Credit - Processing of Grey Fabric on job work basis - Demands have been confirmed against the assessees by the revenue on the ground that the cenvat credit was taken on the basis of invoices issued by persons who were found to be non existent based on alert circulars issued by the jurisdictional Commissioner of Central Excise - Held that - once it is clear on the basis of facts, that the appellant was required to take reasonable steps in respect of the suppliers in respect of whom demand has been raised, all the assessee had to do was just to show that the supplier existed. This is in spite of the fact that if we go strictly by the rule, if the assessee did not have personal knowledge about the existence of the supplier, he was required to obtain a certificate either from a person known to him or from the central excise superintendent. - No evidence has been produced by any of the assessees that they had fulfilled the obligations cast on them by Rule 7 irrespective of the circumstances and irrespective of facts of the case. - Matter remanded back for verification of evidences. Regarding extended period of limitation - suppression of facts - Held that - when we, analyse the facts and the law, what emerges is that if an assessee has not fulfilled the obligations cast on him under Rule 7, the obvious conclusion and the only conclusion possible appears to be that suppression of facts or mis-declaration can be invoked. We recognize the fact that the suppression of fact or mis-declaration is a factor which is required to be concluded based on facts and circumstances in each and every individual case. Therefore we would not like to lay down this proposition as a conclusion binding on the original adjudicating authority but leave the issue open for a decision by the lower authority at the time of de novo adjudication.

Issues Involved:
1. Validity of CENVAT credit based on invoices from non-existent suppliers.
2. Legality of alert circulars issued by the Commissioner.
3. Applicability of penalties under section 11AC of the Central Excise Act.
4. Compliance with Rule 7 of the CENVAT Credit Rules.
5. Limitation period for issuing show cause notices.
6. Multiple show cause notices and their implications.

Detailed Analysis:

1. Validity of CENVAT Credit Based on Invoices from Non-Existent Suppliers:
The primary issue was whether assessees could take credit based on invoices from non-existent suppliers. The Tribunal noted that the assessees failed to take reasonable steps to ensure the existence of suppliers, as required by Rule 7(2) of the CENVAT Credit Rules. The Tribunal emphasized that the burden of proof shifted to the assessees once the department established that the invoices were from non-existent suppliers. The Tribunal rejected the preliminary objection that the alert circulars were issued without authority, stating that the circulars were internal management tools and did not invalidate statutory proceedings.

2. Legality of Alert Circulars Issued by the Commissioner:
The Tribunal examined whether the Commissioner exceeded his authority by issuing alert circulars. It was found that while the circulars were not statutory, they were part of internal management to improve anti-evasion measures. The Tribunal held that non-compliance with internal instructions did not invalidate statutory proceedings. Therefore, the preliminary objections regarding the legality of alert circulars were rejected.

3. Applicability of Penalties Under Section 11AC of the Central Excise Act:
The Tribunal considered whether penalties under section 11AC were justified. It was noted that in several cases, the Commissioner (Appeals) had reduced or set aside penalties, indicating that the assessees were not involved in fraud. However, the Tribunal ruled that if the assessees failed to meet the obligations under Rule 7, it amounted to suppression of facts or mis-declaration, justifying the imposition of penalties. This issue was remanded for re-evaluation by the original adjudicating authority.

4. Compliance with Rule 7 of the CENVAT Credit Rules:
The Tribunal analyzed whether the assessees complied with Rule 7, which required them to verify the identity and address of suppliers. The Tribunal found that the assessees did not produce evidence of having taken reasonable steps to ensure the suppliers' existence. It was clarified that obtaining a registration certificate was not sufficient; a separate certificate from the Superintendent of Central Excise was required. This issue was also remanded for further verification.

5. Limitation Period for Issuing Show Cause Notices:
The Tribunal addressed the issue of whether the extended limitation period could be invoked. It was held that the use of fake invoices and non-existent suppliers constituted fraud, allowing for the extended period under section 11A of the Central Excise Act. The Tribunal referred to the Supreme Court's decision in Aafloat Textiles, which supported invoking the extended period in cases of fraud.

6. Multiple Show Cause Notices and Their Implications:
The Tribunal considered the argument that issuing show cause notices to suppliers indicated their existence. It was clarified that each show cause notice must stand on its own merits and does not invalidate other proceedings. The Tribunal ruled that the issuance of multiple show cause notices to different parties for the same issue was permissible, provided each notice was justified on its own facts.

Conclusion:
The Tribunal remanded all cases to the original adjudicating authority for re-evaluation, emphasizing the need for verification of facts and compliance with Rule 7. The Tribunal did not express a final opinion on the merits of each case, leaving all issues open for reconsideration. Both the assessees and the revenue were directed to present their cases afresh, and the original adjudicating authority was instructed to adjudicate based on the law as it exists at the time of remand.

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