2012 (12) TMI 225 - AT - Central Excise

Cenvat credit appellants received goods along with invoices on which they have taken input duty credit - alleged that goods were purchased from the market and that there were no duty paying documents evidencing payment of duty to the Central Excise Department Held that - They cannot be given duty credit, if the supplier from whom they have purchased the goods has not paid the duty to the Central Excise Department in the first place - If the appellants have been given invoices showing payment of duty without the supplier having paid the duty, there are legal recourses available to the appellants to obtain compensation from the supplier. There is no reason why the Central Excise Department should compensate them because they had entered into transactions which someone who has duped them by giving them such invoices on which credit cannot be taken by them - appellants directed to pre-deposit equal to 50%

Summary

Issues:

1. Whether innocent buyers of goods can be held liable for non-payment of duty by the supplier?
2. Whether the appellants are entitled to take credit for input duty paid on goods purchased from a supplier who did not pay duty to the Central Excise Department?
3. Whether the appellants should be required to pre-deposit the duty amount before the appeal can be heard on merits?

Analysis:

1. The learned consultant for the appellants argued that the appellants, as innocent buyers, should not be held responsible for the non-payment of duty by the supplier. The appellants received the goods with invoices, verified the supplier's registration, paid the value of the goods, and duty to the supplier. The consultant requested a waiver of pre-deposit, citing hardship. However, the Department pointed out that the dealer did not pay Central Excise duty, leading to loss of revenue. The Judge noted that innocent buyers may impact penal liability but cannot claim duty credit if the supplier did not pay duty initially. The Judge emphasized the importance of safeguarding public revenue and avoiding interpretation that would deplete it.

2. The Judge reviewed cited case laws and highlighted that the decisions were not directly applicable to the present case. The Judge emphasized that the CENVAT credit scheme aims to prevent cascading duty payments and cannot allow credit if the input duty was not paid initially. The Judge likened it to seeking a tax refund without paying tax first. The appellants were advised to seek compensation from the supplier if they were misled by false invoices. The Judge directed the appellants to pre-deposit 50% of the duty amount within six weeks, considering financial difficulties, while safeguarding the interest of revenue.

3. The Judge's decision balanced the interest of revenue with the appellants' financial constraints, requiring a partial pre-deposit to proceed with the appeal on merits. The waiver of the balance amount of duty, interest, and penalty during the appeal's pendency was contingent upon compliance with the pre-deposit directive. The judgment aimed to ensure the appellants' accountability while addressing their financial challenges and upholding the integrity of the revenue system.

This comprehensive analysis of the judgment addresses the issues raised and provides a detailed insight into the legal reasoning and decision-making process involved in the case.