2013 (1) TMI 75 - AT - Central Excise

Wrong credit taken based on fake units - manufacturers of Yarn non-existent - provisional invoice - manufacturing premises declared by assessee was not in existence as stated in Panchnama dated 20.7.2005 - Held that - Both sides could not confirm that there was a statutory requirement during the relevant time for merchant manufacturer to compulsorily declare supporting manufacturer or manufacturing premises. If there was no such requirement, just because respondent declared a premises, it cannot bind for all times to come. If the assessee had chosen to send the Yarn to some other manufacturer and got the grey fabrics manufactured, this should have been examined by the adjudicating authority and considered. Further, the claim of the assessee that cenvat credit was taken on Yarn and not on grey fabrics and therefore, credit taken could not have been denied without showing that manufacturers of Yarn were non-existent is also valid. The assessee had filed stock declaration on 01.4.2003 which was actually that of Polyester Yarn and this also shows that the claim of the respondent that credit was availed on Yarn and not on fabrics, seems to be correct - both the lower authorities have not considered the issue in proper perspective, thus the matter is remanded back to the original adjudicating authority for reconsideration - in favour of assessee for statistical purposes.

Issues:
1. Registration under Rule 12B of Central Excise Rules, 2002
2. Allegation of fraudulent credit availed based on fake invoices
3. Investigation at manufacturing and business premises
4. Denial of credit by original adjudicating authority
5. Disallowance of credit due to non-existent manufacturing premises
6. Verification of manufacturing process and cenvat credit on yarn
7. Statutory requirements for merchant manufacturers
8. Remand of the matter to original adjudicating authority

Analysis:

1. The respondents obtained registration as a merchant manufacturer under Rule 12B of the Central Excise Rules, 2002, with business and manufacturing premises located in Surat. They availed credit, paid duty on clearances, and filed returns until surrendering the registration after the discontinuation of a specific excise scheme in 2004.

2. A show cause notice issued in 2008 alleged that the respondents wrongly availed credit based on fake invoices, with discrepancies in the utilization of the credit. The notice pointed to a lack of existence of the manufacturing unit as per a Panchnama report, suggesting fraudulent practices.

3. The Learned Commissioner, in the impugned order, noted that investigations at the manufacturing premises were inconclusive and emphasized the need to visit the declared business premises for a thorough inquiry. The Commissioner found the respondent's excess credit natural due to duty differentials and concluded that they were not fraudulent operators.

4. The Revenue argued that the non-existence of the declared manufacturing premises invalidated the respondent's operations, justifying the denial of credit. They contended that the Commissioner's focus on office and residential premises was irrelevant for allowing cenvat credit.

5. The respondent's consultant countered that credit disallowance was based on the non-existent manufacturing premises, which were declared at the Superintendent's instance. They presented invoices indicating grey fabric manufacturing by another entity, Rita Fabrics, using yarn supplied by the respondent. The consultant argued that the credit was on yarn, not fabrics, and should not be denied without verifying the yarn manufacturers' existence.

6. The tribunal found merit in the consultant's arguments, highlighting the lack of a statutory requirement for declaring supporting manufacturers. They emphasized the need to examine if yarn was sent for fabric manufacturing elsewhere and acknowledged the respondent's claim of credit on yarn, supported by stock declarations.

7. Concluding that lower authorities failed to consider the issue comprehensively, the tribunal remanded the matter for a fresh examination by the original adjudicating authority, stressing adherence to legal principles and thorough document consideration.

8. The impugned order was set aside, and the case was remanded for reconsideration, ensuring a detailed examination of the submissions and records presented by the respondent, in line with legal requirements and principles of natural justice. Both the appeal and cross-objection were disposed of in light of the remand decision.

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