2013 (3) TMI 143 - AT - Central Excise

Cenvat Credit on brass scrap supplied by Registered Dealer under the cover of Cenvatable invoices denied - Held that - The appellant has admittedly purchased the goods from M/s. Saraswati Impex, Jagadhari. Statement of Sh. Vikrant Gupta of M/s. Saraswati Impex was recorded on 25-1-2005 wherein he confirmed having purchased the goods against the regular Cenvatable Invoices issued by M/s. Sulabh Impex & Ganpati Trader and having further sold goods to the appellants by issuing his own invoices with all these transactions fully reflected in his regular books of accounts and the payment received from the buyers. Further during the course of the adjudication statement of Sh. Surinder Vasudeva, Partner of the appellants, was recorded on 29-8-2007 wherein he confirmed having received the brass scrap from M/s. Saraswati Impex against the regular Cenvatable Invoices. The said scrap was entered in the RG-I Register along with credit entered in RG-II Register and stands utilized in the final product which was cleared on payment of duty. As per the Cenvat Credit Rules, a manufacturer is required to take reasonable steps about the supplier of the goods. In the present case, there is no dispute about the supply of goods by M/s. Saraswati Impex, under cover the Cenvatable goods. The manufacturer cannot go beyond that to verify and find out as to whether the Registered Dealer, who has supplied the goods to him, has procured the same legally or not. Thus even the supplier of the goods of M/s. Saraswati Impex have stated that they have received the goods from the Registered Dealer under cover of Modvat Invoice. Any fraud, if any at the end of the first two Registered Dealers, cannot result in denial of credit to the appellant, who procured the goods directly from the Registered Dealer who has also accepted having received the goods from the first two Registered Dealers - Thus no justifiable reason to deny the credit to the appellant. Also Show Cause Notice dated 23-11-2007 for the period 2004 to 2005 is also barred by limitations - in favour of assessee.

Summary

Issues involved: Cenvat Credit on brass scrap, liability of the appellant, denial of credit, fraud allegations, limitation period, penalty imposition.

Analysis:

1. Cenvat Credit on brass scrap: The main issue in this case is whether the Cenvat Credit on brass scrap supplied by a Registered Dealer is available to the appellant. The appellant, engaged in the manufacture of brass scrap, availed Modvat credit based on Cenvatable invoices issued by the supplier. The dispute arises from the investigation revealing discrepancies in the supply chain of the raw material.

2. Liability of the appellant: The appellant, M/s. Luxmi Metal Industries, purchased goods from M/s. Saraswati Impex, who in turn sourced the brass scrap from other registered dealers. The appellant maintained that they received the goods against regular Cenvatable invoices and utilized them in the final product, following the Cenvat Credit Rules diligently.

3. Denial of credit and fraud allegations: The Revenue alleged that the two registered dealers supplying the brass scrap to M/s. Saraswati Impex were involved in fraudulent activities related to availing CVD and SAD credits. However, the appellant contended that they were not responsible for the actions of the intermediate suppliers and had no reason to doubt the legitimacy of the transactions they were involved in.

4. Limitation period: The Show Cause Notice issued to M/s. Luxmi Metal Industries for the period 2004 to 2005 was found to be barred by limitations. The Tribunal referred to a previous decision where it was held that if credit was availed based on proper invoices, the extended period for allegations of fraud or suppression could not be invoked.

5. Penalty imposition: The lower authorities confirmed the denial of credit to the appellant along with interest and penalty. However, the Commissioner (Appeals) set aside the penalty imposed on M/s. Saraswati Impex. The Tribunal, after considering the facts and the legal precedents, found no justifiable reason to deny the credit to the appellant and allowed the appeal on merits and limitation grounds.

In conclusion, the Tribunal ruled in favor of M/s. Luxmi Metal Industries, setting aside the denial of credit and penalty imposition. The judgment emphasized that the appellant acted in good faith based on valid invoices and could not be held accountable for any fraudulent activities of the intermediate suppliers. The decision also highlighted the importance of adhering to the limitation period for raising allegations and penalties.