2018 (5) TMI 87 - AT - Central Excise

CENVAT credit - receipt of invoices without receipt of inputs - Held that - the appellant M/s Alpha Nippon Innovative Ltd. had availed the credit and reversed the same while issuing the invoice in favour of their customer M/s Electrotherm (India) Ltd. Both sides have fairly accepted that appropriate duty has been paid on hydraulic cylinders and hydraulic power pack, by M/s Faraday Shop, the manufacturer of the inputs, and the said inputs were received and utilized by M/s Electrotherm (India) Ltd., accordingly, credit is admissible to them. To ascertain the exact amount of credit admissible to M/s Electrotherm India Ltd., which cannot be in any case more than the duty paid by the input manufacturer, M/s Faraday Shop the matter needs to be remanded to the adjudicating authority to ascertain the said fact. Appeal allowed by way of remand.

Issues involved:
1. Availment of credit on inputs without receiving them in the factory premises.
2. Allegations of improper documentation and credit availed on invoices.
3. Denial of credit and imposition of penalties under Central Excise Rules, 2002.
4. Discontinuation of manufacturing activity and supply chain management.
5. Remand for further assessment of admissible credit and penalty imposition.

Detailed Analysis:
1. The appellant had availed credit on inputs, namely "Hydraulic Cylinders" and "Hydraulic Power Pack," without physically receiving them in their factory premises. They raised invoices with minimal value addition in favor of another party who claimed credit based on these invoices. The authorities alleged improper credit availment and issued Show Cause Notices for recovery. The appellant argued that they passed on the credit to the other party and should not be held liable for the credit availed. The Tribunal found that the appellant had indeed availed and reversed the credit while passing it on to the other party. The credit was deemed admissible to the other party as the inputs were received and utilized in manufacturing finished goods. The demand against the appellant for recovery of wrongly availed credit was set aside.

2. The allegations of improper documentation and credit availment on invoices were raised against the appellant and the other party. The authorities contended that the items were used in or in relation to the manufacture of finished goods, but the exact amount of duty paid and its eligibility for credit needed further verification. The Tribunal acknowledged the duty paid by the input manufacturer and the utilization of inputs by the other party. It was determined that the credit was admissible to the other party, subject to proper verification of the duty paid amount. The matter was remanded to the adjudicating authority for a detailed assessment.

3. The penalties imposed on the appellants under Central Excise Rules, 2002, for irregular availing and passing of credit were contested. The appellant accepted the penalty for violating relevant rules but argued against the demand for recovery of wrongly availed credit. The Tribunal recognized the penalty provision for contravening credit rules but found that the demand against the appellant could not be sustained due to the passing on of credit to the other party. The imposition of penalties and interest, if any, was to be considered after further assessment of admissible credit.

4. The appellant's discontinuation of manufacturing activity and the management of the supply chain were discussed. The appellant had ceased manufacturing but continued the supply chain by purchasing goods from another party and delivering them directly to a customer's premises. The Tribunal noted the supply chain arrangement and the testing of items at the customer's premises. While acknowledging the violation of credit rules, the Tribunal focused on the admissibility of credit to the customer based on the actual use of inputs in manufacturing.

5. The judgment concluded by remanding the cases to the adjudicating authority for a detailed assessment of admissible credit, penalty imposition, and other related issues. The Tribunal set aside the impugned orders and directed a reevaluation in light of the observations made during the proceedings. The appeals were disposed of accordingly, emphasizing the need for a thorough examination of the credit eligibility and penalty imposition aspects.

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