2021 (4) TMI 77 - HC - Central Excise

CENVAT Credit - duty paying documents - petitioner had availed ineligible credit of service tax paid on certain input services on the strength of documents not covered under Rule 9(2) of the CENVAT Credit Rules, 2004 - presence of Fraud or not - scope of SCN - H ELD THAT - The fraud has serious civil as well as criminal consequences. To constitute the offence of fraud there must be intent to deceive. That apart, a finding of fraud is a stigma which is a reflection on the integrity of a person or of a corporate entity. The basic allegation against the petitioner pertaining to availing of CENVAT credit on account of labour services as could be discerned from the notice to show cause-cum-demand dated 23.12.2015 was that the services for which the CENVAT credit was availed of was not connected with the manufacturing activities of the petitioner. Therefore, such claim was held to be inadmissible - petitioner s availment of CENVAT credit was being denied by the adjudicating authority on merit and not on the ground that the invoices were manufactured or manipulated. While there cannot be any two opinion that fraud vitiates everything and should be strongly dealt with particularly in a judicial or a quasi-judicial proceeding, Supreme Court in HARJAS RAI MAKHIJA (D) THR. L. RS. VERSUS PUSHPARANI JAIN AND ORS. 2017 (1) TMI 1736 - SUPREME COURT had sounded a note of caution. Firstly, there must be a specific allegation of fraud being played by a party to the proceeding. When such an allegation is made, it must be enquired into. The party against whom the allegation of fraud is made has to be put on notice and heard. Evidence must be led wherefrom a conclusion can be drawn that there was intent to deceive by the party who is alleged to have committed fraud - CESTAT was not justified in rejecting the application filed by the petitioner for recalling the finding of fraud and additionally in imposing cost. Petition allowed.

Summary

Issues Involved:
1. Quashing of CESTAT order dated 28.08.2019.
2. Allegation of mis-statement and fraud by the petitioner.
3. Admissibility of CENVAT credit.
4. Settlement under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.
5. Validity of CESTAT's finding of fraud without proper enquiry.

Issue-wise Detailed Analysis:

1. Quashing of CESTAT order dated 28.08.2019:
The petitioner sought quashing of the CESTAT order dated 28.08.2019, which rejected the miscellaneous application filed by the petitioner and imposed a cost of ?10,000. The petitioner argued that the CESTAT's finding of fraud was unjustified and sought expunging of such findings.

2. Allegation of mis-statement and fraud by the petitioner:
The CESTAT had dismissed the petitioner's appeal on 27.09.2018, holding that the petitioner had made a mis-statement and practised fraud by submitting two invoices with inserted words 'labour charges.' The petitioner contended that the allegation of fraud was not raised during the initial proceedings and was only introduced during the hearing before CESTAT. The petitioner argued that no notice was given before recording the finding of fraud, and the CESTAT could not have made such a finding without proper enquiry and hearing.

3. Admissibility of CENVAT credit:
The dispute originated from the petitioner's availing of CENVAT credit on labour services, which was partly disallowed by the adjudicating authority and the Commissioner (Appeals) on merit, not on the ground of fraud. The petitioner had availed credit for services related to civil work, shifting of machinery, etc., which the authorities contended were not connected with manufacturing activities.

4. Settlement under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019:
The petitioner had settled the tax dispute under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, and the tax liability was resolved. The petitioner's grievance was limited to the finding of fraud recorded by CESTAT. The respondents argued that the settlement of tax liability concluded the litigation, making the writ petition redundant.

5. Validity of CESTAT's finding of fraud without proper enquiry:
The court elaborated on the concept of fraud, stating that fraud must be specifically alleged, enquired into, and proved with evidence. The CESTAT's finding of fraud was based on an off-the-cuff remark by the department's representative and a hasty inspection of the invoices, without proper enquiry or hearing. The court held that such a hurried conclusion without proving intent to deceive was not justified.

Conclusion:
The court concluded that CESTAT was not justified in passing the impugned order dated 28.08.2019 and expunged the finding of fraud against the petitioner recorded in the order dated 27.09.2018. The writ petition was allowed to the extent indicated, with no order as to cost.