2005 (7) TMI 111 - HC - Central Excise

Cenvat/Modvat - Duty paying documents - inputs for the manufacturing process - Penalty - HELD THAT - The supplying dealer M/s. J.C.T. Limited, had applied for registration on 29-12-1994, and had been duly registered on 6-1-1995. In the circumstances, the petitioner could not be denied the benefit of Modvat credit only on the technical plea that registration had been issued subsequent to the so called cut oil date viz. 31-12-1994. This is all the more so, when the finding recorded by the Commissioner (Appeals), is taken into consideration. To reiterate the Commissioner (Appeals) has categorically found that the invoices contained the details as required under Notification No. 15/94. The only ground on which the petitioner was non suited was that M/s. J.C.T. Limited was granted registration on 6-1-1995. It would be travesty of justice if the assessee is. denied benefit, to which it is otherwise entitled to, for no fault of the assessee. The assessee cannot, firstly, call upon supplying dealer to apply for registration before the cut-off date; secondly, even if the assessee does so and the supplying dealer makes application for registration before the cut-off date, it would be beyond the assessee or the dealer to ensure that the registration is granted by the cut-off date. There could be various circumstances, on the basis of which the registering authority, may not issue the certificate by so called due date. A simple example would be, absence of the registering authority, being on leave and charge being available with some other officer, who because of more pressing work may not attend to the work for which he holds additional charge, and in such circumstances to expect that the dealer must obtain registration by due date would be asking almost for the impossible, especially from the assessee who is merely a purchaser. Therefore, the denial of modvat benefit only on this technical plea is not justified in law, especially when all other requirements have been fulfilled by the supplying dealer. In the result, in light of what is stated hereinbefore, it is apparent in the facts and circumstances of the case that the petitioner was entitled to Modvat credit considering the fact that firstly, the supplier had issued invoices in July and August, 1994, namely when the Adjudicating Authority had discretion available to it; secondly, the supplier had applied for registration on 29-12-1994 and had been registered on 6-1-1995; and thirdly, the supplier had issued invoices which admittedly complied with the requirements prescribed by various Notifications. Hence, the order are hereby quashed and set aside. The respondent authorities are directed to allow Modvat credit of Rs. 3,57,997/- to the petitioner. The petition is accordingly allowed.

Issues Involved:
1. Amendment of prayer clause
2. Validity of Modvat credit denial
3. Interpretation of Circular No. 76/76/94-CX. dated 8-11-1994
4. Registration requirements under Rule 57H
5. Application of precedents and legal principles
6. Discretionary powers of the Assistant Collector
7. Technical compliance versus substantive compliance

Detailed Analysis:

1. Amendment of Prayer Clause:
The learned Advocate for the petitioner sought permission to amend the prayer clause of the petition, which was granted and the amendment was to be carried out immediately.

2. Validity of Modvat Credit Denial:
The petitioner, a partnership firm engaged in manufacturing texturised synthetic filament yarn, availed Modvat credit on inputs purchased. The Adjudicating Authority issued a show cause notice and subsequently ordered the recovery of Rs. 4,22,230/- and imposed a penalty of Rs. 45,000/-. The Commissioner (Appeals) allowed Modvat credit for invoices from M/s. Garware Nylon Ltd. but denied credit for invoices from M/s. J.C.T. Limited, as they were not registered by 31-12-1994. The Tribunal upheld this decision, and the petitioner sought rectification, which was denied.

3. Interpretation of Circular No. 76/76/94-CX. dated 8-11-1994:
The core issue was whether the Circular required dealers to be registered by 31-12-1994 for their invoices to be valid for Modvat credit. Paragraph 6 of the Circular was interpreted to mean that documents issued by registered persons prior to registration would be acceptable if they were eligible to issue invoices under Notification Nos. 15/94 and 21/94. The Circular did not explicitly mandate registration by 31-12-1994 but allowed discretion to the Assistant Collector to accept such documents until that date.

4. Registration Requirements under Rule 57H:
The petitioner argued that since M/s. J.C.T. Limited applied for registration on 29-12-1994 and was granted registration on 6-1-1995, the invoices issued in July and August 1994 should be valid for Modvat credit. The Court noted that the Circular did not stipulate that registration had to be obtained by 31-12-1994, but rather that the Assistant Collector's discretion to accept documents was limited to that date.

5. Application of Precedents and Legal Principles:
The petitioner cited the Apex Court's decision in Commissioner of Central Excise v. M.P.V. & Engg. Industries and other cases to argue that subsequent registration should validate earlier transactions. The Court agreed, stating that the efficacy of the registration certificate is relevant at the time of assessment, not necessarily at the time of the transaction.

6. Discretionary Powers of the Assistant Collector:
The Court held that the Assistant Collector had discretion to accept invoices issued before 31-12-1994, even if the dealer was registered later. The Circular's language indicated that the discretion was to be exercised until 31-12-1994, not that registration had to be completed by that date.

7. Technical Compliance versus Substantive Compliance:
The Court emphasized that denying Modvat credit for technical non-compliance, when all substantive requirements were met, would be unjust. The petitioner had done everything within its power, and the delay in registration was beyond its control. The object of the Modvat scheme is to avoid cascading taxes, and technical breaches should not frustrate this purpose.

Conclusion:
The Court quashed the orders denying Modvat credit and directed the respondent authorities to allow Modvat credit of Rs. 3,57,997/- to the petitioner. The petition was allowed, and the rule was made absolute with no order as to costs.

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