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TMI Blog2013 (5) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... house, registered under Rule 9 of Central Excise Rules, 2002 ("Rules of 2002") and holds a valid Central Excise Registration for the processing of grey fabrics received from traders/merchants on job-work basis since last several years and was enjoying the deemed credit facility for the grey fabrics received from the traders/merchants up to March 31, 2003 and was paying duty after availing deemed credit granted in accordance with the notifications issued from time to time. 2.2 The said deemed credit facility was withdrawn and actual credit facility under Cenvat Credit Rules, 2002 was introduced for the first time on textile and textile articles w.e.f. April 1, 2003 and several simplified deeming provisions were introduced by several notifications, circulars and instructions to implement the Cenvat Credit Scheme of textile and textile articles manufacturers. 2.3 Accordingly, Notification No. 20/2003-C.E., dated March 25, 2003 and Notifications No. 24 to 26/2003-C.E. (N.T.) were issued amending the relevant provisions of Central Excise Rules and Cenvat Credit Rules to cover the chain of Cenvat Credit Scheme on textile and textile articles. 2.4 Rule 7 of Cenvat Credit Rules, 2002 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Office. (e). xxx xxx xxx xxx xxx xxx xxx xxx xxx (f) a challan, referred to in rule 8A. (1A) CENVAT credit under rule 3 shall not be denied on the grounds that any of the documents mentioned in sub-rule (1) does not contain all the particulars required to be contained therein under these rules, if such document contains details of payment of duty, description of the goods, assessable value, name and address of the factory or warehouse : Provided that the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise having jurisdiction over the factory of a manufacturer intending to take CENVAT credit is satisfied that duty due on the inputs has been paid and such inputs have actually been used or are to be used in the manufacture of final products, and such Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise shall record the reasons for not denying the credit in each case. (2) The manufacturer or producer taking CENVAT credit on inputs or capital goods shall take all reasonable steps to ensure that the inputs or capital goods in respect of which he has taken the CENVAT credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll have effect in that financial year as if for the expression "month", the expression "quarter" was substituted. (6) A first stage or a second stage dealer, as the case may be, shall submit within fifteen days from the close of each quarter of a year to the Superintendent of a Central Excise, a return in form-2 annexed to these rules." 2.5 On introduction of the Cenvat scheme on textile and textile articles, an amendment was made in Rule 7 of the Cenvat Credit Rules, 2002 vide Notification No. 28/2003-C.E. (N.T.), dated April 1, 2003 by which endorsed invoices for taking input credit were introduced. The said amended provision is quoted below :- "(e) any of the documents referred to in clauses (a) to (d), issued in the name of a person, - (a) involved in purchase and sale of yarns or fabrics falling under Chapters 50, 51, 52, 53, 54, 55, 58 or 60, or made up textile articles falling under Chapter 63 of First Schedule to the Tariff Act; or (b) undertaking activities pertaining to manufacture of yarns or fabrics falling under Chapters 50, 51, 52, 53, 54, 55, 58 or 60, readymade garments falling under Chapters 61 or 62 or made up textile articles falling under Chapter 63 of Firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock. He is also required to maintain the accounts regarding the credit on the goods received by him and the credit that has been passed on to the subsequent buyer." 2.7 In view of the above clarification, the endorsed invoices, endorsed in full by persons, were permissible documents in terms of Rule 7(1)(3) of the Rules of 2002 and the said persons are deemed manufacturers for the purpose of compliance of reasonable steps enumerated in sub-rule (2) of Rule 7 of the Rules of 2002 which are deeming provisions for taking credit. 2.8 Accordingly, the appellant was receiving grey fabrics from the traders/merchants (supplier of grey fabrics) for processing on job work on the basis of endorsed invoices in full which were entered in statutory input register and duly processed fabrics were recorded in the finished goods register and cleared to the said supplier traders/merchants on payment of duty under the Central Excise invoices. The said supplier traders/merchants made payment of the process charges etc. and the said supplier traders'/merchants' names and addresses are also recorded. Accordingly, the appellant had complied with the provisions of reasonable steps prescribed under sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng credit on endorsed invoices for the grey fabrics received as the appellant disclosed all the information in the monthly returns and cenvat abstract filed every month and therefore, the extended period under proviso to Section 11A(1) was not applicable and the demand beyond the normal period of one year was time barred. Over and above, the principle laid down by this Court in the case of Sheela Dyeing and Printing Mills Pvt. Ltd., reported in 2008 (232) E.L.T. 408 (Guj.) was not applicable as the limitation was not subject-matter of the said order. 2.14 It appears that the adjudicating authority, by order dated February 26, 2008 confirmed the demand and imposed penalty and recovery of interest. Being dissatisfied with the said order, an appeal was preferred to the Commissioner (Appeals), who dismissed the appeal vide order dated August 27, 2009. 2.15 Being dissatisfied with the order dated August 27, 2009, passed by the Commissioner (Appeals), the appellant preferred an appeal before the Tribunal and the appellant raised all the issues of similar nature but the Tribunal below disposed of all the appeals by common order dated January 24, 2011 and remanded the matter to the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation in the facts of the present case and that the larger period of limitation is applicable. 4. Mr. Parikh, the learned Senior Advocate appearing on behalf of the appellant, at the outset, submitted before us that there is a basis disconnect as per the scheme of the Act and the Cenvat Rules between the actual payment of duty and taking credit. According to Mr. Parikh, the liability to pay duty is of the manufacturer and when he clears the goods, the purchaser pays full price of the goods which includes the duty element. As a result, Mr. Parikh continues, the Purchaser thereby indirectly suffers duty and in light of the aforesaid fact, he is allowed to take credit. Mr. Parikh submits that the legislature in its wisdom has provided for a disconnect between the actual payment of duty by the manufacturer on the one hand and the credit being taken by a purchaser who pays duty on the other hand. Mr. Parikh points out that the manufacturer actually pays the duty before the 5th of every succeeding month, following the month in which he makes clearances. If such a manufacturer, for whatsoever reason, is unable to pay the duty, according to Mr. Parikh, the credit is not to be disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent cannot escape their responsibility to find out the person who was originally registered with them and to pursue him for payment of the duty. Mr. Parikh points out that the goods were purchased by merchant-manufacturer officially and they have suffered duty thereof, and amount has been paid through cheques. 4.5 In the aforesaid circumstances, according to Mr. Parikh, it is ex facie wrong to even suggest that the invoices are fake invoices. He contends that the invoices are clearly genuine, which are accounted for in Returns of the person registered with the Central Excise and merely because the manufacturer cannot be found, for that reason, the invoices cannot be described as bogus, fake or fraudulent. 4.6 Mr. Parikh further submits that the period relates to much earlier one and merely because today the original manufacturer cannot be found, does not mean that he did not exist at the relevant of point of time. According to Mr. Parikh, the department cannot on the basis of the present investigation arrive at a finding that at the relevant point of time, such a manufacturer did not exist. In any case, according to Mr. Parikh, the present appellants or the merchant-manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of a fraud or misrepresentation is itself a genuine document. It is only issued or was issued in the context of a fraud or a misrepresentation, and according to the settled law, such a document is at the best a voidable one and is valid till it is set aside. Mr. Parikh submits that the transaction that takes place on the basis of such a document is a good and valid transaction and can even give a good title to holder in due course for valuable consideration without notice. Mr. Parikh further points out that in various cases, where even import licenses have been issued by practising fraud or misrepresentation, issues have arisen with regard to purchasers of such licences. The purchasers would have purchased these licences bona fide for value and without notice. They would have imported the goods only on the basis of such licenses. In all such cases, the department made out a case that as the original licence was issued on the basis of a fraud, the same was void and the imports made on that behalf, contravened the provisions of law. Mr. Parikh submits that the Supreme Court, the various High Courts and the Tribunal have consistently taken a view that a document otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, as is clear from paragraph 2 of the said judgment, the period related to June 2003 and at that time, on an endorsed invoice, which constituted the document, the credit was taken. In the present case, according to Mr. Parikh, as per Rule 7(1)(e) of the Cenvat Rules, the rule was not on the statute books and the provision which allowed credit being taken on endorsement only existed from April 2004 to July 2004. Mr. Parikh submits that a person issuing an endorsed invoice, on the basis of which the credit can be taken, is a merchant-manufacturer and hence, it is his existence that was relevant for taking the credit. However, Mr. Parikh submits that the period with which Sheela Dyeing (supra) was concerned, was one when it was the invoice of the original manufacturer of fabric, that was the duty paying document on which credit could be taken and thus, it was one of existence of the original manufacturer, which was relevant for taking credit. Thus, the judgment in the case of Sheela Dyeing (supra) can have no application to the period in question. 5. Mr. Oza, the learned Senior Advocate, appearing on behalf of the Central Excise authority, and Mr. P.S. Champaneri, the learned Assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue came to the conclusion that the names appearing and concluded in Alert Circular were correct on the basis of materials and evidence collected during inquiry and investigation. The notices of demand were issued for recovery of wrongly availed CENVAT under Rules 7 and 9 of the CENVAT Credit Rules, 2002/2004 read with Section 11A of the Central Excise Act, 1944. According to the learned counsel for the Revenue, the appellants were not justified in contending that the show cause notices were issued only on the basis of Alert Circular, but as a matter of record, the issue of show cause notice is on the basis of materials such as statement of the beneficiary and documentary evidences collected during the course of inquiry. 5.2 Learned counsel for the Revenue point out that the show cause notices were issued for wrongly availing CENVAT credit under Rule 12 of CENVAT Credit Rules, 2002 (now Rule 14 of the CENVAT Credit Rules, 2004) read with Section 11A of Act, alleging contravention of Rule 7 of C.C. Rules, 2002 (now Rule 9 of C.C. Rules, 2004) read with Section 11A(1) of the Act. 5.3 According to learned counsel for the Revenue, in the present as well as in most of the cases, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of C.C. Rules, 2002 or C.C. Rules, 2004, as the case may be. 5.5 Learned counsel for the respondents further point out that in accordance with the provisions of sub-rule (6) of Rule 12B of the C.E. Rules, 2002, it was left to them not to get themselves registered, not to maintain any record evidencing the process undertaken for the sole purpose of undertaking job work under these rules unless they have exercised their option in terms of first or second proviso to sub-rule (1) of the said Rule 12B. According to the learned counsel for the Revenue, the independent processors/manufacturer/said person, were under an obligation to follow the provisions of Central Excise Rules, 2002, as well as Cenvat Credit Rules, 2002/2004. 5.6 Learned counsel for the Revenue further point out that Rule 7(2) of the CENVAT Credit Rules, 2002 [Rule 9(3) of CENVAT Credit Rules, 2004] provides for taking reasonable steps to ensure that the inputs in respect of which the manufacturer or producer has taken CENVAT credit are goods on which the appropriate duty of excise as indicated in the documents accompanying the goods has been paid. They point out that in the present cases, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the parties and after going through the materials on record, we find that the Central Excise Commissionerate, Surat-I, addressed a communication to M/s. Prayagraj Dyeing & Printing Mills Pvt. Ltd., inter alia, intimating that during the verification of Cenvat documents, it revealed that M/s. Prayagraj Dyeing & Printing Mills Pvt. Ltd., had availed cenvat credit on the strength of the invoices issued by M/s. Sana Textiles. In the inquiry conducted by the department, it was established that such Unit did not exist or ever existed and the documents purportedly produced were fake since the supplier of the goods itself was non-existent. Thus, according to the Revenue, a bogus document could not be considered as valid document for the purpose of availment of cenvat credit and, therefore, the credit so availed was incorrectly received and it was intimated to reverse the same along with interest under the intimation to the office of the Superintendent of Central Excise & Customs, Range-II, Division-II, Surat-I. 7. As indicated earlier, the matter went up to the level of the Tribunal and thereafter, it has been remanded for fresh adjudication. If we look at the provision of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital goods in respect of which he had taken CENVAT credit are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. 10. In this connection, we find substance in the contention of Mr. Parikh, the learned senior advocate appearing on behalf of the appellants, that there is a marked distinction between a forged document and a document issued by practising fraud. If it appears that a document is a forged one or a manufactured one, it is concocted or a created one in the eye of law and it is in the eye of law a non-existent document. On the other hand, a document issued in the context of a fraud or misrepresentation, is by itself a genuine document and according to settled law, such document is, at the most, voidable and is valid till it is set aside. A transaction that takes place on the basis of such document is good one and can even give a good title to the holder in due course for valuable consideration. At this juncture, we may profitably refer to the observations of the Supreme Court made in the case of CCE v. Decent Dyeing Co., reported in 1990 (45) E.L.T. 201 = (1990) 1 SCC 180 wherein, the Supreme Court held that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoices. However, at the same time, we find substance in the contention of Mr. Oza and Mr. Champaneri, the learned counsel appearing on behalf of the Revenue, that in order to get the credit of CENVAT, Rule 7(2) cast a further duty upon the appellants to take all reasonable steps to ensure that the inputs or the capital goods in respect of which the Appellants had taken the credit of CENVAT are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. The Explanation added to Rule 7(2) even describes the instances which are the reasonable steps. The Appellants in these cases, however, not having taken those steps, cannot get the benefit of the credit even though he is not party to fraud. In this connection, we fully agree with the views taken in the case of Sheela Dyeing (supra), and hold that the said decision supports the case of the Revenue and taking of all reasonable steps as provided in Rule 7(2) is an essential condition of availing the credit. The distinction sought to be made by Mr. Parikh that the period involved therein related to June, 2003 is not tenable because sub-rule (e) of Rule 7 was introduced even earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dure by reversing a well-considered judgment of the first appellate Court on facts especially when no question of law, much less any substantial question of law, arose for consideration, and in that context it was held appeal being one under Order 43 Rule (1) clause (u) against an order of remand, the High Court should have confined itself to such facts, conclusions and decisions which have a bearing on the order of remand and cannot canvass all the findings of facts arrived at by the lower appellate Court. The Supreme Court further held that it was quite safe to adopt that an appeal under Order 43 Rule (1) clause (u) should be heard only on the grounds enumerated in Section 100 of the Code. 14.1.1 In the case before us, as the Tribunal below committed substantial error of law in overlooking the fact that the provisions of limitation stood in the way of reopening of transaction on the ground of fraud as the appellants were not even alleged to be parties to the fraud, and this is a question which goes to the root of the jurisdiction, and thus, the error committed by the Tribunal amounted to substantial question of law. The decision relied upon by the Revenue, therefore, cannot have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case, the document was established to be forged whereas in the cases before us, the document is not alleged to be a forged one, and therefore, we have already pointed out that the said decision cannot have any application to the facts of the present case. 14.5 In the case of Munjal Showa Limited v. Commissioner of Customs & Central Excise (Delhi IV, Faridabad) reported in 2009 (246) E.L.T. 18 (P & H), the Punjab & Haryana High Court found that the document under which exemption was claimed was forged and in such a situation, according to the Division Bench of the said Court, the purchaser would step into the shoes of the seller and did not acquire a better title than the seller. 14.5.1 We have already pointed out that in the cases before us, the document is genuine one and the appellants were also not alleged to be a party to the fraud, and therefore, the principles laid down in the aforesaid decision cannot have any application to the facts of the present case although for not taking reasonable step as provided in Rule 7(2), the Appellants are not entitled to credit of Cenvat. 14.6 Similar are the facts in the case of Golden Tools International v. Jt. DGFT, Ludhiana reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h registered licencees, we find that the principles laid down in the aforesaid decision cannot have any application to the facts of the present case. 14.8 Lastly, in the case of Commissioner of Central Excise, Jalandhar v. Vardhaman India Products reported in 2009 (236) E.L.T. 637 (P & H) where the Punjab & Haryana High Court was dealing with a case where extended period of limitation was claimed on the allegation of fraud levelled against the assessee besides violation of provisions of the Act and the Rules. It was held that the party fraudulently availed of Modvat credit and the party's conduct and admission of guilt was evident from the facts of the case. 14.8.1 In the facts of that case, the principles laid down in the aforesaid decision cannot have any application to the facts of the present case where there is no allegation of fraud against the appellant and only because the original manufacturer who was registered with the Revenue was not subsequently traceable, the notice was issued. 14.9 We, thus, find that the decisions relied upon by the Revenue are of no avail to the respondents. 15. On consideration of the entire materials on record, we find that the documents, inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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