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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 ..... he credit even though he is not party to fraud. Period of limitations - held that:- in the absence of any allegation that the appellants were parties to the fraud, the larger period of limitation cannot be applied, and thus, even if the original document was assumed to be issued by practising fraud, the appellants being holders in due course for valuable consideration without notice, the larger period of limitation cannot be extended in the case before us. In this connection, we may profitably refer to the decision of the Supreme Court in the case of Commissioner of Central Excise, Belapur v. E. Merck India Ltd. [2007 (7) TMI 299 - SUPREME COURT] where the Supreme Court took a view that in the absence of a willful misdeclaration on the part of the respondent-assessee, there was no scope of invoking Section 11A of the Act. The documents, invoices in question, issued by the registered licencee being genuine and in the absence of any allegations against the appellants of fraud, the Tribunal should not have remanded the matter back as the claim was totally barred by limitation. - Decided in favor of assessee. - Tax Appeal Nos. 1153, 1116, 1118, 1120-1125, 1127-1130, 1132, 1143- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow :- 7. Documents and accounts. - (1) The CENVAT credit shall be taken by the manufacturer on the basis of any of the following documents, namely :- (a) an invoice issued by - (i) a manufacturer for clearance of - (I) inputs or capital goods from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer; (II) inputs or capital goods as such; (ii) an importer, (iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002; (iv) a first stage dealer or a second stage dealer, in terms of the provisions of Central Excise Rules, 2002; (b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he satisfies himself about the identity and address of the manufacturer or supplier, as the case may be, issuing the documents specified in rule 7, evidencing the payment of excise duty or the additional duty of customs, as the case may be, either - (a) from his personal knowledge; or (b) on the strength of a certificate given by a person with whose handwriting or signature he is familiar; or (c) on the strength of a certificate issued to the manufacturer or the supplier, as the case may be, by the Superintendent of Central Excise within whose jurisdiction such manufacturer has his factory or the supplier has his place of business, and where the identity and address of the manufacturer or the supplier is satisfied on the strength of a certificate, the manufacturer or producer taking CENVAT credit shall retain such certificate for production before the Central Excise Officer on demand. (3) The CENVAT credit in respect of inputs or capital goods purchased from a first stage or second stage dealer shall be allowed only if such dealer has maintained records indicating the fact that the inputs or capital goods were supplied from the stock on which duty was paid by the producer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson to any other manufacturer, producer, first stage dealer or second stage dealer. Explanation :- For the removal of doubt, it is clarified that the manufacturer, producer, first stage dealer or second stage dealer, as the case may be, in whose name such endorsement has been made, shall not be denied the credit merely on the grounds that the description of the goods mentioned in such an endorsed document has undergone a change on account of such an activity been undertaken by such person, as referred to in sub clause (ii) of this clause on the said goods. ; 2.6 The aforesaid notification was further explained by issuing a circular by the Central Board of Excise Customs vide No. 713/29/2003-CX., dated May 7, 2003 which is quoted below : Issue No. 3 : The traders of textiles and textile articles have been permitted (vide Notification No. 28/2003-C.E. (N.T.), dated 1-4-2003) to endorse in full, their purchase documents in favour of a manufacturer, producer or another dealer without obtaining registration. However, in case the quantity purchased under one invoice is to be sold in parts (to different persons), such a trader has to obtain dealer s registration. It has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchants are deemed manufacturers. 2.10 As statutorily prescribed under the Cenvat Excise Law, the appellant was filing statutory monthly returns along with Cenvat abstract every month to the concerned Central Excise authority having jurisdiction over the unit of the appellant who had acknowledged the said monthly returns for the relevant months. Since no other information was required to be furnished except statutorily prescribed in the said monthly return form in the form of ER-1, there was no suppression of fact etc. on the part of the appellant. 2.11 The appellant was served with a show cause notice dated October 3, 2007 on the ground that during the month of June 2004 and July 2004, the credit taken by the appellant on the basis of the said endorsed invoices was not correct as the invoices issued by the grey manufacturers registered under Rule 12B/dealers were not in existence and fake, as declared in respective Alert Circulars issued after cessation of the scheme. The demand was made invoking extended period under proviso to Section 11A(1) of the Act. 2.12 The show cause notice was contested by the appellant on the ground that the input credit was correctly taken in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng substantial questions of law : (1) Whether the Tribunal below committed substantial error of law in holding that the show cause notice issued to the appellant on the basis of Alert Circulars was valid in law when no evidence except Alert Circulars was relied upon for issuing the show cause notice. (2) Whether the Tribunal below committed substantial error of law in holding that reasonable steps as enumerated under Rule 7(2) Cenvat Credit Rules, 2002 are not complied with by the appellant because the original manufacturer of fabrics were alleged to be fictitious though the supplier of the fabrics who directly dealt with the appellant are existing parties. (3) Whether the Tribunal below committed substantial error of law in holding that the appellant had not taken reasonable steps within the meaning of the explanation to Rule 7(2) of the Cenvat Credit Rules, 2002, by totally misinterpreting the same. (4) Whether the Tribunal below committed substantial error of law in holding that the word supplier takes within its fold the traders/ merchants who endorsed the invoices, as per the provisions of Rule 7(1)(e) of the Cenvat Credit Rules, 2002. (5) Whether the Tribunal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is binding upon the Revenue. 4.1 Even otherwise, according to Mr. Parikh, if one looks at the provisions of Rule 7 of the Cenvat Credit Rules, 2002, the credit is to be taken on the basis of the documents prescribed there under. Thus, Mr. Parikh contends, once the purchaser produces the documents prescribed in Rule 7, he is entitled to avail of the credit. 4.2 Mr. Parikh further submits that the goods that are manufactured may pass through various chains of purchasers before they reach another manufacturer, who may use the same as inputs and there is no need for such subsequent manufacturer to know each and every person in this chain of transactions. According to Mr. Parikh, the law does not require the purchaser to convert himself into an intelligence officer before he can take the credit. Mr. Parikh submits that the market is flooded with goods traded by various persons and for that reason, the legislature has provided that the purchaser can avail the credit and there is no relation between taking the credit as such and the original manufacturer having not paid duty. Mr. Parikh contends that if the original manufacturer does not pay the duty, the department can always take ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Singh reported in 2011 (270) E.L.T. 321. In the said case, the original manufacturers were found to be non-existent. They had cleared the goods to one Unique Exports who sold the goods to Roman Overseas and Roman Overseas exported the goods, after taking Cenvat credit. It was the case of the Department even in that case, that the Cenvat credit was wrongly availed of as the invoices are issued by non-existent firms. In paragraphs 10 and 11 of the judgment, it was held that the purchaser purchased the goods after payment of the duty and though it is a fact that the goods were not duty-paid, the Roman Overseas was not party to any fraud, and hence, it was held that the credit could not be said to have been wrongly availed. 4.8 In similar circumstances, according to Mr. Parikh, the consistent view of the Tribunal also is that once the receipt of goods is not disputed by a person taking credit, and necessary invoices are issued, he is entitled to take credit irrespective of whether the original manufacturer paid duty or not. In support of such contention, Mr. Parikh relies upon the following decisions of the Tribunal/High Court :- (i) R.S. Industries v. Commissioner of Central Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikh relies upon the following decisions : (i) East India Commercial Co. Ltd., Calcutta v. Collector of Customs, Calcutta reported in 1983 (13) E.L.T. 1342 (S.C.) (ii) Commissioner of Central Excise, Vadodara v. Steelco Gujarat Ltd. reported in 2000 (121) E.L.T. 557 (Tribunal) (paras 4 and 5) (iii) HICO Enterprises v. Commissioner of Customs, Mumbai reported in 2005 (189) E.L.T. 135 (Tribunal Larger Bench) (paras 29 to 32, 39 and 43) 4.10 Mr. Parikh points out that even while rendering the judgment in D.P Singh s case (supra) in paragraph 13(i), this Court distinguished the judgment of the Supreme Court in the case of New India Assurance Company, as being one relating to a forged document which rendered the document null and void, as being not applicable to such cases. According to Mr. Parikh, the reliance on the judgment of the Supreme Court in the case of Commissioner of Customs (Preventive) v. Aafloat Textiles (I) P. Ltd. reported in 2009 (235) E.L.T. 587 (S.C.) is clearly misplaced inasmuch as the case of Aafloat (supra), pertained to a forged document, as opposed to a document otherwise genuine but issued by practising fraud. 4.11 So far as the question of limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has merely passed an order remanding the case back to the original adjudicating authority in exercise of powers conferred under Section 35C(1) of the Central Excise Act, 1944. According to the learned counsel for the Revenue, the Tribunal is vested with the powers to pass direction for fresh adjudication and the said power is similar to the one conferred under provisions of Order 41 Rules 23 and 23A of the Code of Civil Procedure. According to the learned counsel for the respondents, in such circumstance, we should not interfere with the decision of the Tribunal as the Tribunal has only remanded the matter clarifying that it had expressed no opinion of its own. According to Mr. Oza and Mr. Champaneri, the order of the Tribunal was not a directive one and the parties are at liberty to put forth before the adjudicating authority their specific cases. 5.1 Learned counsel for the respondents further submit that the show-cause-notices were issued to certain parties of the Surat-I Commissionerate for wrong availment of CENVAT Credit on the basis of invoices issued by bogus/non-existent/fake firms, the name of which were circulated through Alert Circulars. According to the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured somewhere else, and by other than the declared manufacturer and the goods manufactured are accompanied by an invoice issued by a fake or a bogus firm. According to the learned counsel for the Revenue, such activity affects the basic legislative intent of the CENVAT credit Rules. According to them, the basic intent of CENVAT is that the goods, on which CENVAT had been availed of, must have been manufactured out of duty-paid inputs and should be accompanied by an invoice issued by a manufacturer or registered dealer. According to them, in the present cases, this basic requirement is neither met with nor established. Learned counsel of the Revenue submit that the benefit of CENVAT on endorsed invoices for Textile Textile articles were liberalized and extended so as to allow CENVAT on endorsed invoices so that the small traders, uneducated traders and weavers can continue their business hassle free. According to learned counsel for the respondents, no relaxation had been extended in respect of sub-clauses (a), (b) (c) of sub-rule (2) of Rule 7 of CCR, 2002/2004, as the case may be. 5.4 By referring to Section 12B inserted vide Notification No. 24/2003-C.E. (N.T.), dated 25-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive steps are taken by them in compliance of the provisions of sub-rule (2) and sub-rule (4) of Rule 7 of the erstwhile C.C. Rules, 2002 (Rule 9 of CENVAT Credit Rules, 2004). 5.7 Learned counsel for the Revenue further submit that sub-rule 7(4) of C.C. Rules, 2002 (present rule 9(5) of the C.C. Rules, 2004) obliges the manufacturer of final products or the provider of output service to maintain proper records in respect of receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or capital goods have been produced and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit. Learned counsel for the respondent submit that the appellants have failed to discharge their mandatory obligations subject to which they were entitled to avail credit. In other words, according to learned counsel for the Revenue, in the instant cases, the benefit/utilization of CENVAT credit was availed of without fulfilling the conditions of the CENVAT Credit Rules, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious chains of purchasers before they reach another manufacturer who may use the same as input. In these cases, it is not even in dispute that the original manufacturer who manufactured grey fabrics was actually registered with the Central Excise authority. Such manufacturer filed returns and the purchaser was a merchant-manufacturer. The purchaser, then, sent those goods to the present appellants for carrying out job work and the present appellants have taken credit which is sought to be reversed by the Central Excise on the ground that the original manufacturer cannot be found. 8. Therefore, the question that falls for determination is whether the department can escape its liability to find out a person who was registered with them and to pursue him for payment of duty. There is also no dispute in these cases that the goods were purchased by the merchant manufacturer officially and they have suffered the duty thereon and the amounts have been paid through cheques. 9. It is also not a case where the invoices are manufactured documents not signed by the original manufacturer. The invoices which are accounted for in the Return of the person, were the invoices accounted for in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y levied on a manufacturer or purchaser in respect of a commodity manufactured or produced. As pointed out by a Division Bench of this Court in the case of Commissioner of Central Excise v. D.P. Singh reported in 2011 (270) E.L.T. 321, the judgment of the Supreme Court in the case of New India Assurance Company (supra), was distinguished, being one relating to a forged document which renders a document null and void, and as such, has no application to this type of cases. Similarly, reliance over the judgment of the Supreme Court in the case of Commissioner of Customs (Preventive) v. Aafloat Textiles (I) P. Ltd. reported in 2009 (235) E.L.T. 587, cannot be supported as Afloat case is one pertaining to a forged document but not in respect to a document otherwise genuine, issued by practising fraud. The facts stated in the case of Afloat indicated that the same was a case of a forged invoice and thus, the principles laid down therein cannot have any application to an invoice which is, otherwise, genuinely issued by a manufacturer registered with the Revenue. Justice Arijit Pasayat who delivered the judgment of the Supreme Court in the case of Afloat (supra), in a subsequent case of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued even by practising fraud, a holder in due course for valuable consideration unless shown to be a party to a fraud, cannot be proceeded with by taking aid of a larger period of limitation as indicated in Section 11A(1) of the Act. It is now settled law that Section 11A(1) is applicable when there is positive evasion of duty and mere failure to pay duty does not render larger period applicable. In the case before us, it is not the case of the Revenue that the transferees were party to any fraud and therefore, the Revenue cannot rely upon a larger period of limitation. Our aforesaid view finds support from the following decisions of the Supreme Court : (i) CCE v. Chemphar Drugs Liniments, reported in 1989 (40) E.L.T. 276. (ii) Padmini Products v. Collector of Central Excise, reported in 1989 (43) E.L.T. 195. (iii) Lubrichem Industries Limited v. CCE, Bombay, reported in 1994 (73) E.L.T. 257. (iv) Nesle (India) Limited v. CCE, Chandigarh, reported in 2009 (235) E.L.T. 577. 13. We thus find substance in the contention of Mr. Parikh that in the case before us, in the absence of any allegation that the appellants were parties to the fraud, the larger period of limitation c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13931 of 2011 on 15th September 2011 ultimately came to the conclusion that three authorities below had examined the petitioner s rebate claim and found that the goods were purchased from non-existent and fictitious parties and Cenvat credit was wrongly availed. The Division Bench was of the view that the authorities had examined the cases in detail and no interference was called for because several issues of facts have been gone into, examined and conclusions had been arrived at on the basis of evidence on record, and such conclusions are not pointed out to be perverse. The Division Bench distinguished the case of the earlier Division Bench in the case of D.P. Singh (supra) by holding that the petitioner cannot take shelter that it had no knowledge or claim total innocence that identity of the persons with whom they claimed to have dealt with the business were not known to them nor did they take reasonable steps. Since, the question of larger period of limitation was not the subject-matter of the said decision, the said decision cannot help the Revenue to overcome the hurdle of limitation of one year which is the main dispute now before us. 14.3 In the case of Sandeep S. Mhamunk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (S.C.), the Supreme Court was dealing with a case where the respondent before the Supreme Court had claimed that acrylamide was a synthetic adhesive and therefore, entitled to duty free clearance against value based advanced licences pertaining to export of leather goods. The Assistant Commissioner of Customs rejected the claim while the appellate Commissioner accepted the claim. Before those authorities, the respondent relied upon the opinion of V.M. Divate, Tanning Expert and Superintendent, Government Institute of Leather Technology, Mumbai, a certificate from Mitsubishi Chemicals, a certificate from Professor D.D. Kale, University Department of Chemical Technology, Mumbai and the opinion of the Deputy Chief Chemist. The appellate Commissioner passed the order on 14th June 1995. In November 1996, acting upon intelligence then received, the Central Intelligence Unit of the Mumbai Custom House commenced an investigation and it was then revealed that there was reason to doubt the veracity of at least some of the aforestated documents upon which the respondent had relied. The Revenue then preferred an appeal before the Customs, Excise and Gold (Control) Appellate Tribunal and sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r back as the claim was totally barred by limitation. 16. We, therefore, are of the opinion that it is a fit case of setting aside the order of the Tribunal below and we consequently hold that in the cases before us, there was no case for reopening of the transactions after the period of limitation. 17. We, however, do not find substance in the contention of Mr. Parikh that the show-cause notice was based on Alert circulars and thus, the point no. 1 framed earlier does not arise in the facts of the present cases. 18. We, consequently, answer the questions of law formulated by the division Bench in the following way. Question No. 1 - Does not arise as the show-cause notice is not based on alert circular. Question No. 2 - In the negative and in favour of the Revenue. Question No. 3 - In the negative and in favour of the Revenue. Question No. 4 - In the negative and in favour of the Revenue. Question No. 5 - In the negative and in favour of the Revenue except on the question of larger period of limitation. Question No. 6 - In the negative and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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