Admissibility of Cenvat Credit when duty was paid by supplier

PJ/Case Laws/2011-12/1495

Case: M/s SUNRIK STEELS LTD. Vs CCE, BANGLORE

Citation: 2012-TIOL-46-CESTAT-BANG

Issue:- Cenvat credit on Capital Goods on basis of Supplier’s invoice – denial of on ground that supplier not having necessary infrastructure to manufacture & supply goods – not justified when supplier registered and paying duty from PLA & Cenvat Account and when duty paid.

Brief Facts:- The Appellant availed Cenvat credit on the basis of invoice issued by M/s Ashok Electrical Stamping Pvt.Ltd., Kolkata (Supplier for short). The total amount of credit availed is Rs 4, 17,920/-. On verification by the Departmental officers it was found that the supplier did not have necessary infrastructure to manufacture and supply the goods and on that basis an alert notice was issued. Thereafter the proceeding was initiated against the Appellant which culminated into the manufacture and supply the goods and on that basis an alert notice was issued. Thereafter the proceedings were initiated against the appellant which culminated into the impugned order whereby the Cenvat credit taken has been demanded with interest and penalty equal to the Cenvat credit amount wrongly availed has been imposed under Section 11AC of Central Excise Act, 1944.

Appellant’s Contention:- The Appellants submitted that they had taken credit on the basis of an appropriate invoice issued by the supplier. Admittedly appellant had received the goods and installed the same. The original adjudicating authority clearly observed that the fact of purchases made from the supplier and installation of the same in the factory of the appellant is not in doubt. They also submit that the very fact that no penalty was imposed on the Appellant itself goes in favour of the appellants. They further submit that once suppression of facts with intention to evade duty has been held to be non existent and no penalty is imposed, the duty demand beyond normal limitation period also cannot survive. The duty can be demanded by invoking extended period only when an offence has been committed by suppression of facts or mis-declaration etc. In this case the capital goods were received during the period from 16.06.04 to 11.04.06. And show cause notice was issued on 04.11.08. Further, They also relies upon the decisions of the Tribunal in the case of Parasrampuria Synthetics Ltd. Vs. CCE Jaipur reported in 2005 (191) ELT 899 (Tri. - Del.) to support her contention that if there was a mistake in payment of duty by supplier, issue has to be raised at the supplier's end. Similar was the decision in the case of Tarsen Polyfab Pvt. Ltd. Vs. CCE Noida reported in 2011 (264) 225 (Th. - Del.).

Respondent’s Contention:- The learned DR submits that the proceedings were initiated against thsupplier has been completed and Commissioner of Kolkata-III, Commissionerate has passed Order-in-Original dated 17.12.08 wherein it has been concluded that Appellant did not have the infrastructure to manufacture goods supplied by the appellant at all. The supplier had made a claim that goods were got manufactured by job workers but investigation revealed that the job workers were either non existent or they denied having manufactured the products for the supplier. In the absence of any manufacture of the goods supplied to the Appellant, the documents issued by the supplier are totally invalid and the Appellant failed to take necessary precautions to ensure that goods were supplied by the manufacturer and therefore the impugned order is sustainable.

Reasoning of Judgment:- The Tribunal noted that the Cenvat credit has been denied and penalty has been imposed on the ground that the supplier did not have the infrastructure for manufacture of the goods. According to the facts that emerge from the adjudication order of the Commissioner, the supplier M/s. Ashok Electrical Stampings Pvt. Ltd. had availed Cenvat credit of Rs.18, 11, 28,784/- during the period from November 2002 to August 2007. It also emerges that during the period supplier was a registered central excise assessee and was paying duty on the goods supposed to have been manufactured by them and there is no indication that the duty paid by the supplier was less than the Cenvat credit availed. Therefore it is not even the case of the department that whole operation has been undertaken to pass on ineligible Cenvat credit. Further, the order also reveals that during the investigation the suppliers of raw materials had admitted that they had supplied raw materials to M/s. Ashok Electrical Stampings Pvt. Ltd. Further, the Chartered Engineer's certificate produced also shows that the supplier was operational for 15 years. It is also not the case of the department that the supplier did not have a factory at all. Admittedly 40 machines/machineries had been installed during 1992-2004 by the supplier. The supplier had also produced a Chartered Engineer's certificate to the effect that the machines were in working condition. In any case the facts that emerge from the adjudication order are that supplier held a registration certificate issued by Central Excise Department was availing substantial amounts of Cenvat credit which is reflected from the figures of duty demanded for five years. Since the supplier was a registered unit, and had paid duty from PLA as well as the Cenvat credit and the department itself had failed to notice the fact that no goods were manufactured by the supplier for a period of five years, it is difficult to expect an assessee located in Karnataka to go and verify whether the manufacturer had the facility and whether he had really manufactured the goods before purchasing the same. The very fact that the supplier was in existence for 15 years, had availed Cenvat credit of more than Rs.18 crores would show that the supplier did have some standing in the market. Since the Cenvat credit availed by the Appellant is reflecting the duty paid on the goods by the supplier for which no evidence is available to show to the contrary and in view of the above circumstances, it will not be appropriate to demand duty and deny the Cenvat credit from the Appellant. Therefore, the Tribunal held that there was no suppression or mis-declaration on the part of the Appellants and no penalty is imposed on them, duty demand invoking extended period also cannot be sustained if challenged. Thus on merit as well as on limitation, the Appellants succeed.

Decision:- Appeal allowed with consequential relief.

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