Credit availment without receiving the inputs.

PJ/CASE LAW/2015-16/2785

Case:-RELIANCE CELLULOSE PRODUCTS LTD. VERSUSC.C.E., CUS. & S.T., HYDERABAD-I

Citation:- 2015 (319) E.L.T. 341 (Tri. - Bang.)

Brief Facts:-The only issue in this case is whether the appellant is entitled to take credit without receiving the inputs. Admittedly in this case, only invoices were moving between manufacturers, registered dealers, etc. without any movement of goods.

Appellants Contention:-The learned counsel put forth several arguments. The first was that Hon'ble High court of Orissa has held that Central Government did not have rule making powers in respect of Cenvat issues. The second argument was that Government has not lost any revenue. Third argument was that this was done only to show higher turnover by all the concerned people. Fourth argument was that when there is no revenue loss to Government, appellant cannot be asked to pay Cenvat credit taken by them.

Respondents Contentions:-The learned AR also submits that appellants do not deserve any sympathy and the entire amount should be required to be deposited including the penalty. He also submits that Hon'ble High Court of Andhra Pradesh in the case of Hira Ferro Alloys Ltd.v. CC, CE & ST (Appeals), Vizag- 2014-TIOL-334-HC-AP-CX = 2015 (315)E.L.T.376 (AP)observed that in case where there is no absolute debatable case, appeal may be allowed to be prepared with full deposit.

Reasoning of Judgement:-In Tribunal’s opinion, they are not required to go into all these details. The only thing that is to be considered by them is whether the Cenvat credit which has been demanded was correctly taken in the first place or not. According to sub-rule (5) of Rule 9 of Cenvat Credit Rules, the manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information recording the value, duty paid, Cenvat credit taken and utilized, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding admissibility of the Cenvat credit shall lie upon the manufacturer or provider of output service taking such credit. The only way the burden of proof can be discharged is to show that the invoices are in accordance with law, inputs have been received, accounted for and have suffered duty. The appellants are able to show only invoice and nothing else. When the burden of proof is clearly on the assessee and when he fails to discharge the same, there is no other option but to make the assessee to reverse the credit or if the credit is not available, to make the payment. In this view of the matter, the tribunal find that appellant has failed to make out prima facie case for waiver.
At this stage, learned counsel pleads severe financial hardship. When asked for the evidence, he submits that he has produced the latest balance sheet available with the appellant for the year ending 31-3-2013. On going through the balance sheet and the profit & loss account of the appellant, tribunal find that under the category of Reserves and Surplus under Note 2 in the balance sheet, it has been shown that profit brought forward from previous year is Rs. 15,35,39,946/- and amount available for appropriation is Rs. 12,30,37,004/-. No doubt the appellant has made a loss of Rs. 3 crores during the current year but this does not mean that appellant is under serious financial difficulty when the amount available for appropriation is more than Rs. 12 crores.
In this case even though tribunal have taken a view that appellant has absolutely no case, they have to be conscious of the fact that the aspect as to whether such Cenvat credit taken by the appellant was subsequently reversed was not argued before them nor pressed. Therefore, in Tribunal’s opinion, in this case if the appellant deposits Cenvat credit availed by them with interest that would be sufficient. Accordingly, appellant is directed to deposit the entire amount of Cenvat credit with interest within eight weeks and report compliance on 10-6-2014.At this stage, they have to consider whether the Managing Director who is the second appellant is also required to deposit the amount. From the records, they find that the Managing Director has clearly admitted that these transactions were only made for turnover purpose without any receipt of the goods. A Managing Director of a company is expected to know legal provisions and does not indulge in such activities. Therefore, tribunal direct him also to deposit an amount of Rs. 2 lakhs (Rupees two lakhs only) within eight weeks and report compliance on 10-6-2014.Subject to compliance with the above directions, the requirement of pre-deposit of balance dues is waived and stay against recovery is granted during the pendency of appeals. Both the stay applications are disposed of in above terms.

Decision:- Pre-deposit ordered.

Comment:- The crux of the case is that according to Rule 9(5) of Cenvat credit rules it is necessary for the manufacturer of final products or provider of output serviceto maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods for which credit is taken. In the present case, the Managing Director admitted that no goods were received. Hence, when there was no receipt of inputs, the question of credit availment does not arise and accordingly, entire cenvat credit availed along with interest was ordered as pre-deposit.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2785

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