Credit cannot be denied on account of procedural lapses when there is no dispute that final products have been cleared on payment of duty.

PJ/Case Law/2013-14/1647

Case:-M/s KALA ENTERPRISES PVT LTD. Vs COMMISSIONER OF CENTRAL EXCISE, VAPI

Citation:-2013-TIOL-962-CESTAT-AHM

Brief facts:-The issue involved is that manufacturing of DG Sets was being carried out in the factory premises of Appellant No. 1, whereas the Central Excise registration was taken at the name and address of appellant No.2. The entire inputs received in the name of Appellant No.2 were received in the premises of appellant No.1 and manufacturing activities/records of appellant No. 2 were being carried out/ maintained at the premises of appellant No.1. It is the case of the revenue that appellant No.2 has diverted all the inputs received in their name without reversing the Cenvat credit and consequently manufacturing activities were carried out at the premises of appellant No.1 without following the Central Excise procedures and therefore, Central Excise duty liability for the goods cleared from the premises of appellant No.1 was required to be demanded and no Cenvat credit would be admissible to appellant No.2 for the relevant period. The adjudicating authority passed the following order, confiscating the seized goods and confirming demands against Appellant No.1 and Appellant No.2 and also imposing personal penalty upon Managing Director.

Appellant’s Contention:-The appellant argued that due to delay in issue of occupancy certificate from the concerned authorities, the manufacturing activities were actually being carried out at the premises of appellant No.1 whereas the Central Excise registration was obtained from the Central Excise department for the premises at Pipariya. It is observed that the required amendments were got carried out by the appellants from the District Industries Authorities on 03.11.2004 and from the Sales Tax authorities on 06.11.2004. On 10.11.2004, appellants made an application in the requisite form with the jurisdictional Central Excise authorities and the required amendments were accordingly permitted by the Central Excise authorities. In these proceedings before the required amendments could be got done on 08.11.2004, the Central Excise officers visited the premises of appellant No.1 and appellant No.2 and made out a case for clandestine manufacturing and removal of the goods. It is further observed that appellants paid Central Excise duty in the name and address of appellant No.2 properly and all the Central Excise procedures were followed by appellant No.2, in spite of the fact that manufacturing activities were being done at the premises of appellant No.1. It has also not been rebutted by investigation that Central Excise records required to be maintained by the registered unit, were not being maintained at the premises of appellant No.1 and proper invoices paying Central Excise duty were issued. It was the submission of the appellant that, since no case is made out by the department that there was any removal without discharge of proper Central Excise duty, there is no case for demanding duty and imposing penalty on appellant No.3.

Reasoning of Judgment:- The Tribunal heard both the parties and find that It is clear from the facts on record that Appellant No.2 was having a very small area in the registered premises which was not sufficient for any manufacturing/storage activity; During investigation also the premises of Appellant No.2 was visited but neither the finished goods nor raw materials were found present. All the manufacturing activities and the records of Appellant No.2 were being maintained at the factory premises of Appellant No.1. There is nothing on record to show that any goods manufactured at the premises of Appellant No.1 were not made out of raw materials received in the name and address of Appellant No.2. It is also nowhere refuted in the adjudication order that the entire manufacturing activities were not being done at the premises of Appellant No.1 and that the inputs received in the name of Appellant No.2 were not being utilised at the factory premises of Appellant No.1. It has been brought out by the appellants that due to certain procedural difficulties with District Industries Authorities and the Sales Tax authorities and obtaining occupancy certificate they could not obtain the Central Excise registration amended prior to 10.11,2004. Occupancy certificate for Kharadpada factory was issued on 02.11.2004 and accordingly they got necessary amendment done from District Industries Authorities on 03.11.2004 and from the Sales Tax authorities on 06.11.2004. It is also brought on record that on 10.11.2004, they got their Central Excise registration amended whereas the search operations were carried out on 08.11.2004. After the Central Excise registration meant for Pipariya unit (Appellant No.2) was amended suitably with the address of Kharadpada premises (Appellant No.1), there seems to be no demand of duty. As there is no evidence of diversion of inputs received at the factory premises of Appellant No.1, therefore, it has to be considered that inputs of appellants were received in the premises of Appellant No.1 where manufacturing activities were carried out and goods were finally cleared on payment of duty in the name and address of Appellant No.2. The entire inputs in the name of Appellant No.2 were thus received and used in the manufacturing of DG Sets at the factory premises of Appellant No.1 and cleared on payment of duty. The only violation is that of Central Excise procedures were not being followed by appellants because the entire Central Excise duty due on the finished goods has been discharged by the appellants, for which penalties under Rule-27 of Central Excise Rule could have been invoked & imposed. The second aspect is regarding admissibility of Cenvat credit on the inputs received in the name and address of Appellant No.2, it is established from the above observations that Appellant No.1 and Appellant No.2 have not followed the Central Excise procedures but the inputs have been completely used in the manufacture of final products which are cleared on payment of duty. It is settled law that for failure to follow the procedures, cenvat credit cannot be denied. In the instant case, it is not in dispute that inputs received in the name and address of Appellant No.2 were not utilised in the manufacture of finished goods at the factory premises of Appellant No.1 and cleared on payment of duty. Accordingly, it is held that cenvat credit with respect to inputs received in the name and address of Appellant No.2 is admissible to the Appellant No.1 from where the manufactured goods were cleared on payment of duty. Accordingly, no further duty liability is attracted from the appellants once the duty of the finished goods is discharged. Penalties imposed upon the appellants under Section 11AC of Central Excise Act, 1944, under Rule 15 of Cenvat Credit Rules and Rule 25 of the Central Excise Rules, are required to be set-aside. So far as imposition of penalty upon Managing Director of the appellant units is concerned, it is observed that there was only procedural lapses and there was no intention on the part of the appellants to evade Central Excise duty. Accordingly, penalty imposed upon Managing Director under Rule 25 of the Central Excise Rules, 2002 is also set aside. In view of the above observations, appeals filed by the appellants are allowed with consequential relief if any.

Decision:-Appeals allowed

Comment:- The facts of this case are that the appellants have not followed the Central Excise procedures but the inputs have been completely used in the manufacture of final products which are cleared on payment of duty. It is settled law that for failure to follow the procedures, cenvat credit cannot be denied. The crux of this case is that no further duty liability is attracted once the duty on the finished goods has been discharged.

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PJ/Case Law/2013-14/1647

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