Credit on fake invoices of non-existent supplier- equal penalty when imposable on assessee

PJ/Case Laws/2010-11/1082

Case: C.C.E. & C., Surat-I v/s Chandrakanta Dyeing & Printing Mills

Citation: 2011 (263) ELT 331 (Guj.)

Issue:- Credit taken on fake invoices of non-existent supplier – no evidence adduced by Revenue showing involvement of assessee – Equal penalty cannot be imposed.

Brief Facts:- The respondent-assessee was registered as a manufacturer of man-made fabrics. It had availed of Cenvat credit on grey fabrics during March 2004. Subsequently, investigations revealed that the suppliers of grey fabrics who had issued the invoices, on the basis of which the assessee had availed credit, were found to be non existent/fake/bogus.

Accordingly, a show case notice was issued to the assessee wherein the Adjudicating Authority disallowed the credit taken on fake/forged invoices and imposed equal amount of penalty and demanded interest at the appropriate rate.

In appeal, the Commissioner (Appeals) partly allowed the appeal insofar as the same related to penalty and confirmed the demand of credit wrongly availed with interest. The Commissioner (Appeals) modified the Order-in-Original by substituting the penalty imposed under Section 13(2) to penalty under Rule 13(1) of CCR, 2002.

Being aggrieved, the Revenue has preferred appeal before the Tribunal which came to be dismissed. Hence, Revenue has filed this appeal before the High Court.

Reasoning of the Judgment:- The High Court perused the order of the Commissioner (Appeals) wherein a finding of fact was recorded that by failing to verify the writer of the invoices, by its acts and omissions, the assessee had facilitated the fraud. However, the evidence is not sufficient to conclude that the assessee was a party to the fraud. The Commissioner (Appeals) further noted that no investigations had been carried out to bring out that the assessee was party to fraud or that the Cenvat Credit had been availed in contravention of the Rules with intention to evade central excise duty. It was observed that though the Adjudicating Authority has concluded that the acts and contravention were committed by the assessee by suppression of facts with intent to avail inadmissible credit, there was no mention of any specific suppression. According to the Commissioner [Appeals], the conclusion of suppression of facts with intent to avail wrong credit was based on conjunctures and surmises and not on any solid evidence, and as such, the finding of the Adjudicating Authority based on which mandatory penalty had been invoked was not just and proper.

The High Court observed that it is in the aforesaid backdrop that the Commissioner had thought it fit to hold that the assessee was more appropriately liable for penalty under Section 13 (1) of the Cenvat Credit Rules, 2002 (the Rules) rather than section 13 (2) thereof.

The High Court also perused the order of the Tribunal wherein the Tribunal had confirmed the findings recorded by the Commissioner (Appeals) and had held that the assessee can be found fault with for not taking reasonable steps as contemplated under Rule 7 of the Rules, but it cannot be held liable to pay penalty under Section 11AC of the Act.

Thus, the High Court held that both the Commissioner [Appeals] as well as the Tribunal have, upon appreciation of evidence on record, found, as a matter of fact, that the evidence on record was not sufficient to conclude that the assessee was a party to the fraud and that there was nothing to indicate that the assessee had availed or Cenvat credit in contravention of the Rules with intention to evade central excise duty. Based upon the aforesaid finding of fact, the Tribunal has held that the assessee would be liable to penalty under Rule 13 (1) of the Cenvat Credit Rules, 2002 and not under section Rule 13 (2) of the Rules.

The High Court then referred to the provisions of Rule 13 of the Cenvat Credit Rules, 2002 and held that from a reading of the said Rule it is apparent that the same can be invoked in a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty, in which case the manufacturer would be liable to pay penalty in terms of section 11AC of the Act. Thus, a condition precedent for invoking the provisions of sub-rule (2) of rule 13 of the Rules there should be a finding to the effect that the manufacturer has taken or wrongly utilized the CENVAT credit on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty.

Examining the facts of the present case in the light of the aforesaid statutory provision, both the Commissioner (Appeals) as well as the Tribunal have recorded concurrent findings of fact to the effect that evidence on record is not sufficient to conclude that the assessee is a party to the fraud. It has also been recorded that the findings of the Adjudicating Authority that there is suppression of facts with intent to avail wrong credit is based on conjectures and surmise and not on solid evidence. On behalf of the Revenue, nothing has been pointed out to dislodge the concurrent findings of fact recorded by both the appellate authorities. In the light of the aforesaid concurrent findings of fact recorded by both, the Commissioner [Appeals] as well as the Tribunal, it is apparent that the conditions precedent for invoking the provisions of Rule 13 (2) of the Rules are clearly not satisfied. In the circumstances, no infirmity can be found in the impugned order of the Tribunal so as to warrant interference.

Decision:- Appeal dismissed.

Comments:- This is very good decision wherein it is held that the penalty cannot be imposed on the assessee taking the credit unless it is established that he was also involved in fraud on issuing fake invoices.

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PJ/Case Laws/2010-11/1082

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