Whether credit admissible on basis of endorsed invoice if invoice contains name & address of Head office?

PJ/CASE LAW/2015-16/2730

Case:-BIO-MED. HEALTH CARE PRODUCTS (P) LTD. VERSUS COMMR. OF C. EX., DELHI-IV

Citation:- 2015 (37) S.T.R. 381 (Tri. - Del.)

Brief facts:- The appellant are manufacturers of Medical Equipments viz. I.V. Cannula and three way stop cock chargeable to central excise duty under Tariff Heading Nos. 90183990 and 90183930 respectively. They have two units, first unit located at Plot No. 30, D.L.F. Ind. Area, Faridabad whereas the Unit-II was located at Plot No. A-14, D.L.F., Ind. Area, Faridabad. The dispute in this case is in respect of Unit-II.
The Central Excise records of the appellant’s unit-II were audited by the Audit officers of the Central Excise Department and in course of audit centre were irregularities detected which are as under :-
(a)    Though the appellant were using common Cenvat credit availed inputs in or in relation to the manufacture of dutiable final products as well as exempted final products and they were not maintaining separate accounts and inventories of the appellant company, they had failed to pay an amount equal to 5%/10% of the value of the goods in terms of the provisions of Rule 6(3) of the Cenvat Credit Rules, in respect of clearances of exempted final products. Short payment of duty of Rs. 95,419/- is on this basis.
(b)    The appellant have not paid duty amounting to Rs. 15,468/- on scrap arising out of manufacture of parts of medical instruments, which was not exempt from duty,
(c)    In respect of the clearances of final products, for captive consumption, there was short payment of duty, to the tune of Rs. 1,32,268/- as the duty has not been paid on the price at which the same are sold to the independent buyers,
(d)    Non-payment of service tax amounting to Rs. 3,75,891 on the commission paid to the foreign commission agents for procuring orders under reverse charge mechanism of Section 66A of the Finance Act, 1994, as the service received by the appellant from foreign commission agents is Business Auxiliary Services falling under Section 65(105)(zzb);
(e)    The appellant had availed capital goods Cenvat credit of Rs. 2,41,060/- in respect of the capital goods received in Unit-II while the invoices which were in the name of the Head Office and on which the address of the unit-I where the head office is located was mentioned. Though the appellant had endorsed the invoice in favour of Unit-II, the department was of the view that these invoices even though endorsed in favour of the Unit-II were not the valid documents for availment of capital goods Cenvat Credit by Unit-II.
The above disputed amounts of duty/Service Tax/Cenvat credit have been paid by the appellant even before the issue of show cause notice along with interest. In respect of the demands of Rs. 95,419/-, Rs. 15,468/- and Rs. 1,32,268/- and Rs. 2,41,060/- in addition, to the excise duty/Cenvat credit demand along with interest thereon an amount equal to 25% of the demand towards penalty, has also been paid.
The department, however, still issued the show cause notice for confirming the above demands along with interests and for imposition of penalty. The show cause notice was adjudicated by the Addl. Commissioner vide order-in-original dated 28-2-2012 by which the above mentioned five demands of central excise duty/Cenvat credit/service tax were confirmed along with interest and penalty of equal amount was imposed. On appeal being filed to the Commissioner (Appeals), the above order of the Addl. Commissioner was upheld. Against this order of the Commissioner (Appeals), this appeal has been filed.

Appellant’s contention:- Shri R.P. Jindal, Advocate, ld. Counsel for the appellant, pleaded that the entire amount of duty/Cenvat credit demand/service tax has been paid even before the issue of show cause notice along with interest, that except for Cenvat credit demand of Rs. 2,41,060/- in respect of the capital goods, he is not contesting the demands in respect of the remaining amounts, and he contesting only the penalty, that the alleged wrong availment of Cenvat credit/excise duty/non-payment of service tax had been detected in course of audit of the appellant’s records, during which, the appellant themselves had produced their various records, that in view of this, the appellant cannot be accused of suppressing or concealing any facts from the department, that even in the show cause notice that there is no specific allegation of misstatement, willful suppression of facts or deliberate contravention of any provisions of Central Excise Act, 1944 Finance Act, 1995 or of the rules made thereunder with intent to evade payment of central excise duty/service tax, that in view of these circumstances, the imposition of penalty on the appellant under Section 11AC of Central Excise Act, 1944/Section 76 of the Finance Act, 1994 is not called for, that as regards, the Cenvat credit demand of Rs. 2,41,060/- in respect of capital goods received in the appellant’s unit, the same has been denied on the ground that the invoices under which the capital goods have been received bear the address of the Head Office located at the Unit-I, that there is no dispute that the goods covered under the invoices had been received and that the invoices are endorsed in favour of the Unit-II, that in terms of the Board’s Circular No. 211/45/96-CX, dated 14-5-1996, the Cenvat credit should not be denied where under the invoices issued under Rule 52A to the Head Office, that the entire consignment covered under the invoice is received in the factory in original packed condition and the duplicate copy of the invoice is endorsed by their Head Office to the effect that consignment covered by the invoice is transferred to the manufacturing unit, that all the invoices under which the goods have been received in the Unit-II bears the endorsement, that the packed machines have been sent to Unit-II, and that in view of this denial of Cenvat credit of Rs. 2,41,060/- is not correct and imposition of penalty on this ground is not correct.

Respondent’s contention:- Shri M.S. Negi, ld. Departmental Representative defended the impugned order by reiterating the findings of the Commissioner (Appeals).

Reasoning of judgement:-Coming first to the issue of Cenvat credit of Rs. 2,41,060/ - in respect of capital goods received under the invoices issued to Head Office, there is no dispute that the entire goods covered under the invoices have been issued to Head Office have been received in Unit-II. There is also no dispute that each invoice bears an endorsement, that the packed machines were sent to Unit-II. Thus, the conditions prescribed for availment of Cenvat credit by a factory on the basis of the invoices issued to the Head Office as mentioned in the Board’s Circular No. 211/45/96/CX, dated 14-5-1996 are satisfied. The Cenvat credit demand of Rs. 2,41,060/- along with interest and penalty of equal amount imposed on the appellant is, therefore, not sustainable and is liable to be set aside.
As regards imposition of penalty on the appellant for non-payment of the amount of Rs. 95,419/- under Rule 6(3) of the Cenvat Credit Rules, 2004, non-payment of excise duty of Rs. 15,468/- on the scrap arising out of manufacture of parts of medical equipments, short payment of differential duty of Rs. 1,32,268/- in respect of the finished goods cleared for captive use and non-payment of service tax of Rs. 3,75,891/- on the commission paid by the Appellant to foreign commission agents for procuring export orders, these short payments had been detected in course of audit of the central excise records of the appellant in course of which, the appellant themselves had presented their records to the audit officer. In view of the fact that the appellant themselves had presented their records to the Audit Officers in course of which the above mentioned short-payment or non-payment of duty/service tax had been detected, it cannot be said that the above mentioned short-payment/non-payment of duty/service tax was deliberate. In fact the disputed amounts had been paid before the issue of SCN and therefore the same have to be treated as the payment of central excise duty/service tax made under Section 11A(2B) of the Central Excise Act, 1944/Section 73(3) of the Finance Act, 1994 and since the entire disputed amount of duty/service tax has been paid along with interest, even the show cause notice should not have been issued. In view of these circumstances, they hold that imposition of penalty on the appellant was not called for and is liable to be set aside.
In view of the above discussion, while the Cenvat credit demand of Rs. 2,41,060/- in respect of capital goods received in the unit is set aside along with penalty of equivalent amount, in respect of other demands of Rs. 95,419/-, Rs. 15,468/-, Rs. 1,32,268/- and Rs. 2,41,060/- while the duty/Cenvat credit/ Service Tax demands along with interest are upheld, imposition of penalty is set aside. The impugned order stands modified as above.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that CENVAT credit availed by unit receiving capital goods on the basis of endorsed invoices is valid and proper if it has been evidenced that the capital goods were actually received in the unit and not in the premises of Head office. Further, when the duty demand proposed on account of audit objections has been paid along with interest before issuance of show cause notice, the question of levy of penalty does not arise at all.

Prepared by :- Monika Tak

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PJ/CASE LAW/2015-16/2730

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