Whether credit can be availed against goods received under invoices issued by unregistered dealer?

PJ/CASE LAW/2015-16/2806

Case:-APOLLO METALEX PVT. LTD. VERSUS COMMISSIONER OF C. EX. & S.T., NOIDA

Citation:-2015 (323) E.L.T. 394 (Tri. - Del.)

Brief facts:-The facts giving rise to filing of these appeals and miscellaneous applications are, in brief, as under :-
M/s. RRB Chemicals are manufacturers of Zinc Oxide. They availed Cenvat credit in respect of the inputs received for the manufacture of Zinc Oxide. M/s. RRB Chemicals besides being manufacturer of zinc oxide are also a consignment agent in respect of zinc sheets for M/s. Asian Colour Coated Ispat Ltd. (hereinafter referred to as ACCIL). However, they did not have separate premises for trading and this activity was being done from the factory premises. Though M/s. RRB Chemicals have Central Excise registration as manufacturer of zinc oxide, they had not obtained registration as a registered dealer for sale of G.P. sheets under cenvatable invoices. M/s. Apollo Metalex Pvt. Ltd., Bulandshahar (U.P.) (AMPL) were purchasing G.P. sheets from M/s. RRB Chemicals who, in turn, were receiving the G.P. sheets from ACCIL. M/s. RRB Chemicals in respect of the consignments of G.P. sheets sold to them by ACCIL were availing the Cenvat credit and were thereafter passing on this Cenvat credit under the invoices issued by them to AMPL. Subsequently, on the department’s objection M/s. RRB Chemicals obtained separate registration as a registered dealer. In respect of the period prior to obtaining separate registration as a registered dealer, the department’s objection is that since they neither obtained the Central Excise registration as a registered dealer nor they have received the G.P. Sheets and as such, the consignments of G.P. Sheets sold by them were directly being supplied by ACCIL to AMPL, M/s. AMPL would not be eligible for Cenvat credit on the basis of the invoices issued by M/s. RRB Chemicals. It is on this basis that the Commissioner vide order-in-original dated 34-35/Comm/NOIDA/2013-14, dated 31-12-2013 has confirmed the Cenvat credit of Rs. 2,49,93,425/- against M/s. AMPL along with interest and while penalty of same amount has been imposed on AMPL, penalty of same amount has also been imposed on M/s. RRB Chemicals. Against this order of the Commissioner, Appeal No. E/58186/2014 has been filed by M/s. AMPL and Appeal No. E/51893/2014 has been filed by M/s. RRB Chemicals. Misc. Application No. E/Misc./50514/2015 has been filed by M/s. RRB Chemicals for extension of stay.
In respect of the period after obtaining separate registration as registered dealer by RRB Chemicals, the Department was of the view that still their customers, M/s. AMPL would not be eligible for Cenvat credit, as though M/s. RRB Chemicals were issuing invoices for G.P. Sheets to M/s. AMPL as registered dealer, the goods were hot being received in the premises of RRB Chemicals. It is on this basis that the Commissioner vide order-in-original dated 10-5-2013 has confirmed the Cenvat credit demand of Rs. 2,29,13,482/- against M/s. AMPL along with interest and besides this, while equal amount of penalty was imposed on M/s. AMPL, penalty of Rs. 4 Lakh was imposed on M/s. RRB Chemicals. Against this order of the Commissioner, Appeal No. E/59299/2013-EX(DB) has been filed by M/s. RRB Chemicals and Appeal No. E/51768/2014-EX(DB) has been filed by M/s. Apollo Metalex Pvt. Ltd. The misc. application No. E/Misc./50515/2015 has been filed by RRB Chemicals for extension of stay.

Appellant’s contention:- Shri Rajesh Chibber, Advocate, ld. Counsel for the appellants, pleaded that during the entire period of dispute, whether during the period prior to obtaining separate registration as a registered dealer by M/s. RRB Chemicals or during the period subsequent to obtaining of separate registration as a registered dealer by RRB Chemicals, it has not been denied that the goods covered under the invoices issued by RRB Chemicals to M/s. AMPL, had been received by AMPL and that just because the goods were supplied directly by ACCIL to M/s. AMPL under the invoices of M/s. RRB Chemicals, the Cenvat credit cannot be denied to M/s. AMPL. He also pleaded that in the circumstances of the case, there was no justification for imposition of penalty on M/s. RRB Chemicals.

Respondent’s contention:- Shri M.S. Negi, ld. Departmental Representative defended the impugned order by reiterating the findings of the Commissioner. He pleaded that while Shri Rakesh Mishra, Managing Director of M/s. RRB Chemicals Pvt. Ltd. in his statement given to the Central Excise Officers had stated that the consignments of G.P. sheets received from M/s. ACCIL were being unloaded in their factory and from there the same were being dispatched to M/s. AMPL, it was found that there was no facility in the factory of M/s. RRB Chemicals for unloading and loading of the G.P. sheets and also the transporters through which the consignment of G.P. sheets are claimed to have been dispatched to M/s. AMPL were found to be fake. He, therefore, pleaded that there is no infirmity in the impugned order.

Reasoning of judgment:- They have considered the submissions from both the sides and perused the records.
M/s. RRB Chemicals are manufacturers of zinc oxide and have Central Excise registration as a manufacturers and there is no dispute that from the same premises, they were also conducting their trading activities in G.P. Sheets. The G.P. sheets procured by RRB Chemicals from ACCIL were being supplied as a consignment agent to M/s. AMPL. Upto certain point of time, M/s. RRB Chemicals had not obtained separate Central Excise registration as a registered dealer and during this period, M/s. RRB Chemicals were availing Cenvat credit in their RG 23A Account in respect of the G.P sheets and they were also clearing the G.P Sheets as such under the invoices issued to M/s. AMPL on reversal of the credit to M/s. AMPL and on the basis of such invoices, M/s. AMPL were availing Cenvat credit. In respect of this practice, the Department’s objection is that the investigation revealed that G.P. sheets were not being unloaded in the factory of M/s. RRB Chemicals and there is no evidence that G.P. sheets were dispatched from the factory to the Apollo Metalex. It is not the department's case that AMPL did not receive the G.P. sheets which were covered by the invoices of M/s. RRB Chemicals as consignment agent. In these circumstances, it would not be correct to deny the Cenvat credit to M/s. AMPL and impose penalty on them as well as on M/s. RRB Chemicals. In view of this, they hold that the Order-in-Original No. 34-35/2013, dated 31-12-2013 denying the Cenvat credit to M/s. AMPL and imposing penalty on them as well as M/s. RRB Chemicals is not sustainable and the same has to be set aside.
In respect of the period w.e.f. the date on which M/s. RRB Chemicals obtained registration as registered dealer, the only objection of the Department is that M/s. RRB Chemicals were issuing invoices regarding sale of the G.P. sheets to M/s. AMPL without actually unloading of the goods in their premises and were actually dispatching the goods to M/s. AMPL. In this case also, it is not the case of the Department that M/s. AMPL did not receive the consignments of G.P. sheets covered under the invoices issued by RRB Chemicals. Rather it is the Department's case that M/s. AMPL were receiving the consignments of G.P. sheets directly from ACCIL under the invoices of the RRB Chemicals. When the receipt of the goods by AMPL which are covered under the invoices issued by RRB Chemicals is not denied, it would not be correct to deny the Cenvat credit to M/s. AMPL and impose penalty on them as well as on M/s. RRB Chemicals. In view of this, the second Order No. 04/COMM/NOIDA/2013-14, dated 10-5-2013 passed by the Commissioner is also not sustainable and has to be set aside.
In view of the above discussion, both the orders-in-original passed by the Commissioner are set aside and the appeals are allowed. The registration of RRB Chemicals as a registered dealer, which has been cancelled by the Commissioner by his order dated 31-12-2013 may also be restored.

Decision:-Appeal allowed.

Comment:-The crux of the case is that as far as the receipt of goods covered under Cenvated invoices issued is not disputed, the fact that the supplier of goods was not registered as ‘dealer’ under Central Excise Laws cannot be a valid reason to deny the cenvat credit to the recipient of inputs. Furthermore, even in case of registered dealers, the cenvat credit passed on by them could not be denied for the reason that the goods were not loaded in the premises of the registered dealer and rather goods were directly dispatched to the receiver. This position is also confirmed by the amendment made in Rule 11(2) of the Central Excise Rules, 2002 vide Notification no. 08/2015-C.E. (N.T.) dated 05.05.2015 and the clarification issued by Board vide Circular no. 1003/10/2015-CX dated 05.05.2015.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2806

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