Whether assessee may take credit of duty paid at higher rate than specified in the Excise Tariff by the supplier of goods?

PJ/Case Study/2012-13/84

Prepared by: CA Neetu Sukhwani &
Kavita Thanvi

CASE STUDY

Introduction:- It is very often observed that rightly admissible cenvat credit is being denied to the assessee on the grounds of excessive rate of excise duty charged by the supplier of goods than the excise duty rate specified in the Central Excise Tariff Act. Furthermore, it is also common that the excess cenvat credit is proposed to be denied or recovered without even challenging the assessment made at the supplier’s end. This case study also revolves around the issue whether cenvat credit is deniable even if the substantial conditions of taking credit stands fulfilled by the assessee i.e., receipt of inputs in the factory, duty paid nature of inputs and the use of such inputs in the manufacturing of dutiable final products. M/s SIYARCO INDUSTRIES, is engaged in the manufacture of Zinc Ingots, Zinc Ash, Lead Ingots, Brass Slabs & Copper falling under Chapter heading 79, 78 & 74 of the First Schedule to the Central Excise Tariff Act, 1985. During the audit of the appellant unit it was observed that they have taken and utilised excess cenvat credit wrongly amounting to Rs. 53,365/-. The appellants were issued with a show cause notice alleging that they have taken and utilised Cenvat credit at the rate of 16.48% amounting to Rs. 426928/- instead of admissible Cenvat credit of Rs. 373563/- at the rate of 14.42% applicable w.e.f. 01.03.2008. The appellants filed reply to the show cause notice but the learned Adjudicating Officer did not accept their submissions and passed the impugned Order in original no. 176/2010-CE-DEMAND dated 30.07.2010 confirming the demand, interest and penalty against the appellant. Aggrieved by the impugned order in original, the appellant filed the appeal to hon’ble Commissioner (Appeals), Jaipur-II but the submissions made by the appellant were not considered by Commissioner (Appeals) and the impugned order in appeal no. 33(CB) CE /JPR-II/2011 dated 28.1.2011, issued on 28.2.2011 was passed for rejecting the appeal of the appellant. Aggrieved by the impugned Order in Appeal, the appellant preferred the present appeal before the CESTAT and the same was allowed with consequential relief.

SIYARCO INDUSTRIES [OIA NO. 33(CB)/CE/JPR-II/2011, DT. 28.1.2011]

Relevant Legal Provisions:-

Rule 3 of the Cenvat Credit Rules, 2004.

(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the Cenvat credit) of-
(i)            The duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
(ii)           The duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;

Rule 9(5) of the Cenvat Credit Rules, 2004:- 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 regarding the value, duty, cenvat credit taken and utilised, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding the admissibility of the Cenvat credit shall lie upon the manufacturer or provider of output service taking such credit.
Section 11AC. Penalty for short-levy or non-levy of duty in certain cases.

Issue Involved:-

The issue involved before the Tribunal in this case was that-
Whether assessee may take credit of duty paid at higher rate than specified in the Excise Tariff by the supplier of goods?

Brief Facts:- M/S SIYARCO INDUSTRIES, the appellants are engaged in the manufacture of Zinc Ingots, Zinc Ash, Lead Ingots, Brass Slabs & Copper falling under Chapter heading 79011200, 79031000, 78011000 & 74039000 of the First Schedule to the Central Excise Tariff Act, 1985. Audit of the appellant unit was conducted by the Audit party of Accountant General (CERA), Jaipur. It was observed that the appellant had taken and utilised excess cenvat credit wrongly amounting to Rs. 53,365/-. It was alleged that the appellant had taken and utilised Cenvat credit at the rate of 16.48% amounting to Rs. 4,26,928/- vide entry no. 82 dated 06.03.2008 in RG 23A Part-II on the invoice no. 69 dated 04.03.2008 received from M/s Ordanance Factory, Ambarnath instead of admissible cenvat credit of Rs. 3, 73, 563/- at the rate of 14.42% applicable w.e.f. 01.03.2008. It was stated that the rate of excise duty was applicable 14.42% with effect from 01.03.2008 vide Notification No. 2/2008-CE dated 01.03.2008. Accordingly, the Department had issued a letter no. CE-13/SI/2/08/1151 dated 22.12.2009 to deposit/reverse the amount of inadmissible Cenvat credit taken and utilised by then along with appropriate interest. Appellant replied to the same vide their letter dated 06.01.2010 stating that they have paid duty as charged by supplier and they are not required to pay excess cenvat credit as per law because they have paid the duty to the supplier which is a government undertaking.

Thereafter, the department issued show cause notice no. V(79)30/15/2010/3413 dated 08.03.2010 to the appellant alleging that they had wrongly taken and utilised excess cenvat credit amounting to Rs. 53,365/- on the invoice no. 69 dated 04.03.2008 on inputs received from M/s Ordanance Factory, Ambarnath. It was alleged that the correct rate of duty applicable was 14.42% w.e.f 01.03.2008 but credit taken by the appellant was on duty charged @ 16.48% and hence they were liable to pay the excess credit taken by them. The appellants were asked to pay back the Cenvat Credit of Rs. 53, 365/- along with interest and penal action under rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was also proposed.
The appellant filed reply to the show cause notice vide letter no. PJ/SCN/S-119/7571 dated 24.03.2010 wherein it was basically contended that the assessee is eligible for availing the cenvat credit as far as the said inputs are received in the factory and are duty paid and are used in the manufacturing of dutiable excisable goods. It was also contended that the fact that the supplier had charged higher rate of excise duty cannot be grounds to deny cenvat credit at the recipient’s end when the duty paid nature of the inputs is not doubted. Personal hearing was held on 06.07.2010 which was attended by the authorized representative of the appellant who reiterated the submissions made in the reply to the show cause notice. The learned Adjudicating Officer did not accept the submissions and passed the impugned Order in Original no. 176/2010-CE-DEMAND dated 30.07.2010 confirming the demand, interest and penalty against the appellant. Aggrieved by the impugned order in original, the appellant filed the appeal to hon’ble Commissioner (Appeals), Jaipur-II.
In the memorandum of appeal filed to the Commissioner Appeals, reliance was also placed on a number of judicial pronouncements of the Tribunal on the issue apart from the submissions taken in the reply filed to the show cause notice. Personal hearing was granted by Commissioner Appeals on 10.12.2010 which was attended by the authorized representative of the appellant who reiterated the submissions made in the appeal memorandum. But the submissions made by the appellant were not considered by Commissioner (Appeals) and the impugned order in appeal no. 33(CB) CE /JPR-II/2011 dated 28.1.2011, issued on 28.2.2011 was passed for rejecting the appeal of the appellant. The demand of Rs. 53365/- was confirmed along with interest and penalty of equal amount was imposed. Aggrieved by the impugned Order in Appeal, the appellant preferred to file appeal before the CESTAT. The final outcome of the appeal filed by the appellant to the Tribunal is the subject matter of the present case study.

Appellant’s Contention:- The appellant made following submissions before the Tribunal-

The appellant submit that the impugned Order in Appeal passed by the learned Commissioner (Appeal) is wholly and totally erroneous and is liable to be quashed.

It was submitted that the supplier, M/s Ordanance Factory, Ambarnath has charged the duty @ 16.48% in their invoice and they have paid the assessable value including the said duty charged at the rate of 16.48% to them, therefore, they have taken credit of exactly the duty which has been charged in the invoice of the supplier. It cannot be said that they have taken credit of amount which was not mentioned in the supplier’s invoice. Various decisions were relied upon wherein the credit was allowed in the cases where the supplier had charged excess duty which was borne by the purchaser. Some of these cases were:-

·         NAHAR INDUSTRIAL ENTERPRISES LTD. v/s CCE, CHANDIGARH [2007 (5) S.T.R. 385 (Tri. - Del.)]

·         JAYASWALS NECO LIMITED VersusCOMMISSIONER OF CENTRAL EXCISE, RAIPUR [2005 (191) E.L.T. 519 (Tri. - Del.)]

·         SRI BALAJI INDUSTRIES Versus COMMR. OF C. EX., PONDICHERRY [2008 (228) E.L.T. 37 (Tri. - Chennai)]

·         ADVANCE DETERGENTS LTD. Versus COMMISSIONER OF C. EX., PONDICHERRY [2008 (232) E.L.T. 90 (Tri. - Chennai)]

·         JOHNSON & JOHNSON LTD. Versus COMMISSIONER OF C. EX., AURANGABAD [1999 (112) E.L.T. 901 (Tribunal)]

·         EVEREADY INDUSTRIES INDIA LTD. Versus COMMISSIONER OF C. EX., ALLAHABAD [2000 (120) E.L.T. 379 (Tribunal)]

·         COMMISSIONER OF C. EX., SURAT Versus TRINETRA TEXTURISERS PVT. LTD. [2004 (166) E.L.T. 384 (Tri. - Mumbai)]

·         KEDIA ELECTRICALS LTD. Versus COMMISSIONER OF C. EX., HYDERABAD [2008 (11) S.T.R. 197 (Tri. - Bang.)]

·         ACS HYDRAULICS PVT. LTD. Versus COMMR. OF C. EX., MUMBAI-III [2008 (227) E.L.T. 425 (Tri. - Mumbai)]

·         COLLECTOR OF CENTRAL EXCISE, MUMBAI-I Versus NOEL PHARMACEUTICALS [1999 (113) E.L.T. 66 (Tribunal)]

·         COMMISSIONER OF CENTRAL EXCISE, INDORE Versus M.P. TELELINKS LTD. [2004 (178) E.L.T. 167 (Tri. - Del.)]

·         MDS SWITCHGEAR LTD.Versus COMMR. OF C. EX., & CUS., AURANGABAD [2001 (132) E.L.T. 405 (Tri. - Mumbai)]

·         BHUWALKA PIPES PVT. LTD. Versus COMMISSIONER OF C. EX., BELGAUM [2007 (220) E.L.T. 854 (Tri. - Bang.)]

It was submitted that it is the supplier who has to be held liable for charging duty at enhanced rate of 16.48% instead of 14.42%. For this action they, who have received the goods and have also paid duty at the higher amount to the supplier cannot be held liable. They have to take credit of the duty actually paid by them. Therefore, they cannot be asked to reverse cenvat credit taken by them. Following judgments were relied upon: -

·         BROWN KRAFT INDS. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, THANE –II [2007 (212) E.L.T. 369 (Tri. - Mumbai)]

·         COMMISSIONER OF C. EX., JALLANDHAR Versus AGGARWAL IRON INDUSTRIES [2005 (184) E.L.T. 397 (Tri. - Del.)]

·         COMMISSIONER OF C. EX., VADODARA-I Versus HYLITE CABLES [2007 (212) E.L.T. 284 (Tri. - Ahmd.)

·         SPIC (HCD) LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CHENNAI-1 [2006 (201) E.L.T. 386 (Tri. - Chennai)]

·         COMMISSIONER OF CENTRAL EXCISE & CUSTOMS Versus MDS SWITCHGEAR LTD. [2008 (229) E.L.T. 485 (S.C.)]

They submitted that they have taken all the reasonable steps to ensure that the input in respect of which they have taken credit are goods received in their factory and on which appropriate duty of excise was paid. Thus, they cannot be held liable for the action of other parties. It is also submitted that the hon’ble Ahmedabad Tribunal has held in the case of Manaksia Ltd. vs. Commissioner of Central Excise, Rajkot [2008 (232) E.L.T. 497 (Tri. - Ahmd.)] that so long as the invoice issued by supplier indicates all the requirements of provisions of Rule 11 of Central Excise Rules, 2002 and no evidence is produced that supplier of goods has not paid duty and no dispute that goods were received and as long as amount of duty as indicated in duty paying documents has been paid and as long as inputs/capital goods which are indicated in duty paying documents are received by assessee, Cenvat credit cannot be denied to the purchaser. Since all these circumstances are squarely applicable in their case, the benefit of this decision should be extended to them and the impugned show cause notice should be quashed.

They submitted that as the supplier i.e. the Ordanace Factory, Ambarnath, a Govt undertaking, has charged duty at the enhanced rate. The jurisdictional Central excise department of the said government undertaking is required to initiate action against them. For the actions of another person, they cannot be held liable as they have not committed any mistake. It is further submitted that the hon’ble Delhi Tribunal has held in the case of Parasrampuria Synthetics Ltd. vs. CCE, Jaipur [2005 (191) ELT 899 (Tri.-Del.)] that for error relating to payment of duty committed at the part of supplier; the issue is to be raised against the suppliers not at the end of buyers who have taken the Credit on the basis of genuine documents validly making the payment to them. Therefore, extending the ratio of this decision, the show cause notice is not sustainable and is liable to be quashed. Further they rely on the following decisions to support their contention:-

·         OWENS BILT LTD. VersusCOMMISSIONER OF CENTRAL EXCISE, PUNE [1998 (101) E.L.T. 642 (Tribunal)

·         IN RE: MEDITAB SPECIALITIES PVT. LTD. [2008 (231) E.L.T. 377 (Commr. Appl.)]

·         SPRINGS PVT. LTD. [Final Order No. 1181/2008, dated 15-10-2008 in Appeal No. E/638/2006]


They submitted that the in impugned show cause it is alleged that they have wrongly taken credit deliberately with intent to evade payment of duty and they have not informed the department about the taking of excess credit. In this regard they submit that they have acted in bona fide belief therefore, no penal action can be taken against them. It is submitted that they have not specially informed about the said fact in the ER-1 return or given intimation to the department as it was not prescribed anywhere that they have to specially inform the department about taking of credit. Moreover, when the audit party of Accountant General (C & RA), Jaipur has visited their factory they have submitted all records and documents maintained by them without suppressing anything. Therefore, it cannot be said that they have deliberately suppressed anything and therefore, extended period of limitation cannot be invoked against them. Thus, the impugned show cause notice is required to be set aside.

They submitted that the impugned notice has proposed the penal action under section 11AC on them. They submit that they have acted in bonafide manner. They have received a proper invoice from a Government of India undertaking factory. The duty was charged in the invoice. They have entered the received goods in their records. They have paid the amount along with the duty amount to supplier of goods which is shown in the invoice. As such, there was no error on their part. But on the contrary, the harsh penal action has been proposed against them. This should be waived.

The appellant submit that while rejecting their appeal, the learned Commissioner (Appeals) has held that as per provisions of rule 3 of the Cenvat Credit Rules, 2004; the Cenvat credit allowed to the recipient of the goods has to be equal to the duty of excise specified in the schedules of Central Excise Tariff. It is alleged that the effective rate of duty on the goods in question was chargeable @ 14% instead of 16% which is being wrongly paid by the supplier. It is further alleged that since the effective rate was 14% only, the credit will also be allowed @ 14% irrespective of the fact that the duty paid by the supplier and borne by the buyer-appellant is @ 16%. In this regard, it is submitted that the demand confirmed by making aforesaid allegatory statements; is not sustainable as this is merely reiterating the allegations of the order in original. Nothing has been added by the learned Commissioner Appeals on account of the submissions made by them in their appeal memorandum. As against the above referred allegations a no. of submissions were given by them in the appeal memorandum which has not been considered by the Commissioner (Appeals) while passing the impugned order. In this regard they submit that as per Rule 3 of the Cenvat Credit Rules, 2004 a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of - (i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act; and (ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act. The duty at the rate of 16.48% was the specified duty in the First Schedule before 01.03.2008. After this date, the rate has reduced to 14.42%. But the reduction in the rate of duty would not alter the nature of the duty. It was the duty of excise prescribed in the Central Excise Tariff but the only error occurred was that the old rate of duty was charged inspite of change in rate.

It was submitted that the impugned order is passed by adopting the literal interpretation of the provisions of the Rule 3 of the Cenvat Credit Rules, 2004. The learned Deputy Commissioner has simply done a plain reading of this rule and has held that the duty charged by taking the old rate is not a duty of excise as prescribed in the First/Second Schedule of the Central Excise Tariff Act. Such an interpretation is defeating the purpose of enacting of Cenvat Credit Rules, 2004. The concept of Cenvat Credit was brought into force in order to remove the cascading effect of the duties of excise. In other words, the duty should not be levied on the quantum of duty suffered by the raw material used in manufacture of the dutiable goods. If the case of appellant is gone through vigorously, it is found that the details of the invoice no. 69 dated 4.3.2008 are as follows:-

Particulars	Amount
Value of goods purchased	2590584
Excise duty suffered @ 16.48%	426928
Total price paid by the appellant	3017512

As such, the excise duty included in the value of inputs is Rs. 426928/- which will form part of the total cost of the finished goods. By virtue of Cenvat Credit rules, the credit of excise duty is allowed and so the effective cost of raw material that forms part of total cost comes Rs. 2590584/-. But, if the contention of the respected Deputy Commissioner is accepted that credit of only Rs. 373563/- (being 14.42% of Rs. 2590584/-) is allowed, then the effective cost of raw material included in the total cost of finished goods comes Rs. 2643949/- (being 2590584 + 53365). In other words, the differential excise duty of Rs. 53365/- is included in the total cost of final products. As such, in this case, the duty will be charged on this amount of Rs. 53365/-, thereby defeating the aim of framing Cenvat Credit rules that duty should not be charged on duty component of raw material cost. This makes it clears that if the literal interpretation taken by learned Deputy Commissioner is followed, it will result into defeating the purpose of enacting the Cenvat Credit Rules, 2004 which is not justified.

The demand has been confirmed by literal interpretation of rule 3 which is not justified as it defeats the purpose of framing Cenvat Credit Rules, 2004. In the case of British Airways PLC vs Union of India [2002 (139) ELT 6 (S.C.)], it was held that the various provisions of an enactment should be so interpreted that every provision is effective and if there is any conflict, the harmonious interpretation should be given effect. Similar decision has been given by larger bench of Mumbai Tribunal in the case of CCE, Mumbai -V Vs M/s GTC Industries Ltd [2008-TIOL-1634-CESTAT-MUM-LB.]. In the instant case also, if the interpretation taken by learned Deputy Commissioner is accepted, it will defeat the purpose of framing the Cenvat Credit Rules, 2004.
It was submitted that if any error has been committed at the supplier’s end, the action was required to be taken against them for charging higher rate of duty. It was submitted that they being the buyer of goods could not be denied credit for the action of the supplier of goods. In support of their contention, they have relied upon a series of judicial rulings that were cited along with gist. But none of the case laws have been discussed and no reason has been assigned why these decisions are not applicable to their case. Such a decision is not justified in the light of decision given by hon’ble Apex Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]. But even the factum of being the order in original as non speaking was not considered by commissioner Appeals.
They submitted that the learned Deputy Commissioner is alleging that as per rule 9(5) of the Cenvat Credit Rules, 2004; the manufacturer of the final products or the provider of the output service shall maintain proper records for receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty, Cenvat credit taken and utilized, etc. will be recorded and the burden of proof regarding the admissibility of the Cenvat Credit will lie upon the person taking such credit. In this regard, it is submitted that there is no doubt that the proper records of receipt, disposal, consumption and inventory of the input and capital goods have been maintained which were checked by the audit party. Further, the burden of proof regarding the admissibility of the Cenvat Credit has been discharged by the appellant by producing a series of judicial pronouncements wherein it was held that the incidence of duty suffered by the inputs is eligible as Cenvat Credit to them. But this fact has been ignored while passing the impugned order in original and this makes the order non-sustainable in the eyes of law.
It was submitted that they had taken all the reasonable steps to ensure that the inputs in respect of which credit has been taken are received in their factory and on which appropriate duty of excise was paid. In the case of Manaksia Ltd. vs. Commissioner of Central Excise, Rajkot [2008 (232) E.L.T. 497 (Tri. - Ahmd.)] wherein it was held that so long as the invoice issued by supplier indicates all the requirements of provisions of Rule 11 of Central Excise Rules, 2002 and no evidence is produced that supplier of goods has not paid duty and no dispute that goods were received and as long as amount of duty as indicated in duty paying documents has been paid and as long as inputs/capital goods which are indicated in duty paying documents are received by assessee, Cenvat credit cannot be denied to the purchaser. In this case, the credit was allowed even in case duty was charged by the supplier but not paid to the government exchequer. It was decided that as long as the duty incidence is borne by the buyer and the goods are used for manufacture of dutiable final products, the credit cannot be denied to the buyer. But this decision was neither discussed by the adjudicating authority who erred by passing the non speaking order and even the learned Commissioner (Appeals) also did not discussed the same and has erred by confirming the demand raised by a non speaking order which is not sustainable in the light of decision of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] wherein it is held that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law.
It was submitted that it has been held in the case of Bajaj Tempo Ltd. versus Commissioner of C. Ex., and Customs, Pune [1999 (106) ELT 145 (Tribunal)] that the credit is not deniable where the duty is paid on the inputs, these inputs are used in the manufacture of final products which are cleared on payment of duty. The analysis of above decision makes it clear that the where the following three basic conditions are satisfied, credit is not deniable – the duty should be paid on the inputs, the inputs have been used in or in relation to the manufacture of final products which are ultimately cleared on payment of duty. All of these conditions are satisfied, as such, extending the ratio of above referred decision, the credit should not be denied to them.

The appellant submit that the Cenvat Credit cannot be denied to the buyer so long as the transaction is of bona fide nature. This is also been clarified by the Board vide Circular no. 766/82/2003-CE dated 15.12.2003 at para 5 that Cenvat Credit should not be denied to the manufacturer as long as bona fide nature of the consignee’s transaction is not doubted. Since they have received the inputs under a cover of proper excise invoice containing particulars of duty, the invoices are duly accounted and payment has been made, the inputs have been used in or in relation to manufacture of final products which are cleared on payment of duty. Moreover, all the returns in prescribed format have been filed on due time. Even the audit of their concern has been conducted and all the records were presented before the audit party for scrutiny. All these facts prove the bonafide nature of the transactions at their end.

In continuation to above it is submitted that the above referred Board Circular is clearly applicable in their case and they should be allowed the benefit of this Circular. It has been held in the case of Collector of Central Excise, Vadodara vs Dhiren Chemical Industries [2002 (139) ELT 3 (SC)] that the order passed by the Revenue in contravention to the clarifications given by the Board is void ab initio.

The above submissions were made in the appeal memorandum which clarifies the fact that in the cases where there is irregularity at the supplier’s end regarding payment of duty; but no error has been conducted at the part of the buyer; the Cenvat Credit is duly allowed of the duty suffered by them. But none of these submissions – neither any theory, nor the case laws cited or the circular so referred; have been discussed and distinguished by the learned Commissioner (Appeals). He has simply alleged that the case laws cited are not applicable to them. On the other hand, he was supposed to discuss and distinguished each and every submission/case law/circular cited by them. But this has not been done. Hence a non speaking and non reasoned order has been passed by the Commissioner (Appeals) which is not sustainable in the light of following decisions:-

·         State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]
·         Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]
·         CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]
·         M/s Nisha Cements Vs. CCE, Calicut [2010-TIOL-1255-CESTAT- BANG]
Thus, in the light of above cited decisions, impugned order is a non speaking order which is not sustainable and hence liable to be quashed.
In continuation to above it is submitted that where the error is committed at the end of supplier and bonafide nature of buyer’s transaction is not disputed, credit cannot be denied. On the basis of this analogy credit has been allowed to the assessees even in cases where the process of supplier did not amount to manufacture and as such the amount so collected was not excise duty. In the case of Commissioner of C. Ex., Vadodara-I vs Hylite Cables [2007 (212) ELT 284 (Tri.-Ahmd.)], the process of manufacturer did not amount to manufacture, but the duty was collected by the supplier and borne by the buyer. In this case, hon’ble Tribunal has allowed the credit by saying that where the duty paid character is not in dispute and the sum so paid by is not refunded, the credit cannot be denied to the purchaser of the inputs as the duty so paid is suffered by him. Thus, the hon’ble Tribunal has allowed credit even in cases where the duty was not specified at all in the first or second schedule of Central Excise Tariff as the process did not amount to manufacture. Thus, the contention of the impugned order that the duty prescribed in tariff was 14%, so credit of 16% will not be allowed, is not justified. Hence, the impugned order in original is not sustainable and is liable to be quashed.

The appellant further submits that the impugned order in appeal is alleging that the extended period has rightly been invoked against the appellant as they had never disclosed the fact of taking this credit at any stage. This was disclosed only after the AG audit. In this regard the appellant submit that they had filed all the returns and information sought by the department. Further, ER 1 only requires the amount of credit to be mentioned therein. It does not require that each and every transaction of taking the credit is to be disclosed. As such, there was no reason to mention particularly about the credit so taken. It has been held by hon’ble Gujarat High Court in the case of APEX ELECTRICALS PVT. LTD. Versus UNION OF INDIA [1992 (61) E.L.T. 413 (Guj.)] that the information not statutorily required to be disclosed does not amount to suppression. The analysis of said decision makes it clear that the information not statutorily required to be disclosed, if not disclosed does not amount to suppression. In the case of appellant also, they were not required to disclose about the details of invoices on which they had taken credit, as such; the allegation of suppression is not viable in the light of above decision. As such, the impugned order is not justified in confirming a time barred demand.
The appellant also submits that the impugned order has confirmed the time barred demand which is allowed only if there is willful suppression or intention to evade payment of duty. The willful suppression is required to be proved which is not proved in the impugned order. It was held in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Wilful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these, extended period cannot be invoked. This is also held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC- CX) - [1989 (40) E.L.T. 276 (S.C.)] that extended period of limitation can only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-

·         Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )
·         M/s Idea Cellular Ltd Vs CCE, Rohtak [2009-TIOL-387-CESTAT-DEL]

In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. In their case, there is no suppression as they were regularly filing the returns and were submitting information that is required under law. As such, suppression is not proved; therefore extended period not invokable and impugned order in appeal is not justified in confirming a time barred demand.
The appellant further submits that the impugned order in appeal is confirming the penalty by relying upon the decision of Apex Court in the case of Dharmendra Textiles. It is alleged by learned Commissioner (Appeals) that the case laws cited by them are not applicable due to decision of Dharmendra Textiles. In this regard, appellant submit that for imposing the penalty equivalent to the duty demanded under Section 11AC, it is required to be proved that there was willful suppression of facts by fraud, mis-statement with intent to evade payment of duty. The suppression/willful concealment of facts is necessary if the penalty under this section is required to be imposed as stated by the language of this section. As such, as per language of this section, penalty can be imposed only if the short-payment is due to any of the above referred ingredients. But the decision given in the case of Dharmendra Textiles ignored this vital ingredient of the section. While deciding that mens rea is not essential for imposing penalty; the decision has gone beyond the conditions prescribed in this section. As such, the judgment of the hon’ble Supreme Court has been delivered by ignoring the provisions of this section. It has been held in the case of A-One Granites v State of U.P. (2001)3SCC537; AIR2001 SC 1203; Salmond on Jurisprudence, 12th Edn. Pg 167, that the decision given by the hon’ble Apex Court which has been rendered per incuriam, i.e. by ignoring the provisions of the Act, is not binding under article 141 of the Constitution. The doctrine of per incuriam is an exception of the rule of precedents and it says that any expression resulting from ignorance is not a binding authority and it may be ignored. In the instant case, the mens rea/willful suppression has been mentioned as essential ingredients for the purpose of imposing the penalty u/s 11AC as contemplated by the provisions of the Central Excise Act, 1944. But the hon’ble Supreme Court has rendered decision of Dharmendra Textiles by ignoring this vital fact. As such, it is not binding precedent as per doctrine of per incuriam. In the instant case, there was no willful suppression by the appellant but this is a simple case of taking the cenvat credit of duty as charged in the invoice of the supplier and borne by them. As such, the penalty cannot be imposed upon them by relying on the case of Dharmendra Textiles. All this discussion was duly done in the appeal memorandum but this has not even been spelled out while rendering the impugned order in appeal. The decision of Apex Court in the case of A-one Granites is squarely applicable in the instant case to deny the applicability of the decision of Dharmendra Textiles. But this decision has not been discussed while rejecting the appeal of appellant. As such, learned Commissioner Appeals has rendered a non speaking order which is not sustainable in the light of the decisions cited in the forgoing paras. In the light of aforesaid submissions, the impugned order in appeal is not justified in confirming the demand of duty, interest and penalty. Thus, it is liable to be set aside.

Reasoning adopted by the Tribunal:- The Bench held that it is well settled that the assessee is entitled to the credit of duty paid by the inputs supplier and the assessment done at the end of the input supplier cannot be reopened at the input receivers end. One such reference can be made to Tribunal’s decision in the case of Parasrampuriya Synthetics Ltd vs. CCE Jaipur [2005 (191) ELT 899 (Tri.) and Tribunal’s decision in the case of Nahar Industrial Enterprises vs. CCE Chandigarh [2007 (5) STR 385 (Tri.- Del.)]. In view of these findings, they set aside the impugned order and allowed appeal with consequential relief.

Decision:-The appeal was allowed with consequential relief.

Conclusion:- It is well settled principle that the assessment done at the end of input supplier cannot be reopened at the input receivers end. Accordingly, if the supplier has charged excessive excise duty and the input receiver has paid the same, the credit on such inputs cannot be denied to the buyer on the ground that the supplier has paid excessive excise duty than prescribed under the Central Excise Tariff Act. The cenvat credit would be admissible as far as the inputs are received in the factory of the manufacturer, are duty paid and are used in the manufacture of dutiable final products. Moreover, if at all the credit is taken of excess excise duty paid, the situation is revenue neutral and there is no loss of revenue to the department. However, if the credit of excess excise duty is denied, it will defeat the very basic theory of cascading effect.

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PJ/Case Study/2012-13/84
25 January 2014

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PJ/Case Study/2012-13/84 25 January 2014

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PJ/Case Study/2012-13/84
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