Whether credit s allowed on the basis of “Triplicate copy of invoice for assessee” where the original and duplicate for transporter copy has been lost?

PJ/Case Study/2013-14/62

CASE STUDY

Prepared by: CA Neetu Sukhwani &

Aashish Bohra

Introduction:

M/S Umax Packaging Limited situated at Mogra are registered as a manufacturer under central excise act, 1994 are engaged in the manufacture of Flexible Rolls and Plastic Pouches falling under the tariff head 39219096 and 39239090 of the first schedule to the central Excise tariff act, 1985. As per the department, assessee has wrongly taken and availed the Cenvat credit amounting to Rs 88,128/-. The said credit was utilized on the basis extra copy of invoice no. 4190 dt 22.10.2010 issued by M/s Henkel CAC Pvt. Ltd. According to the department, this was an improper document as it was specifically mentioned “not for availing MODVAT”. On the contrary, assessee contended that there is no differentiation between the type of invoice on which the cenvat credit would be available and the only requirement is that the invoice issued by the manufacturer or first/second stage dealer should have all the details as required under Rule 11 of the Central Excise Rules, 2002 irrespective of the fact that the copy of invoice on the basis of which credit is taken is original or duplicate. Thus in nutshell, the issue pertaining to this case study revolves around admissibility of cenvat credit on the basis of invoice issued as “TRIPLICATE ASSESSEE COPY”.

UMAX PACKAGING LIMITED V/S SUPERINTENDENT (CE), CENTRAL EXCISE RANGE-II, JODHPUR

[ORDER IN ORIGINAL – 17/2013-CE-DEMAND DATED 25.06.2013]

Relevant Legal Provisions:

RULE 9(1) OF CENVAT CREDIT RULES 2002

1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely :-
(a) an invoice issued by-
(i) a manufacturer for clearance of -
(I) inputs or capital goods from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer;

(II) inputs or capital goods as such;
(ii) an importer;

(iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;

(iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.

Explanation- For removal of doubts, it is clarified that supplementary invoice shall also include challan or any other similar document evidencing payment of additional amount of additional duty leviable under section 3 of the Customs Tariff Act; or

(c) a bill of entry; or

(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or

(e) a Challan evidencing payment of service tax by the person liable to pay service tax under sub-clauses (iii), (iv), (v) and (vii) of clause (d) of sub-rule (1) of rule (2) of the Service Tax Rules, 1994; or

(In clause (e) the words, brackets and figures "sub-clauses (iii), (iv), (v) and (vii)" has been amended vide Notification No. 10/2006-CE(N.T.), dated 25/04/2006)

(In clause (e) words ", (iv) and (v)" has been substituted vide Notification No. 28/2005-CE(N.T.), dated 07/06/2005)

(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or

(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.
Provided that the credit of additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be allowed if the invoice or the supplementary invoice, as the case may be, bears an indication to the effect that no credit of the said additional duty shall be admissible;
[Inserted vide Notification No. 35/2007 - CE(NT), dated 14-09-2007 ]

SEC 11A(1) OF CENTRAL EXCISE ACT 1944

Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. —
(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made there under, a Central Excise Officer may, within [one year] from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if, [***]] for the words [one year], the words “five years” were Substituted.
Explanation. — Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of [one year] or five years, as the case may be.

RULE 14 OF CENVAT CREDIT RULES,2004

Recovery of CENVAT credit wrongly taken or erroneously refunded.-

Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.

RULE 15 CONFISCATION AND PENALTY

Rule 15 subsection (2) In a case, where the CENVAT credit in respect of input or capital goods 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 Excise Act or the rules made there under with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act.

SEC 11AC OF CENTRAL EXCISE ACT 1944

Section 11AC of the Central Excise Act, 1944 prescribes that in the cases of non/short levy/payment or erroneous refund due to fraud, collusion, misstatement or suppression of facts with intent to evade payment of duty; the penalty equal to amount of duty determined under section 11A(2) will be imposed on the assessee. However, if the duty along with interest is paid within 30 days of the communication of order of Central excise officer, the penalty will be 25% of duty. But for availing this relief it is necessary that the penalty should also be deposited within the stipulated time of 30 days referred here above. Further, if the Commissioner (Appeal) or hon'ble Tribunal reduces or increases the duty so determined u/s 11A(2), the reduced/increased amount will be considered for the purpose calculating the penalty. Finally, the fourth proviso to this section provides that where the duty payable u/s 11A(2) is increased by Commissioner (Appeals) or Tribunal, then also the benefit of reduced penalty under first proviso will be allowed if the incremental duty and penalty along with interest is paid within 30 days of the order of the Commissioner (Appeals) or Tribunal.

Issue Involved:

The following issue was involved in this case before the adjudicating authority:-
Whether credit s allowed on the basis of “Triplicate copy of invoice for assessee” where the original and duplicate for transporter copy has been lost?

Brief Facts:

·         The appellant, i.e., Umax Packaging Limited situated at Mogra are registered manufacturer under the Central Excise Act, 1944 are engaged in the manufacture of Flexible Rolls and Plastic Pouches falling under the tariff head 39219096 and 39239090 of the first schedule to the central Excise tariff act, 1985.

·         During the course of audit, it was observed that the assessee appeared to have wrongly taken the credit and availed amounting to Rs 88,128/- on the strength of extra copy of invoice no. 4190 dt. 22.10.2010 issued by M/S HENKEL CAC PVT. LTD. which is improper document i.e. on which it was specifically mentioned “Not for availing Modvat”. According to the department cenvat credit taken in the strength of the same is not proper in terms of Rule 9 of the Cenvat Credit Rules, 2004.

·         The assessee was requested by the Jurisdictional Superintendent, Central Excise Range-II, Jodhpur vide letter no. GL-3/IAR/02/161/2011-12/45 Dt. 24.01.2012 to reverse /deposit the requisite amount of input cenvat credit amounting to Rs 88,128 availed by them on improper document i.e extra copy of the invoice on 25.10.2010, but assessee did not reverse/deposit in that respect.

·         Subsequently, a show cause notice was issued to the assessee on the fact of taking cenvat credit on the strength of extra copy f invoice no. 4190 dt. 22.10.2010 issued by M/S HENKIL CAC PVT. LTD. which was alleged to be improper document i.e. on which it was specifically mentioned as not for cenvat credit availment purpose. It was also alleged that this fact was deliberately suppressed by the assessee by not disclosing the fact in the ER-1 return in the respective month and not otherwise intimating to the department with intend to evade the payment of Central Excise duty. Therefore, the proviso to sec 11A (1) of the central Excise Act, 1944 for issuing demand for extended period was invoked. The impugned show cause notice proposed to recover the wrongly utilised cenvat credit along with interest and penalty under section 11AC of the Central Excise Act, 1944.

Assessee’s Contention: -The following submissions were made before the adjudicating authority by the assessee-

1)            They submitted that in the impugned order Cenvat credit is being denied to them on the ground that the same is availed on the strength of extra copy of invoice no. 4190 dated 22.10.2010 issued by M/s Henkel CAC Pvt Ltd which is improper document i.e. on which it was specifically mentioned “Not for availing Modvat” and the Cenvat credit taken on the strength of the same is not proper in terms of Rule 9 of the Cenvat Credit Rules, 2004.

            In this regard, they submit that they have “Triplicate for assessee” copy of the above invoice. The original and duplicate copies of the invoice have lost, as such, they have availed the credit on the triplicate copy of the invoice which was also enclosed. Further, rule 9(1) of the Cenvat Credit Rules, 2004 does not prescribe the type of invoice, it simply says that the invoice should be issued by the manufacturer/dealer. The said Rule is reproduced hereunder for ready reference:

            (1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely :-

(a) an invoice issued by-

(i)a manufacturer for clearance of –

(I) inputs or capital goods from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer;

(II) inputs or capital goods as such;

(ii) an importer;

(iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;

(iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or

(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.

Explanation.- For removal of doubts, it is clarified that supplementary invoice shall also include challan or any other similar document evidencing payment of additional amount of additional duty leviable under section 3 of the Customs Tariff Act; or

(c) a bill of entry; or

(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or

(e) a challan evidencing payment of service tax by the person liable to pay service tax under sub-clauses (iii), (iv), (v) and (vii) of clause (d) of sub-rule (1) of rule (2) of the Service Tax Rules, 1994; or

(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or

(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.

Provided that the credit of additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be allowed if the invoice or the supplementary invoice, as the case may be, bears an indication to the effect that no credit of the said additional duty shall be admissible;

            The analysis of above rule makes it clear that it makes no differentiation between the type/copy of invoice on which Cenvat credit will be available. The only requirement on this aspect is that it should be an invoice issued either by the manufacturer or a first/second stage dealer and it should have all the requisite details as mentioned in rule 11 of the Central Excise Rules, 2002. If the invoice is issued by the manufacturer/dealer and contains all the details as mentioned in Central Excise Rules, 2002, credit is duly allowable under rule 9 of the Cenvat Credit Rules, 2004 irrespective of the fact that the copy of invoice is original or duplicate or triplicate. In the light of above rule, the credit is duly allowable to us and the impugned show cause notice is liable to be dropped.

2)            They also submitted an affidavit to the fact that the duty paid inputs pertaining to the impugned invoice were received in the factory and utilized in manufacture of their finished goods which were cleared on payment of duty. Therefore, considering the circumstances surrounding this transaction, credit should be allowed to them.

3)            They submitted that that cenvat credit will be available on triplicate copy has also been upheld by the Tribunal in various cases.

In M/s BAPL Industries Ltd v/s CCE, Coimbatore [2005-TIOL-448-CESTAT-MAD] it was held that:

Cenvat Credit can be taken on triplicate copy of invoice.

This was held in order passed at the stage of grant of stay and waiver of pre-deposit. In the final order in the matter reported at 2006-TIOL-179-CESTAT-MAD the same view was upheld that Cenvat credit can be allowed on triplicate copy (assessee’s copy) of invoice.

In M/s Sharp Pumps (P) Ltd v/s CCE, Coimbatore [2006-TIOL-763-CESTAT-MAD] it was held as under:

Central Excise – cenvat credit on returned goods under Rule 16(1) – manufacturer’s triplicate copy is a valid document for credit – Rate of duty enhanced at the time of clearance of the goods – no differential duty payable as the process did not amount to Manufacture.

Therefore, from the afore-said judgments it is clear that the triplicate copy of the invoice is a valid duty paying document and when the original or duplicate for transporter copy of the invoice is not available or is lost, Cenvat credit will be available to the assessee on the basis of triplicate copy of the invoice. It was submitted that the ratio of the afore-cited case laws are completely applicable in their case and therefore, cenvat credit cannot be denied to them.

4)            They submitted that in the impugned show cause notice no objection is raised about the genuineness of the transaction. The receipt of goods and there utilization in their finished goods was not doubted and no mention has been made of such fact in the impugned show cause notice. It is submitted that the inputs dispatched under the invoice of M/s Henkel CAC Pvt Ltd were received by them in their factory and the excise duty was paid on the said inputs. These inputs have been used in manufacture of their final product and the final product has been cleared after payment of duty. Hence all the fundamentals of Cenvat credit scheme are fulfilled. Then the credit cannot be denied to them on technical or small breaches of law. Therefore, when the fact that duty was paid on the inputs received in the factory has not been disputed then merely because the credit was sought on triplicate copy, Cenvat credit which is a substantive right of the assessee cannot be denied.

In this regard, they placed reliance on the judgment given in the case of Commissioner of Central Excise, Coimbatore v/s M/s Bilt Industrial Packaging Co. Ltd [2009-TIOL-66-CESTAT-MAD] wherein it was held as under:

Central Excise – CENVAT Credit – credit availed on the strength of Xerox copy of the Bill of Entry – in absence of any dispute regarding the receipt of the inputs in the factory, credit cannot be denied on the ground of procedural lapse.

In this judgment, the taking of credit on Xerox copy of Bill of entry has been held to be a procedural lapse. Accordingly, in their case, the issue that credit is taken on triplicate copy of invoice is a procedural lapse for which Cenvat credit which is a substantive right cannot be denied to them.

They also relied on the following case laws in support of their contention: -

- Hero Cycles Ltd v/s Commissioner of Central Excise, Chandigarh [2002 (149) E.L.T. 648 (Tri. - Del.)]

Modvat/Cenvat - Duty paying documents - Invoice - Credit availed on extra copies of invoice - Neither receipt of input nor utilisation in or in relation to manufacture of final product questioned by department - Certificate issued by manufacturer of inputs stating that duty has been paid against the invoice and that due to problem in their computer, the original invoice mutilated and therefore not endorsed - Credit allowed - Rule 57G of erstwhile Central Excise Rules, 1944. [para 5]

- J. V. Strips Ltd v/s Commissioner of Central Excise, Delhi [2004 (175) E.L.T. 589 (Tri. - Del.)] it was held as under:

Cenvat/Modvat - Duty paying documents - Extra copy of invoice - Duplicate as well as original copy of invoice lost in transit - Copy of FIR produced before competent authority and actual receipt and duty paying nature of goods, verified from Department - Credit allowed on the basis of extra copy of invoice - Rule 57G of erstwhile Central Excise Rules, 1944 - Rule 9 of Cenvat Credit Rules, 2004. -When the original as well as the duplicate copy of the invoice for transporter was lost and the appellants produced even the copy of the FIR before the competent authority and got even the actual receipt and duty paying nature of the goods, verified from the Department, the Modvat credit could not be disallowed. No doubt, when the duplicate copy of the transporter is lost, the Modvat credit can be availed by the assessee on the original. But where the original had been also lost, as is the case here, then the assessee cannot be deprived of his Modvat credit, especially when the duty paid nature of the material received by him and utilized in the manufacture of the final product, stands undisputed by the Department on the simple ground that extra copy of the original invoice is not a valid document. The right to claim the Modvat credit on the duty paid inputs is a substantive right which has been allowed to the assessee under the statutory rules and as such the same cannot be allowed to be taken away by the Department on the technical lapses/omissions, such as, loss, misplacement in transit or in the office in due course. [para 3]

- Heea Steels Ltd v/s Commissioner of Central Excise, Raipur [2005 (191) E.L.T. 1102 (Tri. - Del.)]- It was held as under:

Cenvat/Modvat - Credit taken on the basis of photocopy and extra copy of invoices - Loss of duplicate and original invoices in transit - Police report was lodged and permission sought from competent authority for taking credit - Duty paid character and actual receipt of goods verified from Range Officer of supplier’s circle - Credit allowed - Rule 57G of erstwhile Central Excise Rules, 1944 - Rule 9 of Cenvat Credit Rules, 2004.[paras 4, 5]

Thus, in the light of above decisions, the credit cannot be denied so long as there is no dispute regarding the fact that the inputs were received in the factory and were used in the manufacture of dutiable goods. Therefore, extending the ratio of above decisions, the impugned show cause notice should be dropped.

5)            They submitted that the Cenvat Credit cannot be denied so long as the transaction is of bonafide 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. The relevant para 5 is produced hereunder:-

“5.        On the issue of availment of credit by the user-manufacturer, it is clarified that action against the consignee to reverse/recover the CENVAT credit availed of in such case need not be resorted to as long as the bonafide nature of the consignee’s transaction is not in dispute.”

Since they have received the inputs under a cover of an 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 our 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 our end. Therefore, the ratio of above Circular should be extended to them and the impugned show cause notice should be quashed.
6)            In continuation to above they submitted that the above referred Board Circular is clearly applicable in their case and they should be allowed the benefit of this Circular. Since the show cause notice issued for denying the credit in contravention of this Circular, it is not legally sustainable. It has been held in the case of State of Tamil Nadu & Anr v/s India Cements Ltd & Anr [2011-TIOL-42-SC-CT]that the circulars are binding on the department and they cannot take the stand contrary to it.Thus, while deciding any case, the Board Circulars are to be kept in mind. Since the impugned show cause notice is issued in contradiction to the above stated Circular, it should be set aside.

7)            They submitted that no interest is payable on the Cenvat credit taken by them as they have not wrongly availed the Cenvat credit but have received the duty paid inputs in our factory and have used the said inputs in manufacture of our final product. Therefore, no interest liability can be imposed on them.

8)            They further submitted that the extended period of limitation has been invoked against them on the grounds that they did not bring to the notice of the department that they have availed the credit on this invoice in question. In this regard it is submitted that nothing contained in the law says that the assessee is required to declare the invoices and details thereof on which credit is taken. There is simple requirement of disclosure in the ER-1 is the furnishing the amount of credit taken, utilized and opening and closing balances of the same. There is no column therein or under any other provision/return/document to be submitted to department which requires the complete details as mentioned on the face of the invoice on which the credit is availed. When there is no requirement of furnishing these details, it cannot be said that non-furnishing of the same amounts to suppression. 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 non-furnishing of the information not required under law does not amount to suppression. The verdicts of hon’ble High Court are given as follows:-

“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”

Thus the impugned show cause notice proposing the recovery of credit on the basis of non-furnishing of information (that was not required to be submitted under law), is not sustainable and is liable to be set aside.

9)            In continuation to above it is submitted that 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. Verdicts of hon’ble Supreme Court held as under:-

“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”
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:-

Ø Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )-
“Central Excise – Demand – Suppression of facts – Words and phrases – Where facts are known to both the parties the omission by one to do what he might have done and not he must have done, does not render it suppression – Suppression of facts must be deliberate to escape from payment of duty.”

Ø M/s Idea Cellular Ltd Vs CCE, Rohtak [2009-TIOL-387-CESTAT-DEL]-

Binding nature of Board Circulars -As per Supreme Court's judgment in case of CCE , Bolpur Vs. Ratan Melting & Wire Industries reported ( 2008-TIOL-194-SC- CX -CB ) , the Board's instructions are binding on the Departmental officers unless contrary view has been expressed by Supreme Court or any High Court. In this case neither any such judgment of Hon'ble Supreme Court or High Court has been produced, nor the Department has shown as to how the Board's instructions, which are its own instructions, are contrary to statutory provisions.

Something positive, rather than mere inaction or failure on the part of an assessee has to be proved before invoking extended limitation period :The Supreme Court in cases of CCE Vs. Chemphar Drug & Limits reported in ( 2002-TIOL-266-SC- CX ) and Pushpam Pharmaceuticals Company Vs. CCE , Mumbai reported in ( 2002-TIOL-235-SC- CX ) has held that something positive, rather than mere inaction or failure on the part of an assessee has to be proved before invoking extended limitation period under proviso to Section 11A (1) of the Central Excise Act, 1944 and that since the expression - 'Suppression of facts' has been used in the company of strong words such as fraud, collusion in wilful default, it cannot be interpreted as mere omission - the act constituting 'suppression' must be deliberate. In this case neither the circumstances indicate 'suppression of facts', misstatement, fraud etc. nor any evidence in this regard has been produced. Therefore neither the demand beyond the normal limitation period of one year is sustainable nor penalty under Rule 15 (4) of Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 is attracted. :DELHI CESTAT;

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 was not even any ‘inaction’. They were providing all the information to the department as required under law. They were regular in filing all the returns to the department. Every query raised by the department was also duly replied. It was not the case where they had suppressed any information which was required to be disclosed under any provision of the Central Excise Act or rules framed thereunder. Hence the allegation of “willful suppression” on them is totally unsustainable and impugned demand is barred by time of limitation. Hence, the demand should be set aside.

10)         They further submit that the impugned show cause notice is proposing to take penal action against us under Rule 15(1) of the Cenvat Credit Rules, 2004 and Section 11AC of the Central Excise Act, 1944. In this regard, they submit that no penalty can be imposed on them as they have not wrongly availed Cenvat credit but have availed Cenvat credit which was admissible to them. As such, the allegation of willful suppression or misstatement is not sustainable. Further, the credit is admissible to them on the basis of a no. of decisions cited hereabove wherein it is held that the credit is not deniable for procedural lapses when the substantial condition of receipt of inputs and their utilization is not disputed. Thus, the availment of credit was based upon bonafide belief caused by a no. of decisions cited hereabove. Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)]that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bona fide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

Therefore, penalty cannot be imposed on them for the charge of suppression of facts as they have acted under bonafide belief based on certain decisions.

11)         It is further submitted that unless and until the intention to evade payment of duty is established, penalty under section 11AC is not warranted. It has been held by hon’ble High Court that this penalty is not automatically attracted in each and every case of non payment or short payment of duty. This is decided in the following case:-

·         CCE, Chandigarh-II Vs M/s Sarvpriya Industries Ltd [2010-TIOL-523-HC-P&H-CX.]-

Central Excise - Supreme Court decisions in Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills do not lay down that for every short payment of duty, penalty is automatic: Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills is that mandatory penalty under Section 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the authorities may have no discretion once conditions stipulated under Section 11AC of the Act exist, in absence of fulfilment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty under Section 11AC of the Act was not warranted. No substantial question of law arises: PUNJAB AND HARYANA HIGH COURT

Thus, hon’ble High Court has ruled that penalty is not warranted in each and every case of non-payment of duty or short payment of duty. This should happen only due to suppression of facts with intent to evade the payment of duty. In their case also, though the allegation of suppression is raised, but the same is not proved in the show cause notice. On the other hand, they have cited a no. of decisions in their favour according to which they have correctly taken the Cenvat Credit. Therefore, in the light of above decision, the penalty is not imposable on them.

Reasoning of the Adjudicating Authority:- The deputy commissioner viewed that the contention of the assessee was considerable , as the goods have been purchased by the assessee through the invoice no. 4190 dated 22.10.2010 and used in the factory and neither during the course of audit nor in the show cause notice, it has not been alleged that the said goods were not brought by the assessee in their factory and no allegation made in show cause notice about receipt and use of these goods in the factory of production. It was also noticed that the assessee in his reply submitted that they have “Triplicate for assessee” copy of the above invoice as the original and duplicate copies of the invoice have lost, as such, they have availed the credit on the triplicate copy of the invoice. Further, rule 9(1) of the Cenvat Credit Rules, 2004 does not prescribe the type of invoice, it simply says that the invoice should be issued by the manufacturer/dealer and should contain all the prescribed details.

It was also found that the case laws cited by the assessee in their reply were very much relevant in the present case and so the credit taken by the assessee are allowable to them.
In view of the above discussion and findings, the cenvat credit was held to be admissible on the basis of the triplicate copy of the invoice and the proceedings initiated against the assessee were dropped.

Order of Central Excise and Service tax Department, Jodhpur: -

The Deputy Commissioner accepted the contentions made by the assessee was sustainable and dropped the proceedings initiated against them by the issuance of show cause notice.

Decision:- The proceedings initiated vide the show cause notice were dropped.

Conclusion: -The gist of this case is that cenvat credit is admissible even on the triplicate copy of invoice if all the details as prescribed to be contained in the invoice were mentioned in it. It is irrelevant that the credit is taken on the basis of original, duplicate or triplicate copy of invoice and what is more important is that the details as prescribed under Rule 11 are contained and the inputs received vide such invoice are used in the manufacture and clearance of dutiable final products. As far as the substantial conditions for availing the cenvat credit are satisfied, procedural lapses cannot become a hurdle for claiming the rightly eligible benefit.

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PJ-Case Study-2013/14/62
06 July 2013

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PJ-Case Study-2013/14/62 06 July 2013

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PJ-Case Study-2013/14/62
06 July 2013