2012 (281) E.L.T. 460 (G.O.I)

PJ/Case Laws/2012-13/1169

Case:- INRE: JHAWAR INTERNATIONAL
Citation: - 2012 (281) E.L.T. 460 (G.O.I)
Issue: - The rebate under Rule 18 can be denied in cases of fraud.

Brief fact: - The Brief of the cases are that the applicant are merchant exporters of dyed fabrics made from 100% polyester falling under chapter sub-heading No. 5406.22 of the Central Excise Tariff Act, 1985. They have filed different rebate claims totally amounting to Rs. 9,28,865/- in respect of duty paid on the goods manufactured by various manufacturer/processor which are as follows:- .

SI. No.	RAF. No.	Order-in- Appeal No. & Date	Name of manufac- turer/processor	Name of Grey Fabric Supplier	Amount of rebate claim rejected (in Rs.)
(¹)	(2)	(3)	(4)	(5)	(6)
1	195/547/09- RA	RKA/76/SRT- 1/2009 12-2-09	M/s. Sanjoo Prints Pvt. Ltd., 291, GIDC, Sachin, Surat.	M/s. Shiv Textiles	1,25,038/-
2	195/548/09- RA	RKA/77/SRT- I/ 2009 12-2-09	M/s. Sanjoo Prints Pvt. Ltd., 291, GIDC, Sachin, Surat.	M/s. Shiv Textiles	1,12,640/-
				M/s. Rahul Textiles
3	195/549/09- RA	RKA/78/SRT- 1/2009 12-2-09	M/s. Vrindavan D. Mills Pvt. Ltd., Surat	M/s. Radhe Silk, Surat	99,315/-
				Hari Fab- rics, Surat
4	195/550/09- RA	RKA/80/SRT- 1/2009 12-2-09	M/s. Vrindavan D. Mills Pvt. Ltd., Surat	M/s. Radhe Silk, Surat	3,47,571/-
				Hari Fab‑ rics, Surat
				Hari Rotltwala, Surat
5	195/643/09- RA	RKA/80- 89/SRT-1/09 27-2-08	_ _ _	M/s. Radhe Silk, Surat	3,19,435/-
				M/s. Ashia Fabrics

6	195/538/09- RA	RKA/668/ SRT-1/08 22-9-08	M/s. Begani Dyg. Mills Pvt. Ltd., Surat	M/s. Krish- na Textiles	57,506/-

The said goods were exported through Mumbai Port under various ARE- 1 and Shipping Bills.
The grey fabrics used were purchased by the applicant against Central Excise Invoices issued by supplier of grey fabrics in the name of the Applicant. These invoices were endorsed by the Applicant in favour of the manufacturers/processors who took credit of duty reflected on the endorsed invoices. The duty on export goods (processed fabrics) was paid by such manufacturers/processors out of the credit so availed. During verification of the rebate claim of the applicant, it was discovered that two purported suppliers of grey fabrics as detailed in column 5 of the table above are non-existent/fictitious persons. The processor took credit based on such invoices purported to be issued by the two suppliers who are found fictitious. These invoices of grey fabrics were endorsed by the applicant in favour of the processor.
The show cause notices were issued to the applicant and also the processor proposing to reject claim of rebate relating to processed fabrics corresponding to fake invoices of grey fabrics. The notices also proposed penalty against the respective processors (the manufacturers). The notices were decided by the impugned relevant orders-in-original rejecting the above rebate claims. The grounds for rejection of the part rebate claim are that part of the grey fabrics was under invoices of fictitious and non-existent persons.
Being aggrieved by the said Order-in-Original, applicant filed appeal before Commissioner (Appeal) who rejected the same.
Being aggrieved by the impugned order-in-appeal, the applicant, party has filed these revision applications under Section 35EE of Central Excise Act, 1944 before Central Government

Appellant Contention: - The Applicants seek to rely upon para 2 of the C.B.E. & C. Circular No. 703/19/2003-CX, dated 25-3-2003 issued from F. No. B3/1/2003-TRU which prescribes duty paying documents as role basis for Credit. Rule 7 of reasonable steps was not applicable. "2. The purpose of the new rules is to allow the textile sector to carry on the work as they have been doing all along, and not to disturb the trade practices. It would be sufficient if the manufacturers of the deemed manufacturers keep account of production and clearance, pay duty accordingly and take credit only on the strength of duty paying documents. There is no need for any physical verification of premises, goods or records unless there is a specific intelligence suggesting evasion." The C.B.E. & C. Circular states that the manufacturers or deemed manufacturers shall take credit only on the strength of the duty paying documents and there is no need for any physical verification of premises, goods or records. They relied upon the Supreme Court judgement in case of Collector of Central Excise, Vadodara v. Dhiren Chemical Industries reported in 2002 (143) E.L.T. 19 (S.C.).
when the grey fabrics have been accompanied with excise invoice showing the excise registration number of the grey manufacturer, it is illegal to allege that we have not taken any steps to ensure the duty paid character of the inputs and we have suppressed the facts from the department that the suppliers/manufacturers and/or the invoices of grey fabrics are bogus/fake. Moreover, the traded practice is that the deemed manufacturers/manufacturers would buy the grey fabrics and sent it to the processors for processing and then the processors shall return the processed fabrics to the deemed manufacturer/manufacturer.
The applicant has pleaded that they procured processed fabrics from the manufacturer and wrongly availed credit is to be recovered from manufacturer or the supplier of grey fabrics. The applicant being merchant exporter cannot be denied rebate as he had made payment of duty to the manufacturer.
The Appellant further submitted that the diluted scheme of registration of weavers/grey manufacturers etc. ushered and administrated by revenue during 2003-2004 through erstwhile rule 12B and various C.B.E. & C. Circulars made it impossible for processors to take any reasonable steps as is being made out in the show cause notice under reply. That it is quite probable that on repeal of erstwhile Section 12B in September, 2004, the grey weavers changed their names and shifted to different premises for evading income tax, etc. as the whole scheme of bringing the grey weavers under Cenvat Chain was opposed by them for months together in 2003. During the said agitation by grey weavers and subsequently, C.B.E. & C. went on relaxing/diluting the basic requirements in regard to registration. After completely diluting the process of registration, revenue cannot turn back in 2005 and declare all or most of the grey weavers as fake to escape in May and September, 2005. This amounts to revenue escaping from the consequences of its wrongs, omissions and commissions during February, 2003 to July, 2003 and the same is impermissible in law. It is settled law that nobody can take advantage of its own wrong. They relied upon the following case laws :
• Garima Enterprises (P) Ltd. v. C.C.E., Delhi-IV - (182) E.L.T. 106 (Tn.-Del.)
• Haryana Steel Alloys v. C.C.E., New Delhi - 2002 (148) E.L.T. 377 (Tn.-Del.)
• C.C.E., Chandigarh v. Sadashiv Casting (P) Ltd. - 2005 (187) E.L.T. 381 (Tri .-Del.)
Reasoning of Judgment: Government notes that although the applicant herein is countering the department’s conclusion which were based on properly and reasonably caused investigations but all of the submitted grounds are either self interpretations of relevant Rules/Regulations/Circulars/Citations or are verbal plea by way of manouvering the language to plead in favour of their claimed rebates. But, the Government notes that what remains a fact is that due investigations were indeed done and the proper authorities conclusively proved that the instant cases are "frauds" involving fake/fictitious identities. Proper Alert Circulars were issued by Commissioner Central Excise, Surat & DG Anti Evasion in this regard. Government does not find any contrary evidence supported by any legal document of evidential value in favour of the applicant herein.
Apex Court Judgement in the case of Omkar Overseas Ltd. [2003 (156) E.L.T. 167 (S.C.)] is relevant to decide the issue at hand. The Hon'ble Court has in unambiguous terms held that rebate should be denied in cases of fraud.

In Sheela Dyeing & Printing Mills (P) Ltd. [2007 (219) E.L.T. 348 (Tn.-Mum.)] the Hon'ble CESTAT, has held that any fraud vitiates transaction. This judgement has been upheld by the Hon'ble High Court of Gujarat. In a recent judgement in the case of Chintan Processor [2008 (232) E.L.T. 663 (Tri.-Ahm.)], the Hon'ble CESTAT while deciding the question of admissibility of credit on fraudulent invoices has held as follows "Once the supplier is proved non existent, it has to be held that goods have not been received. However, the applicant's claim that they have received goods but how they have received goods from a non-existent supplier is not known."

In view of above, Government finds that duty paid character of exported goods was not proved which is a fundamental requirement for claiming rebate under Rule 18 of Central Excise Rules, 2002. As such, Government finds no infirmity in the impugned orders-in-appeal and therefore upholds the same.
All the revision applications are thus rejected being devoid of merit.

Decision: - Application rejected

Comment:-It is very good decision in favour of revenue that the rebate claim on export goods will also be denied if the basic requirement of duty paid nature of export goods is not proved. This might be due to the fraud and even decisions on the same clearly says that the rebate should be denied in cases of fraud.

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PJ/Case Laws/2012-13/1169

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