C.C.E. and C., Surat-I vs Chandrakanta Dyeing and Printing Mills

Harsha Devani, J.—In this appeal u/s 35G of the Central Excise Act, 1944 (the Act), the appellant revenue has challenged order dated 16th January 2009 passed by the Customs, Excise and Service Tax Appellate Tribunal, West zonal Bench, Ahmedabad (the Tribunal), proposing the following questions:

(A) Whether in the facts and the circumstances of the case, the Id. CESTA Tribunal has erred in the eye of law in holding that the there is no evidence put forth by the Revenue to establish that the said unit had connived with the suppliers and availed the Cenvat Credit, ignoring in entirety that the fake, fabricated and forged invoices in the name of the non-existent party was the base upon which it has wrongly availed the Cenvat Credit and utilized the same for the payment of the duty in respect of the excisable/finished goods?

(B) Whether in the facts and the circumstances of the case, the Ld. Tribunal is justified in the eye of law in holding that the evidence put forth by the Revenue is not sufficient to arrive at the conclusion of suppression of facts/fraud or mis-declaration?

(C) Whether in the facts and the circumstances of the case, the Ld. Tribunal is justified in the eye of law in confirming and upholding the reduction of the mandatory penalty to almost 25% of the amount equal to the wrongly availed the Cenvat Credit imposed upon the said unit by the adjudicating authority under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944, which runs contrary to the judgment of the Hon''ble Apex Court in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others,

(D) Whether in the facts and the circumstances of the case, the Ld. Tribunal is justified in the eye of law in not holding that the said unit has contravened Rule 3(1), 3(3), 7(2), 7(4) of the CENVAT Credit Rules, 2002 and thereby suppressed the facts from the department with an intention to evade the payment of the excise duty?

The respondent assessee was registered as a manufacturer of man-made fabrics. It had availed of Cenvat credit on grey fabrics during March 2004. Subsequently, investigations revealed that the suppliers of grey fabrics who had issued the invoices, on the basis of which the assessee had availed credit, were found to be non existent/fake/bogus. Accordingly, a show case notice came to be issued to the assessee which culminated into an order in original dated 23-4-2007, whereby the adjudicating authority disallowed the credit to the extent of Rs. 7,71,593/- with an equal amount of penalty and interest at the appropriate rate. The assessee carried the matter in appeal before the Commissioner (Appeals), who vide order dated 3rd October, 2008 partly allowed the appeal insofar as the same related to penalty and confirmed the demand of credit wrongly availed, and interest. The Commissioner (Appeals) modified the Order in original by substituting the penalty imposed as penalty of Rs. 1,92,898/- under Rule 13 (1) of the Cenvat Credit Rules, 2002 (now Rule 15(1) of the Cenvat Credit Rules, 2004). Being aggrieved, the Revenue preferred appeal before the Tribunal which came to be dismissed.

Assailing the impugned order of the Tribunal, the learned standing Counsel for the appellant has reiterated the reasoning adopted by the Adjudicating Authority.

On a perusal of the order made by the Commissioner (Appeals), it appears that upon appreciating the evidence on record and considering the submissions advanced on behalf of the respective parties, he has recorded a finding of fact to the effect that by failing to verify the writer of the invoices, by its acts and omissions, the assessee had facilitated the fraud. However, the evidence is not sufficient to conclude that the assessee was a party to the fraud. The Commissioner (Appeals) further noted that no investigations had been carried out to bring out that the assessee was party to fraud or that the Cenvat Credit had been availed in contravention of the Rules with intention to evade central excise duty. It was observed that though the Adjudicating Authority has concluded that the acts and contravention were committed by the assessee by suppression of facts with intent to avail inadmissible credit, there was no mention of any specific suppression. According to the Commissioner (Appeals), the conclusion of suppression of facts with intent to avail wrong credit is based on conjunctures and surmises and not on any solid evidence, and as such, the finding of the Adjudicating Authority based on which mandatory penalty had been invoked was not just and proper. It is in the aforesaid backdrop that the Commissioner had thought it fit to hold that the assessee was more appropriately liable for penalty u/s 13(1) of the Cenvat Credit Rules, 2002 (the Rules) rather than Section 13(2) thereof.

The Tribunal in the impugned order has confirmed the findings recorded by the Commissioner (Appeals) and has held that the assessee can be found fault with for not taking reasonable steps as contemplated under Rule 7 of the Rules, but it cannot be held liable to pay penalty u/s 11AC of the Act.

Thus, both the Commissioner (Appeals) as well as the Tribunal have, upon appreciation of evidence on record, found, as a matter of fact, that the evidence on record was not sufficient to conclude that the assessee was a party to the fraud and that there was nothing to indicate that the assessee had availed or Cenvat credit in contravention of the Rules with intention to evade central excise duty. Based upon the aforesaid finding of fact, the Tribunal has held that the assessee would be liable to penalty under Rule 13(1) of the Cenvat Credit Rules, 2002 and not u/s Rule 13(2) of the Rules.

In the background of the aforesaid facts it may be germane to refer to the provisions of Rule 13 of the Cenvat Credit Rules, 2002 which reads thus :

Rule 13. Confiscation and penalty.- (1) If any person, takes CENVAT credit in respect of inputs or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said inputs or capital goods has been paid as indicated in the document accompanying the inputs or capital goods specified in rule 7, or contravenes any of the provisions of these rules in respect of any inputs or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater.

(2) In a case, where the CENVAT credit 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 Act or the rules made thereunder 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 Act.

(3) Any order under sub-rule (1) or sub-rule (2) shall be issued by the Central Excise Officer following the principles of natural justice.

On a plain reading of Rule 13(2) of Cenvat Credit Rules, 2002, it is apparent that the same can be invoked in a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful misstatement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty in which case the manufacturer would be liable to pay penalty in terms of Section 11AC of the Act. Thus, a condition precedent for invoking the provisions of sub-rule (2) of Rule 13 of the Rules there should be a finding to the effect that the manufacturer has taken or wrongly utilized the CENVAT credit on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty. Examining the facts of the present case in the light of the aforesaid statutory provision, both the Commissioner (Appeals) as well as the Tribunal have recorded concurrent findings of fact to the effect that evidence in record is not sufficient to conclude that the assessee is a party to the fraud. It has also been recorded that the findings of the Adjudicating Authority that there is suppression of facts with intent to avail wrong credit is based on conjectures and surmise and not on solid evidence. On behalf of the revenue, nothing has been pointed out to dislodge the concurrent findings of fact recorded by both the appellate authorities in the light of the aforesaid concurrent findings of fact recorded by both, the Commissioner (Appeals) as well as the Tribunal, it is apparent that the conditions precedent for invoking the provisions of Rule 13(2) of the Rules are clearly not satisfied. In the circumstances, no infirmity can be found in the impugned order of the Tribunal so as to warrant interference.

In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed.