2011 (7) TMI 172 - AT - Central Excise

Demand - It was submitted by the appellants that the credit was denied to them on the ground that they failed to provide correct invoice and some of the invoices were found to be fake/ issued by non existent suppliers - there was no intention on their part to evade payment of service tax and the manufacturers dealers from whom the grey fabrics were received were registered under the provisions of the Act and therefore there was no suppression of facts - it is found that no proper verification of the invoices or for existence of manufacturers/ dealers were conducted by the Revenue to substantiate the demand - Appeal is disposed of by way of remand

Summary

Issues:
1. Denial of credit due to failure to provide correct invoices and existence of fake invoices.
2. Allegations of violation of Rule 7(4) pertaining to maintaining proper records.
3. Invocation of extended period of limitation for issuing show cause notice.
4. Lack of proper verification by Revenue regarding the demand.

Analysis:

Issue 1: Denial of credit due to incorrect invoices
The appellants argued that credit was denied to them based on the failure to provide correct invoices and the presence of fake invoices issued by non-existent suppliers. They contended that they had produced the necessary documents, but the Commissioner (Appeal) upheld the findings without considering the evidence presented. The appellants emphasized their compliance with maintaining proper records of fabric procurement, consumption, and inventory, asserting that Rule 7(4) had not been violated.

Issue 2: Alleged violation of Rule 7(4)
The appellants maintained that they had diligently maintained records of fabric transactions, including details of suppliers and duty payments. They argued that the Commissioner (Appeal) failed to appreciate their record-keeping practices, which were in accordance with Rule 7(4). They asserted that the allegations against them were unfounded and requested a fair assessment of their compliance.

Issue 3: Invocation of extended period of limitation
The show cause notice was issued invoking the extended period of limitation for the period between January 2004 and July 2004. The appellants contended that there was no intent to evade service tax payment, as the suppliers were registered under the Act. They emphasized the lack of suppression of facts and urged a reconsideration of the timeline for issuing the notice.

Issue 4: Lack of proper verification by Revenue
Upon review, it was noted that the Revenue had not conducted thorough verification of the invoices or the existence of manufacturers and dealers to support the demand. The absence of verification raised doubts regarding the validity of the demand and the presence of any fraud or collusion. Consequently, the case was remanded to the original adjudicating authority for a comprehensive verification process, allowing the appellants an opportunity to present their case. The authority was instructed to consider relevant Supreme Court judgments cited by the appellants during the appeal. The appeal was disposed of through remand, and the stay petition was also resolved accordingly.