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Extended period of limitation cannot be invoked on a legitimate buyer
Date 06 Jul 2023
Written By
Extended Limitation Under Section 11A(1) Not Applicable Without Proven Fraud in CENVAT Credit Case
The CESTAT Kolkata ruled that an extended period of limitation under Section 11A(1) of the Central Excise Act, 1944 cannot be applied to a buyer who has paid for inputs unless fraud is proven. In the case involving a company that purchased machinery and claimed CENVAT credit, the department alleged the machinery was not received and credit was based on fake invoices. The tribunal found no evidence of fraud by the buyer, who had made payments through cheques and recorded the machinery in statutory records. The order demanding excise duty was set aside, and the appeal was allowed.

The CESTAT, Kolkata in M/S. JAI BALAJI INDUSTRIES LIMITED, UNIT-III VERSUS COMMISSIONER OF CENTRAL EXCISE, BOLPUR - 2023 (6) TMI 1152 - CESTAT KOLKATA had set aside the order demanding excise duty and held that the buyer who has paid a valuable consideration could not be proceeded upon by taking the aid of a larger period of limitation as per Section 11A(1) of the Central Excise Act, 1944 unless it is proved that the buyer was also involved in fraud.

Facts

M/s Jai Balaji Industries Limited (“the Appellant”) purchased plant and machinery (“the Impugned Machinery”) from M/s Saha Industries (“the supplier”) which was duly registered with the Central Excise department on which the Appellant claimed CENVAT credit on the basis of the duty paid invoices.

 An investigation dated January 30, 2008 (“the Investigation”) was carried out in the premises of the supplier in which the department concluded that the supplier did not have the proper infrastructure to manufacture the Impugned Machinery and the report of a chartered engineer in August 2008 was also obtained.

A Show cause notice dated March 10, 2010 (“the SCN”) was issued to the Appellant alleging that the Appellant had never received the Impugned Machinery and the Appellant had availed fake CENVAT credit on the basis of fake invoices, It was further alleged that the supplier did not have the infrastructural capacity to manufacture the Impugned Machinery and the Appellant had failed to verify the antecedents of the supplier which the Appellant was required to verify in order to avail the CENVAT credit as per Rule 7(2) and Rule 9(3) of the CENVAT Credit Rules, 2004.

The SCN raised a demand for excise duty of INR 1,43,31,998 which was confirmed by the Adjudicating authority vide order dated October 5, 2010 (“the Impugned Order”). Aggrieved by the Impugned Order the Appellant filed the present appeal before the CESTAT.

The Appellant submitted that the Impugned machinery was duly received for which payment was made through cheques and was subsequently entered into the statutory records and further, there was nowhere contended by the Adjudicating Authority that the supplier had not received inputs for manufacturing the Impugned Machinery.

Issue

Whether the extended period of limitation could be invoked in case of a buyer who has paid a valuable consideration for acquiring inputs and was not a party to fraud?

Held

The M/S. JAI BALAJI INDUSTRIES LIMITED, UNIT-III VERSUS COMMISSIONER OF CENTRAL EXCISE, BOLPUR - 2023 (6) TMI 1152 - CESTAT KOLKATA ruled as under:

Relevant Provision

Section 11A(1) of the Central Excise Act, 1944

“11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.-

(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,-

(a) the Central Excise Officer shall, within two years from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so 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;

 (b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of,-

 (i) his own ascertainment of such duty; or

 (ii) duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under section 11AA.”

(Author can be reached at info@a2ztaxcorp.com)

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