TMI Blog2011 (1) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... verification of evidences. Regarding extended period of limitation - suppression of facts - Held that: - when we, analyse the facts and the law, what emerges is that if an assessee has not fulfilled the obligations cast on him under Rule 7, the obvious conclusion and the only conclusion possible appears to be that suppression of facts or mis-declaration can be invoked. We recognize the fact that the suppression of fact or mis-declaration is a factor which is required to be concluded based on facts and circumstances in each and every individual case. Therefore we would not like to lay down this proposition as a conclusion binding on the original adjudicating authority but leave the issue open for a decision by the lower authority at the time of de novo adjudication. - E/1159 OF 2009 - A/55-185/WZB/AHD/2011 - Dated:- 24-1-2011 - MRS. ARCHANA WADHWA, B.S.V. MURTHY, JJ. P.M. Dave, Willingdon Christian, J.C. Patel, P.V. Sheth, S. Suriyanarayanan, K.I. Vyas, Mukund Chauhan, M.N. Saiyed, N.J. Gheewala, Hardik Modh, M. Dave and V. Sridharan for the Appellant. K.M. Mondal and S.K. Mall for the Respondent. ORDER B.S.V. Murthy, Technical Member In all these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars was further reiterated in the circular F. No. 213/19/07-CX-VI dated 4-10-2007 wherein the Board observed that in spite of clear directions, Commissioners are still issuing modus operandi/alert circulars. It was reiterated that Commissioners shall not issue such circulars themselves but showed send draft circulars regarding evasion cases detected by them to the DGCEI. DGCEI after examining the matter shall issue serial numbered modus operandi circulars. He submitted that the circulars issued in 1999 and 2007 together make it clear that Commissioner Surat-I had exceeded his authority when he issued the alert circulars and therefore any action taken on the basis of alert circulars has to be treated as illegal and incorrect. Further, he also submitted that while issuing show cause notices based on alert circulars, the details of type of enquiry made were not indicated; no details of panchnama drawn, if any, when the verification of the premises was made were given to assessees. Further the very fact that some deletions were made subsequently in the lis of non-existence suppliers/weavers on the basis of representations made would show that alert circulars were issued without proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DGCEI letter dated 1-4-2003, it was stated that modus operandi circular shall be issued only by DGCEI. However letter also stated that Commissionerates can write to other, Commissionerates for follow-up action in specific cases booked by them. If we see the alert circular issued by the Commissioner Surat-I, the subject reads "passing on cenvat credit fraudulently by creating fake/bogus firms and by issuing bogus invoices by textile units." He has observed that when physical verification of the firms were taken up, a large number of firms including Rule 12(b) manufacturers and dealers were found to be fake/non existent/bogus. The Commissioner on the basis of verification has requested the Commissioners to direct the field formations to check whether any cenvat credit has been taken on the strength of invoices issued by the firms found to be fake and get the same recovered. He has also requested verification of rebate claims and periodical returns filed by textile units. The circular relates to firms in a particular Commissionerate who would have issued fake/bogus invoices to various firms all over India and basically he is requesting verification of receipts of goods and record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that there was no allegation that goods have been procured from elsewhere. In the absence of allegation that no goods have been manufactured, it has to be stated that the department has accepted the fact that processed fabrics were manufactured. When the processed fabrics were manufactured, in the absence of any evidence to show that grey fabrics were supplied/procured from elsewhere, the case of the revenue fails totally. 5.1 Further he also made a submission that Rule 12(b) of Central Excise Rules is not applicable to the job workers/processors who are already in existence. The rule was framed only to facilitate the new job workers/processors. Therefore the job workers/processors who were already in existence and who were already undertaking the work of processing, were not required to follow the provisions of Rule 12(b). According to Rule 12(b) of Central Excise Rules, merchant manufacturer can himself obtain registration; job worker may agree to obtain registration and fulfil all the formalities on behalf of merchant manufacturer and alternatively such a registered job worker can authorize a broker to pay duty on his behalf. 5.2 He also submitted that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of goods. The Tribunal also took note of the fact that the suppliers are also included in the Explanation to Rule 173Q(1)(bb) and it was observed that it was for this reason that the identity and existence of all the manufacturers may not be known to the assessee in all cases. In that case the appellants had negotiated through brokers and had made payments to the manufacturers/suppliers through account payee cheques. The Tribunal observed that some leeway is envisaged in the matter and some discretion to the assessee is to be allowed. It was held that unless specific proof is produced to show that the reasonable steps expected of the assessee is found wanting by way of collusion or suppression of relevant information, penalty cannot be imposed. He also submitted that the decision of the Hon ble Gujarat High Court in the case of Sheela Dyeing Printing Mills (P.) Ltd. (supra) can be distinguished since in that case the goods were received directly from the manufacturer. He submitted that the endorsement is different from direct supply. He also submitted that since the Commissioner has set aside penalty under section 11AC in several cases, the demand could not have been confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submits that the registration certificate issued to the suppliers has not been cancelled and remained valid. The addresses have not been disputed. Entire procedure relating to registration was waived by the revenue and therefore it can be said that the Government willingly encouraged the fraud by allowing registration without verification. Having registered everyone who wanted to be registered without verification, Government cannot expect the assessees to come to their rescue. 8.2 Section 38A of Central Excise Act, 1944 was introduced with a different intention and in the present notification while rescinding rights and liabilities have not been saved and therefore on this ground also proceeding have to be quashed. 8.3 Shri Suriyanarayanan relied upon the decision of the Tribunal in the case of Milton Polyplast v. CCE 2006 (201) ELT 372 (Trib. - Mum.) to support his contention that in the absence of concrete evidence, extended period could not have been invoked and the demand confirmed. He also relied upon this decision to support his contention that section 38A of Central Excise Act cannot come to the rescue and in this case the demand will be time barred. He also relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in existence or not. Further he submits that no relief was given in respect of suppliers who are in existence. He also reiterates the fact that multiple demands have been issued. Further show cause notices have been issued to weavers also. In several cases credits have been reversed but the reversal was not acknowledged or accepted but the proceedings were continued. 13. Shri N.J. Gheewala, learned consultant represented four assessees and he made written submissions. Among other submissions, in the written submission it was stated that the alert circulars were not in the form of trade notice or public notice but were internal circulars to the departmental officers and did not contain any information as regards any investigation made by the department to find the existence of the firms and no documentary evidence were provided or relied upon in the show cause notice. There was no charge of specific collusion or fraud in the case of assessees and therefore extended period could not have been invoked. 14. Shri M.N. Saiyed, learned consultant also adopted the arguments advanced by the other advocates. 15. Shri V. Sridharan, learned advocate relied upon the decision in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r can act on his own or a job worker can act on his own or merchant manufacturer can act as an agent of job worker and job worker can act as an agent of merchant manufacturer. It was fairly agreed that the records are not clear as to whether in all these appeals job workers were acting independently or had been authorised by the merchant manufacturers to fulfil all central excise obligations on their behalf as envisaged in the rules. It was also submitted that Rule 12(b) of Central Excise Rules would be applicable only to persons who obtained registration after introduction of the rules and the same would not be applicable in respect of persons who are already registered. 16. Similarly to a query raised by the Bench as to whether the certificate contemplated in Rule 7(2)(c) is a separate one or nothing but the registration certificate issued by the department, many of the learned advocates contended that what was contemplated in that rule is only the registration certificate and nothing else. 17. Shri K.M. Mondal, learned consultant on behalf of revenue presented detailed arguments and also sought permission to make written submissions which were received subsequently. 17.1 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representatives. Being the ultimate beneficiaries of the DEPBs they cannot be heard to say that they are innocent. 17.4 As regards alert circulars he submitted that in some cases where the assessees pointed out that the addresses were genuine, verification was made and such names were deleted. Just because a few names were found to have been wrongly mentioned, it is incorrect to say that the alert circulars were entirely incorrect. He also submitted that out of the 72 appeals, 19 related to appeals which were not based on alert circulars. 17.5 As regards registration certificates he submitted that registration certificates obtained by fraudulent means is void ab initio and they have no existence in the eyes of law. 17.6 As regards submission that Rule 12(b) of Central Excise Rules was omitted with effect from 12-9-2004 without any saving clause and therefore proceedings initiated subsequent to that date are invalid, he submitted that the recovery is proposed under section 11A of Central Excise Act, 1944 and therefore the department can recover the dues in terms of section 38A of Central Excise Act, 1944. 17.7 One of the submissions made on behalf of the assessees was that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In that case it was held that the original importer had cleared the vehicle by fraud. Therefore the fact that the appellant was a bona fide purchaser does not absolve him from the consequences arising out of wrongful Import. In that case only goods were confiscated and no penalty had been imposed on the appellants. 18.1 In the case of CCE v. Neminath Fabrics (P.) Ltd. 2010 (256) ELT 369 (Guj.), it was held that for issue a show cause notice invoking extended period, the fact that another show cause notice had been issued earlier or the department had knowledge were considered to be irrelevant and it was held that what is to be seen is whether the assessee had suppressed the facts or mis-declared or not. 19. We have considered the arguments advanced before us and also have gone through the records. 19.1 Rule 7 of Cenvat Credit Rules, 2002 relates to documents and accounts in respect of cenvat credit. According to Rule 7(1)(e) which existed from 25-3-2003 to 9-7-2004, in addition to the other documents on the basis of which cenvat credit could be taken, it was provided that any of the documents referred in clauses (a) to (d), if endorsed by a person undertaking activities perta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seeking to recover Cenvat credit from them under proviso to section 11A(1) of the Central Excise Act, 1944 read with Rule 12 of the Cenvat Credit Rules, 2002 (now Rule 14 of the Cenvat Credit Rules, 2004) together with interest under section 11AB of the said Act. The notices also sought to impose penalties on them under section 11AC of the said Act read with Rule 13(2) of the Cenvat Credit Rules, 2002 (now Rule 15(2) of Cenvat Credit Rules, 2004). 19.5 The proposed actions were sought to be taken on the allegation that they had taken cenvat credit in contravention of the provisions of Rule 7(2) (4) of the Cenvat Credit Rules, 2002 (Rule 9(3) (5) of the Cenvat Credit Rules, 2004) in as much as they had failed to take reasonable steps as provided in Rule 7(2) of the Cenvat Credit Rules, 2002 to ensure that the inputs on which credit was taken were duty paid. 19.6 In adjudication, by various orders the adjudicating authorities confirmed the demand of cenvat credit together with interest and also imposed penalties on them under Rule 13(2) of the Cenvat Credit Rules, 2002 read with section 11AC of the Central Excise Act, 1944. 19.7 In appeal against the aforementioned orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rule 9 : Provided further that the job worker may make an option to undertake the activities mentioned in this sub-rule as an agent or person authorised by the said person and in such a case, the said job worker shall be deemed to be the said person." 20.3 The Board has explained the rule in Circular No. 703/19/2003-CX dated 25-3-2003 as under : (a) Central Excise Rules, 2002 are being amended so as to prescribe special procedure for Textiles and Textiles articles. Under the special procedure, the duty liability, accountability and the responsibility for complying with the excise procedures (such as registration, return filing, maintenance of records) would rest with the person who gets yarns, fabrics or ready made garments manufactured or processed on job work. Such person would normally be the owner of the raw material who gets finished products manufactured on payment of job charges. He can take credit of the goods which are used in job work. In such a case, the job worker (such as powerlooms, hand processor and power processors) would be totally free from the duty burden as well as from the procedural requirements. The job worker, however, at his option, can take upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he merchant manufacturer has authorised the job worker to fulfil his obligations under central excise law, the fact that the merchant manufacturer has supplied the goods under his own invoice or endorsed the invoice issued by another supplier and therefore the knowledge of the receiver about the merchant manufacturer would be sufficient would not be correct. In such cases the job worker has to necessarily know the supplier and the obligations can be said to be fulfilled only if it is done keeping the supplier to the merchant manufacturer in mind. In none of the cases before us, this information is available. The case of the department is that the job worker or the processor is required to know the supplier of the fabrics even where the invoice was endorsed by the merchant manufacturer or the merchant manufacturer had issued another invoice. 20.5 At this juncture it also becomes necessary to know whether the case of the department in each assessee s case is based on the invoice endorsed by the merchant manufacturer or issued by the merchant manufacturer. At this juncture, Rule 7(1)(e) becomes relevant since this recognizes an endorsed invoice also as a document. However in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trictly by the rule, if the assessee did not have personal knowledge about the existence of the supplier, he was required to obtain a certificate either from a person known to him or from the central excise superintendent. This certificate was required to be kept with him and produced to the central excise officer on demand. Such being the legal requirement, the fact that department did not supply the basis of alert circular would not be of great importance. There was an obligation cast on the appellants to obtain a certificate and retain the same or how that he had personal knowledge of the supplier. No evidence has been produced by any of the assessees that they had fulfilled the obligations cast on them by Rule 7 irrespective of the circumstances and irrespective of facts of the case. Nevertheless we consider that it would be better if the department could make available the evidences gathered which showed that the suppliers did not exist to the assessees. 22. It is quite clear that the above two requirements would make it necessary to remand all the cases back to the original adjudicating authority for verification of facts and as far as possible supply the documents demanded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed advocate Shri J.C. Patel relied upon the decision in the case of B.T. Steels Ltd. to submit that some leeway is required to be allowed and the provisions are not to be looked at rigidly. However the decision cited by the learned advocate is not relevant in the light of the decisions subsequently rendered by the Hon ble High Court of Punjab Haryana and the Hon ble Supreme Court and also by the Hon ble Gujarat High Court in the case of Sheela Dyeing Printing Mills (P.) Ltd. Therefore the fact that Rule 173Q(1)(bb) was para materia with Rule 7(2) and the decision of the Tribunal is in favour of the appellants would not be of any help to the assessees. 24.3 The question as to whether suppression of facts/mis-declaration/fraud could have been invoked has to be considered. The learned consultant on behalf of revenue submitted that in this case the very fact that the invoices were fake/fictitious and suppliers were non existent itself is sufficient to show that there was suppression/fraud. As we have discussed earlier, this would depend upon the facts of the case. If it was obligatory for the manufacturer to know the supplier and he had not taken the reasonable steps, the view ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the rules to ensure that the goods are received by him and the same are duty paid. Further when he files a monthly return on when he takes the credit in the cenvat credit an account he is declaring to the department that he is availing the cenvat credit after fulfilling the obligations under Rule 7. If he has not taken the reasonable steps envisaged in Rule 7, it would amount to mis-declaration. Therefore when we, analyse the facts and the law, what emerges is that if an assessee has not fulfilled the obligations cast on him under Rule 7, the obvious conclusion and the only conclusion possible appears to be that suppression of facts or mis-declaration can be invoked. We recognize the fact that the suppression of fact or mis-declaration is a factor which is required to be concluded based on facts and circumstances in each and every individual case. Therefore we would not like to lay down this proposition as a conclusion binding on the original adjudicating authority but leave the issue open for a decision by the lower authority at the time of de novo adjudication. More so, since we are remanding the appeals. 25. Another submission was made that many of the suppliers who a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
