Assessee not expected to verify with Department in order to avail Cenvat credit, whether supplier had paid duty on inputs or not.

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Assessee not expected to
verify with Department
in order to avail Cenvat credit, whether supplier had paid duty on inputs or not.
We are
sharing with you an important judgement of the Hon’ble Supreme Court of India,
in the case of Commissioner
of Central Excise, Jalandhar
vs. M/s. Kay Kay Industries
[AIT-2013-147-SC] on following issue:
 
Issue:
Whether the
assessee is expected to verify with Department whether supplier had paid duty
on inputs supplied by Manufacturer-Supplier in order to avail deemed MODVAT credit?
 
Facts & Background:
M/s Kay Kay Industries (“the Respondent” or “the
assessee”
) availed deemed MODVAT credit of Rs. 77,546/- during the quarter
of March, 2000 on the strength of invoices issued by M/s. Sawan Mal Shibhu Mal
Steel Re-Rolling Mills, Mandi Govindgarh, supplier of inputs. During MODVAT
verification it was found that the supplier of inputs had not discharged full
duty liability for the period covered by the invoices on the strength of which
the Respondent took the benefit of deemed MODVAT credit. The Competent
Authority was of the view that it was obligatory on the part of the Respondent
to take all reasonable steps to ensure that the appropriate duty of excise had
been paid on the inputs used in the manufacture of their final product as
required under Rule 57A(6) of the Central Excise Rules, 1944 (“the Rules”) read with notification No.
58/97-CE(NT) dated 30.8.1997 (“the  notification”) and issued a show-cause
notice on 19.1.2001 proposing recovery of deemed MODVAT credit of Rs. 77,546/-
and imposition of penalty. The adjudicating authority, after receipt of the
reply to the show-cause notice, by order dated 22.3.2002, disallowed the deemed
MODVAT benefit availed earlier and ordered for recovery of the said sum along
with interest, and, further imposed penalty of Rs. 40,000/-.
Being aggrieved by the aforesaid order the Respondent
preferred an appeal before the Commissioner (Appeals), Central Excise,
Jalandhar, who concurred with the view taken by the adjudicating authority.
However, it reduced the penalty from Rs. 40,000/- to Rs. 20,000/-. Thereafter,
the Respondent preferred an appeal before the Customs, Excise and Service Tax
Appellate Tribunal (“the Tribunal”)
who quashed the orders passed by the adjudicating authority and that of the
appellate authority.
Questioning the justifiability of the
aforesaid order, Revenue preferred an appeal before the High Court who
concurring with the view expressed by the Tribunal dismissed the appeal. Hence,
the Revenue preferred an appeal before the Hon’ble Supreme Court.
 
Held:
It was held by the Hon’ble
Supreme Court that Rule 57A (6) of the Rules postulates
and requires “reasonable care” and not verification from the Department whether
the duty stands paid by the manufacturer-seller.
The Hon’ble Supreme Court held that there
is no dispute that a declaration was given by the manufacturer of the inputs
indicating that the excise duty had been paid on the said inputs under the Act.
It is also not in dispute that the said inputs
were directly received from the manufacturer but not purchased from the market.
There is no cavil over the fact that the manufacturer of the inputs had
declared the invoice price of the inputs correctly in the documents.
Rule 57A (6) of the Rules requires the
manufacturer of final products to take reasonable care that the inputs acquired
by him are goods on which the appropriate duty of excise as indicated in the
documents accompanying the goods, has been paid.
The notification has been issued in exercise of
the power under the said Rule. The notification clearly states to which of
those inputs it shall apply and to which of the inputs it shall not apply and
what is the duty of the manufacturer of final inputs. Thus, when there is a
prescribed procedure and that has been duly followed by the manufacturer of
final products, it cannot be perceived that the assessee had not taken
reasonable care as prescribed in the notification. Due care and caution was
taken by the Respondent. It is not stated what further care and caution could
have been taken.
Therefore, the Hon’ble Supreme Court dismissed
the appeal and decided the case in favour of the Respondent.
Present Scenario under the Cenvat Credit Rules, 2004 (“the Credit
Rules”):
As such there is no specific condition under the
Credit Rules that the assessee has to verify with Department in order to avail
Cenvat credit, whether supplier had paid duty on inputs supplied by
Manufacturer-Supplier. Further, Sub rule (5) and (6) of Rule 9 of the Credit
Rules, only specify that burden of proof lies on Manufacturer or Service
Provider regarding admissibility of the CENVAT credit on Inputs, Capital Goods
and Input Services as reproduced here in below:
“(5) The manufacturer of final products or the
provider of output service shall maintain proper records for the receipt,
disposal, consumption and inventory of the input and capital goods in which the
relevant information regarding the value, duty paid, CENVAT credit taken and
utilized, the person from whom the input or capital goods have been procured is
recorded and the burden of proof regarding the admissibility of the CENVAT
credit shall lie upon the manufacturer or provider of output service taking
such credit.
(6) The manufacturer of final products or the
provider of output service shall maintain proper records for the receipt and
consumption of the input services in which the relevant information regarding
the value, tax paid, CENVAT credit taken and utilized, the person from whom the
input service has been procured is recorded and the burden of proof
regarding the admissibility of the CENVAT credit shall lie upon the
manufacturer or provider of output service taking such credit.”
Recently, the Hon’ble Delhi Tribunal in the case
of CC
& CCE Vs M/s Juhi Alloys Ltd (2013-TIOL-1310-CESTAT-DEL)
has held
that “A
buyer can take steps which are in their control and he cannot be expected to
verify the records of the supplier’s broker (i.e dealer) to check whether in
fact the supplier has paid duty on the goods supplied by him or not – as long
as bonafide nature of the consignee transaction is not doubted, credit should
not be denied – Revenue appeals rejected: CESTAT [paras 6, 7 & 8]:DELHI
CESTAT”
Hope the information will assist you in your
Professional endeavors. In case of any query/ information, please do not
hesitate to write back to us.
Thanks & Best Regards.Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: [email protected]

Released a Book –
“Guide to Service Tax Voluntary Compliance Encouragement Scheme,
2013”, authored by Bimal Jain, FCA, FCS, LLB
Disclaimer: The contents of this document
are solely for informational purpose. It does not constitute professional
advice or recommendation of firm. Neither the authors nor firm and its
affiliates accepts any liabilities for any loss or damage of any kind arising
out of any information in this document nor for any actions taken in reliance
thereon.

 

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