2010 (9) TMI 949 - HC - Central Excise

Buyers Can Claim Modvat Credit Based on Invoices and Payments, Supreme Court Affirms Taxpayer Rights in Crucial Ruling

COMMISSIONER OF C. EX., EAST SINGHBHUM Versus TATA MOTORS LTD.

SC ruled in favor of the assessee regarding Modvat credit claim. The court held that buyers can presume excise duty payment by suppliers upon receiving ... MODVAT credit - The case of the department is that M/s. Clutch Auto Ltd. did not actually deposit the excise duty, which was payable on the said inputs, which were supplied to the assessee - Held that: - Once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, the buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs. The buyer will be therefore entitled to claim Modvat credit on the said assumption. So far as remaining amount of Modvat credit is concerned, Because of the complete silence in the Tribunal’s order on the said remaining issues, we remand the case back to the Tribunal after setting aside that portion of the impugned order - matter on remand. The Jharkhand High Court addressed an appeal concerning the claim of approximately Rs. 10,00,000/- as Modvat credit by the respondent-assessee, with less than Rs. 5,00,000/- claimed based on invoices from Clutch Auto Ltd. It was undisputed that the assessee paid the full invoice amounts and that the inputs were excisable items; however, the department contended that Clutch Auto Ltd. did not deposit the excise duty due on those inputs.The Tribunal ruled in favor of the assessee, holding that the assessee was 'not at fault.' The department relied on Rule 57G, emphasizing the phrase 'Every manufacturer intending to take credit on the duty paid on inputs,' arguing that Modvat credit is only available if duty has actually been paid.The Court rejected this argument, reasoning that 'once a buyer of inputs receives invoices of excisable items, unless factually established to the contrary, it will be presumed' that the duty has been or will be paid by the supplier. The Court held it 'would be most unreasonable and unrealistic' to require the buyer to verify the supplier's duty payments, as 'the law does not expect the impossible.'Although the department cited Rule 57-I and the Tribunal's decision in IDL Chemicals Ltd. v. Commissioner of Central Excise (1996 (88) E.L.T. 710), the Court disagreed with that precedent and declined to interfere with the Tribunal's order on this point.Regarding the remaining Modvat credit amount, the Court noted the assessee's admission of voluntary deposit of wrongly claimed credit but observed the Tribunal's silence on this issue. Consequently, the Court set aside that portion of the order and remanded the matter for the Tribunal to consider the remaining issues after hearing both parties.