2011 (3) TMI 1125 - AT - Central Excise

Manufacturers denied tax credit on raw materials due to fraudulent dealer's actions. Tribunal clarifies time limits and penalty.

The Appellants, manufacturers of iron and steel products, faced denial of Cenvat credit on duty paid for raw materials supplied by a fraudulent dealer. ... Interest and penalty - CENVAT credit denied - claim regarding the reversal of the credit rejected - order-in-original not intimated the option available to the Appellant to pay interest and 25% of the penalty within 30 days of receipt of the order - Held that:- The date (28-04-2001) on which the Appellant claims to have reversed the credit is much after the date (07-02-2001) on which investigations were started by the department against the supplier. This claim of return of the goods in itself supports the case of the department that the credit was fraudulent when seen with the other attendant circumstances. The plea that SCN was not issued within one year from taking credit is not correct because this is a case involving a fraudulent document and the time limit for issue of SCN in such cases is five years from the relevant date as per the proviso to the Section 11A of the Central Excise Act. As order-in-original has not intimated the option available to the Appellant to pay interest and 25% of the penalty within 30 days of receipt of the order to close the matter an opportunity to the Appellant to pay 25% of the penalty imposed within thirty days of receipt of this order for a final closure of the matter given. Issues:1. Denial of Cenvat credit on raw material due to fraudulent invoices.2. Reversal of credit claimed by the Appellant after investigations against the supplier.3. Time limit for issuing Show Cause Notice (SCN) in cases of fraudulent documents.4. Applicability of interest payment provisions under Section 11AB and 11AA.5. Opportunity for the Appellant to pay 25% of the penalty for final closure of the matter.Analysis:1. The Appellants, manufacturers of iron and steel products, faced denial of Cenvat credit on duty paid for raw materials like M.S. rounds supplied by a fraudulent dealer. The central excise officers found discrepancies in the invoices issued by the supplier, leading to the denial of credit, interest levy, and penalty imposition. The Appellant's claim of receiving defective goods and reversing the credit was rejected by the Commissioner (Appeal).2. The Appellant's assertion of reversing the credit on the impugned goods after investigations started was challenged. The Tribunal noted that the reversal date post-dated the start of investigations, casting doubt on the credibility of the claim. The Tribunal highlighted that the Appellant's failure to present evidence before the adjudicating authority weakened their case, suggesting a strategic move to evade penalties.3. Regarding the time limit for issuing the Show Cause Notice, the Tribunal clarified that in cases involving fraudulent documents, the SCN can be issued within five years from the relevant date, contrary to the Appellant's argument of the notice being time-barred. This provision aligns with the proviso to Section 11A of the Central Excise Act.4. The Tribunal addressed the issue of interest payment, noting the discrepancy in applying Section 11AB and 11AA for interest calculation. The Tribunal highlighted the relevance of the Appellant's claim of credit reversal in determining the interest payable, emphasizing the need for a comprehensive assessment of the timeline and applicable provisions.5. In line with the Delhi High Court decision in a similar case, the Tribunal granted the Appellant an opportunity to pay 25% of the penalty within 30 days for final closure of the matter. Failure to meet this deadline would result in the full penalty amount becoming due, subject to verification of the Appellant's claim of credit reversal. This provision aimed to facilitate a timely resolution while ensuring compliance with penalty obligations.