2013 (2) TMI 141 - HC - Central Excise

High Court overturns CESTAT decision denying MODVAT credit due to supplier's exemption status

India Pistons Ltd. Versus The Commissioner of Central Excise, Chennai-34.

The High Court held that the CESTAT erred in denying MODVAT credit to the appellant based on the supplier's exemption status. The Court found the ... MODVAT credit on aluminium ingots denied - assessee had availed deemed credit - they had received the ignots from the supplier who has not availed the benefit of any exemption - Held that:- Notification in question No.100/88 dated 1.3.1988 is a conditional Notification, wherein the exemption is only subject to the satisfaction of the conditions stated therein on duty paid materials, falling under Chapter 76 or Chapter 83, being used in the manufacture of unwrought aluminium, whether or not alloyed. After the remand by the Tribunal, in the first instance, admittedly, the suppliers were examined by the Department and a right to cross-examination was given to the appellant. As seen in question No.18, the appellant herein cross-examined the supplier, which asked about availing any exemptions under the Central Excise during the relevant period to which he replied No thus in the face of such categorical statement made by the supplier and in the absence of any material produced by the Revenue to hold that such a statement could not be accepted on its face value and further, in the absence of any letters from the supplier alleged to have been written and which were relied upon by the Appellate Authority to disallow the claim, no justifiable ground to uphold the finding of the Tribunal that the assessee was not entitled to the benefit of exemption. As rightly pointed out by appellant, when the very basis of the Adjudicating Authority's order is not there, the Tribunal's order thereby suffers a serious infirmity in law, which calls for an interference by this Court. The Tribunal, in its order clearly pointed out that in the cross examination, no doubt Mr.Anser Basha of M/s.B.S.Metal Mart stated that they had not availed any exemption. Commenting on the reliance placed by the assessee on this answer given by the supplier, the Tribunal pointed out that the Adjudicating Authority had given a very well reasoned order. As already pointed out, if the Department felt that the statement of the supplier was not reliable, nothing prevented it from going in for a further enquiry into the matter. In fact, as pointed out by appellant, the registers pertaining to the suppliers were very much available before the Revenue and no efforts were taken to discredit any of those registers belonging to the suppliers. In the circumstances, no logic arises in the Tribunal raising a question as to why the supplier did not pay the duty and the answer given towards the end to such a question raised, seems to be a vague one, not supported by any material - set aside the order of the Tribunal, allow the civil miscellaneous appeal and hold that the appellant is entitled to the benefit of exemption. Issues Involved:1. Whether the CESTAT erred in denying MODVAT credit based on the supplier not claiming exemption.2. Presumption of duty-paid status of aluminium stocks.3. Discrimination between procurement from a trader and a supplier not availing exemption.4. Whether the CESTAT transgressed the order of remand.5. Validity of disregarding the supplier's evidence.6. Scope of the remand by the Larger Bench.Issue-wise Detailed Analysis:1. Denial of MODVAT Credit Based on Supplier's Exemption Status:The appellant, a manufacturer of automobile components, availed MODVAT credit on aluminium ingots. The CESTAT denied this credit, arguing that the supplier did not claim exemption under Notification No.100/88. The appellant contended that the deemed credit scheme allowed credit without duty-paying documents, and the supplier's non-claim of exemption should not affect their eligibility.2. Presumption of Duty-Paid Status:The appellant argued that all aluminium stocks in the country are presumed to be duty-paid unless proven otherwise. The CESTAT did not accept this presumption, requiring specific evidence that the aluminium ingots were duty-paid.3. Discrimination in Procurement:The appellant highlighted discrimination between those procuring aluminium from traders (eligible for deemed credit without duty documents) and those from suppliers not availing exemption. The CESTAT's stance created an inconsistency in the application of the deemed credit scheme.4. Transgression of Remand Order:The CESTAT was accused of overstepping the remand order by the Larger Bench, which was limited to verifying if the supplier availed exemption. The Tribunal's broader inquiry into the duty status of the aluminium ingots was challenged as beyond the scope of the remand.5. Disregarding Supplier's Evidence:The supplier, when cross-examined, confirmed not availing any exemption. The CESTAT dismissed this evidence, stating it was not 'gospel truth.' The appellant argued that without contrary evidence or further investigation by the Revenue, the supplier's statement should be accepted.6. Scope of Remand by the Larger Bench:The Larger Bench's remand was specific to verifying the supplier's exemption status. The CESTAT's expanded inquiry into the duty status of the aluminium ingots was challenged as exceeding the remand's scope. The Tribunal's decision to deny credit based on an unsupported assumption was seen as a fundamental error.Judgment Summary:The High Court found that the CESTAT erred in its judgment. The Tribunal's decision was based on an unsupported assumption that the aluminium ingots were non-duty paid, despite the supplier's categorical denial of availing any exemption. The absence of the alleged letters from the supplier further weakened the Revenue's case. The Court emphasized the conditional nature of the exemption notifications and the need for concrete evidence to deny deemed credit. The Tribunal's reliance on vague reasoning and failure to conduct a thorough inquiry into the supplier's records led to the judgment being set aside. The appellant was entitled to the benefit of deemed credit, and the civil miscellaneous appeal was allowed.