2013 (7) TMI 307 - AT - Central Excise

Manufacturer's Duty to Verify Cenvat Credit Upheld, Penalty Set Aside

The Tribunal upheld the recovery of Cenvat credit amount but set aside the penalty imposed on the appellant, emphasizing the manufacturer's duty to verify ... Burden of proof regarding admissibility of Cenvat credit under Rule 9(5) - pro rata duty requirement for invoices from a registered dealer under Rule 9(4) - caveat emptor principle applicable to recovery of wrongly availed credit - application of extended limitation period under proviso to Section 11A(1) for recovery - penalty under Rule 15(2) read with Section 11ACBurden of proof regarding admissibility of Cenvat credit under Rule 9(5) - pro rata duty requirement for invoices from a registered dealer under Rule 9(4) - caveat emptor principle applicable to recovery of wrongly availed credit - application of extended limitation period under proviso to Section 11A(1) for recovery - Whether the higher Cenvat credit availed by the appellant on the basis of dealer invoices is recoverable and whether the extended limitation period is applicable. - HELD THAT: - The Tribunal found that the invoices issued by the registered dealer reflected duty in excess of the duty actually paid by the manufacturer by applying a higher rate per unit. Sub rule (5) of Rule 9 places the burden of proof regarding admissibility of Cenvat credit on the manufacturer taking such credit, and sub rule (4) requires that credit on purchases from a registered dealer be allowed only where the dealer's records show the goods supplied from duty paid stock and the invoice indicates only a pro rata amount of such duty. The appellant did not have the manufacturer's invoices enclosed and thus could not verify the correct duty; nevertheless, the principle of caveat emptor, as applied by the Apex Court in the cited authority, was held applicable. Applying that principle together with the statutory obligations under Rule 9(4) and (5), the Tribunal held that the appellant was not entitled to the excess credit and that recovery using the extended limitation period under the proviso to Section 11A(1) was permissible. [Paras 6]Excess Cenvat credit is recoverable and the extended limitation period applies.Penalty under Rule 15(2) read with Section 11AC - Whether penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC should be imposed on the appellant for availing the higher credit. - HELD THAT: - Although the appellant availed higher credit, the record showed that the dealer had committed the fraud by passing on excess credit and that the appellant had no evidence of knowledge of that fraud; the Deputy Commissioner had earlier dropped proceedings on that basis. Having upheld recovery of the credit on statutory and caveat emptor grounds, the Tribunal nevertheless concluded that there was no sufficient basis to uphold the penalty against the appellant under Rule 15(2) read with Section 11AC, and therefore set aside the penalty. [Paras 6, 7]Penalty under Rule 15(2) read with Section 11AC is not sustainable and is set aside.Final Conclusion: The Tribunal upheld the demand for recovery of the excess Cenvat credit (applying the extended limitation period) but quashed the penalty imposed under Rule 15(2) read with Section 11AC. Issues:1. Alleged wrongful availment of Cenvat credit by the appellant based on higher credit passed on by a registered dealer.2. Dispute regarding recovery of Cenvat credit and imposition of penalty on the appellant.Issue 1: Alleged wrongful availment of Cenvat credit:The appellant, a pressure cooker manufacturer, purchased brass rods from a registered dealer who had been passing on higher credit than the duty actually paid. The department alleged that the appellant wrongly availed Cenvat credit of Rs. 62,000 during the disputed period. Initially dropped by the Deputy Commissioner, the case was reviewed by the Commissioner (Appeals) who confirmed the Cenvat credit demand, interest, and penalty. The Commissioner held that the appellant failed to take reasonable steps to ensure only admissible credit was availed, despite the registered dealer passing on higher credit. The appellant contended that they had no knowledge of the fraud committed by the dealer and should not be penalized for it. The Departmental Representative argued that the appellant should have taken precautions to ensure correct credit was availed, as per Rule 9 (5) of Cenvat Credit Rules. The Tribunal held that the appellant was not eligible for Cenvat credit due to the fraud committed by the dealer, invoking the extended recovery period but setting aside the penalty.Issue 2: Dispute regarding recovery and penalty imposition:The Tribunal noted that the registered dealer had passed on higher credit than the duty paid, leading to the appellant availing the same. The Tribunal referred to a similar case decided by the Apex Court to emphasize that the burden of proof regarding the admissibility of Cenvat credit lies with the manufacturer. Applying this principle, the Tribunal held that the appellant was not eligible for the credit and the extended recovery period would apply. However, the Tribunal ruled that the appellant would not be liable for penalty under Rule 15 (2) of Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. Consequently, the impugned order confirming the Cenvat credit demand was upheld, while the penalty imposed on the appellant was set aside.In conclusion, the judgment upheld the recovery of Cenvat credit but set aside the penalty imposed on the appellant, emphasizing the manufacturer's responsibility to ensure the correctness of credit availed based on invoices issued by registered dealers.