2013 (7) TMI 561 - AT - Central Excise

Court upholds Cenvat credit for company despite supplier fraud, penalties reversed

The court rejected all appeals filed by the Revenue, upholding the Commissioner (Appeals) decision to allow Cenvat credit and overturn penalties imposed ... Cenvat credit entitlement of a recipient where supplier's upstream invoices are found fake - compliance with invoice particulars under Rule 7(4) of the Cenvat Credit Rules, 2002 and Rule 9(5) of the Cenvat Credit Rules, 2004 - bona fide recipient doctrine - not required to verify supplier's internal records or broker's transactions - Board Circular No. 776/82/03-CX dated 15.12.2003 - credit not to be denied where bonafide nature of consignee transaction is not doubted - physical receipt and accounting evidence as proof of inputs receivedCenvat credit entitlement of a recipient where supplier's upstream invoices are found fake - compliance with invoice particulars under Rule 7(4) of the Cenvat Credit Rules, 2002 and Rule 9(5) of the Cenvat Credit Rules, 2004 - physical receipt and accounting evidence as proof of inputs received - bona fide recipient doctrine - not required to verify supplier's internal records or broker's transactions - Whether M/s. Juhi Alloys Ltd. was entitled to Cenvat credit though the manufacturer upstream to the dealer was found non-existent and invoices above the dealer were found to be fake, and whether denial of credit and penalties imposed on the recipient were justified. - HELD THAT: - The appellate authority's finding that the recipient complied with the checks required by law and that the dealer's invoices contained the required particulars was accepted. The respondent had physical receipt of the inputs, recorded them in Cenvat and accounting records (including RG 23 A and ledger entries), transported the goods under cover of Form 31, used the inputs in manufacturing and cleared finished goods upon payment of duty, and paid for the inputs by cheque. It is impractical to expect a recipient to verify the internal records of the supplier or the supplier's broker; compliance with the statutory invoice particulars and verification of the dealer's registration suffices under Rule 7(4) and Rule 9(5). Reliance on Board Circular No. 776/82/03-CX (15.12.2003) and Tribunal precedents that credit should not be denied where the bona fide nature of the consignee transaction is not doubted was held to be appropriate. On these bases the denial of credit and the imposition of penalties on the recipient were held to be neither proper nor justified. [Paras 6, 7, 8, 9]The Commissioner (Appeals) order allowing Cenvat credit to M/s. Juhi Alloys Ltd. and setting aside the demand and penalties was upheld; the revenue's appeals were rejected.Final Conclusion: The appeals filed by the Revenue are dismissed; the appellate authority's decision allowing Cenvat credit to the recipient and setting aside the confirmed demand and penalties is affirmed. Issues:Denial of Cenvat credit and imposition of penalty based on alleged fake invoices.Analysis:The judgment pertains to three appeals filed by the revenue challenging the Commissioner (Appeals) order that set aside the denial of Cenvat credit and penalties imposed on a company and its directors. The dispute arose from the procurement of inputs by the company from a registered dealer, who was later found to be sourcing goods from a non-existent entity, leading to allegations of fake invoices.The Commissioner (Appeals) found the company eligible for Cenvat credit as they had taken due precautions and followed the necessary rules in procuring the raw materials. The company had placed orders through a broker, received the inputs, and used them in manufacturing final products, duly clearing them with duty payment. The appellate authority emphasized that as long as the transaction's bonafide nature is not doubted, credit should not be denied, citing relevant legal provisions and circulars.The judgment highlighted that the company had received proper invoices from the dealer, recorded the inputs, physically received the goods, and made payments through cheques. The maintenance of ledger accounts and other records further substantiated the receipt and utilization of the inputs in the manufacturing process. The court also emphasized that it is impractical for an assessee to verify all records of the first-stage dealer beyond checking their registration status, which was done in this case.The court, in line with the Commissioner (Appeals) findings, rejected all appeals filed by the Revenue, emphasizing that denial of credit based on the first-stage dealer's alleged fraudulent activities was neither proper nor justified. The judgment was pronounced on 01.07.2013 by Ms. Archana Wadhwa, J., and concluded the matter in favor of the company and its directors.