2014 (2) TMI 7 - AT - Central Excise

Appellants Win Cenvat Credit Case: Buyer Not Liable for Supplier Misconduct

The judgment ruled in favor of the appellants, emphasizing that the denial of Cenvat credit based on the revoked registration of the supplier was ... Denial of CENVAT CRedit - Reasonable stepts - Imposition of penalty - Commissioner (Appeals) held in favour of the respondents by observing that the only reasons for denial of credit to the Respondent is that the dealer registration of M/s. Gaytri Traders stands revoked vide order in original - Held that:- appellants have taken the Cenvat Credit on the basis of the invoices issued by the M/s. Harsh & Company, 292, Chandpol Bazar, Jaipur, who was registered with the department as second stage dealer as defined under Rule 2 (s) of the Cenvat credit Rules, 2004. As the invoice issued by second stage dealer is a prescribed document under the Rule 9 (1) (a) (iv) Cenvat credit Rules, 2004, therefore, it is clear that the appellants took the Cenvat credit on the basis of the proper documents as prescribed under the law - as assessee have taken all reasonable steps to ensure that the inputs received by them are duty paid and have known their immediate supplier, the modvat credit cannot be denied on the ground that the person supplying the goods to the dealer-supplier was either not in existence or has not paid duty on the final product - Decided against Revenue. Issues:1. Denial of Cenvat credit based on revoked registration of supplier.2. Allegation of non-receipt of inputs and non-compliance with Cenvat credit Rules, 2004.3. Burden of proof on maintaining proper records and admissibility of Cenvat credit.4. Validity of taking Cenvat credit based on invoices from a registered dealer.5. Precedents regarding buyer's responsibility for supplier's misconduct in Cenvat credit cases.Analysis:1. The judgment addresses the issue of denial of Cenvat credit due to the revoked registration of the supplier, M/s. Gaytri Traders. The Commissioner (Appeals) observed that the denial was solely based on the registration status of the supplier, without disputing the actual receipt and utilization of the inputs by the appellants. The Commissioner highlighted that the appellants had received the inputs, paid appropriate central excise duty, and maintained proper records as required by Rule 9(5) of the Cenvat Credit Rules, 2004.2. Regarding the allegations of non-receipt of inputs and non-compliance with Cenvat credit Rules, 2004, the Commissioner found that the appellants had fulfilled their obligations by receiving the goods, making payments through cheques, and ensuring the genuineness of the documents provided by the supplier. The Commissioner emphasized that the appellants had taken all reasonable steps within their control to verify the authenticity of the transactions and were not expected to verify the supplier's compliance independently.3. The judgment delves into the burden of proof on maintaining proper records and the admissibility of Cenvat credit. It was noted that the appellants had complied with Rule 9(5) by maintaining records of receipt, disposal, and consumption of inputs, as well as the payment of central excise duty. The Commissioner concluded that the appellants had discharged their burden of proof as required by the Cenvat Credit Rules, 2004.4. The validity of taking Cenvat credit based on invoices from a registered dealer, M/s. Harsh & Company, was also examined. The Commissioner confirmed that the appellants had availed Cenvat credit on the basis of invoices issued by a registered second stage dealer, which met the requirements of the Cenvat Credit Rules, 2004. The judgment emphasized the importance of proper documentation for availing Cenvat credit.5. Lastly, the judgment discussed precedents regarding the buyer's responsibility for the supplier's misconduct in Cenvat credit cases. Citing previous Tribunal decisions and a High Court ruling, the Commissioner upheld that as long as the buyer had taken reasonable steps to ensure duty-paid inputs and had relied on valid documents, the Cenvat credit could not be denied based on the supplier's actions. The judgment rejected the Revenue's appeals based on these considerations and established legal principles.Overall, the judgment provides a detailed analysis of the issues related to Cenvat credit denial, compliance with rules, burden of proof, validity of invoices, and buyer's responsibility in supplier misconduct cases, ultimately ruling in favor of the appellants based on the facts and legal precedents presented.