Ex-parte order denying CENVAT credit quashed for violating natural justice principles under section 37C

The Gujarat HC quashed an ex-parte order dated 27.08.2019 by Additional Commissioner denying CENVAT credit to petitioner's factory due to wrong address mentioned in invoice. The court found gross violation of natural justice principles as the adjudicating authority failed to consider submissions and evidence, and did not comply with mandatory service provisions under section 37C of Central Excise Act. The authority proceeded ex-parte without proper notice service through prescribed methods like registered post or affixing at premises. Despite limitation period expiring for appeal, HC exercised Article 226 jurisdiction in exceptional circumstances to prevent gross injustice, setting aside the impugned order without examining merits.

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Issues Involved:

1. Validity of ex-parte adjudication by the Additional Commissioner.
2. Compliance with the principles of natural justice.
3. Applicability of Section 35 of the Central Excise Act regarding the condonation of delay in filing an appeal.
4. The admissibility of Cenvat credit based on invoices addressed to a different unit.

Detailed Analysis:

1. Validity of Ex-Parte Adjudication by the Additional Commissioner:

The petitioner challenged the ex-parte order passed by the Additional Commissioner on the grounds that the adjudication was conducted without proper service of notice, violating Section 37C of the Central Excise Act. The Court noted that the notice for personal hearings was returned undelivered, and no alternative methods of service were adopted by the respondent authority. The Court emphasized that proper service of notice is mandatory, and failure to do so invalidates the ex-parte order.

2. Compliance with the Principles of Natural Justice:

The petitioner argued that the ex-parte order was passed in violation of the principles of natural justice. The Court agreed, stating that the adjudicating authority did not consider the submissions and evidence on record. The Court cited precedents like Regent Overseas Pvt. Ltd. Vs. Union of India and Messers CTM Technical Textiles LTD Versus Union of India, which underscore the necessity of adhering to statutory procedures and ensuring effective service of notice. The Court concluded that the ex-parte order was in breach of natural justice principles.

3. Applicability of Section 35 of the Central Excise Act Regarding the Condonation of Delay in Filing an Appeal:

The petitioner contended that the Commissioner (Appeals) has no power to condone delays beyond 30 days under Section 35 of the Central Excise Act. The Court referred to the Larger Bench decision in Panoli Intermediate (India) Pvt. Ltd. Versus Union of India, which held that delays beyond 90 days cannot be condoned. However, the Court noted that under exceptional circumstances, where gross injustice is demonstrated, the High Court can exercise its powers under Article 226 of the Constitution to condone such delays. The Court found the petitioner’s reasons for the delay justified and chose to condone the delay, remanding the matter to the Commissioner (Appeals) for a fresh decision.

4. The Admissibility of Cenvat Credit Based on Invoices Addressed to a Different Unit:

The dispute arose from the petitioner availing Cenvat credit on invoices addressed to a unit that had surrendered its registration. The respondent argued that the petitioner failed to prove the receipt and utilization of inputs in the manufacturing process. The Court did not delve into the merits of this issue, as it focused on procedural lapses and the violation of natural justice. The matter was remanded to the Commissioner (Appeals) for a decision on merits after providing the petitioner an opportunity to present their case.

Conclusion:

The Court quashed the ex-parte order dated 27.08.2019, citing violations of natural justice and improper service of notice. The delay in filing the appeal was condoned under Article 226 of the Constitution, and the matter was remanded to the Commissioner (Appeals) for a fresh decision on merits, ensuring the petitioner is given a fair hearing. The Court refrained from making any observations on the merits of the case, leaving all contentions open for adjudication by the Commissioner (Appeals).

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