2008 (7) TMI 209 - HC - Central Excise

Manufacturer's Duty Liability Upheld for Non-Compliance with CENVAT Credit Rules

SHEELA DYEING & PRINTING MILLS P. LTD. Versus CCE & C., SURAT-I

The Tribunal upheld the duty liability on the appellant for failing to take reasonable steps under Rule 7(2) of the CENVAT Credit Rules 2002 to ensure ... Appellant undoubtedly has not satisfied itself about the identity and address of the supplier either from its personal knowledge, or on the strength of the certificate issued to the supplier by the Superintendent of Central Excise - Tribunal was right in holding that the Appellants failed to take reasonable steps of Rule 7(2) when admittedly the Appellants received goods from principal supplier on job work basis - appeal of assessee is, accordingly, dismissed. Issues:1. Whether the appellant took reasonable steps under Rule 7(2) of the CENVAT Credit Rules 2002 to ensure the duty payment on inputs received.2. Whether the appellant is liable for duty when goods were purchased by the principal supplier and not directly by the appellant.Analysis:Issue 1:The appellant, engaged in manufacturing processed fabrics on job-work basis, received grey fabrics for processing from a principal manufacturer through a vendor. The appellant availed CENVAT credit on duty paid inputs but was later found that the invoices used for credit were fake. The Adjudicating Authority held the appellant liable for duty under section 11A(2) of the Central Excise Act, 1944. The Commissioner (Appeals) confirmed the duty but reduced the penalty. The Tribunal upheld the duty liability but set aside the penalty. The appellant argued that it had taken reasonable steps under Rule 7(2) by obtaining declarations and an undertaking from the principal manufacturer. However, the Tribunal found the invoices invalid due to fraud by the vendor, Muskan Prints, and held the appellant liable for duty and interest.Issue 2:The Tribunal emphasized that the appellant, as the manufacturer, had the duty liability and should have verified the supplier's identity. The Tribunal noted the understanding between the appellant and the principal manufacturer regarding credit eligibility. Despite doubts about the appellant's knowledge of the vendor's non-existence, the Tribunal held the appellant accountable for the duty and interest. The Tribunal's order on the rectification application reiterated the findings, emphasizing the lack of eligibility for credit based on fraudulent documents. The Tribunal rejected the rectification application, stating that the appellant failed to fulfill the requirements of Rule 7(2) and dismissed the appeal.In conclusion, the Tribunal's decision was based on the appellant's failure to meet the reasonable steps criteria under Rule 7(2), leading to the liability for duty and interest. The Tribunal's findings highlighted the appellant's responsibility as a manufacturer to verify suppliers and documents for credit eligibility, ultimately dismissing the appeal due to non-compliance with statutory provisions.