2023 (9) TMI 16 - HC - Central Excise

Court rules in favor of petitioner challenging CENVAT credit fraud accusation under Article 226

M/s. Bhagyalaxmi Prints Pvt. Ltd. Versus Union Of India

The court entertained the petition challenging the maintainability under Article 226 of the Constitution of India. The petitioner, accused of fraudulently ... Fraudulent availment of CENVAT Credit - grey fabrics - fake, bogus and non-existent manufacturers - HELD THAT:- Appreciating the facts in the present case indicate that as in the case of the Prayagraj Dyeing & Printing Mills Pvt. Ltd. [2013 (5) TMI 705 - GUJARAT HIGH COURT], merely because the manufacturers cannot be found at the present, it cannot make the invoices fake or documents fraudulent in the eye of law. Enough material was placed on record by the petitioner to suggest that the invoices were issued by duly registered manufactures and merely because the manufacturer is not available, does not mean that such manufacture who was registered with the central excise did not exist. Once receipt of goods is not disputed by a person taking credit and necessary invoices are issued, the petitioner is entitled to take credit provided he took reasonable steps to ensure by the inputs or the capital goods in respect of which CENVAT credit is taken were accompanied by the documents. Perusal of the impugned order in light of the show cause notice would indicate that the facts of the case on hand were identical to the case of appeals before the Division Bench in case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. [2013 (5) TMI 705 - GUJARAT HIGH COURT] and therefore, it was not open for the respondent authority not to give the benefit of such judgement. Petition allowed. Issues Involved:1. Maintainability of the petition under Article 226 of the Constitution of India.2. Allegations of fraudulent availing of CENVAT credit by the petitioner.3. Comparison with the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd.4. Burden of proof regarding the existence of suppliers.5. Validity of the show cause notice and the impugned order.Summary:1. Maintainability of the Petition:The department argued that the petition under Article 226 of the Constitution of India is not maintainable due to the availability of an efficacious alternative remedy of filing an appeal against the order. The court, however, entertained the petition.2. Allegations of Fraudulent Availing of CENVAT Credit:The petitioner, an individual processor of grey fabrics, was accused of availing CENVAT credit amounting to Rs. 15,40,481/- based on invoices issued by fake/bogus/non-existing units. The department issued a show cause notice and, after remand proceedings, confirmed the demand and imposed a penalty, alleging that the petitioner had fraudulently availed CENVAT credit.3. Comparison with Prayagraj Dyeing & Printing Mills Pvt. Ltd.:The petitioner contended that their case was identical to Prayagraj Dyeing & Printing Mills Pvt. Ltd. v. Union of India, where the court had ruled in favor of the assessee. The department, however, distinguished the present case, arguing that the facts were different and the petitioner had not challenged the alert circulars issued by the department.4. Burden of Proof Regarding the Existence of Suppliers:The department argued that once it was established that the suppliers were fake, the burden of proof shifted to the petitioner to prove their existence. The petitioner failed to provide evidence to suggest that the suppliers of grey fabric were in existence.5. Validity of the Show Cause Notice and the Impugned Order:The court examined the show cause notice and the impugned order, noting that the department declared the suppliers as fake based on various alert circulars. The court found that the facts of the case were identical to those in Prayagraj Dyeing & Printing Mills Pvt. Ltd., where it was held that merely because the manufacturers cannot be found at present, it does not make the invoices fake or fraudulent. The petitioner had taken reasonable steps to ensure the authenticity of the invoices, and the demand was barred by limitation.Conclusion:The court allowed the petition, quashing and setting aside the order-in-original dated 22.07.2021, thereby ruling in favor of the petitioner.