AI Drafter 
TaxTMI 
TaxTMI 
2025 (11) TMI 1337
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....received from grey manufacturers/dealers. During the course of audit and scrutiny of ER-1 returns and invoices for the period Feb, 2004 to Feb 2005, it was noticed that the Appellant No. 1 (M/s. Krishna Art Silk Cloth Pvt Limited), had availed and utilized the Cenvat Credit on the basis of invoices issued by various dealers/ merchants /manufacturers/weavers of grey fabrics. The enquiry conducted by the department revealed that the Appellant No. 1 (M/s. Krishna Art Silk Cloth Pvt Limited), had availed Cenvat Credit amount of Rs. 23,10,005/- during the said period on the strength of invoices issued by fake/ bogus/ non-existing units. 2.1 Accordingly, a Show Cause Notice dated 13.03.2008 was issued to both the appellants asking them to show cause why CENVAT Credit amounting to Rs. 23,10,005/- wrongly taken and utilized by the unit on the strength of the invoices of the fake/bogus suppliers/manufacturers along-with interest should not be recovered from them under Rule 12/14 of CENVAT Credit Rules, 2002/2004 read with proviso to Section 11A(1) of Central Excise Act, 1944, and why penalty may not be imposed upon them under Rule 13(2)/15(2) of Cenvat Credit Rules, 2002/2004 read with S....
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..... Equal penalty was imposed on Appellant No. 1 under Rule 13(2)/15(2) of the Cenvat Credit Rules, 2002/2004 read with section 11AC of the Central Excise Act, 1944. Also, penalty of Rs. 23,10, 005/- was imposed on Appellant No. 2 under Rule 13(1)/15(1) of the Cenvat Credit Rules, 2002/2004. Feeling aggrieved with the above mentioned order, both the appellants filed appeals before the Commissioner CGST & Central Excise (Appeals) who rejected the appeals and upheld the order passed by the Adjudicating Authority. Feeling aggrieved from the impugned order passed by the learned Commissioner (Appeals), present appeals have been filed before this Tribunal. 3. The learned Counsel for the appellants submitted that the Commissioner (Appeals) has erred in not considering the facts that the CESTAT vide Order dated 01.12.2016 rejected the appeal of the Revenue preferred against Commissioner (Appeals)'s order dated 25.03.2011. While dismissing the appeal of the Revenue, the Hon'ble CESTAT observed as follows:- "2. The Learned Authorised Representative for Revenue fairly agrees that the demand is confirmed invoking extended period of limitation and the issue on merits is covered in....
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....ue diligence test (Rule 7(2)), the punitive extended period under the proviso to Section 11A(1) of the Central Excise Act cannot be invoked against the assessee unless the Revenue provides conclusive evidence that the recipient was an active party to the original fraud committed by the upstream suppliers. 3.2 The learned Counsel for the appellant also submitted that the above mentioned law laid down by Hon'ble Gujarat High Court was subsequently affirmed by the Hon'ble Supreme Court of India in Commissioner vs. Kirtida Silk Mills - 2018 (362) E.L.T. A122 (S.C.), where the Hon'ble Supreme Court dismissed the Revenue's Special Leave Petition against the High Court's ruling, confirming that the extended period is not applicable unless positive evasion of duty is established against the assessee. 3.3 Learned Counsel for the appellant also submitted that two issues to be decided in this appeal are as under:- (i) Whether the appellants are eligible to avail Cenvat credit passed on by the firms/units declared as fake/non-existent/bogus vide alert Circulars, and; (ii) Whether the extended period of limitation can be invoked or otherwise. The a....
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....erchant and therefore, the appellant could not know the persons who manufactured the grey fabrics. Further, the names of the appellants were not there in the Alert Circular issued by the authorities. Thus, there was no connivance of the appellants with the said non-existent suppliers and there was no intention to defraud the government department. The appellants were not a party to fraud as being merely a job-worker. The appellants received goods based on endorsed invoices and sent back to its merchant/trader and the appellant had never purchased the grey fabrics. 3.6 The learned Counsel for the appellant attracted attention of this Bench to the decision in M/s. Prayagraj Dyeing & Printing Mills Pvt. Limited (supra) in which Hon'ble High Court observed that invoices from registered but later untraceable manufacturers are documents issued by practicing fraud (voidable) and not outright 'forged' (void ab-initio). This crucial distinction confirmed the commercial integrity of the transaction, establishing the Appellants as "holders in due course for valuable consideration" entitled to the benefit. While the Court stressed that Rule 7(2) of Cenvat Credit Rules imposes an....
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.... failed to apply the ratio of judgments in Prayagraj Dyeing & Printing Mills Pvt. Limited and Kirtida Silk Mills (supra) which are squarely applicable to the facts of the case. Therefore, the impugned order passed by learned Commissioner is not sustainable and is liable to be setaside. He prays that appeals may be allowed. 4. Learned AR for the department reiterates the findings of the impugned order passed by learned Commissioner (Appeals) and submitted that the findings of the learned Commissioner (Appeals) emphasize that the assessee failed to ensure the due diligence regarding the legitimacy of suppliers and the physical receipt of goods, thereby rendering the availed credit fraudulent and unsustainable in law. The extended period of limitation was upheld owing to wilful suppression of facts and fraudulent intent established during the investigation. He prayed that the impugned order passed by learned Commissioner (Appeals) may be upheld and the appeals may be rejected. 5. I have heard the learned Counsel for the appellant and learned AR for the Revenue and perused the record. 5.1 I find that learned Commissioner (Appeals) has rightly mentioned in his impugned judgment....
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.... was not correct as the invoices issued by the grey manufacturers registered under Rule 12B/dealers were not in existence and fake, as declared in respective Alert Circulars issued after cessation of the scheme. The demand was made invoking extended period under proviso to Section 11A(1) of the Act. The Adjudicating Authority vide order dated 26.02.2008 confirmed the demand and imposed penalty. When the appeal was filed before Commissioner (Appeals), the appeal was rejected. Thereafter, the appeal was preferred before the Tribunal which remanded the matter to the Original Adjudicating Authority to decide the issue afresh. Feeling aggrieved by the order passed by Tribunal, the appellant preferred appeal before Hon'ble Gujarat High Court and the Hon'ble High Court held that it is now a settled law that Section 11A(1) is applicable when there is positive evasion of duty and mere failure to pay duty does not render the larger period applicable. In the case before us, it is not the case of the Revenue that the transferees were party to any fraud and therefore, the Revenue cannot rely upon the larger period of limitation. The Hon'ble High Court found support from the followin....