CA Manoj Nahata 
There has been a long judicial dispute going on the matter of allow ability of Cenvat Credit claim especially in a case where the seller fails to deposit the amount of duty collected from the buyers to the Government account. This situation is not restricted only to the Central Excise cases but it is also extended to Service Tax and VAT cases. Several appellate authorities, Tribunals & Courts have interpreted the matter in their own way and in some of the cases were harsh enough to deny the Cenvat claim of the bonafide purchaser. Recently the Hon’ble Apex Court had an occasion to deal one such case under the Central Excise law.
Summary of the Judgment:
The Hon’ble Apex Court in case Commissioner of Central Excise, Jalandhar Vs. M/s Kay Kay Industries while disposing off the SLP filed by the revenue has held that to require the assessee to find out from the departmental authorities about the payment of excise duty on the inputs used in the final product which have been made allowable by the notification would be travelling beyond the notification, and in a way, transgressing the same. This would be practically impossible on the part of the assessee and would lead to transactions getting delayed. It was never the intention of law to caste such an obligation on the assessee. The Hon’ble Apex Court dismissing the appeal of the revenue concurred with the view expressed by the High Court of Punjab & Haryana.
Brief facts of the case & Judgment thereon:
The respondent-company availed deemed MODVAT credit of Rs.77,546/- during the quarter of March, 2000 on the strength of invoices issued by M/s. Sawan Mal Shibhu Mal Steel Re-Rolling Mills, Mandi Govindgarh. During MODVAT verification it was found that the supplier of inputs had not discharged full duty liability for the period covered by the invoices. The Competent Authority was of the view that appropriate duty of excise had not been paid by the manufacturer of inputs under the invoices on the strength of which the respondent took the benefit of deemed MODVAT credit and it was obligatory on the part of the respondent to take all reasonable steps to ensure that the appropriate duty of excise had been paid on the inputs used in the manufacture of their final product as required under Rule 57A(6) of the Central Excise Rules, 1944 (for short “the Rules”) read with notification No. 58/97-CE(NT) dated 30.8.1997 and the aforesaid opinion of the Competent Authority persuaded him to issue a show-cause notice on 19.1.2001 proposing recovery of deemed MODVAT credit of Rs.77,546/- and imposition of penalty. The adjudicating authority, after receipt of the reply to the show-cause notice, by order dated 22.3.2002, disallowed the deemed MODVAT benefit earlier availed and ordered for recovery of the said sum along with interest, and, further imposed penalty of Rs.40,000/-.
Being aggrieved by the aforesaid order the respondent preferred an appeal before the Commissioner (Appeals), Central Excise, Jalandhar. The appellate authority observed that unless and until payment of appropriate duty had been made, the assessee could not have availed the benefit. Expressing such an opinion, it concurred with the view taken by the adjudicating authority. However, it reduced the penalty from Rs.40,000/- to Rs.20,000/-.
The assessee preferred appeal before the the Customs, Excise and Service Tax Appellate Tribunal (for short “the tribunal”) and the tribunal placing reliance on the decision in Vikas Pipes v. CCE came to hold that the declaration given by the appellant therein satisfied the conditions enumerated in the notification for claiming the deemed MODVAT credit and, accordingly, quashed the orders passed by the adjudicating authority and that of the appellate authority.
Questioning the justifiability of the aforesaid order, Revenue preferred Appeal before the High Court. While dealing with the aforesaid substantial question of law, the High Court referred to its earlier decision in Vikas Pipes (supra) and distinguished the decision in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries and ultimately concurring with the view expressed by the tribunal dismissed the appeal.
The revenue finally filed SLP in the Supreme Court of India. The main contention of the department was that in terms of the Rule 57A(6) of the Rules and the notification which imposes conditions, it is obligatory on the part of the manufacturer of the final products to satisfy the adjudicating authority that appropriate duty of excise had been paid. It was the duty of the assessee-respondent, the manufacturer of the final products, to see that the manufacturer of the inputs had actually paid the appropriate duty on the inputs on the bedrock of law laid down by the Constitution Bench in Dhiren Chemical Industries (supra).
The Court observed that proviso to Sub-rule (6) of Rule 57A stipulates that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty of excise, as indicated in the documents accompanying the goods, has been paid. Thus, what is expected of an assessee is to take reasonable steps that appropriate duty, as indicated in the documents, has been paid.
On a plain reading of the clauses of notification No. 58/97-CE dated 30.8.1997 it is clear that there are two mandates to avail the benefit of the said notification. One part is couched in the affirmative language and the other part is in the negative. As per the first part it is obligatory on the part of the assessee to produce the invoice declaring that the appropriate duty of excise has been paid on such inputs under the provision of section 3-A of the Act The second command, couched in the negative, is that the provisions of the said notification shall not apply to inputs where the manufacturer of the said inputs has not declared the invoice price of the said inputs correctly in the documents at the time of their clearance from his factory.
There is no dispute that a declaration was given by the manufacturer of the inputs indicating that the excise duty had been paid on the said inputs under the Act. It is also not in dispute that the said inputs were directly received from the manufacturer but not purchased from the market. There is no cavil over the fact that the manufacturer of the inputs had declared the invoice price of the inputs correctly in the documents. It is perceivable from the factual matrix that the only allegation is that at the time of MODVAT verification it was found that the supplier of the inputs had not discharged full duty liable for the period covered under the invoices. This lapse of the seller is different and not a condition or rather a pre-condition postulated in the notification.
Rule 57A (6) requires the manufacturer of final products to take reasonable care that the inputs acquired by him are goods on which the appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. The notification has been issued in exercise of the power under the said Rule. The notification clearly states to which of those inputs it shall apply and to which of the inputs it shall not apply and what is the duty of the manufacturer of final inputs. Thus, when there is a prescribed procedure and that has been duly followed by the manufacturer of final products, the Court do not perceive any justifiable reason to hold that the assessee-appellant had not taken reasonable care as prescribed in the notification. Due care and caution was taken by the respondent. It is not stated what further care and caution could have been taken. The proviso postulates and requires “reasonable care” and not verification from the department whether the duty stands paid by the manufacturer-seller. When all the conditions precedent have been satisfied, to require the assessee to find out from the departmental authorities about the payment of excise duty on the inputs used in the final product which have been made allowable by the notification would be travelling beyond the notification, and in a way, transgressing the same. This would be practically impossible and would lead to transactions getting delayed. In view of the above findings the Court dismissed the SLP filed by the revenue.
Author’s Comments:
The above judgment has a far reaching effects in settling down the issues relating to cases where purchasing parties are disallowed the Cenvat Credit on the ground that the seller has not discharged its tax liability on the amount collected from the purchasers. The judgment makes it clear that when the law does not clearly prescribe what care and cautions has to be taken it is not justifiable to assume that the ‘reasonable care’ as stated in the law would mean that the purchaser should go to the tax department and verify whether the seller has actually paid tax collected from him. However it would be the duty of the purchaser to verify whether the invoice is issued to him properly in accordance with the provision of law stating all the particulars as required.
Position under VAT law:
Section 14 of the Assam Value Added Tax Act, 2003 stipulates the conditions for availing input tax credit. Clause (l) of subsection (6) of section 14 states that no input tax credit shall be claimed by a registered dealer or shall be allowed to him where tax invoice is not available with the dealer or there is evidence that the same has not been issued by the selling dealer from whom the goods are purported to have been purchased or the original invoice does not contain the details of tax charges separately .Further section 56 read with rule 32 prescribes the manner and conditions of issuing tax invoice. The Assam Value Added Tax Act, 2003 also does not caste any obligation on the purchaser to enquire or verify whether the seller has actually paid the tax collected from him. Hence the denial of input tax credit to the buyer where the seller has not deposited the amount would not be justifiable in the light of various judicial pronouncements including the above judgment.
In the Casecentrum Industries Pvt Ltd (46 MTJ 484), Karnataka appellate tribunal has held that if a dealer establish his claim for input tax by furnishing valid tax invoice issued by registered dealer indicating the vat collected in it, he would be discharging liability cast upon him under section 70(1). It is the responsibility of authorities concerned for taking appropriate action under the law against non compliance dealer.
Similarly the Punjab & Haryana High Court in a landmark judgment in case of Gheru Lal Bal Chand V. State of Haryana and Another (2011) 45 VAT 195 ( P & H) held that no liability can be fastened on the purchasing registered dealer on account of non-payment of tax by the selling registered dealer in the treasury unless it is fraudulent, or collusion or connivance with the registered selling dealer or its predecessors with the purchasing registered dealer is established. The selling-registered dealer who had collected tax from the purchasing-registered dealer acts as an agent for the Government
Position under Service Tax Law:
Rule 9 (1) of the Cenvat Credit Rules,2004 makes it clear that Cenvat Credit shall be taken by an output service provider only on the basis of any documents as specified in that sub-rule. The basic document for taking Cenvat credit under Service Tax is Invoice or bill or challan issued by the provider of input service. Further rule 4 prescribes the conditions for allowing Cenvat credit. A conjoint reading of various provisions of Cenvat Credit Rules, 2004 makes it amply clear that it is none of the responsibility of the person taking input to verify whether the service tax is paid by the person issuing the invoice. The responsibility of service receiver is restricted to verify whether the documents bears the contents as prescribed and is issued in the manner as laid down in the rules.
In Elveety Industries v.CCE 2001 (130) ELT 199(CEGAT SMB), assessee had taken Cenvat credit on basis of dealer’s invoice. The dealer had taken credit on basis of original invoice of manufacturer (and not on duplicate copy of invoice as was required during that time). It was held that assessee cannot be denied Cenvat credit even if dealer had taken credit wrongly. Similar view in CCE v. Unichem Trading Co. 1998 (102) ELT 284 (CEGAT).
Assessee buying goods from registered dealer cannot be expected to go beyond checking identity and address of manufacturer or supplier. He cannot examine whether supplier/manufacturer has actually paid the duty.- Transpek Industry v. CCE (2010) 249 ELT 91 (CESTAT SMB).
The above judgment(s) is not blanket rather the facts & circumstances of each case has to be seen independently and at the same time the corresponding provision of law casting duties & obligations on the person taking input credit / Cenvat Credit has to be examined carefully. Then only the ratio of judgment (s) can be applied judiciously .
PUNCH LINES
| It is not stated in law what further care and caution could have been taken. The proviso postulates and requires “reasonable care” and not verification from the department whether the duty stands paid by the manufacturer-seller. When all the conditions precedent have been satisfied, to require the assessee to find out from the departmental authorities about the payment of excise duty on the inputs used in the final product which have been made allowable by the notification would be travelling beyond the notification, and in a way, transgressing the same. |
*The author can be reached at: manoj_nahata2003@yahoo.co.in
The full text of the judgment is available at: http://indiankanoon.org/doc/122670562/
