Judgment:
1. This Reference Application has been filed by the Commissioner of Central Excise, Chandigarh for referring a point of law to the Hon'ble High Court of Punjab and Haryana at Chandigarh under Section 35G(1) of the Central Excise Act, 1944.
2. The following question of law has been formulated by the Commissioner for reference: "Whether failure to make enquiries about traders and failure to verify antecedents of parties who issued Gate Passes does not tantamount to failure to satisfy himself about the identity and address of the manufacturer or supplier which is requirement of law in Explanation to Rule 173Q(1)(bb) and therefore, whether the Tribunal is not unjustified in setting aside the order of imposition of penalty".
3. When the matter was called, none was present for the Respondents despite notice.
4. The matter was thereafter proceeded with after hearing the ld. JDR Shri Ravindra Babu.
5. Ld. JDR submits that the impugned order which was considered by the Tribunal related to imposition of penalty by the Collector, Central Excise, Chandigarh on the ground that the assessee had failed to comply with the provisions of Rule 173Q(1)(bb) of the Central Excise Rules, 1944 read with its Explanation prescribing that the assessee should satisfy himself about the identity and address of the manufacturer or supplier, as the case may be, issuing the duty paying document. The Department had alleged that the duty paying documents under the cover of which the assessee had taken Modvat credit were issued by non-existent units or issued in favour of non-existent firms. The Department had also shown that the assessee had subsequently debited the entire amount of duty involved through their RG 23 Part II account and through their PLA account. Ld. JDR submits that the conduct of the assessee clearly showed that they had failed to observe the requirements of Rule 173Q(1)(bb). However, the Tribunal had while disposing of the appeal relied on its earlier decisions in Khurana Steel Ltd. v. CCE, Chandigarh and Sharu Steel Co. v. CCE, Chandigarh wherein under similar circumstances the penalty was set aside. Further, the Tribunal had also taken note of the submissions of the assessee that they had obtained the inputs through a broker and they had satisfied themselves of the existence of the supplier from Delhi but they could not do so in relation to a supplier from Calcutta. The Tribunal had noted that in many cases Gate Passes are not directly endorsed by the manufacturer to the assessee who takes the credit finally, but they pass through one or more intermediary units. In such situations it would not be reasonable to expect that the assessee would be able to satisfy himself about the gehuineness of the manufacturers of the goods. In the case of Sharu Steel Co. (supra) the Tribunal had held that such requirement would be impracticable and therefore it cannot be held that the assessee had failed to satisfy the requirements of Rule 173Q(1)(bb). In the Final Order presently under consideration, the said reasoning in Sharu Steel Co. for quashing the penalty imposed by the lower authority was relied upon.
6. Ld. JDR has argued that Rule 173Q(1)(bb) casts a responsibility on the person availing of Modvat credit to verify the antecedents of the parties who issue the Gate Passes and failure to do so will be a failure to comply with the requirements of the law and therefore, liable to be penalised. He, therefore, submits that a point of law as formulated in Para 2 above has arisen and the same may be referred to the Hon'ble High Court of Punjab and Haryana at Chandigarh.
7. I have considered the submissions and perused the record. The Final order under consideration had followed the reasoning adopted in the earlier decision of the Tribunal in Sharu Steel Co. Ltd. and it was observed that where the Gate Passes ultimately received by the manufacturer of the final products has passed hands a number of times before it reached him it would not be reasonable to expect that the assessee would be able to satisfy himself about the genuineness of the original manufacturer of the goods, especially when such manufacturer is located at a different or distant place. However, I do find some force in the point raised in the Reference Application and a point of law does arise in such cases and it requires judicial interpretation as to what is the limit of the obligation cast on the manufacturer under Rule 173Q(1)(bb) read with Explanation thereto. The reasonable steps that are expected to be taken by the person availing of credit of duty is that he should satisfy himself either from his personal knowledge or on the strength of a certificate given by a person with whose handwriting or signature he is familiar or on the strength of a certificate issued to the manufacturer or the supplier by the Superintendent of Central Excise within whose jurisdiction such manufacturer has his factory or the supplier has his place of business subject to the proviso to the said Explanation.
8. In view of the above discussion, I accept the Reference Application and hereby refer the matter to the Hon'ble High Court of Punjab and Haryana under Section 35G(1) of the Central Excise Act, 1944.