Ramgarh Chini Mills Vs. Commissoner of Central Excise - Court Judgment

Excerpt:
1. the commissioner of central excise, in the impugned order disallowed credit of duty on inputs amounting to rs. 15,12,533/-. he also vacated the demand of duty amounting to rs. 1,47,87,106/- and imposed a personal penalty of rs. 5 lakhs. being aggrieved by this order, the appellants have filed the 8 appeals.2. the facts leading to the appeals are that the appellants took modvat credit on certain items. the lower authorities after considering the submissions made allowed modvat credit on certain items and disallowed modvat credit on certain items on different counts.3. shri r. swaminathan, the learned consultant appearing for the appellants narrating the facts submitted that he is contesting disallowance of modvat credit of rs. 8,43,785/- and is not contesting the balance amount of rs. 6,68,948/-, as the amount has already been reversed. he submitted that the main grounds on which he is contesting the disallowance of modvat credit are :- (c) disallowance of modvat credit on account of rate of duty mentioned in the invoices being not in conformity with the rate prevailing during the material period. (d) the document on the strength of which modvat credit was taken did not meet the requirements of rule 52a; and (e) the invoices being in the name of the headquarters' office of the unit and not being in the address of the unit.4. the learned consultant submitted that in so far as non pre-authen-tication of the invoices is concerned, it was a curable defect. he submitted that when the defect was noticed a representative of the supplier went to the office of the range supdt. to cure the defect, but since the show cause notice was already issued no action was taken by the concerned range staff. he cited a number of cases in support of his contention that the defect of non pre-authen-tication was a curable defect and could be cared. in support of this contention, he cited and relied upon the decisions of this tribunal in the case of siya ram platex pvt. ltd. v. collector of central excise, reported in 1994 (4) rlt 119 (t). he further supported his contention by citing decisions of this tribunal in the case of jain steel industries v.collector of central excise, reported in 1997 (90) e.l.t. 445 and also in the case of paharpur cooling towers ltd. v. commissioner of central excise, 5. on the question of taking modvat credit on original documents, the learned consultant submitted that the position is well settled by now by various decisions of the tribunal, wherein it has been clearly held that in the initial stages of introduction of the invoice system modvat credit could be taken on the strength of original copy of the invoices.in support of this contention, he cited and relied upon the decision of the tribunal in the case of zinc-o-india v. collector of central excise reported in 1996 (88) e.l.t. 373. he also supported his contention by citing the case of commissioner of central excise v. shiv shakti tube pvt ltd. reported in 1997 (18) rlt 622. further the learned consultant submitted that similar view was taken by the tribunal in the cases reported in 1997 (21) rlt 728, 1997 (21) rlt 731, 1996 (88) e.l.t. 98, 1997 (22) rlt 536, 1997 (22) rlt 538 and 1997 (20) rlt 66.6. on the question of the documents on the strength of which modvat credit was taken being not in accordance with the requirement of the rule 52a. the learned consultant submitted that the invoices clearly indicated as per enclosure. the learned consultant placed before us a copy of that enclosure, which indicated that the particulars furnished in the enclosure were strictly in accordance with requirements of rule 52a. the learned consultant therefore, submitted that the requirements of rule 52a was fully met by the documents furnished by the appellants.7. in so far as the documents being addressed to the headquarters' office of the appellants' company is concerned, the learned consultant submitted that the document was at the headquarters' office of the unit, but there was no dispute about the receipt of the goods in the factory and their utilisation in the final product. he therefore, submitted that simply because the document bore the address of the headquarters' office of the unit should not disentitle them to take modvat credit. in support of his contention he cited the decisions of this tribunal reported in 1994 (3) rlt 215 (t) and 1997 (20) rlt. 812.8. on the question of imposition of penalty, the learned consultant submitted that the appellants had no doubt taken credit of modvat but had not utilised the same. he submitted that utilisation is an important aspect if the credit subsequently is found not admissible. he submitted that the appellants awaited the decision of the authorities for more than a year to avail the modvat credit taken. he submitted that the lower authorities upheld disallowance of modvat credit to the extent of rs. 15 lakhs and therefore, penalty of rs. 5 lakhs is unwarranted and too harsh. the learned consultant submitted that there is no case for imposition of penalty inasmuch as the credit was not utilised and most of the lapses were procedural or curable.9. countering the arguments, shri d.k. nayyar, the learned jdr submits that in so far as pre-authentication of the documents is concerned it is an essential requirement to avoid fraud and since pre-authentication as the terms itself suggest needs authentication of the documents before their use any request made subsequently cannot be considered. he submits that modvat credit on the strength of authenticated document was taken in the month sept. and the request for authentication was made only in june of the subsequent year.10. in so far as taking of modvat credit on original document is concerned, the learned dr submits that there is a provision in the rules itself that if the documents are lost immediate report should be submitted to the assistant commissioner concerned. in the instant case, he submits that no such immediate information was furnished to the concerned authorities and a belated attempt to cover up the lapse is not sufficient for the purpose of taking modvat credit. in support of his contention the learned dr cited and relied upon the decision of this tribunal in the case of hcl, office automation ltd v. commissioner of central excise reported in 1997 (95) e.l.t. 667 (tribunal), where under the tribunal held that modvat credit can be taken only on the duplicate copy and can be taken on original copy only when the duplicate is lost in transit. he submitted that no such immediately report was made by the appellants to the authorities about the loss of the duplicate copy of the invoice.11. about the imposition of penalty, the learned consultant submitted that rule 173q (bb) provides for penalty not on the utilisation of modvat credit but it speaks on credit taken. the learned dr submits that in the instant case, modvat credit was wrongly taken by the appellants and therefore, penalty has rightly been imposed on the appellants.12. the learned dr further submitted that in so far as the other categories are concerned, they will need verification by the field officers.14. on a careful consideration of the submissions made, we agree with the categorisation of the case by the learned consultant and would like to deal with them categorywise.15. in so far as non pre-authentication of invoice is concerned, in the instant case, we find that the suppliers had made an attempt to rectify the defect when it was pointed out that invoices were not authenticated. we note that authentication of invoice is a curable defect. more so, when an invoice issued in the name of the customer an invoice cannot be endorsed thus, the pre-authentication of an invoice is a curable defect more so when it is issued not by the customer (who takes modvat credit) but by the supplier. therefore, if there is a defect, the defect should be rectified only by the supplier. we therefore, hold that pre-authentication is a curable defect and can be rectified.16. in so far as credit of duty on original invoices is concerned it was submitted by the appellants that a request was made stating that the original invoice was lost, but this request was not considered by the concerned authorities in view of the fact that a show cause notice was already issued. we find that different benches of this tribunal have held that during the initial period of introduction of invoice system, modvat credit could be taken on the strength of original invoice. no doubt a case was cited by the revenue in support of their contention that it was only in cases of loss of the duplicate invoices in transit that modvat credit could be on the strength of original copy of the invoice. however, the case cited by the revenue pertained to loss of invoice in the factory. in view of the consistent view held by the tribunal that modvat credit could be taken on the strength of original invoice during the initial period of introduction of modvat credit scheme on the strength of invoice we do not find any reasons to disagree with the contention of the appellant and hold accordingly.17. in so far as the rate of duty not in conformity with the rate prevailing during the material period is concerned, we find that the position was not clarified by the learned consultant for the appellants, as he could not produce any document to show the exact amount of duty paid on the goods. therefore, on this aspect we hold that the appellants have not been able to prove their case.18. in so far as disallowance of modvat credit amounting to rs. 29,346/- on the ground that the document does not meet the requirements of rule 52a is concerned, we find that the delivery note clearly makes a mention about payment of duty as per enclosure and we find that the particulars given in the enclosure are in accordance with requirement of rule 52a. we therefore, hold that modvat credit has correctly been taken in this respect.19. the only issue now remains is that of taking credit on the strength of invoices in which the address of the head office of the company was given. in this case, we note that there is no dispute about the actual receipt of the goods in the factory and their utilisation thereof.therefore, the fact that the address recorded in the invoice was that of head office of the appellants, unit does not debar them from taking modvat credit on the strength of this type of documents. therefore, modvat credit will be admissible to them in this respect.20. in so far as imposition of penalty is concerned, we note that a part of the credit has been reversed. looking to all the facts and circumstances discussed above, we hold that penalty is imposable, but the quantum of penalty is too high. looking to the totality of the circumstances, we reduce the quantum of penalty to rs. 25,000/-.21. the appeals are disposed of in the above terms. the impugned orders are modified accordingly. consequential relief if any shall be admissible in accordance with law.

Judgment:
1. The Commissioner of Central Excise, in the impugned order disallowed credit of duty on inputs amounting to Rs. 15,12,533/-. He also vacated the demand of duty amounting to Rs. 1,47,87,106/- and imposed a personal penalty of Rs. 5 lakhs. Being aggrieved by this order, the appellants have filed the 8 appeals.

2. The facts leading to the appeals are that the appellants took Modvat credit on certain items. The lower authorities after considering the submissions made allowed Modvat credit on certain items and disallowed Modvat credit on certain items on different counts.

3. Shri R. Swaminathan, the learned Consultant appearing for the appellants narrating the facts submitted that he is contesting disallowance of Modvat credit of Rs. 8,43,785/- and is not contesting the balance amount of Rs. 6,68,948/-, as the amount has already been reversed. He submitted that the main grounds on which he is contesting the disallowance of Modvat credit are :- (c) Disallowance of Modvat credit on account of rate of duty mentioned in the invoices being not in conformity with the rate prevailing during the material period.

(d) The document on the strength of which Modvat credit was taken did not meet the requirements of Rule 52A; and (e) The invoices being in the name of the Headquarters' office of the unit and not being in the address of the unit.

4. The learned Consultant submitted that in so far as non pre-authen-tication of the invoices is concerned, it was a curable defect. He submitted that when the defect was noticed a representative of the supplier went to the office of the Range Supdt. to cure the defect, but since the show cause notice was already issued no action was taken by the concerned Range staff. He cited a number of cases in support of his contention that the defect of non pre-authen-tication was a curable defect and could be cared. In support of this contention, he cited and relied upon the decisions of this Tribunal in the case of Siya Ram Platex Pvt. Ltd. v. Collector of Central Excise, reported in 1994 (4) RLT 119 (T). He further supported his contention by citing decisions of this Tribunal in the case of Jain Steel Industries v.Collector of Central Excise, reported in 1997 (90) E.L.T. 445 and also in the case of Paharpur Cooling Towers Ltd. v. Commissioner of Central Excise, 5. On the question of taking Modvat credit on original documents, the learned Consultant submitted that the position is well settled by now by various decisions of the Tribunal, wherein it has been clearly held that in the initial stages of introduction of the invoice system Modvat credit could be taken on the strength of original copy of the invoices.

In support of this contention, he cited and relied upon the decision of the Tribunal in the case of Zinc-O-India v. Collector of Central Excise reported in 1996 (88) E.L.T. 373. He also supported his contention by citing the case of Commissioner of Central Excise v. Shiv Shakti Tube Pvt Ltd. reported in 1997 (18) RLT 622. Further the learned Consultant submitted that similar view was taken by the Tribunal in the cases reported in 1997 (21) RLT 728, 1997 (21) RLT 731, 1996 (88) E.L.T. 98, 1997 (22) RLT 536, 1997 (22) RLT 538 and 1997 (20) RLT 66.

6. On the question of the documents on the strength of which Modvat credit was taken being not in accordance with the requirement of the Rule 52A. The learned Consultant submitted that the invoices clearly indicated as per enclosure. The learned Consultant placed before us a copy of that enclosure, which indicated that the particulars furnished in the enclosure were strictly in accordance with requirements of Rule 52A. The learned Consultant therefore, submitted that the requirements of Rule 52A was fully met by the documents furnished by the appellants.

7. In so far as the documents being addressed to the Headquarters' office of the appellants' company is concerned, the learned Consultant submitted that the document was at the Headquarters' office of the unit, but there was no dispute about the receipt of the goods in the factory and their utilisation in the final product. He therefore, submitted that simply because the document bore the address of the Headquarters' office of the unit should not disentitle them to take Modvat credit. In support of his contention he cited the decisions of this Tribunal reported in 1994 (3) RLT 215 (T) and 1997 (20) RLT. 812.

8. On the question of imposition of penalty, the learned Consultant submitted that the appellants had no doubt taken credit of Modvat but had not utilised the same. He submitted that utilisation is an important aspect if the credit subsequently is found not admissible. He submitted that the appellants awaited the decision of the authorities for more than a year to avail the Modvat credit taken. He submitted that the lower authorities upheld disallowance of Modvat credit to the extent of Rs. 15 lakhs and therefore, penalty of Rs. 5 lakhs is unwarranted and too harsh. The learned Consultant submitted that there is no case for imposition of penalty inasmuch as the credit was not utilised and most of the lapses were procedural or curable.

9. Countering the arguments, Shri D.K. Nayyar, the learned JDR submits that in so far as pre-authentication of the documents is concerned it is an essential requirement to avoid fraud and since pre-authentication as the terms itself suggest needs authentication of the documents before their use any request made subsequently cannot be considered. He submits that Modvat credit on the strength of authenticated document was taken in the month Sept. and the request for authentication was made only in June of the subsequent year.

10. In so far as taking of Modvat credit on original document is concerned, the learned DR submits that there is a provision in the rules itself that if the documents are lost immediate report should be submitted to the Assistant Commissioner concerned. In the instant case, he submits that no such immediate information was furnished to the concerned authorities and a belated attempt to cover up the lapse is not sufficient for the purpose of taking Modvat credit. In support of his contention the learned DR cited and relied upon the decision of this Tribunal in the case of HCL, Office Automation Ltd v. Commissioner of Central Excise reported in 1997 (95) E.L.T. 667 (Tribunal), where under the Tribunal held that Modvat credit can be taken only on the duplicate copy and can be taken on original copy only when the duplicate is lost in transit. He submitted that no such immediately report was made by the appellants to the authorities about the loss of the duplicate copy of the invoice.

11. About the imposition of penalty, the learned Consultant submitted that Rule 173Q (bb) provides for penalty not on the utilisation of Modvat credit but it speaks on credit taken. The learned DR submits that in the instant case, Modvat credit was wrongly taken by the appellants and therefore, penalty has rightly been imposed on the appellants.

12. The learned DR further submitted that in so far as the other categories are concerned, they will need verification by the Field Officers.

14. On a careful consideration of the submissions made, we agree with the categorisation of the case by the learned Consultant and would like to deal with them categorywise.

15. In so far as non pre-authentication of invoice is concerned, in the instant case, we find that the suppliers had made an attempt to rectify the defect when it was pointed out that invoices were not authenticated. We note that authentication of invoice is a curable defect. More so, when an invoice issued in the name of the customer an invoice cannot be endorsed thus, the pre-authentication of an invoice is a curable defect more so when it is issued not by the customer (who takes Modvat credit) but by the supplier. Therefore, if there is a defect, the defect should be rectified only by the supplier. We therefore, hold that pre-authentication is a curable defect and can be rectified.

16. In so far as credit of duty on original invoices is concerned it was submitted by the appellants that a request was made stating that the original invoice was lost, but this request was not considered by the concerned authorities in view of the fact that a show cause notice was already issued. We find that different Benches of this Tribunal have held that during the initial period of introduction of invoice system, Modvat credit could be taken on the strength of original invoice. No doubt a case was cited by the Revenue in support of their contention that it was only in cases of loss of the duplicate invoices in transit that Modvat credit could be on the strength of original copy of the invoice. However, the case cited by the Revenue pertained to loss of invoice in the factory. In view of the consistent view held by the Tribunal that Modvat credit could be taken on the strength of original invoice during the initial period of introduction of Modvat credit scheme on the strength of invoice we do not find any reasons to disagree with the contention of the appellant and hold accordingly.

17. In so far as the rate of duty not in conformity with the rate prevailing during the material period is concerned, we find that the position was not clarified by the learned Consultant for the appellants, as he could not produce any document to show the exact amount of duty paid on the goods. Therefore, on this aspect we hold that the appellants have not been able to prove their case.

18. In so far as disallowance of Modvat credit amounting to Rs. 29,346/- on the ground that the document does not meet the requirements of Rule 52A is concerned, we find that the delivery note clearly makes a mention about payment of duty as per enclosure and we find that the particulars given in the enclosure are in accordance with requirement of Rule 52A. We therefore, hold that Modvat credit has correctly been taken in this respect.

19. The only issue now remains is that of taking credit on the strength of invoices in which the address of the Head Office of the Company was given. In this case, we note that there is no dispute about the actual receipt of the goods in the factory and their utilisation thereof.

Therefore, the fact that the address recorded in the invoice was that of Head Office of the appellants, unit does not debar them from taking Modvat credit on the strength of this type of documents. Therefore, Modvat credit will be admissible to them in this respect.

20. In so far as imposition of penalty is concerned, we note that a part of the credit has been reversed. Looking to all the facts and circumstances discussed above, we hold that penalty is imposable, but the quantum of penalty is too high. Looking to the totality of the circumstances, we reduce the quantum of penalty to Rs. 25,000/-.

21. The appeals are disposed of in the above terms. The impugned orders are modified accordingly. Consequential relief if any shall be admissible in accordance with law.