Extended period of limitation cannot be invoked on a legitimate buyer

The CESTAT, Kolkata in M/s Jai Balaji Industries Limited v. Commissioner of Central Excise [Excise Appeal no. 9 of 2011 dated June 26, 2013] had set aside the order demanding excise duty and held that the buyer who has paid a valuable consideration could not be proceeded upon by taking the aid of a larger period of limitation as per Section 11A(1) of the Central Excise Act, 1944 unless it is proved that the buyer was also involved in fraud.

Facts

M/s Jai Balaji Industries Limited ("the Appellant") purchased plant and machinery ("the Impugned Machinery") from M/s Saha Industries ("the supplier") which was duly registered with the Central Excise department on which the Appellant claimed CENVAT credit on the basis of the duty paid invoices.

An investigation dated January 30, 2008 ("the Investigation") was carried out in the premises of the supplier in which the department concluded that the supplier did not have the proper infrastructure to manufacture the Impugned Machinery and the report of a chartered engineer in August 2008 was also obtained.

A Show cause notice dated March 10, 2010 ("the SCN") was issued to the Appellant alleging that the Appellant had never received the Impugned Machinery and the Appellant had availed fake CENVAT credit on the basis of fake invoices, It was further alleged that the supplier did not have the infrastructural capacity to manufacture the Impugned Machinery and the Appellant had failed to verify the antecedents of the supplier which the Appellant was required to verify in order to avail the CENVAT credit as per Rule 7(2) and Rule 9(3) of the CENVAT Credit Rules, 2004.

The SCN raised a demand for excise duty of INR 1,43,31,998 which was confirmed by the Adjudicating authority vide order dated October 5, 2010 ("the Impugned Order"). Aggrieved by the Impugned Order the Appellant filed the present appeal before the CESTAT.

The Appellant submitted that the Impugned machinery was duly received for which payment was made through cheques and was subsequently entered into the statutory records and further, there was nowhere contended by the Adjudicating Authority that the supplier had not received inputs for manufacturing the Impugned Machinery.

Issue

Whether the extended period of limitation could be invoked in case of a buyer who has paid a valuable consideration for acquiring inputs and was not a party to fraud?

Held

The CESTAT, Kolkata in Excise Appeal No. 9 of 2011ruled as under:

• Observed that the department has failed to prove that the Appellant had received the Impugned Machinery from any other source than the supplier and the SCN just alleged that the Appellant has availed CENVAT credit without receipt of capital goods.
• Relied on the judgement given by the Hon’ble Punjab and Haryana High Court in CCE, Chandigarh v. Neepaz Steels Ltd. [2008 (230) ELT 218 (P&H)] wherein the Court held that when the payments were made through cheques or demand drafts and the department was not able to prove that any other raw material was received then CENVAT credit could not be denied to the manufacturers.
• Relied on the judgement given by Hon’ble Supreme Court in Gian Chand & Brothers v. Rattan Lal Singh [MANU/SC/0015/2013] wherein the Court held that accounts regularly maintained in the course of business are to be construed as correct unless there was strong and sufficient reasons to indicate that the accounts were unreliable.
• Further relied on its own judgement in M/s Jai Balaji Industries Ltd. v. CCEx, Bolpur [Excise Appeal No. 258 of 2010 dated October 25, 2019] wherein it held that where the assessee had received inputs that were entered into the statutory records maintained by the assessee then it would be impractical to require the assessee to go behind the records.
• Relied on the Hon’ble Gujarat High court judgement in in Prayagraj Dyeing & Printing Mills Pvt. v. Union of India [2013 (290) ELT 61 (Guj)] wherein it was held that even when an original document was issued by the supplier by practicing fraud then the buyer who has paid a valuable consideration could not be proceeded by taking the aid of a larger period of limitation as per Section 11A(1) unless it is proved that the buyer was also at fraud.
• Set aside the Impugned Order and allowed the appeal of the Appellant.

Relevant Provision

Section 11A(1) of the Central Excise Act, 1944

"11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.-

(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,-

(a) the Central Excise Officer shall, within two years from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

(b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of,-

(i) his own ascertainment of such duty; or
(ii) duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under section 11AA."