Dilip Gupta,J:-
These appeals by the revenue arise from a judgment of the Customs, Excise & Service Tax Appellate Tribunal dated 1 July 2013 in a batch of three appeals. Since the facts are similar, all the three appeals which have been filed by the revenue, are being disposed of by this judgment.
2. The following questions of law have been framed in the appeals:-
"(1) Whether on the facts and in the circumstances of the case, the CESTAT was justified in law in rejecting the appeal filed by the Appellant against the Respondent who availed Cenvat Credit on the basis of invoices issued by M/s M.K. Steels, Kolkata as sequel to an inquiry and fake nature of the said invoices was proved and M/s Sarla Ispat (P) Ltd., Durgapur who was mentioned to be the manufacture of goods in the said invoices was found to be non-existent?
(2) Whether on the facts and in the circumstances of the case, the CESTAT was justified in law in rejecting the appeal of the Appellant even when the Respondent have not taken due care for receiving the goods and violated the provisions of Rule 3, 9(3) & Rule 7 of the Cenvat Credit Rules, 2004?"
3. The assessee is engaged in the manufacture of MS Bars, Rounds, SS Flats and SS Products. The assessee is a registered dealer and had procured raw material through M/s MK Steels (P) Ltd. The inputs covered by the invoices raised by M/s MK Steels (P) Ltd. were received by the assessee and were entered in the cenvat credit account. Inputs were used for the manufacture of final products which were cleared against the payment of duty. On enquiry by the Assistant Commissioner, Central Excise Commissionerate, Bolpur, it was found that the original manufacturer of MS Ingots, namely Sarla Ispat (P) Ltd., Durgapur, was non-existent. The assessee availed of the cenvat credit on the strength of invoices which were issued by M/s MK Steels (P) Ltd., which was the first stage dealer. A notice to show cause was issued to the assessee which resulted in an order of adjudication confirming a demand of duty under Rule 14 of Cenvat Credit Rules, 2004 (hereinafter referred to as the 'Rules of 2004') read with Section 11A(1) of Central Excise Act, 1944. A personal penalty was imposed on the Director of the assessee as also the Authorised Signatory of the assessee. In appeal, the Commissioner (Appeals), Central Excise, Kanpur held that in terms of the provisions of Rule 7 (4) of Cenvat Credit Rules, 2002 (hereinafter referred to as the 'Rules of 2002') read with Rule 9 (5) of the Rules of 2004, a manufacturer is required to check the particulars as mentioned in the invoices issued by the first stage dealer. During the course of the hearing before the Commissioner (Appeals), the assessee submitted, inter-alia, Form 31 issued by the Uttar Pradesh Trade Tax Department, the ledger account evidencing payments by cheques made to M/s MK Steels (P) Ltd., and Form RG 23-A, Part-II. It was held that the assessee has received goods against the invoices of M/s MK Steels (P) Ltd. for which payment was made by cheque and that the manufactured goods were cleared against the payment of central excise duty. The Commissioner (Appeals) also held that the transaction on the part of the assessee was bona fide and a buyer can take only those steps which are within his control and would not be expected to verify the records of the supplier to check whether in fact he had paid duty on the goods supplied by him. The only reasonable steps which he can take is to ensure that the supplier is trustworthy, the inputs are in fact received and that the documents, prima facie, appear to be genuine. The fact that the assessee made payment by cheque was held to be a proof of his bona fides. The Commissioner (Appeals) also relied on a circular of the Central Board of Excise & Customs (CBEC) dated 15 December 2003 clarifying that cenvat should not be denied to a user-manufacturer as long as bona fide nature of the consignee's transaction is not doubted. Moreover, if the manufacturer-supplier has received payment from the buyer in respect of goods supplied including excise duty, action should be initiated against him under Section 11D and 11DD. In the circumstances, it was held that cenvat credit could not be denied to the assessee.
4. This view has been affirmed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (in short 'the Tribunal') in its judgment. The Tribunal has found that the revenue has not disputed that the supplier from whom the assessee received the raw materials (MK Steels (P) Ltd.) has raised dealers invoices giving all the particulars required to be furnished in law. Moreover, it was also not disputed that the assessee had received the inputs and entered them in its records and these inputs were used in the manufacture of final products, which were cleared on payment of duty. The goods travelled from the dealer to the assessee under the cover of Form 31 issued by the Uttar Pradesh Trade Tax Department. The ledger account and RG 23 A records prove the receipt of the goods. Further, the payments were made by cheque. The Tribunal was of the view that in terms of the provisions of Rule 7 (4) of the Rules of 2002 and Rule 9 (5) of the Rules of 2004, a manufacturer is required to check the particulars as mentioned in the invoice issued by the first stage dealer and he should be familiar with him. The Tribunal has also held that it would be impractical for an assessee to further check the records maintained by the first stage dealer and to verify its correctness. It would be sufficient for the assessee to buy the goods from the first stage dealer whose status he has checked and verified. There was no dispute that M/s MK Steels (P) Ltd. was registered as a dealer with the revenue. In these circumstances, it was held that the denial of cenvat credit to the assessee was improper. The order of the Commissioner (Appeals) was, accordingly, upheld by the Tribunal.
5.On behalf of the revenue, reliance has been placed on the provisions of Rule 9 (3) of the Rules of 2004. According to the revenue, the assessee was obliged under Rule 9 (3) to take all reasonable steps to ensure that the inputs in respect of which he has taken the cenvat credit are goods on which the appropriate duty of excise, as indicated in the documents accompanying the goods, has been paid. In the present case, it was urged that the assessee ought to have made an enquiry which would have indicated that Sarla Ispat (P) Ltd. that had supplied the original raw material was a fictitious entity.
Rule 9 (3) of the Rules of 2004, insofar it is material, provides as follows:-
"(3) The manufacturer or producer of excisable goods or provider of output service taking CENVAT credit on input or capital goods or input service, or the input service distributor distributing CENVAT credit on input service shall take all reasonable steps to ensure that the input or capital goods or input service in respect of which he has taken the CENVAT credit are goods or services on which the appropriate duty of excise or service tax as indicated in the documents accompanying the goods or relating to input service, has been paid."
6. The Explanation to Rule 9 (3) of the Rules of 2004 provides a deeming fiction where a manufacturer or producer of excisable goods who takes cenvat credit on inputs, would be deemed to have taken reasonable steps, if he satisfies himself about the identity and address of the manufacturer or supplier or provider of input services, as the case may be, issuing the documents specified in sub-rule (1) on the basis of his personal knowledge or on the basis of a certificate given by a person with whom he is familiar or on the basis of a certificate issued to the manufacturer or the supplier by the Superintendent of Central Excise concerned. In other words, the Explanation to Rule 9 (3) provides a deeming definition as to when a manufacturer or a purchaser of excisable goods would be deemed to have taken reasonable steps. However, even in a situation where Explanation to Rule 9(3) is not attracted, it would be open to an assessee to establish independently within the meaning of the substantive part of Rule 9 (3) that he had in fact taken reasonable steps. Whether an assessee has in fact taken reasonable steps, is a question of fact.
7. In the present case, both the Commissioner (Appeals) and the Tribunal have given cogent reasons to indicate that the assessee had taken reasonable steps to ensure that the inputs in respect of which he has taken the cenvat credit are goods on which the appropriate duty of excise, as indicated in the documents accompanying the goods, has been paid. Admittedly, in the present case, the assessee was a bona fide purchaser of the goods for a price which included the duty element and payment was made by cheque. The assessee had received the inputs which were entered in the statutory records maintained by the assessee. The goods were demonstrated to have travelled to the premises of the assessee under the cover of Form 31 issued by the Trade Tax Department, and the ledger account as well as the statutory records establish the receipt of the goods. In such a situation, it would be impractical to require the assessee to go behind the records maintained by the first stage dealer. The assessee, in the present case, was found to have duly acted with all reasonable diligence in its dealings with the first stage dealer.
The view which the Tribunal has taken is consistent with the judgment of the Jharkhand High Court in Commissioner of C. Ex., East Singhbhum Vs. Tata Motors Ltd.1,where it was held as follows:-
"... Once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, the buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs. The buyer will be therefore entitled to claim Modvat credit on the said assumption. It would be most unreasonable and unrealistic to expect the buyer of such inputs to go and verify the accounts of the supplier or to find out from the department of Central Excise whether actually duty has been paid on the inputs by the supplier. No business can be carried out like this, and the law does not expect the impossible."
8. The judgment of the Division Bench of the Himachal Pradesh High Court in A.B. Tools Limited Vs. Commissioner of Central Excise2, on which reliance has been placed by the revenue, does not indicate that any contrary view of the law has been taken.
9. Ultimately, the issue in each case is whether, within the meaning of Rule 9 (3) of the Rules of 2004, the assessee has taken reasonable steps to ensure that the inputs in respect of which he has taken cenvat credit were goods on which appropriate duty of excise was paid. Once it is demonstrated that reasonable steps had been taken, which is a question of fact in each case, it would be contrary to the Rules to cast an impossible or impractical burden on the assessee.
10. For the aforesaid reasons, these appeals do not give rise to any substantial question of law. They are, accordingly, dismissed.
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