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Commissioner Of C. Ex., East Singhbhum v. Tata Motors Ltd.
Factual and Procedural Background
The respondent-assessee claimed Modvat credit of about Rs. 10,00,000. Out of this amount, a sum of less than Rs. 5,00,000 was claimed on the basis of invoices issued by M/s. Clutch Auto Ltd., Mathura, for inputs supplied to the assessee. It was not disputed that the assessee paid the full invoice amounts and that the inputs were excisable. The department's case was that M/s. Clutch Auto Ltd. did not actually deposit the excise duty payable on those inputs. The Tribunal ruled in favour of the assessee, holding that the assessee was not at fault. The department appealed.
Legal Issues Presented
- Whether a buyer who has received invoices and paid for excisable inputs can claim Modvat credit when the supplier has not in fact deposited the excise duty.
- Whether Rule 57G (and Rule 57-1) precludes the availment of Modvat credit unless duty has been paid by the supplier.
- Procedural issue: whether the Tribunal's silence on the assessee's alleged voluntary deposit of wrongly claimed Modvat credit requires remand.
Arguments of the Parties
Appellant (Department)
- Reliance on Rule 57G: submission that Modvat credit is available only if duty has been paid on inputs (quoting "Every manufacturer intending to take credit on the duty paid on inputs").
- Reliance on Rule 57-1 and the Tribunal decision in Idl Chemicals Ltd. v. Collector Of Central Excise (1996 (88) E.L.T 710) which supports the department's position.
Respondent (Assessee)
- The assessee paid the full invoice amounts for excisable inputs and therefore is entitled to assume the supplier has paid or will pay the excise duty; accordingly entitled to claim Modvat credit.
- With regard to the remaining Modvat credit, the assessee contends it voluntarily deposited the amount wrongly claimed (this defence was said to have been not pressed before the Tribunal).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Idl Chemicals Ltd. v. Collector Of Central Excise, as reported in 1996 (88) E.L.T 710 (Tribunal) | Cited in support of the proposition that Modvat credit is permissible only if duty has been paid by the supplier (consistency with Rule 57-1). | The court held that, for reasons given in the opinion, the Tribunal decision relied upon is not correct on this point and declined to follow it; the court therefore did not interfere with the impugned Tribunal order on the relevant issue. |
Court's Reasoning and Analysis
The court examined the wording of Rule 57G relied on by the department but rejected the submission that Modvat credit can only be availed if duty has been paid by the supplier. The court reasoned that when a buyer receives invoices for excisable items and pays the invoices, it is reasonable to presume, unless shown otherwise, that the buyer may assume the supplier has paid or will pay the excise duty. Requiring a buyer to verify the supplier's accounts or to consult the Central Excise authorities before claiming credit was characterised as unreasonable and impractical. Although the appellant relied on Rule 57-1 and the Tribunal decision in Idl Chemicals, the court considered that decision incorrect for the reasons stated and declined to interfere with the Tribunal's favourable finding for the assessee on that point. Regarding the remainder of the claimed Modvat credit, the court noted the Tribunal's silence about the assessee's asserted voluntary deposit and set aside that portion of the order, remanding those issues to the Tribunal for fresh consideration after hearing both sides.
Holding and Implications
The court declined to interfere with the Tribunal's finding in favour of the assessee on the Modvat credit claimed in respect of invoices from M/s. Clutch Auto Ltd., and set aside and remanded for fresh consideration the portion of the Tribunal's order dealing with the remaining Modvat credit.
Implications: The direct effect is that the Tribunal's favourable holding for the assessee on the invoice-based Modvat claim stands; issues remaining (including the assessee's claim of voluntary deposit) are remitted to the Tribunal for determination after hearing both parties. The opinion does not purport to establish a broader binding precedent beyond the decision on the facts before the court.
By Court: We have heard both sides.
1. The brief facts of this case are that an amount of about Rs. 10,00,000/- (rupees ten lacs) was claimed as Modvat credit by the respon-dent-assessee. Out of the aforesaid amount of Rs. 10,00,000/- (rupees ten lacs), a sum of less than Rs. 5,00,000/- (rupees five lacs) was claimed on the strength of certain invoices, issued to the respondent-assessee by one Clutch Auto Ltd., Mathura in respect of the inputs supplied to the assessee by Clutch Auto Ltd., Mathura.
2. It is not disputed that the full amount of invoices was paid by the assessee to M/s. Clutch Auto Ltd. It is also not disputed that the inputs supplied by M/s. Clutch Auto Ltd. to the assessee were excisable items. The case of the department is that M/s. Clutch Auto Ltd. did not actually deposit the excise duty, which was payable on the said inputs, which were supplied to the assessee.
3. The Tribunal has held in favour of the assessee and against the department, saying that the assessee was not at fault.
4. Learned counsel for the department in this appeal has relied upon firstly upon Rule 57G. It has been urged that the said Rule provides for Modvat credits in these words:
“Every manufacturer intending to take credit on the duty paid on inputs.
5. Placing reliance upon the underlined words, it has been urged that unless the duty has been paid on inputs, no Modvat credit can be availed by the assessee.
6. This argument does not appeal to us. 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.
7. 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. Reliance has been placed by the appellant upon Rule 57-1 and a decision of the Tribunal in the case of Idl Chemicals Ltd. v. Collector Of Central Excise, as reported in 1996 (88) E.L.T 710 (Tribunal).
9. The aforesaid decision does support the department directly, but, we are of the opinion for the reasons given above, that the decision of the Tribunal is not correct. We, therefore, decline to interfere on the aforesaid point with the impugned order of the Tribunal.
10. So far as remaining amount of Modvat credit is concerned, the defence of the assessee which was initially taken, is said to have been not pressed before the Tribunal. The assessee says that the assessee voluntarily deposited the amount of which Modvat credit has been taken wrongly. However, if that be so, we would expect a few lines of the Tribunal devoted to that issue. Because of the complete silence in the Tribunal's order on the said remaining issues, we remand the case back to the Tribunal after setting aside that portion of the impugned order. The Tribunal will decide such of the remaining issues, which are necessary, after giving an opportunity of hearing to both sides.
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