CENVAT - Rule 7(2) - Recipient of inputs is expected to know his immediate supplier and there is no further requirement to find out as to from where his supplier has procured inputs - penalties set aside and appeals allowed: CESTAT
By TIOL News Service
NEW DELHI, OCT 09, 2013: M/S. Faridabad Autocomp Systems Pvt. Ltd. are engaged in the manufacture of motor vehicle parts (Ch. 87) and were availing the benefit of CENVAT credit of duty paid on various inputs received from M/s. Super Trading Company, second stage dealer. The said second stage dealer, in turn, received the same from M/s. Ayushi Steels Company Pvt. Ltd., who is registered as a first stage dealer. The said M/s. Ayushi Steels Company procured the goods from a manufacturer M/s. Khemka Ispat Ltd.
Investigations conducted at the end of M/s. Khemka Ispat Ltd. by the officers of DGCEI, revealed that the said “manufacturing unit” was only issuing the invoices to the first stage dealer without actual supply of the goods. Shri Amit Kumar, Director of M /s Khemka Ispat Ltd., in his statement dated 24.02.2007 admitted the above fact. In follow-up investigations statement of Shri Rupesh Bansal , Director of M/s Ayushi Steels Company was recorded and he too admitted the above fact. Consequently, records of second stage dealer i.e. M/s. Super Trading Company were called and scrutinized and it was found that they have availed CENVAT credit based upon the invoices issue by the first stage dealer and have further issued invoices to the manufacturing unit i.e. M/s. Faridabad Autocomp Systems Pvt. Ltd. , on the basis of which they have availed the CENVAT credit.
In his statement, Shri Amit Kumar, Proprietor of M/s. Super Trading Company deposed that he was receiving the goods from M/s. Ayushi Steels Company Pvt. Ltd., which were being transported in truck/ tempo and the cost of the freight used to be included in the value of the goods; that all payments were made to M/s. Ayushi steels Company Pvt. Ltd. through bank; that they were maintaining proper RG-23D register. Shri Amit Kumar was shown the statements of Shri Rupesh Bansal, Director of M/s Ayushi Steels Company and that of Shri Amit Kumar , Director of M/s. Khemka Ispat Ltd. and after seeing the same he deposed that he could say that he did not received those goods which were manufactured and duty paid by M/s. Khemka Ispat Ltd.
Consequently, proceedings were initiated for denial of CENVAT credit of Rs.76,123/- availed by M/s. Faridabad Autocomp Systems Pvt. Ltd. and for imposition of penalty on the first and second stage dealers mentioned above.
The lower authorities confirmed the demand and imposed penalties and so the appellants are before the CESTAT.
It is submitted by the manufacturer assessee that the goods were received from M/s. Super Trading Company , which was duly registered as second stage dealer, under the cover of the invoices; that in terms of the provisions of Rule 7 of CCR , the recipient of inputs is required to know his supplier of the inputs; that there is no dispute about the fact that M/s. Super Trading Company were known to the appellant on account of their personal knowledge and long standing business relations; as such, they fulfill all the requirement of Rule 7(2) inasmuch as they have taken sufficient steps to identify the seller of the goods; that the payments for the Inputs were made through cheque and all such inputs so received by them were duly entered in their CENVAT credit account and were used in the manufacture of their final product i.e. motor vehicle parts supplied to various reputed car manufacturer son payment of duty.
The Single Member Bench observed -
“9…., I find that the entire case of the revenue is based upon investigation conducted at the end of the manufacturers M/s. Khemka Ispat Ltd. and the statement of their authorized representative and the statement of the first stage dealer. I have gone through the said statement and find that there is no reference to any particular invoices and the same are general statement. The statement of the authorized representative of Khemka reveals that with the loss of business in the year 2002, they entered into an arrangement with the first stage dealer for issuing invoices without the supply of goods so as to reflect some sale purchase books on accounts. Though as per the said statement the arrangement was entered into in the year 2002, I find that the disputed period in the present appeal is February and March 2004. In any case I find that has procured the inputs from the second stage dealer M/s. Super Trading Company said who in his statement has agreed to have supplied the goods to the manufacturing unit. Inasmuch as Rule 7(2) of Cenvat credit rule requires the recipient of the inputs to know the identity of the supplier of the goods, which in the present case was second stage dealer, I am of the view that the said rule stand satisfied by the manufacturer with Shri Amit Kumar proprietor of second stage dealer having deposed that they had in fact supplied to the manufacturer, payment for which were made by them in cheque , I find no reasons to uphold the findings of the lower authorities that no inputs were actually received by them. There is neither any allegation nor any evidence on record to show that such inputs were procured from some other alternative source. Admittedly, the said appellant could not have manufactured final product, without the receipt of the inputs, in which case revenue findings that no inputs were actually received cannot be upheld. Recipient of the inputs is expected to know his immediate supplier and there is no further requirement to find out as to from where his supplier has procured the inputs. Accordingly, I set aside the confirmation of demand of duty and imposition of penalty on M/s. Faridabad Autocomp Systems and Super Trading Company. As regards, the imposition of penalty of M/s. Ayushi Steels Company, I find that they have taken an alternative plea that even if the Revenue's case is accepted that they dealt only with the invoices without actually dealing with the goods even then no penalty can be imposed upon them inasmuch as the provision for imposition of penalty on the dealers were introduced vide Notification No.8/2007 CE (NT) dated 01.03.2007. Inasmuch as the period for the present case is prior to the said date, I set aside the penalty imposed upon M/s. Ayushi Steels Company Pvt. Ltd. also.”
In fine, all the appeals were allowed.
In passing: Also see Anurag Alloys & Diecast P. Ltd. 2013-TIOL-1489-CESTAT-DEL
(See 2013-TIOL-1484-CESTAT-DEL)
