By TIOL News Service

MUMBAI, MAR 08, 2017: THESE are Revenue appeals filed in the year 2006, against the orders of the Tribunal, before the Bombay High Court.

The substantial question of law reads -

"Whether it was correct and proper for the Tribunal to set aside the impugned order-in-original and allow modvat credit in question when due to indifference in the description of goods in the subject invoices, no correlation could be established between the input scrap actually received and used in the manufacture of excisable goods and the scrap described in the invoices under which input scrap was received?"

The primary allegation is that the respondent assessee(s), in collusion with the central excise registered dealers, have fraudulently availed Modvat/Cenvat Credit on Punched, Bundled, Cold Rolled Closed Annealed Scrap, known as Market Scrap or Bazar Scrap generally generated during the process of manufacture of stamping, lamination, PP Caps, etc., received from such dealers in place of the original goods, namely, Off Cuts of M.S. Sheets, M.S. Scrap, Ferrous Waste & Scrap, C.R. Trimming Scrap, CR & Silicon Scrap, CRC Steel Scrap, Iron & Steel Scrap, etc., which have been shown in the duty paying documents for the purpose of availment of Modvat/Cenvat Credit.

In other words, the registered dealers have substituted the goods received from the original manufacturers as described in the duty paying documents and in its place supplied punched bundled scrap of CRCA to respondent assessee(s).

Incidentally, the main order was delivered by the Tribunal in the case of M/s. Business Combines Limited and others on 15.7.2005 [respondent in CE appeal 154 of 2006] [See2005-TIOL-758-CESTAT-MUM] and which order was relied upon in the case of the respondent assessee Mahindra & Mahindra.

The Tribunal observed in the case of Business Combines that –

"…denial of credit on the dealers' invoices cannot be upheld when no efforts are made to bring this activity of the dealers under excisable manufacture. If the dealers' status is not questioned, then, their records, as maintained, cannot be faulted. The Tribunal found that the quantum of credit as availed of could not be denied because as per the documents, there is nothing to indicate that the physical quantity is short or that there is duty quantum difference which could be said to be found. The Tribunal has found that there is no allegation or finding of short receipt of scrap than as shown as quantity in the Modvat Credit availing documents mentioned/accompanying the goods. Even if scrap from two or more lots has got mixed and part of the consignment of these mixed lots is sent, no excess or short quantity than that shown on duty paid documents is alleged or found to be dispatched from both dealers and received by the assessee."

The Tribunal concluded that it is not possible to agree with the Revenue and for the reasons recorded in that order.

The High Court after considering the submissions observed –

+ No attempt can be countenanced for distinguishing the view taken in that case for the simple reason that an argument and loosely canvassed on the basis of recovery of a solitary umbrella handle in one of the bundles of the scrap would not enable it to hold that it was a bazar scrap which was physically received and the documents indicating duty paid scrap from the various manufacturers/dealers were received which do not cover the said goods.

+ We find that the attempt of the Revenue while arguing these appeals is to try and convince this Court that a vital piece of evidence has been overlooked and the Tribunal's order is perverse. However, merely contending thus is not enough.

+ The questions of law is based on the argument and seriously canvassed that the CESTAT failed to appreciate that the assessee Mahindra & Mahindra did not inform the Department that they received only punched bundled scrap of CRCA against the description of goods in the subject invoices.

+ Then the argument was that the employees of the assessee Mahindra & Mahindra admitted in unequivocal term that only CRCA punched sheet scrap, in bundle form, was received by them and no other scrap was received. Thus, we cannot re-appreciate or reappraise the materials placed on record.

+ We have seen from the record that the assessee throughout argued that all types of scraps were used by them (Mahindra & Mahindra). There was, therefore, no need to give any specific instructions for supplying a particular variety of scrap. How that scrap can be used in induction furnace was duly explained. This is not, therefore, a case of irregular availment of the Modvat Credit.

+ We find that the order passed by the CESTAT and referring to all the materials on record cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The argument that there should be co-relation established between the input scrap actually received and used in the manufacture of excisable goods and the scrap described in the invoice under which the input scrap was received does not merit any acceptance.

+ Eventually when the documents placed on record themselves point out that all types of scrap were utilised by the assessee, then, one cannot just pick and choose any statement or single out a document to deny the Modvat Credit. The fraud, as alleged, has thus not been established and proved.

Holding that there is no merit in any of the Revenue appeals, the same were dismissed.

In passing: One swallow doesn't a summer make…

(See 2017-TIOL-459-HC-MUM-CX)