Gujarat High Court
M/S. Bhagyalaxmi Prints Pvt. Ltd vs Union Of India on 25 August, 2023
Author: Biren Vaishnav
Bench: Biren Vaishnav
NEUTRAL CITATION
C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 18133 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S. BHAGYALAXMI PRINTS PVT. LTD.
Versus
UNION OF INDIA
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Appearance:
MR. S S IYER(6553) for the Petitioner(s) No. 1,2
for the Respondent(s) No. 3,4
NOTICE UNSERVED for the Respondent(s) No. 1,2
PRIYANK P LODHA(7852) for the Respondent(s) No. 3,4
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
Date : 25/08/2023
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV) Page 1 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined
1. By way of this petition under Article 226 of the Constitution of India, the petitioner has prayed to set aside the order dated 22.07.2021 passed by the respondent no.4 herein - Joint Commissioner of GST and Excise, Surat.
2. Facts in brief are that the petitioner is an individual processor of grey fabrics. It is engaged in the processing of man made fabrics falling under Chapter 5406 of Central Excise Tariff Act, 1985. It is availing CENVAT credit on grey fabrics received from grey manufacturers / dealers. According to the department, during scrutiny of ER-1 returns for the months of April and July 2004, it was noticed that the assessee had availed and utilized CENVAT credit on the basis of invoices issued by various dealers/merchants/manufacturers/weavers of grey fabrics. According to the department, on an Page 2 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined inquiry it was revealed that the petitioner had availed CENVAT credit amount of Rs.15,40,481/-
during the said period, on the strength of invoices issued by fake/bogus/non-existing units.
A show cause notice was accordingly issued.
After the remand proceedings and after giving an opportunity of personal hearing, by the impugned order, the respondent no.4 found that the case of the petitioner was not the same as the one settled by the judgement of this Court in case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. v. Union of India reported in 2013 (290) E.L.T. 61 (Guj.). According to the department, in the instant case, though grey fabric manufactures were registered with the Central Excise, they were found to be fake, bogus and non-existent. In the investigation so conducted, according to the department, when it was found that the dealers were fake, the burden Page 3 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined of proof that they existed, shifted on the person against whom the allegations were made and therefore in the opinion of the department, it was a clear case that the petitioner had fraudulently availed CENVAT credit. By the impugned order therefore the respondent no.4 confirmed the demand of CENVAT credit of Rs.15,40,481/- and also imposed a penalty. That order is under challenge before this Court.
3. Mr.S.S.Iyer learned counsel for the petitioner raised following contentions:
3.1 That the facts of the case of the petitioner are identical with the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. (supra) and the Adjudicating Authority has wrongly decided the case against the petitioner.
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NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined 3.2 That the show cause notice contained the statement of the petitioner that they did not receive grey fabric directly from the dealers but through brokers and the credit was taken only after furnishing the registration certificate issued by the dealers.
3.3 That no material was actually supplied to the petitioners and the facts of the case in Prayagraj Dyeing & Printing Mills Pvt. Ltd.
(supra) and the submissions of the Revenue in the facts of the present case are identical and so also the allegations in the show cause notice. He would therefore submit that the Adjudicating Authority committed an error by alleging fraud by the petitioners.
3.4 Mr.Iyer would rely on paragraph nos.11 to 13 of the judgement in case of Prayagraj Page 5 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined Dyeing & Printing Mills Pvt. Ltd. (supra). He would also rely on the following decisions:
(I) Raza Textiles Ltd v. Income Tax Officer reported in (1973) 1 SCC 633 : (AIR 1973 SC 1362) (II) Commissioner of Customs, Mumbai v.
Toyo Engineering India Limited; (2006) 7 SCC 592 (III) Kalpataru Power Transmission Ltd. v.
State of Maharashtra and others; 2023 SCC OnLine Bom 1595
4. Mr.Priyank Lodha learned Senior Standing Counsel appearing for the department would make the following submissions:
Page 6 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined 4.1 That the petition under Article 226 of the Constitution of India is not maintainable. The petitioner has directly approached this Court challenging the order-in-original and there is an efficacious alternative remedy of filing an appeal against the order. The petition therefore should not be entertained.
4.2 That reading the order-in-original would indicate that the Adjudicating Authority has rightly dealt with and distinguished the decision in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd.(supra).
4.3 That if the discussions and findings of the author of the order are read, especially from paragraph no.14 onwards, it is evident that the facts of the present case and that in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. Page 7 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023
NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined (supra) are entirely different. He would submit that a finding of fact has been recorded. That it has been established during the course of investigation carried out by the department and on the basis of ample evidence, it has been brought on record to substantiate the fact that grey fabric/manufacturers/suppliers were fake and bogus and in fact, they did not manufacture any grey fabric but had shown the same on paper and it was for the petitioner to prove, which he had failed to do by any evidence to suggest that the suppliers of grey fabric were in existence.
Moreover, unlike the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. (supra), the petitioner had never challenged the alert circulars issued by the department and therefore the invoices issued by such suppliers were rightly considered as fake in absence of evidence to the contrary.
Page 8 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined 4.4 That this Court will not enter into appreciation of finding of facts. The authority based on factual aspects has passed an order appreciating the evidence on record and therefore it is not open for this Court in exercise of jurisdiction under Article 226 of the Constitution of India to substitute, by its own subjective assessment, an order passed by the authority which is vested with the jurisdiction.
5. Having considered the submissions made by the learned counsel for the respective parties, it is apt to consider the case of the Revenue which issued a show cause notice dated 29.04.2009 to the petitioner. Perusal of the show cause notice indicates that, according to the department on inquiry conducted, it was revealed that the assessees/suppliers of grey fabrics do not exist or never existed before and therefore, such Page 9 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined suppliers were declared fake as per various alert circulars. As per the department, since the suppliers of the goods are non-existent and bogus, the documents in question cannot be considered as valid documents for the purpose of availment of CENVAT credit.
5.1 Perusal of the impugned order of the authority indicates that the only basis of passing the order confirming the demand of CENVAT credit of Rs.15,40,481/- is that the suppliers of grey fabric were though professed to be in existence, such suppliers were bogus. The onus to prove otherwise was shifted on the petitioner, which according to the department, the petitioner could not discharge. The other ground on which the department did not think it fit to extend the same benefit as was given in the case of Prayagraj Dyeing & Printing Mills Pvt.
Page 10 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined Ltd. (supra) is that the petitioner has never challenged the alert circulars issued by the department.
5.2 Perusal of the impugned order indicates that in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd.(supra), as per the department, the Court had opined that once receipt of goods is not disputed by a person taking credit and necessary invoices are issued, he is entitled to take credit provided that he took reasonable steps to ensure that the inputs / capital goods in respect of which he had taken CENVAT credit are the goods on which appropriate duties of excise as indicated in the document accompanying the goods have been paid.
Further, as per the department, it is the petitioner who was a party to the fraud.
Page 11 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined 5.3 As argued by Mr.S.S.Iyer it was specifically pointed out to the authorities, that they were not party to a fraud. That, the CENVAT credit was availed during April 2004 to July 2004 whereas the show cause notice was issued in April 2009.
Therefore, the demand is barred by limitation.
The High Court in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. (supra) upheld the provisions of Rule 7(2) with a rider that unless the holder in due course of the original documents alleged to have been generated by fraud, is a party to the fraud, the holder in due course cannot be proceeded against.
5.4 At this stage, it is necessary to discuss and consider the decision in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd.(supra).
Before the Division Bench of this Court, Tax Appeals were filed arising out of a common order Page 12 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined dated 24.01.2011 passed by the Central Excise, Customs and Service Tax Appellate Tribunal, Ahmedabad. It was the case of the appellant Prayagraj Dyeing & Printing Mills Pvt. Ltd. that they were enjoying deemed credit facility for the grey fabrics received from the traders. For taking credit, in accordance with Rule 7 of CENVAT Credit Rules, 2002, the manufacturer could take such credit on the basis of the document such as an invoice issued by a manufacturer and importer etc. The explanation to the Rule indicated that the manufacturer producer taking CENVAT credit on inputs or capital goods shall be deemed to have taken reasonable steps if he satisfies himself about the identity and address of the manufacture or supplier. On facts, it was found that the appellant was receiving grey fabric and had taken reasonable steps.
Page 13 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined 5.5 A show cause notice was issued on similar grounds as in the case of the petitioner that the dealers who had supplied the grey fabric were not in existence. The petitioner contended that there was no fault on the part of the petitioner for taking such credit as he had disclosed all the particulars so required. Perusal of para 5.3 of the decision in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. (supra) indicates that like in the present case, it was the case of the revenue that in most of the cases the invoices are bogus inasmuch as, such entities have not undertaken any manufacturing activity.
Considering the issues therefore, the Court in paragraph nos.6 to 11 held as under:
"6. After hearing the learned counsel for the parties and after going through the materials on record, we find that the Central Excise Commissionerate, Surat-I, addressed a communication to M/s. Prayagraj Dyeing & Printing Mills Pvt. Ltd., inter alia, intimating that during the verification of Page 14 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined Cenvat documents, it revealed that M/s. Prayagraj Dyeing & Printing Mills Pvt. Ltd., had availed cenvat credit on the strength of the invoices issued by M/s. Sana Textiles. In the inquiry conducted by the department, it was established that such Unit did not exist or ever existed and the documents purportedly produced were fake since the supplier of the goods itself was non-existent. Thus, according to the Revenue, a bogus document could not be considered as valid document for the purpose of availment of cenvat credit and, therefore, the credit so availed was incorrectly received and it was intimated to reverse the same along with interest under the intimation to the office of the Superintendent of Central Excise & Customs, Range-II, Division-II, Surat-I.
7. As indicated earlier, the matter went up to the level of the Tribunal and thereafter, it has been remanded for fresh adjudication. If we look at the provision of Rule 7 of the Cenvat Credit Rules, 2002, it would appear that credit can be taken on the basis of a document prescribed thereunder. According to the existing practice, goods which are manufactured may pass through various chains of purchasers before they reach another manufacturer who may use the same as input. In these cases, it is not even in dispute that the original manufacturer who manufactured grey fabrics was actually registered with the Central Excise authority. Such manufacturer filed returns and the purchaser was a merchant-manufacturer. The purchaser, then, sent those goods to the Page 15 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined present appellants for carrying out job work and the present appellants have taken credit which is sought to be reversed by the Central Excise on the ground that the original manufacturer cannot be found.
8. Therefore, the question that falls for determination is whether the department can escape its liability to find out a person who was registered with them and to pursue him for payment of duty. There is also no dispute in these cases that the goods were purchased by the merchant manufacturer officially and they have suffered the duty thereon and the amounts have been paid through cheques.
9. It is also not a case where the invoices are manufactured documents not signed by the original manufacturer. The invoices which are accounted for in the Return of the person, were the invoices accounted for in the Return of the persons registered with the Central Excise. Thus, merely because the manufacturer cannot be found at the present, such fact cannot make the invoices fake or fraudulent documents in the eye of law. These are actual invoices issued by the manufacturer who is duly registered under the Central Excise Act and, therefore, those cannot be said to be forged documents. In our opinion, merely because today, the original manufacturer, who is registered with the Revenue, is not traceable, it does not mean that he did not exist at the relevant point of time. If today, a Page 16 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined manufacturer is not available for various reasons that does not mean that at the relevant point of time, such manufacturer who was registered with the Central Excise, did not exist. In our opinion, once receipt of goods is not disputed by a person taking credit and necessary invoices are issued, he is entitled to take credit provided however that he took reasonable steps to ensure that the inputs or the capital goods in respect of which he had taken CENVAT credit are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid.
10. In this connection, we find substance in the contention of Mr. Parikh, the learned senior advocate appearing on behalf of the appellants, that there is a marked distinction between a forged document and a document issued by practicing fraud. If it appears that a document is a forged one or a manufactured one, it is concocted or a created one in the eye of law and it is in the eye of law a non-existent document. On the other hand, a document issued in the context of a fraud or misrepresentation, is by itself a genuine document and according to settled law, such document is, at the most, voidable and is valid till it is set aside. A transaction that takes place on the basis of such document is good one and can even give a good title to the holder in due course for valuable consideration. At this juncture, we may profitably refer to the observations of the Supreme Court made in the case of CCE vs. Decent Dying Co., reported in Page 17 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined 1990 [45] ELT 201 = (1990) 1 SCC 180 wherein, the Supreme Court held that it would be intolerable if the purchasers were required to ascertain whether excise duty had already been paid as they had no means of knowing it. It was further pointed out that duty of excise is primarily a duty levied on a manufacturer or purchaser in respect of a commodity manufactured or produced. As pointed out by a Division Bench of this Court in the case of Commissioner of Central Excise v/s D.P. Singh reported in 2011 (27) ELT 321, the judgment of the Supreme Court in the case of New India Assurance Company [supra], was distinguished, being one relating to a forged document which renders a document null and void, and as such, has no application to this type of cases. Similarly, reliance over the judgment of the Supreme Court in the case of Commissioner of Customs [Preventive] vs. Aafloat Textiles (I) P. Ltd. reported in 2009 (235) ELT 587, cannot be supported as Afloat case is one pertaining to a forged document but not in respect to a document otherwise genuine, issued by practising fraud. The facts stated in the case of Afloat indicated that the same was a case of a forged invoice and thus, the principles laid down therein cannot have any application to an invoice which is, otherwise, genuinely issued by a manufacturer registered with the Revenue. Justice Arijit Pasayat who delivered the judgment of the Supreme Court in the case of Afloat [supra], in a subsequent case of Commissioner of Customs v. Ajay Page 18 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined Kumar & Company, reported in 2009 [238] ELT 387, clearly indicated that the same being not a case of forged document but one of issue of license by practising fraud, the Tribunal was right in holding that the transferee of the license should not be made liable. It may not be out of place to mention here that the Tribunal, in its judgment, reported in 2006 [205] ELT 747 indicated in paragraph-7 as follows:
" if that be so, the concept that a fraud vitiates everything would not be applicable to cases where a transaction of transfer of license is for value consideration without notice, arising out of mercantile transactions, governed by common law and not provisions of any statute."
11. We, therefore, find no substance in the contention of the learned counsel for the Revenue that simply because the original manufacturer is now not traceable, is sufficient for reversal of cenvat credit already taken by the appellants by virtue of the original invoices. However, at the same time, we find substance in the contention of Mr. Oza and Mr. Champaneri, the learned counsel appearing on behalf of the Revenue, that in order to get the credit of CENVAT, Rule 7(2) cast a further duty upon the appellants to take all reasonable steps to ensure that the inputs or the capital goods in respect of which the Appellants had taken the credit of CENVAT are the goods on Page 19 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. The Explanation added to Rule 7(2) even describes the instances which are the reasonable steps. The Appellants in these cases, however, not having taken those steps, cannot get the benefit of the credit even though he is not party to fraud. In this connection, we fully agree with the views taken in the case of Sheila Dying (supra), and hold that the said decision supports the case of the Revenue and taking of all reasonable steps as provided in Rule 7(2) is an essential condition of availing the credit. The distinction sought to be made by Mr. Parikh that the period involved therein related to June, 2003 is not tenable because sub-rule
(e) of Rule 7 was introduced even earlier with effect from April 1, 2003."
5.6 Appreciating the facts in the present case indicate that as in the case of the Prayagraj Dyeing & Printing Mills Pvt. Ltd. (supra), merely because the manufacturers cannot be found at the present, it cannot make the invoices fake or documents fraudulent in the eye of law.
Enough material was placed on record by the petitioner to suggest that the invoices were Page 20 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023 NEUTRAL CITATION C/SCA/18133/2021 CAV JUDGMENT DATED: 25/08/2023 undefined issued by duly registered manufactures and merely because the manufacturer is not available, does not mean that such manufacture who was registered with the central excise did not exist. Once receipt of goods is not disputed by a person taking credit and necessary invoices are issued, the petitioner is entitled to take credit provided he took reasonable steps to ensure by the inputs or the capital goods in respect of which CENVAT credit is taken were accompanied by the documents. Perusal of the impugned order in light of the show cause notice would indicate that the facts of the case on hand were identical to the case of appeals before the Division Bench in case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. (supra) and therefore, it was not open for the respondent authority not to give the benefit of such judgement.
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6. For the aforesaid reasons, the petition is allowed.
The order-in-original no.
10/ADJ/JC-GK/DEM/2021-22 dated 22.07.2021 is quashed and set aside.
(BIREN VAISHNAV, J) (D. M. DESAI,J) ANKIT SHAH Page 22 of 22 Downloaded on : Sun Sep 17 02:30:26 IST 2023