Gujarat High Court

M/S. Bhagyalaxmi Prints Pvt. Ltd vs Union Of India on 25 August, 2023

Bench: Biren Vaishnav

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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 ?

========================================================== M/S. BHAGYALAXMI PRINTS PVT. LTD.

Versus UNION OF INDIA ========================================================== 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 ==========================================================

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)

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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

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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

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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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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

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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:

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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.

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(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.

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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

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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.

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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.

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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