Cenvat credit was allowable to assessee even if supplier hadn’t discharged its duty

Case: Commissioner of Central Excise, Jalandhar v. Kay Kay Industries (SC)

 Facts: The respondent-company availed deemed MODVAT credit of Rs.77,546/- during the quarter of March, 2000 on the strength of invoices issued by M/s. Sawan Mal Shibhu Mal Steel Re-Rolling Mills, Mandi Govindgarh. During MODVAT verification it was found that the supplier of inputs had not discharged full duty liability for the period covered by the invoices.

The Department was of the view that appropriate duty of excise had not been paid by the manufacturer of inputs under the invoices on the strength of which the respondent took the benefit of
deemed MODVAT credit and it was obligatory on the part of the company to take all reasonable steps to ensure that the appropriate duty of excise had been paid on the inputs used in the manufacture of their final product as required under Rule 57A(6) of the Central Excise Rules, 1944

Held by Supreme Court:

1) In this case supplier of inputs had given declaration indicating that excise duty had been paid on said inputs. Fact that supplier had not discharged duty was a lapse on part of seller; it was different and not a condition or rather a precondition postulated in Notification;

2) When there was a prescribed procedure and that had been duly followed by the assessee, it could not be said that the assessee had not taken reasonable steps as prescribed in notification;

3) Due care and caution were taken by the assessee and it was not stated by Department what further care and caution could have been taken. Requirement of "reasonable care" does not mean verification from department whether duty stands paid by supplier because that would be travelling beyond notification and practically impossible and would lead to transactions getting delayed;

4) Thus, the Assessee was entitled to deemed credit under the Notification No. 58/97-CE(NT).

 

Rahul Jain

rahuljain@rpmd.in