[2014] 42 taxmann.com 51 (Allahabad) – CCE vs. Juhi Alloys Ltd.

Facts:
The Assessee took credit of duty paid on inputs based on invoices issued by the First Stage Dealer (FSD). Inputs were used for the manufacture of final products which were cleared against the payment of duty. The Department sought to deny credit on the ground that original manufacturer of said goods was found to be non-existent.

The Commissioner (Appeals) observed that in terms of Rule 7(4) read with Rule 9(5) of the CENVAT Credit Rules, 2002 (CCR), the assessee submitted Form 31 issued by Trade Tax Department, the ledger account evidencing payments by cheques made to the FSD and Form RG 23-A, Part-II. It was held that the assessee had received goods against the invoices of FSD for which payment was made by cheque and that the manufactured goods were cleared against the payment of central excise duty. He, therefore, allowed the Appeal on the ground that the transaction was bona fide and a buyer can take only those steps which are within his control and would not be expected to verify the records of the supplier to check whether, in fact, he had paid duty on the goods supplied by him. Tribunal also observed that, the fact that FSD is a registered dealer is undisputed and held that, it would be sufficient for the assessee to buy the goods from the FSD whose status he has checked and verified and dismissed the Revenue’s Appeal.

Before the High Court, the Revenue contended that the assessee ought to have made an enquiry which would have indicated that the original manufacturer that had supplied the raw material was a fictitious entity.

Held:
The Hon’ble High Court while examining the provisions of Rule 9(3) of CCR held that, the Explanation to Rule 9(3) provides a deeming definition as to when a manufacturer or a purchaser of excisable goods would be deemed to have taken reasonable steps. However, even in a situation where the Explanation to Rule 9(3) is not attracted, it would be open to an assessee to establish independently that he had in fact taken reasonable steps. Whether an assessee has in fact taken reasonable steps, is a question of fact. The High Court observed that both fact finding authorities found that assessee have duly acted with all reasonable diligence in its dealings with the first stage dealer and held that, the assessee has taken reasonable steps to ensure that the inputs for which the CENVAT credit was taken were the goods on which appropriate duty of excise was paid within the meaning of Rule 9(3) of CCR.