BHAGWATI SILK MILLS Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) IN all these appeals issue involved is common. All the Assessees are engaged in the work of processing of grey fabrics on job work basis. Demands have been confirmed against the Assessees by the revenue on the ground that the CENVAT credit was taken on the basis of invoices issued by persons who were found to be non existent based on alert circulars issued by the jurisdictional Commissioner of Central Excise in majority of the cases and based on the investigation/verification taken up by the officers concerned in some cases. Revenue also is in appeal in respect of 30 appeals. In majority of the appeals revenue is aggrieved with the fact that the Commissioner (Appeals) found it fit to reduce the penalty imposed against the Assessee. In some cases the penalty was totally set aside and in some cases the Commissioner (Appeals) extended the benefit of reduction of penalty to the extent of 25 per cent of duty, if duty, interest and penalty were paid within thirty days. Even though the facts may vary from one case to another marginally, the issues involved are as to whether the Assessees can take credit on the basis of invoices issued by non -existent suppliers or not; whether the alert circulars could form the basis for demands; whether the department was right in imposing penalty under Section 11AC on the Assessees who took credit; whether the requirement of Rule 7 of CENVAT Credit Rules has been fulfilled by the Assessees and under what circumstances the same can be said to have been fulfilled; the consequences of issue of demand by the revenue to the suppliers of fabrics/the receivers of processed fabrics from the Assessees. Hence all the appeals are taken up together and a common order is being passed.

(2.) BEFORE the regular arguments were put forth by the advocates on behalf of the Assessees, Shri P.M. Dave, learned advocate proposed to raise a preliminary objection which if accepted, would settle the issue in respect of all the appeals. He submitted that the show cause notices have been issued on the basis of alert circulars issued by Commissioner Surat -I. He submitted that in the Circular No. 460/26/99 -CX dated 11 -6 -1999 Board had directed the field formations to report any novel modus operandi to the Director General of Anti Evasion who in turn will issue alert circular to all concerned and ensure quick action. The direction to Commissioners not to issue modus operandi circulars was further reiterated in the circular F. No. 213/19/07 -CX -VI dated 4 -10 -2007 wherein the Board observed that in spite of clear directions, Commissioners are still issuing modus operandi/ alert circulars. It was reiterated that Commissioners shall not issue such circulars themselves but showed send draft circulars regarding evasion cases detected by them to the DGCEI. DGCEI after examining the matter shall issue serial numbered modus operandi circulars. He submitted that the circulars issued in 1999 and 2007 together make it clear that Commissioner Surat -I had exceeded his authority when he issued the alert circulars and therefore any action taken on the basis of alert circulars has to be treated as illegal and incorrect. Further, he also submitted that while issuing show cause notices based on alert circulars, the details of type of enquiry made were not indicated; no details of panchnama drawn, if any, when the verification of the premises was made were given to Assessees. Further the very fact that some deletions were made subsequently in the lis of non -existence suppliers/weavers on the basis of representations made would show that alert circulars were issued without proper verification, enquiry and scrutiny. Further he also submitted that the Assessees whom he was representing had specifically asked for details of basis of conclusions about non existence of the suppliers of fabrics and the department did not respond to the same. Further he also drew our attention to the provisions of Rule 12(b) under which traders were given registration certificates as deemed manufacturers. Further the Board in Circular No. 708/24/03 -CX dated 23 -4 -2003, the Board had devised a process to provide a simple, transparent and hassle free registration process. According to this process, registration certificates were issued by the department without any verification on the basis of an application made by various Assessees and traders. According to him this led to several traders getting registered who might be renting the premises and thereafter once the scheme was withdrawn vacating the place which would have led to a situation wherein they were found to be non existent. In reality they could have existed. On the ground that alert circulars were issued without authority, without proper verification and in view of the provisions relating to registration that existed at that time, he submitted that the Assessees who took credit, cannot be penalised for non existence of the suppliers. He submitted that there is no evidence shown by the department that Assessees have not received the goods in this case and the whole case is based on non existence of suppliers. Under these circumstances he submits that the show cause notices issued based on alert circulars and subsequent proceedings have to be held as invalid and rejected.

(3.) NEVERTHELESS the issue of alert circular or modus operandi circular is not a statutory function. It is basically an internal management issue of how details of new modus operandi/evasion etc., have to be communicated between the field formations under CBE&C. For this purpose circulars have been issued and DGCEI has issued the letter. Can it be said that the circulars issued by the Board and the letter issued by DGCEI have a statutory force to render all the legal proceedings initiated illegal when the circulars themselves have not been issued on the basis of powers vested in the Board or in the DGCEI. The circular and the letter have been issued to improve overall management of anti evasion work. If the instructions issued by the Board have not been followed by the Commissioner which having nothing to do with statutory functions, the same cannot come in the way of statutory proceedings. It is for the Board to take appropriate action against the Commissioner for issuing the alert circular against the instructions issued by the Board and we do not think the remedy lies in holding all the proceedings invalid and depriving the statutory powers of the revenue officers and also preventing the officers from performing their statutory functions or holding the proceedings in performance of statutory functions invalid. Therefore we find, no substance in preliminary objections raised by the learned advocate and reject the same.