Bombay High Court: CESTAT's order of Dismissing Application for Recalling Finding of fraud that Isn't Proved is unjustified

Bombay High Court: CESTAT's order of Dismissing Application for Recalling Finding of fraud that Isn't Proved is unjustified

The Bombay High Court (HC) on 25 March 2021, held in the case titled Essel Propack Ltd. (Petitioner) v. Union of India & Ors. (Respondents) that Customs, Excises, and Service Taxes Appellate Tribunal (CESTAT) was unjustified in rejecting the application for recalling the finding of fraud, as the same was not proved.

The HC division bench comprising of Justices Milind N. Jadhav and Ujjal Bhuyan quashed the order of the Tribunal and held that "Fraud cannot be said to have been proved; it was merely alleged and inference of fraud was drawn. Therefore, CESTAT was not justified in rejecting the application filed by the petitioner for recalling the finding of fraud and additionally in imposing cost."

Relying on the Supreme Court judgment in Harjas Rai Makhija v. Pushparani Jain, (2017) 2 SCC 797, the High Court held that there must be a specific allegation of fraud. When there is an allegation of fraud, it must be enquired into. It is only after evidence is led coupled with intent to deceive that a conclusion of fraud could be arrived at. Mere concealment or non-disclosure without intent to deceive or a bald allegation of fraud without proof and intent to deceive would not render a decree obtained by a party as fraudulent.

The factual background of the case is that the petitioner has been engaged in the business of manufacturing multi-layered plastic flexible laminated collapsible tubes and multi-layered plastic flexible laminated web classifiable under Chapter 39 of the First Schedule to the Central Excise Tariff Act, 1985 (Act).

In the course of excise audit of the petitioner's record carried out during February 2013 for the period from October 2010 to September 2012, the auditors took the view that petitioner had availed ineligible credit of service tax paid on certain input services on the strength of documents not covered under Rule 9(2) of the CENVAT Credit Rules, 2004.

A show cause-cum-demand notice was issued to the petitioner by the Joint Commissioner of Central Excise. It was also alleged that the petitioner had availed wrongful credit of service tax amounting to Rs.36,224 for the period from October 2011 to July 2012 regarding labour services used for civil work, shifting of machinery, etc.

It was alleged that as the services for which CENVAT credit was availed were not connected with manufacturing activities of the petitioner, the same could not be termed as input service and hence not admissible.

A reply was given by the petitioner to the show cause-cum-demand notice, wherein it was contended that the credit taken by the petitioner on the disputed labour charges was correctly availed of by the petitioner. A personal hearing was also granted to the petitioner.

The HC stated that as the tax dues of the petitioner have been settled under the amnesty scheme, it would refrain from examining the ultimate decision of CESTAT in rejecting the appeal.

It added that the examination by the HC would be confined to the finding recorded by CESTAT that the petitioner had played fraud and the consequential rejection of the rectification application on this point.

The Court while setting aside the order of the Tribunal stated that "On such a haphazard and hurried basis without any conclusion having been reached as to the intent to deceive, no finding of fraud could have been reached by the CESTAT. Thus, fraud cannot be said to have been proved; it was merely alleged and inference of fraud was drawn. Therefore, CESTAT was not justified in rejecting the application filed by the petitioner for recalling the finding of fraud."