Gujarat High Court
M/S G Tex Inc vs Union Of India on 25 July, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/8805/2024 ORDER DATED: 25/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 8805 of 2024
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M/S G TEX INC. & ANR.
Versus
UNION OF INDIA & ORS.
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Appearance:
MR NIRAV P SHAH(6475) for the Petitioner(s) No. 1,2
DEEPAK N KHANCHANDANI(7781) for the Respondent(s) No. 1,2,3
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 25/07/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr.Nirav P. Shah for the petitioners and learned advocate Mr.Deepak Khanchandani for the respondents appearing on advance copy..
2. By this petition under Article 227 of the Constitution of India, the petitioners have prayed for the following reliefs :
"A. This Hon'ble Court be pleased to issue a writ of certiorari or any other writ, direction or order quashing and setting aside the order of the Revisional Authority bearing No.364-370/2023-CX(WZ)/ASRA/MUMBAI dated 28.9.2023 at Annexure-E to this petition.
B. During the pendency, final hearing and disposal of this petition, this Hon'ble Court be pleased to stay the operation and implementation of the order No.364-370/2023-CX(WZ)/ASRA/MUMBAI dated 28.9.2023 at Page 1 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined Annexure-E to this petition."
3. The brief facts of the case are that the petitioner No.1 is a merchant exporter and a show cause notice dated 27.5.2010 was issued to recover the rebate already sanctioned as well as reject the claims of rebate which were pending for disposal.
3.1 The show cause notice was based upon the investigation carried out by the Directorate General of Central Excise Intelligence, Ahmedabad. During the course of investigation, it was found that the syndicate consisting of several entities who issued fake / bogus central excise invoices indicating payment of duty without any physical sale or purchase of grey fabrics or actual payment of central excise duty.
3.2 The petitioners had exported the fabrics which were processed by its processor on job work basis and the grey fabrics used for processing the exported fabrics was procured by the petitioners from various dealers and manufacturers of grey fabrics, who supplied such raw materials to the processors on behalf of the petitioners. During the course of investigation, it was found that such grey fabrics were never supplied by the dealers / manufacturers and only central excise invoices indicating duty payment were sent to the processors without supply of the goods. Therefore, the Cenvat credit availed by the processors on such invoices was found to be improper and the rebate claimed of the duty paid using such improper Cenvat credit by the petitioners was disallowed. After considering the submissions and providing opportunity of hearing, the order-in-originial was passed Page 2 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined recording the following outcome of investigation :
"13. OUTCOME OF INVESTIGATIONS:
13.1 Outcome of investigations in respect of polyester grey fabrics manufacturers: M/s G Tex has shown purchase of polyester grey fabrics from M/s Surbhi Corporation and M/s Kesar Textile both located at Malegaon and M/s Parth Impex, M/s Shivam Textile, M/s Balaji Textile & M/s Suryanaraayn Textiles, M/s Narayan Silk Mills & M/s Deepak Processors all located at Surat. However, in the light of the evidences unearthed during the investigations conducted by the DGCEI, it appears that the transactions between the aforesaid grey manufacturers/dealer and M/s G Tex were only paper transactions without any physical sale or purchase of grey fabrics. All of them had issued only duty paid invoices of grey fabrics without actual manufacture and supply of the same.
Mis Jagdamba Dyeing & Printing Mills & M/s Ramanuj Dyeing & Printing Mills which are the processors of the grey fabrics purchased by M/s G Tex had fraudulently availed cenvat credit and passed on the same to M/s G Tex so as to encash rebates. It appears that these firms had obtained Central Excise registration on the basis of lease agreement for power looms. However, investigations have revealed that these lease agreements were bogus, fake and forged. Apart from this, these units have shown job work agreement with various persons/firms in order to get the grey fabrics manufactured on job work basis, however, all these job work agreements were also found to be forged and bogus. At many places the premises where they have shown manufacturing activity were found to be either vacant or residential premises or occupied by some other units. It also appears that the duty paid invoices of the grey fabric in respect of M/s Surbhi were printed and prepared by Shri Brijesh Babulal Shah, proprietor of M/s Parth Impex sitting in Surat only. In some cases they had procured the duty paid invoices of yarn. But they had not received and consumed the yarn. They have only fraudulently availed the cenvat credit of the duty shown to be paid on the yarn and issued the duty paid invoices of the grey fabric without any manufacture. Therefore, it appears that the above said grey fabrics manufacturers have not manufactured grey fabrics but supplied only the duty paid invoices of grey fabrics with sole intention to pass on fraudulent CENVAT Credit to M/s G Tex. 13.1.1 In view of the discussions held in aforesaid paras, it appears that Shri Brijesh Babulal Shah Proprietor of M/s Parth Impex, Shri Rajesh Shah, Proprietor of M/s Surbhi Page 3 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined Corporation, Shri Deepak Shah, Proprietor of M/s Shah Fabrics, Shri Jitendra Rawal, Proprietor of M/s Shivam Textile, Shri Harnish D. Joshi, Proprietor of M/s Suryananrayan Textile & Shri Hiren S Bhat Proprietor of M/s Narayan Silk Mills & Shri Vijay H Shreemal Proprietor of M/s Shree Balaji Textile & Shri Awadh Narayan Singh, Proprietor of M/s Deepak Processors had established non-functional units and got the Central Excise registration only for enabling the merchant exporters to take rebate of excise duty on the basis of invoices of grey fabrics of non-existent and bogus central excise registrants of grey fabrics.
13.2 Outcome of investigations in respect of transporters: The polyester grey fabrics shown to be purchased from Malegaon based manufacturers is shown to be transported through transporters viz. M/s. Uday Roadway. M/s. Jay Matadi Transport and M/s Shree Nakoda Roadlines. However, in the view of the investigations as discussed earlier, it appears that both these transporters never ever existed. The lorry receipts which are shown to be used to carry consignment of the grey fabrics from Malegaon to Surat appear to have been got printed and prepared in name of above transporters by Shri Brijesh Shah, proprietor of M/s Parth. In the view of all these findings, it appears that no grey fabrics were transported from Malegaon to Surat.
13.3 Outcome of investigations in respect of financial transactions: In the view of the investigations carried out, it appears that no real financial transactions took place during the course of purchase and sale of grey fabrics by M/s. Parth Impex. The customers of M/s. Parth i.e. exporters or processors used to issue cheques payable to Mis. Parth which were being deposited in to the various accounts of M/s.Parth. Thereafter, in order to show payments to its suppliers. M/s. Parth was getting acknowledgments of cheques being issued to them which were actually the blank cheques signed by M/s. Parth, which were subsequently handed over to the exporters or processors, who have issued cheques in its favour. Thereafter, the exporters used to get the cheques encashed through discounting agents/shroffs. Thus, whatever amount was shown to be paid to M/s.Parth has flown back to the exporter. In the view of investigations it appears that M/s. Parth has neither received any money from its customers nor paid any money to its suppliers located in Malegaon. In the view of these findings, it is evident that no grey fabrics could have been either purchased or sold by M/s.Parth in the absence of any kind of real financial transactions. Even in Page 4 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined other cases of transaction between grey suppliers and the exporters it has been admitted that the payment received by the grey suppliers for the purported sale of the grey fabrics was received back by the exporters by way of encashment through shroffs/cheque discounting agents etc. 13.4 Outcome of Investigations In respect of processors:
In the view of investigations it appears that the processors had availed CENVAT Credit on the duty paying documents supplied to them by the merchant exporters. The processors did not have any system of verification and correlation of the duty paying documents and the grey fabrics. There were no markings on either the fabrics or the packing so as to establish identity of grey fabrics with its manufacturer. When they were confronted with the evidence gathered by DGCEI which revealed that aforementioned grey fabric suppliers had supplied only duty paying documents and no corresponding goods were ever supplied, they could not produce any positive evidence on their part to show that the duty paying invoices issued by M/s Surbhi Corporation, M/s Kesar Textile, M/s. Parth Impex, M/s Suryanarayan Textile, M/s Balaji Textile & M/s Shivam Textile on the basis of which they have availed CENVAT Credit were accompanied by corresponding goods. On being shown various evidences gathered by DGCEI, the processors confessed that the above said grey fabrics manufacturers/suppliers have apparently not supplied the polyester grey fabrics, but only supplied duty paying documents. Thus they have wrongly availed CENVAT Credit in as much as the duty paying documents on the basis of which they availed the CENVAT Credit were not accompanied by the corresponding goods. They wrongly availed CENVAT Credit without receipt and consumption of inputs. Further they have also issued duty paid invoices of the processed fabrics along with ARE-1s for further export by merchant exporter. The central excise duty on the processed fabrics is shown to be paid out of the wrongly availed cenvat credit on the mere invoices of M/s Surbhi Corporation, M/s Kesar Textile, M/s. Parth Impex, M/s Suryanarayan Textile, M/s Balaji Textile & M/s Shivam Textile without actual receipts and consumption of the inputs. Thus it appears that availment of the cenvat credit and subsequent utilization by the processor was merely a paper transaction without actual manufacture and supply of the processed fabrics. Further it is also revealed that no central excise duty is actually being paid on the central excise invoices issued by processors as duty is shown to be paid out of the fraudulently availed cenvat credit. Thus it is evident that the processors have assisted and enabled the merchant Page 5 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined exporter to claim the rebate of the central excise duty which was never paid.
13.5 Outcome of investigations at M/s Deepak: In the light of the investigations it appears that M/s Deepak had availed CENVAT Credit on the duty paying documents supplied to them by aforementioned grey fabric manufactures. It was further revealed that M/s Deepak never existed in the address declared by them. On being shown various evidences gathered by the DGCEI, M/s Deepak confessed that aforesaid grey firms had not supplied the polyester grey fabrics, but had only supplied duty paying documents. M/s Deepak never had any facility to undertake any processing work, Therefore, they had wrongly availed CENVAT Credit without receipt and consumption of inputs. Further they had also issued duty paid invoices of the processed fabrics along with ARE-1s for further export by merchant exporter. The central excise duty on the processed fabric is shown to be paid out of the wrongly availed cenvat credit availed on the strength of mere invoices issued by the aforesaid grey fabric manufacturers without actual receipts and consumption of the inputs. M/s Deepak had not carried out any kind of manufacture on said the processed fabric. Thus it appears that availment of the cenvat credit and subsequent utilization by M/s Deepak is merely a paper transaction without actual manufacture and supply of the processed fabric. Thus it appears that M/s Deepak and its merchant exporters have claimed the rebate of the central excise duty which was never paid."
3.3 So far as the petitioners are concerned, the Adjudicating Authority arrived at the following findings :
"13.6 Outcome of investigations in respect of the exporter:
13.6.1 In view of the discussions in aforesaid paras, it appears that M/s. G Tex has shown bogus purchase of duty paid polyester grey fabrics from M/s Parth, M/s Surbhi. M/s Kesar Textile, M/s Balaji Textile. Mis Shivam Textile, M/s Suryanarayan Textile and Mis Narayan Silk Mills. They had never ever supplied any kind of polyester grey fabrics to Mis. G Tex. Though M/s. G Tex had shown payments to M/s.Parth, Mis Surbhi, M/s Kesar Textile, M/s Balaji Textile, M/s Shivam Textile, M/s Suryanarayan Textile and M/s Narayan Silk Mills Page 6 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined towards purchase of grey fabrics, the money had flown back to Mis. G Tex by way of encashment through shroffs/cheque discounting agents. The duty paid invoices without accompanied grey fabrics were sent to the processors who had wrongly availed CENVAT Credit on the strength of aforesaid invoices. The processors in turn issued duty paid Central Excise invoices and ARE-1s to M/s. G Tex for further export. M/s. G Tex claimed rebate of Central Excise duty shown to be paid by processor which was actually never paid by processor. Thus, it is evident that M/s G Tex has fraudulently claimed the rebate of duty shown to be paid on exported goods which actually was never paid to the exchequer at any stage.
13.6.2 In the view of investigations discussed in aforesaid paras, it appears that a unique modus operandi with sole intention to avail fraudulent rebate of Central Excise duty which was never paid to the exchequer was created and adopted by the exporter of polyester fabrics, units/persons posing as grey fabric manufacturers and the processors. They created long chain of bogus firms carrying out different activities involved in manufacture of dyed/printed/processed fabrics all of which were registered with Central Excise for payment of Central Excise duty and availing CENVAT Credit. M/s.Parth, M/s Surbhi, M/s Kesar Textile, M/s Balaji Textile, M/s Shivam Textile, M/s Suryanarayan Textile and M/s Narayan Silk Mills all registered dealer/manufacturers of grey fabrics issued only the duty paid invoices without actual manufacture and supply of grey fabrics to M/s. G Tex, Merchant Exporter. M/s. G Tex sent aforesaid invoices to the processors viz. M/s Ramanuj Dyeing & Printing Mills & M/s Jagdamba Dyeing & Printing Mills, who fraudulently availed CENVAT Credit on the strength of aforesaid invoices without actual receipts and consumption of the Polyester grey fabrics. The processors in turn issued duty paid invoices alongwith ARE-1's of processed fabrics in the name of M/s. G Tex wherein Central Excise duty was shown to be paid out of CENVAT Credit fraudulently avalled on the strength of invoices issued by non existing firms. Mis. G Tex. finally claimed rebate of Central Excise duty shown to be paid by the processor, which was actually not paid at any stage. Only the duty paying documents and commission have exchanged the hands and nowhere the goods and money have flown. Thus, Mis. G Tex hatched a conspiracy with active involvement of processors and grey fabrics manufacturers/dealers to defraud the exchequer by way of claiming fraudulent rebate of Central Excise duty which was never paid to exchequer."Page 7 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024
NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined 3.4 On the basis of the above findings, the rebate claimed by the petitioners was denied and the penalty was also imposed upon the petitioners.
3.5 Being aggrieved, the petitioners challenged the order-in- original before the Appellate Authority. The Appellate Authority allowed the appeal of the petitioners and other persons against whom the penalty was imposed including the suppliers of the raw material, processors and the petitioners, who is the merchant exporter. The Appellate Authority on the basis of the submissions made before it, held that the petitioners are entitled to the rebate on the export of the goods as the Cenvat credit which was claimed by the processors on the basis of the invoices was reversed in the show cause notice itself. The Appellate Authority held as under :
"10.1 So far as recovery of rebate of Central Excise duty amounting to Rs.10,60,193/- already granted to M/s. G. Tex and rejection of their pending rebate claims amounting to Rs.26,92,252/- is concerned, I find that the export of port of goods (processed fabrics) made physically by M/s. G. Tex procured from the above mentioned processors is not under dispute at all. There is neither any investigation nor any allegation in respect of transaction of processed fabrics between M/s G Tex and the processors It has no where been alleged in the case that the processors had not supplied the processed fabrics physically to M/s. G. Tex for the purpose of export Therefore, even if the allegations, that the grey fabrics manufacturers had not manufactured and supplied any grey fabrics to the processors (through M/s. G. Tex) and the processors had availed cenvat credit wrongly without receiving the fabrics only on the basis of invoices of such manufacturers of grey fabrics, are sustainable in the instant case, the rebate of central excise duty shown to have been Page 8 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined paid on the processed fabrics cannot be denied when their export is not under dispute The exported goods had ultimately suffered the central excise duty. As per procedure laid down for export under claim of rebate of Central Excise duty vide the notification issued under Rule 18 of Central Excise Rules, 2002, the jurisdictional Central Excise authorities had to verify the particulars of duty paid or duty payable and had to endorse its correctness or otherwise From the sample copies of the OIOs vide which their rebate claims had already been sanctioned produced by M/s. G. Tex, I find it clear that the same were sanctioned on the basis of verification reports received from concerned range officers who had clearly reported that "the rebate claim is admissible, duty has also been paid on goods cleared for export under above ARE-1, no Gout dues is pending against the claimant etc. Even the Range Superintendent had mentioned that duty payment in respect of grey fabrics is verified as per the details of weavers submitted by the exporter and verified and found genuine M/s G. Tex had also submitted the Bank realization certificate evidencing remittance of foreign exchange along with rebate claims. Under the circumstances, no dispute can be raised against the rebate claims already sanctioned and granted to M/s. G Tex. Further, even if the processors had availed cenvat credit wrongly, the duty paid nature on the processed fabrics under the invoices issued by the processors to M/s. G. Tex cannot be questioned. In the proceedings where rebate claims had already been sanctioned, the jurisdictional central excise officers had verified such duty payments also. Therefore, denying the rebate of duty on the basis of non- receipt of grey fabrics and/or suppliers non-existent etc. is not sustainable particularly when there is no one to one correlation of utilization of credit by the processor. Nothing has been brought out on record to suggest that the processors were involved in availment of fraudulent/wrong cenvat credits only and/or that they had not availed any cenvat credit on other duty paid grey fabrics. The payment of central excise duty from the accumulated cenvat credit does not mean that the whole credit was wrong. It is not forthcoming in the case that the processors had shown the payment of duty from the wrongly availed cenvat credits only Further, I find that there is no charge of any mutuality of interest, financial control, flow back of money funds and non bona fide nature of transactions between the merchant exporter (M/s. G Tex) and the processors Under the circumstances, the rebate of duty cannot be denied to M/s. G. Tex even if the processors had availed cenvat credit wrongly on the basis of bogus invoices as held by the Revisionary Authority, Govt. of India, in its Order Order Page 9 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined No.304-3-7/07 dated 18.5.2007 in the case of M/s.Shyam International, Mumbai.
10.2 Even the action for not taking reasonable steps as provided under explanation to Rule 9(3) of Cenvat Credit Rules, 2004 lies on the manufacturer taking cenvat credit (processor in the instant case) and not on the M/s. G. Tex (merchant exporter) who had received the goods (fabrics) from the processors and exported them on the strength of clearances under ARE-1s and Central Excise invoices indicating duty payment particulars showing all other details. Even if said duty was shown to be paid from the wrongly availed cenvat credit on the strength of invoices issued by non- existent suppliers by the processors, the legal provisions exist in the Central Excise Act, 1944 and Cenvat Credit Rules, 2004 for recovery of such alleged wrongly availed credit from the processors along with interest and penalty, which has been done in the instant case. So, when the recovery proceedings has already been initiated against the processors for cenvat credit wrongly availed by them under the provisions of Cenvat Credit Rules read with Central Excise Act, 1944, the exporter (M/s. G. Tex) cannot be denied the legitimate benefit of rebate of amount of duty paid (shown to be paid) by the processors as the exporter had paid the transaction amounts to the processors inclusive duty and also there is no mutuality of interest and/or financial control/flow-back of money between the exporter and processors. I do not find any violation of Rule 18 of Central Excise Rules, 2002 read with any notification issued there under. Following the above order in M/s. Shyam International, the Revisionary Authority has allowed the application of M/s. Krishna Exports, Surat vide Order No.315/2007 dated 18.05.2007 and the rebate of duty has been allowed. The ratio laid down in Order No.501/2009-CX dated 29.12.2009 passed by the Revisionary Authority, Govt. of India, in the case of M/s.Vikram International, is also squarely applicable in the facts and circumstances of the instant case.
10.3 In view of above, I hold that the rebate claims amounting to Rs.10,60,193/- already sanctioned and paid to M/s.G Tex cannot be held as erroneous and accordingly, its recovery with interest and imposition of penalty upon M/s. G. Tex. are not sustainable. Further, the rejection of pending rebate claims of Rs.26,92,252/ in the impugned order, is also not sustainable. Consequently, the penalty imposed on the partner of M/s. G. Tex is also not sustainable."Page 10 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024
NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined 3.6 Being aggrieved by the aforesaid appellate order, the respondent No.2 preferred Revision Application before the Government, who, by the impugned order dated 6.10.2023, allowed the Revision Application setting aside the appellate order and restoring the order-in-original.
3.7 The petitioners, being aggrieved, have preferred this petition.
4. Learned advocate Mr.Nirav Shah for the petitioners submitted that the Appellate Authority has found that the petitioners are entitled to rebate on the export made by it in view of the fact that there is no dispute that the goods have been exported and such export has been accepted by the respondents. It was further submitted that there is no loss to the Government as the Cenvat credit availed by the processors has already been reversed and the excise duty is paid and, therefore, the condition for availing the rebate is fulfilled. It was also submitted that the petitioners have claimed the rebate on the basis of the goods exported and the export realization is not in dispute.
4.1 Learned advocate Mr.Shah referred to the findings of the Commissioner (Appeals) to suggest that the petitioners or the processors were involved in availment of fraudulent / wrong Cenvat credit and that they had not availed any Cenvat credit on the other duty paid grey fabrics. It was submitted that the payment of central excise duty from the accumulated Cenvat credit does not mean that the whole credit was wrong Page 11 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined and there is nothing on record to point out that the processors had shown the payment of duty from wrongly availed duty credit and there is no charge of mutuality of interest, financial control, flow back of money funds and non-bona fide nature of transactions between the petitioners and the processors. It was, therefore, submitted that under such circumstances, the rebate of duty cannot be denied to the petitioners even if the processors had availed Cenvat credit wrongly on the basis of bogus purchase invoices as held by the Adjudicating Authority.
4.2 Learned advocate Mr.Shah, in support of his submissions, relied upon the decisions of this Court in case of Commissioner of Central Excise & Customs v. D.P. Singh, reported in 2011 (270) ELT 321 (Guj.) and Diwan Brothers v. Union of India, reported in 2014 (309) ELT 244 (Guj.). Relying upon both the decisions, it was submitted that the petitioners are entitled to the rebate on the export made by it as well as the penalty which is confirmed by the Revisional Authority is required to be quashed and set aside. It was pointed out that during the course of investigation, none of the suppliers of raw materials has named the petitioners and only because the suppliers have issued the invoices without payment of central excise duty, it is the processors who had availed the Cenvat credit and ultimately, the same is already reversed as recorded in the show cause notice. It was, therefore, submitted that the petitioners are entitled to the rebate on the export made by it which is a genuine export of goods and during the course of investigation, the same is not questioned or doubted by the Page 12 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined respondent authorities.
4.3 Reference was made to the observations made in case of D.P. Singh (Supra) to point out that all the facts which are stated in Para.5 of the said decision are applicable in the facts of this case as the Commissioner (Appeals) has rightly held that the petitioners were entitled to claim the rebate and the Revisional Authority ought to have upheld the order passed by the Commissioner (Appeals) on the basis of the findings recorded by the Commissioner (Appeals).
4.4 It was submitted that in the order-in-original also, there is no findings against the petitioners and the Adjudicating Authority has only on the basis of the inference has come to the conclusion that the petitioners were involved in the unique modus operandi with sole intention of avail fraudulent rebate of central excise duty which was never paid to the exchequer. It was submitted that the Revisional Authority also has come to such conclusion only on the basis of the findings recorded in the order-in-original ignoring the fact that there is nothing on record to point out that the petitioners were any way involved in fraudulent fraud which was revealed during the course of the investigation by issuance of the fake invoices without supply of goods. The petitioners have got the goods processed from its processors which were exported and the processors have also reversed the Cenvat credit after it was revealed during the course of investigation that such Cenvat credit availed by the processors was not on the basis of the excise duty paid on the raw materials supplied by the manufacturers of grey fabrics. It was, therefore, submitted Page 13 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined that the petitioners are entitled to the rebate claimed and the impugned order passed by the Revisional Authority is required to be quashed and set aside.
5. Considering the submissions made by the learned advocate Mr.Shah, it would be germane to refer to the findings arrived at by the Revisional Authority on the basis of the records pertaining to the role of the petitioners which in no uncertain terms implicates the petitioners for the fraud which was detected during the course of the investigation for supply of the grey fabrics without there being any existent manufacturers and only paper invoices were issued without payment of excise duty. It is also revealed during the findings recorded by the Revisional Authority to the effect that the goods which were even provided to the processors by the petitioners which was purchased from the suppliers of the grey fabrics were not the same goods on which the CENVAT Credit was reversed later on by the processors. The findings arrived at by the Revisional Authority are as under.
"10. Government finds that the Show Cause Notice dated 27.05.2010 sought to recover the rebate already sanctioned to M/s GTEX as well as reject their claims which were pending disposal. Government finds that the events which led to the above Show Cause Notice are based on an investigation carried out by the DGCEI, Ahmedabad, wherein it exposed a syndicate consisting of several entities who issued fake/bogus Central Excise Invoices indicating payment of duty without any physical sale or purchase of grey fabrics or actual payment of Central Excise duty. The facts of the case are that M/s.GTEX, a merchant exporter, had exported fabrics which they had got processed by M/s.JDPM & M/s.RDPM on job work basis. The grey fabrics used for processing the exported fabrics was procured by M/s.GTEX from various dealers and manufacturers of grey fabrics. M/s Satyanarayn Textiles (M/s Page 14 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined ST) and M/s Narayan Silk Mills (M/s ST) being two such grey manufacturers, amongst several others, who supplied grey fabrics to the processors on behalf of M/GTEX. It is the case of the Department that such grey fabrics were never supplied by the Dealers/manufacturers and only Central Excise Invoices indicating duty payment were sent to the processors and hence the Cenvat credit availed by them on such invoices was improper and the rebate claimed of the duty paid using such improper Cenvat credit cannot be allowed. Government finds that the original authority upheld the charges in the Show Cause Notice and held that the rebate already sanctioned was recoverable and rejected the pending claims. Penalties were imposed on amongst others, all the eight respondent firms/persons. Government finds that the said eight firms/persons, as detailed above, filed appeals before the Commissioner (Appeals) against the Order-in-Original. The Commissioner (Appeals) dropped the charges against M/s GTEX, the merchant exporter, and dropped the penalties against the grey manufacturers viz., M/s Satyanarayı Textiles and M/s Narayan Silk Mills, whilst reducing the penalties on their proprietors. The processor M/s RDPM and its partner, having settled their case under SVLDRS, their appeals were treated as withdrawn. The Department aggrieved by the Commissioner (Appeals) order has filed the subject Revision Application seeking to set aside the same.
11. Government has examined the Order-in-Original wherein the entire investigation carried out by the DGCEI has been elaborated and the modus operandi of the syndicate exposed. Government finds that several firms viz. Parth Impex, M/s ST and M/s NT were created by the said syndicate; and all these firms obtained registration either as 'Dealers' or 'manufacturers' of grey fabrics with the Central Excise Department. Investigations clearly reveal that these registrations were obtained fraudulently and were based on forged documents. It was only when the all the firms starting from the merchant exporter, processors and downstream suppliers of grey fabrics were investigated together was the conspiracy exposed. These bogus dealers/manufacturers issued Central Excise invoices indicating payment of Central Excise duty on grey fabrics to several other firms as well as amongst themselves, without actual supply of goods or payment of duty in the first place. These invoices were used either by Dealers' or the 'Processors' to avail or pass on Cenvat credit. The Cenvat Credit so availed was used to pay duty when the goods were indicated as sold to a processor/exporter. "The role of the all the firms/persons Page 15 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined involved, including those who preferred appeals before the Commissioner (Appeals) who have been mentioned above, has been laid bare by the investigation carried out. Government notes that M/s GTEX had, in the capacity of a merchant exporter, indicated purchases from such Dealers/manufacturers' who issued such fake/bogus invoices without supply of grey fabrics or payment of duty. Investigation carried out revealed that the job-workers/processors of M/s GTEX had availed Cenvat credit on the strength of such fake/bogus Central Excise invoices issued by the said Dealers and manufacturers of grey fabrics' which in turn was used by them to pay duty on the goods shown as sold to M/s GTEX who finally claimed rebate of such duty claimed to have been paid by the job workers/processors.
12. Government has examined the evidences gathered during the investigation. Statements of various persons who perpetuated the fraud were recorded and they have admitted that the chain of transactions, beginning with the fraudulent Dealers', who issued the bogus/fake invoices and leading to the merchant exporter M/s GTEX, were only paper transactions and that in these cases neither were any goods supplied nor was any duty paid. Documents withdrawn during the course of searches carried out at premises M/s Parth Impex, the main supplier of grey fabrics and registered as a 'Dealer' with the Central Excise authorities a registered Dealer clearly brings out the enormity of the entire fraud. Blank Invoices books of their supplier of grey fabrics were found along with blank LRs of the Transport Company whose challans were forged to indicate transport of grey fabrics. The transport documents were either non-existent or were found to be forged. The owners/persons in charges of these grey fabric suppliers have admitted that it was the proprietor of M/s Parth Impex who prepared all the documents including the Invoices indicating payment of Central Excise duty and that they did not manufacture or supply any grey fabrics. The transactions between these fraudulent firms indicate that the duty indicated as paid 14 bogus/fake invoices was finally encashed when the rebate of the same was claimed, in the present case by M/s GTEX The banking transactions examined during the investigation, indicate that all parties involved were beneficiaries to the fraud. The fraudulent dealers and manufacturers of grey fabrics were found to have obtained registrations on the strength of bogus/fake/forged lease agreements and the premises were found to be either vacant or occupied by other units. Investigations also indicated that the payment made by the applicant to such entities was routed Page 16 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined back to them through shroffs/cheque discounting agents.
13. Government finds that the Partner/s of the job workers/processors have admitted that they neither had any system of physical verification of the goods supplied by such entities nor could they co-relate the invoices and the grey fabrics covered by it. On being confronted with the evidence collected during investigation, the partner of the merchant exporter had admitted that such grey manufacturers could not have existed and hence could not have manufactured any grey fabrics. Further, Government finds that the partners of the job worker/processors, viz. M/s JDPM and M/s RDPM and also the partner of M/s GTEX have in their statements before the Central Excise authorities, when confronted with the statements and other evidence collected during the investigation, have admitted that the firms who supplied grey fabrics, could not have paid Central Excise duty on the grey fabrics purportedly supplied to them. Government notes that M/s GTEX had claimed rebate of the duty paid by their job workers/processors on the final products alleged to have been manufactured out of such non-duty paid grey fabrics. Government finds that the proprietors of M/s ST and M/s NSM have in their statements recorded before the officers, admitted that they had not purchased any yarn and had availed Cenvat credit of yarn on the basis of forged invoices, they further admitted that never manufactured or supplied grey fabrics at any point of time.
14. Government finds that the investigation carried out has placed on record irrefutable evidence to indicate that M/s GTEX and others who filed appeals others with before the Commissioner (Appeals), along hatched conspiracy to defraud the Government exchequer, they orchestrated a fraud by fabricating fake/bogus invoices indicating payment t of Central Excise duty, which, through series of paper transactions reached the processors/job workers who then availed Cenvat credit of duty which was never paid and M/s GTEX as the merchant exporter proceeded to claim rebate of the same. Government finds that M/s GTEX played a vital role in the entire fraud as it was them who finally encashed the duty shown to have been paid by the fake/bogus invoices. Government finds M/s GTEX to be guilty on several counts; they have shown purchases from non-existent entities; they have shown supplies to their job workers without receiving any material from their suppliers and had in turn made available fake/bogus invoices on the basis of which their job- workers availed Cenvat credit and used it pay Central excise Page 17 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined duty of which they claimed rebate; and finally were part of the financial racket wherein the illicit gains were shared by all the entities involved. M/s GTEX cannot deny their complicity in the creation of such fake paper transactions and fabrication of transport documents. Government finds that M/s GTEX played an integral part in this fraud which was perpetuated with the sole intention to avail/encash Cenvat credit on the strength of bogus/fake invoices fabricated by the syndicate. Government finds that the investigation, details of which has been discussed above, clearly indicate that M/s GTEX has colluded with the others in the syndicate with the intent to defraud the Government and in the process has suppressed facts and filed rebate claims by wilfully misstating that proper duty was paid on the exported goods.
15. In view of the above, Government finds that M/s GTEX had fraudulently availed rebate in the subject case and such amounts claimed by them need to be recovered and the demands raised by the Show Cause Notice seeking to recover such rebate deserves to be confirmed and accordingly holds so. Government find that the Commissioner (Appeals) in the impugned Order-in- Appeal dated 29.05.2020 has erred in finding that since the fabrics were exported and the fraudulent suppliers were granted Central Excise registration, M/s GTEX would be eligible to the rebate claimed by them. As stated above, Government finds that it was only after a comprehensive investigation was carried against the whole syndicate, did the fraud perpetuated at multiple levels stood exposed. Government finds that it would be impossible for a Range officer to detect that the finished goods placed before him for export were manufactured out t of grey fabrics which had not suffered Central Excise duty in the normal course. Further, Government notes that it would be near impossible for an officer to predict while granting Central Excise registration to the grey fabrics dealers/manufacturers that the same was being obtained for the purpose of perpetuating such fraud. Government finds that it is only with the benefit of details thrown up by the investigation conducted across the entire group of firms involved in the conspiracy was the fraud exposed and it would be near impossible to detect the same when the exposure of an officer is limited to one firm. Thus, Government finds that the grounds on which the Commissioner (Appeals) held that M/s GTEX will be eligible for the rebate claimed, to be incorrect. Thus, in view of the above, Government finds that the demand of rebate already sanctioned to M/s GTEX amounting to Rs.10,60,193/- deserved to be confirmed and their pending rebate claims of Page 18 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined Rs.26,92,252/- deserved to be rejected and accordingly holds SO. Government also restores the penalties of Rs.10,60193/- and Rs.1,00,000/- imposed on M/s GTEX and its partner Shri Rajesh Bhanwar, respectively by the original authority. Government sets aside the order of the Commissioner (Appeals) in the impugned Order-in-Appeal dated 29.05.2020 on this count and orders for recovery of the rebate amount sanctioned to M/s GTEX along with appropriate interest."
6. In view of the above findings of fact arrived at by the Adjudicating Authority as well as the Revisional Authority, the decisions relied upon by the learned advocate Mr.Shah would not be applicable as in case of D.P. Singh (supra), this Court has categorically held in para-15 as under.
"15. Before closing, however, we may reiterate that the facts in present case are peculiar. Had there been any allegations and evidence to show that respondent M/s. Roman Overseas was either part of the fraud in nonpayment of excise duty or had knowledge about the same or even had failed to take care as envisaged under subrule (2) of Rule 7 of the Cenvat Credit Rules, situation would have been different. In the present case, when no such facts emerge, we have no hesitation in confirming the view of the Government."
7. Similarly, in case of Diwan Brothers (supra), this Court did not grant the benefit of rebate on export on the ground that it was not proved that the supplier of the goods paid the duty on the very goods which came to be supplied and accordingly, held as under.
"[5.2] Now, so far as the contention on behalf of the petitioner that as such M/s.Mamta Silk Mills Pvt. Ltd. paid the duty demanded by the department on account of wrong credit availed by the processor and invoices issued by fictitious/unknown persons and therefore, the petitioner shall be entitled to the rebate of the said duty paid by M/s.Mamta Silk Mills Pvt. Ltd. is concerned, it is required to Page 19 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024 NEUTRAL CITATION C/SCA/8805/2024 ORDER DATED: 25/07/2024 undefined be noted that as such it is not proved that M/s.Mamta Silk Mills Pvt. Ltd. paid the duty on the very goods which came to be supplied by M/s. Universal Textiles to the petitioner. Under the circumstances, unless and until the same is established the case of the petitioner cannot be considered. In the present case as such it is found that the transactions between the petitioner and its supplier (M/s.Universal Textiles) were found to be fake. Even otherwise it is required to be noted that as such it is pointed out that M/s.Mamta Silk Mills Pvt. Ltd. has demanded the refund of the said duty in view of the subsequent proceedings initiated by it. Under the circumstances, on the aforesaid ground, the petitioner shall not be entitled to the rebate claim."
8. Thus, in view of the above, no interference is called for in the impugned order passed by the Revisional Authority. The petition, therefore, being devoid of merits, is dismissed summarily.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) V.J. SATWARA Page 20 of 20 Downloaded on : Mon Jul 29 22:05:35 IST 2024