Custom, Excise & Service Tax Tribunal
Amex Alloys Private Ltd vs Commissioner Of C.Ex., & Service Tax on 3 June, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal Nos.E/690/10, E/781/10, E/4/2011
[Arising out of Order-in-Appeal No.107, 108 & 109/2010-C.Ex. dt. 28.9.2010 passed by the Commissioner of Customs, Central Excise & Service Tax (Appeals), Coimbatore]
For approval and signature:
Honble Shri MATHEW JOHN, Technical Member
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? :
3. Whether the Member wishes to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
1. Amex Alloys Private Ltd.
2. Alagappa& co.
3. Sri Amman Steels Ltd.
Appellant
Versus
Commissioner of C.Ex., & Service Tax
Coimbatore
Respondent
Appearance:
Shri M.N. Bharathi, Advocate(S.No.1,3) Shri M.Saravanan, Advocate (S.No.2) For the Appellant Shri Parmod Kumar, JC (AR) For the Respondent CORAM:
Honble Shri Mathew John, Technical Member Date of hearing : 1.3.2013 Date of pronouncement : 3.6.2013 FINAL ORDER No._______________ Three appeals are being decided in this proceeding. M/s Amman Steels and M/s Alagappa and Co., two of the appellants, are second stage dealers as defined in rule 2 (s) of Cenvat Credit Rules, 2004 and registered under Rule 9 of Central Excise Rules, 2002 for selling of excisable products and issuing invoices showing excise duty payment on the goods as per provisions of Rule 11 (7) of Central Excise Rules, 2002. M/s Amman Steels had issued nine invoices to M/s Amex Alloys Pvt. Ltd, the third appellant showing supply of duty paid MS scrap during the period 02-09-05 to 28-06-06 involving central excise duty payment of Rs.2,44,302/-. Similarly, M/s Alagappa and Co. had issued nine invoices to M/s Amex Alloys Pvt Ltd during 30-08-05 to 05-01-06 involving total duty amount of Rs.1,61,829/-. The third appellant is a manufacturer of excisable goods who took credit on the basis of these invoices.
2. Based on investigation, Revenue made out a case that the two second stage dealers had procured non-duty paid MS scrap from open market and supplied it under invoices which showed payment of duty on materials which were used by buyers who were not interested in taking Cenvat credit. Thus, the case made out is actually one of fraudulent match of duty paying document and non-duty paid materials against the two second stage dealers. Against the manufacturer, the case made out is that they had attempted to evade payment of excise duty by taking fraudulent Cenvat credit taken on the basis of such fraudulent invoices.
3. Show Cause Notices were issued proposingimposition of penalty on the two dealers under Rule 25 of the Central Excise Rules 2004. The notice also proposed demand of duty with interest from Amex Alloys Pvt Ltd consequent to denial of credit on the fraudulent documents. On adjudication an amount of Rs.2,44,302/- is imposed as penalty on M/s Amman Steels under Rule 25 of Central Excise Rules and an amount of Rs. 1,61,829/- is imposed on M/s Alagappa Steel as penalty under Rule 25 of Central Excise Rules 2002. A demand of Rs. 4,06,131/- was confirmed from AAPL with interest and penalty equal to the same amount was imposed under Rule 15 read with section 11AC. Aggrieved by the order, the appellants filed appeals with Commissioner (Appeal) who confirmed the adjudication order. Aggrieved by the order of Commissioner (Appeal), the three appellants have filed these appeals.
4. The evidence appearing against the dealers are,-
(i) the fact that the price at which the goods were supplied to the manufacturer, AAIL, was actually lower than the price at which the duty paid goods were procured by them.
(ii) In the statement dated 18-02-08 recorded from Shri. T,Kannan, authorized Signatory of M/s Alagappa and Co., he stated that they actually supplied non-duty paid scrap from the bazar against the nine impugned invoicesissued by them to AAIL, details of which were shown to him during taking of statement, and that duty payment shown in the invoicesissued were based on duty paid on other materials supplied by manufacturers which materials were sold to people who were not taking any Cenvat credit;
(iii) In the statement dated 03-02-2009 given by Shri. Gangaibalan, Proprietor of M/s Amman, he also admitted that the goods supplied by the nine impugned invoices issued by them AAIL, details of which were shown to him during taking of statement, were actually scrap obtained from bazar but duty payment shown in the invoices related to other goods sold to other person who were not interested in taking invoices.
5. During hearing of the appeal, the advocate for the dealers did not dispute the factual evidences appearing against them. His only contention was that no penalty could be imposed under Rule 25 of Central Excise Rules based on the facts as stated above.
6. He points out that Rule 26 (2) which enables imposition of penalty for the above type of actions came into force on 01-03-2007 only and the impugned invoices were issued before the said date.
7. Secondly he points out that the adjudication order does not state which goods were liable to confiscation whether the non-duty paid goods sent to AAPL or the duty paid goods which were sent to other parties who were not parties to the proceedings at all. However in para 4.8 of the impugned order the Commissioner (Appeal) has held that the duty paid goods sent to the persons who actually bought the duty paid goods without issue of invoices were liable to confiscation and therefore he is imposing penalty under Rule 25 of Central Excise Rules. His argument is that duty paid goods sent to other parties could not have been held to be liable to confiscation.
8. The Ld. Advocate relies on the following decisions to argue his case that penalty could not have been imposed on him under Rule 25 as it stood at the time when the incident happened:
(i) CCE Vs. Ashish Gupta-2009 (240) ELT 390 (Tri)
(ii) CCE Vs. Ispat Industries Ltd.-2010 (261) ELT 1059 (Tri-Mum)
(iii) CCE Vs. Anshul Steel Scrap Corpn.-2011 (264) ELT 535 (Tri-Del).
9. Opposing the prayer, the Ld. A.R. for Revenue submits that the Punjab and Haryana High Court in the case of V. K. Enterprises Vs. CCE 2011 (273) ELT 513 (Tri-Del) has held that penalty could be imposed on a dealer under Rule 25 of the Central Excise Rules, 2002 as it stood at the relevant time.
10. The Third Appellant in this case is AAPL who submits that they were bonafide purchasers of scrap and they had taken all reasonable care to ensure that duty was paid on the goods. They submit that they have paid for the goods by cheques. They submit that they have accounted the raw materials received, manufactured excisable goods out of such raw material and cleared it on payment of duty. The department itself could unearth the fraud after considerable investigation. So it would have been impossible for this appellant to detect the fraud played by the dealers. They plead that since there was no fraud on their part no extended period can be invoked to demand duty from them.
11. The Ld. AR for Revenue submits that the very fact that the prices for the goods were indicated less than the price at which the dealer procured the goods would have indicated to AAPL that it was not the same goods as covered by the documents. The description of the goods in the document were also different from the descriptions of the actual goods received and accounted by them. These facts clearly demonstrate that they were aware of the fraud. Revenue is not challenging receipt of goods and payment by cheque. But the issue is goods received were different from the goods covered by any manufacturer against any invoice after payment of applicable excise duty. Thus he argues that there is a conscious effort on the part of this party to take fraudulent credit and therefore extended period of time is properly invoked.
12. I have considered submissions on both sides. From the fact that the dealers who issued the invoices are shying away from contesting the factum of fraud, it is very obvious that the dealers supplied non-duty paid goods against documents showing duty payment. The further facts as presented by Ld. A. R. would show that the manufacturer was party to the fraud. So, I have no hesitation in confirming the demand against AAPL along with interest and penalty. So I reject the appeal filed by AAPL.
13. In the matter of penalty imposed on the dealers, the issue is purely a legal issue as it stands at this stage because commission of fraud is not contested by them.
14. Relevant extracts of Rule 11 are reproduced below:
RULE 11.?Goods to be removed on invoice. (1) No excisable goods shall be removed from a factory or a warehouse except under an invoice signed by the owner of the factory or his authorized agent and in the case of cigarettes, each such invoice shall also be countersigned by the Inspector of Central Excise or the Superintendent of Central Excise before the cigarettes are removed from the factory.
Provided that a manufacturer of yarns or fabrics falling under Chapter 50, 51, 52, 53, 54, 55, 58 or 60 or readymade garments falling under Chapter 61 or 62 of First Schedule to the Tariff Act may remove the said goods under a proforma invoice signed by him or his authorised agent. The provisions of sub-rules (2) to (5) shall apply to the proforma invoice except that the said invoice shall not contain the details of the duty payable. The manufacturer shall, within five working days from the issuance of the proforma invoice prepare the invoice in terms of this rule after making adjustments in respect of the goods rejected and returned by the buyer. The proforma invoice and the invoice issued in terms of this sub-rule shall have cross reference to each other by way of their serial numbers Provided further that the said period of five working days, as referred to in the first proviso, may be extended upto a period not exceeding twenty-one days, inclusive of the said period of five working days, by the Commissioner of Central Excise, on receipt of a request from the said manufacturer.
(2) The invoice shall be serially numbered and shall contain the registration number, name of the consignee, description, classification, time and date of removal , rate of duty, quantity and value, of goods and the duty payable thereon.
(3)?The invoice shall be prepared in triplicate in the following manner, namely :-
(i) the original copy being marked as ORIGINAL FOR BUYER;
(ii) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER;
(iii) the triplicate copy being marked as TRIPLICATE FOR ASSESSEE.
(4)?Only one copy of invoice book shall be in use at a time, unless otherwise allowed by the Assistant Commissioner of Central Excise, or the Deputy Commissioner of Central Excise, as the case may be, in the special facts and circumstances of each case.
(5)?The owner or working partner of the Managing Director or the Company Secretary or any person duly authorised for this purpose shall authenticate each foil of the invoice book, before being brought into use.??????
(6)?Before making use of the invoice book, the serial numbers of the same shall be intimated to the Superintendent of Central Excise having jurisdiction.
(7)?The provisions of this rule shall apply mutatis mutandis to goods supplied by a first stage dealer or a second stage dealer :
Explanation. - For the purposes of this rule, first stage dealer and second stage dealer shall have the meanings assigned to them in CENVAT Credit Rules, 2002.
(relevant portions are highlighted)
15. It is trait to argue that Rule 9 envisages declaration of correct particulars and not any fraudulent particulars will not meet the requirement of Rule 9. The Rule is applicable to the dealers with necessary changes as applicable as per sub-clause (7). So to argue that only manufacturer has to match goods with invoice accompanying the goods is patently wrong. The dealers had an obligation to follow the rule in letter and spirit which was not done. From the facts of the case, it is obvious that he had subverted the procedure prescribed in the rule with fraudulent intention in collusion with the manufacturer who took credit.
16. Now let us examine Rule 25 of the Central Excise Rules under which penalty has been imposed. This rule reads as under:
RULE 25.?Confiscation and penalty. (1) Subject to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, -
(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or
(b) does not account for any excisable goods produced or manufactured or stored by him; or
(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [ten thousand rupees], whichever is greater.
(2)?An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.
(Relevant portions are highlighted)
17. From Rule 11 (7), it is clear that removal from the premises of a second stage dealer also is removal and a second stage dealer also has to issue proper invoices showing true particulars. This has not been done in this case. So, there is a contravention of Rule 25 (a) in respect of duty paid goods supplied to units not availing Cenvat credit. In respect of non- duty paid goods cleared to the manufacturers under invoice showing duty payment there is a clear violation of rules with intent to evade payment of excise duty on final products manufactured (by paying such duty through fraudulent credit). This duty liability is not on the second stage dealer. But, still in my view, the situation will be covered by Rule 25 (d) and also in respect of non-duty paid goods supplied to the manufacturer under invoice showing duty payment. So, both the goods were liable to confiscation. This explains the slight contradiction between the orders of the two lower authorities. But this is not critical to the adverse consequence that visits the appellants due to his misdeeds.The reason that the goods were not available to confiscation should not be a reason to avoid penalty. I find that the Honble High Court of Punjab and Haryana has held that penalties can be imposed in such cases under Rule 25 of the rules as it existed at that time. Since there is decision of a High Court in line with my argument I do not consider it necessary to follow any decision of the Tribunal to the contrary. A decision to the contrary will not further objective of the provisions of the Act and the Rules and will help only in putting a torpedo on the hull in which revenue is collected.
18. In the circumstances, I do not see any merit in the appeals filed by the dealers. They are rejected.
19. Thus all the three appeals are rejected.
(Pronounced on 3.6.2013) (MATHEW JOHN) TECHNICAL MEMBER gs 2