Custom, Excise & Service Tax Tribunal
M/S. Vinayak Exim vs Commissioner Of Central Excise, ... on 25 February, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. E/87417/14, E/87753/14, E/87752/14, E/86855/14 [Arising out of denovo adjudication order NO. 74/SK/M-I/2013-14 dated 25/3/2014 passed by the Commissioner of Central Excise, Mumbai] For approval and signature: Honble Mr Ramesh Nair, Member(Judicial) =======================================================
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M/s. Vinayak Exim,
M/s. Ashirwad Fashion
M/s. Sheetal Exports
M/s. Varun Impex
:
Appellants
VS
Commissioner of Central Excise, Mumbai-I
Respondent
Appearance
Shri. K.I. Vyas, Advocate for M/s. Vinayak Exim, M/s. Ashirwad Fashion and M/s. Sheetal Exports and Shri. Ravindra Jain, Consultant for M/s. Varun Impex.
Shri. Ashutosh Nath, Asstt. Commissioner(A.R.)for the Respondent CORAM:
Honble Mr. Ramesh Nair, Member (Judicial) Date of hearing: 25/2/2016 Date of decision: /6/2016 ORDER NO.
Per : Ramesh Nair These appeals are directed against denovo adjudication order NO. 74/SK/M-I/2013-14 dated 25/3/2014 passed by the Commissioner of Central Excise, Mumbai whereby Ld. Commissioner passed following order:
20.1 I impose penalty of Rs. 9,98,876/- on M/s. Vinayak Exim under Rule 26 and 27 of the Central Excise Rules, 2002.
20.2 I impose penalty of Rs. 4,41,838/- on M/s. Ashirwad Fashion under Rule 26 and 27 of the Central Excise Rules, 2002.
20.3 I impose penalty of Rs. 21,97,894/- on M/s. Sheetal Exports under Rule 26 and 27 of the Central Excise Rules, 2002.
20.4 I impose penalty of Rs. 10,80,000/- on M/s. Varun Impex under Rule 26 and 27 of the Central Excise Rules, 2002.
2. The fact of the case is that on the basis of intelligence gathered by the officers of Central Excise, Division A, Mumbai I Commissionerate, it came to notice that one M/s. Singh Inc. has been registered as merchant manufacturer (deemed manufacturer) in terms of Rule 9 read with Rule 12B( as in force till 8/7/2004)) of the Central Excise Rules, 2002 have taken and utilised Cenvat credit on the basis of fake and bogus input invoices. M/s. Singh Inc. used to take Cenvat credit on the bogus invoices, without receipt of the inputs and show as manufacturer supplier of goods, used to issue Central Excise invoices showing supply the goods to certain merchant exporters including present appellants M/s. Vinayak Exim, M/s. Ashirwad Fashion, M/s. Sheetal Exports and M/s. Varun Impex. Some of the appellants namely M/s. Vinayak Exim, M/s. Ashirwad Fashion and M/s. Sheetal Exports filed rebate claim towards duty shown to have been paid in the invoices to M/s. Singh Inc. However, subsequently withdrawn the rebate application during the proceedings of these cases. M/s. Varun Impex have not filed application for rebate claim. As regard the offence alleged against M/s. Singh Inc., by adjudication order NO. 67/M-I/2010 dated 21//9/2010 the demand of fraudulent availed Cenvat credit for an amount of Rs. 1,08,27,461/- was confirmed against M/s Singh Inc. Against the present appellants, penalties of equal to the amount of rebate claim involved in the individual cases, were imposed under Rule 26 and Rule 27 of Central Excise Rules, 2002. Except present four appellants, none of the parties in the adjudication order filed any appeal. The present appellants filed appeals before this Tribunal wherein the Honble Tribunal remanded the matter to the Adjudicating authority for a fresh order after affording the appellants the personal hearing and allowing cross examination of the witnesses. In the denovo adjudication, Ld. Commissioner imposed penalties under Rule 26 and 27 on the appellants. As per the Commissioners findings the appellants being merchant exporters have colluded with M/s. Singh Inc. for fraudulent availement of Cenvat credit by M/s. Singh Inc. Ld. Commissioner Contended that the appellants were aware about the fraudulent activity of the M/s. Singh Inc. i.e. fraudulently availment of cenvat credit and by utilizing the same and passing the said amount in the form of payment of duty to the merchant exporters, therefore present appellants were held responsible and accordingly imposed penalties. Aggrieved by the impugned order, all the four appellants are before me.
3. Shri. K.I. Vyas, Ld. Counsel appeared for M/s. Vinayak Exim, M/s. Ashirwad Fashion and M/s. Sheetal Exports and Shri. Ravindra Jain, Ld. Consultant appeared on behalf of M/s. Varun Impex. He submits that on the investigation, the show cause notice and adjudication order dated 21/9/2010 it has been concluded that M/s. Singh Inc. has availed fraudulent Cenvat credit. The only issue to be decided in these cases is whether the appellants are liable for penalty under Rule 26 and 27. He submits that whatsoever fraud was committed, that was by M/s. Singh Inc. The present appellants have bonafidely purchased the goods from M/s. Singh Inc. under the cover of excise invoice showing the payment of duty alongwith ARE-1. M/s. Singh Inc. is duly registered by the Central Excise department as a manufacturer therefore invoice issued by them cannot be doubted at the time of transaction. He submits that as per the purchase of excisable goods it is beyond the imagination that the buyer of the excisable goods can anywhere have the knowledge if any fraud is committed by the supplier. The appellants have bonafidely purchased the goods from M/s. Singh Inc. and paid against the said purchases the value along with excise duty. The goods so purchased were exported and they intended to claim the rebate of the duty so paid. It is pertinent to submits that appellants have paid entire amount of invoice raised by M/s. Singh Inc. and excise duty which paid alognwith value of the goods were claimed as rebate. In such situation there is no additional gain to the appellant, rather in the present case though the excise duty amount was recovered by M/s. Singh Inc. but due to this case they lost the amount of rebate. In the entire investigation no evidence was produced that there is any cash transaction between appellant and M/s. Singh Inc. which can establish the fake nature of transaction. The investigation did not dispute about the receipt of the goods at port of exports and payment there against made by the appellants to M/s. Singh Inc. If this fact is not disputed then how appellants can be party to the fraud committed by M/s. Singh Inc. He further submits that the penalties were imposed under Rule 26 and 27 of the Central Excise Rules, 2002. Admittedly the case pertains to the period 2003-04, therefore amended provision of Rule 26 which came into effect from 1/4/2007 is not applicable in the present case. He submits that even if it is accepted that the goods was supplied by M/s. Singh Inc. to the appellants is not related to the duty paying invoice, the goods received by the appellant are not liable for confiscation for the reason that as per the allegation the said goods are different and not manufactured by M/s Singh Inc. with regard to these goods there is no case whether it is duty paid or otherwise. He submits that since the case here is a fraudulent availment of Cenvat credit by M/s. Singh Inc. without receipt of the inputs and therefore wrongly utilised and shown payment of excise duty on different goods, the goods supplied is not related the Cenvat credit availed and utilised by M/s. Singh Inc. For this reason also the goods so supplied is not liable to confiscation. As per Rule 26 the penalty can be imposed when person deals with any excisable good which he knows, or has reason to believe that goods are liable to confiscation under the Act or Rules. In the present case the department itself established that the goods supplied by M/s. Singh Inc. is not the goods where Cenvat credit was availed and utilised therefore the goods so supplied in respect of which neither cenvat credit was availed nor duty was payable. The department has not investigated whether the goods so supplied were otherwise duty paid or not therefore dealing with the goods which was not related to the fraudulent Cenvat credit, is not liable for confiscation, accordingly, penalty under Rule 26 cannot be imposed. He further submits that the appellant was under bonafide belief for the simple reason that they received the goods alongwith excise invoice and ARE1, therefore they were neither having any knowledge or any reason to belief that the goods received by them are in any case liable to confiscation. For this reason also penalty under Rule 26 was not imposable. He further submits that it was held by this Tribunal that composite penalty under Rule 26 and 27 cannot be imposed. In support of his submissions, he placed reliance on following judgments:
(a) Commissioner of Central Excise, Chandigarh-I Vs. Mini Steel Traders[2014(309) ELT 404(P&H)]
(b) Commissioner of C. Ex. & S.T. Chandigarh I Vs. Asim Enterprises [2015(328) ELT 658(Tri. Del)]
(c) Sahu Refrigeration Industries Ltd Vs. Commr. Of Ex. & S.T. Delhi-I[2015(330) ELT 587 (Tri. Del)]
(d) Duggar Fibre Pvt Ltd. Vs. Commr. Of Ex &S.T. Delhi[2015(322) ELT 763(Tri. Del)]
(e) Basudev Garg Vs. Commissioner of Customs[2013(294) ELT 353(Del.)]
(f) Prem Prakash Raj Kumar Vs. Commissioner of Central Excise, Delhi[2013(297) ELT 246(Tri. Del)]
(g) Solid Containers Ltd Vs. Commissioner of C. Ex. Thane-I[2010(262) ELT 269(Tri. Mum)]
(h) Kamlesh Kumar Goel Vs. Commissioner of C. Ex. Thane-II[2008(223)ELT 65(Tri. Mum)]
4. On the other hand, Shri. Ashutosh Nath, Ld. Asstt. Commissioner(A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He submits that as of now it has been established that M/s. Singh Inc. have defrauded the government exchequer by availing fraudulent cenvat credit and utilising the same showing payment of duty by issuing Central Excise invoice to the appellants. It is established that M/s. Singh Inc. has neither received input nor supplied the goods in connection of which fraudulent Cenvat credit was availed and the said fraudulent Cenvat credit was passed on the appellants for availing rebate claim by the appellants therefore appellants have colluded with M/s. Singh Inc. in the fraud committed by M/s. Singh Inc. therefore penalties under Rule 26 and 27 was rightly imposed by the Adjudicating authority which does not require any interference. As regard the applicability of the Rule 26, he submits that even prior to amendment in Rule 26 w.e..f 1/3/2007 the penalty can be imposed under unamended Rule 26. In this regard the Ld. A.R. placed reliance on following judgments:
(a) M.S. Metals Vs. Commissioner of Central Excise, Haryana [2014(309) ELT 241(P&H)]
(b) Dewan Brothers Vs. Union of India[2014-TIOL-1469-HC-AHM-CX] He further submits that regarding the composite penalty under Rule 26 and 27 Honble Supreme Court has time and again held that wrong quoting of statutory provision does not vitiate the entire proceeding, if the offence is otherwise established. In this regard he placed reliance on judgments in the case of J.K. Steel Ltd. Vs. Union of India[1978(2) ELT J355(S.C.)]
4. I have carefully considered the submissions made by both sides.
5. I find that as regard the issue, that M/s. Singh Inc. availed Cenvat credit fraudulently and utilisation thereof, has attained finality as per the adjudication order dated 21/9/2010 as no appeal was filed by the party against the said order. In the present case proceedings the only issue to be decided is whether the appellants being merchant exporters are liable for penalty under Rule 26 in connection with the offence committed by M/s. Singh Inc. From the analysis of the facts and evidences gathered by investigation, it is to be ascertained that even though M/s. Singh Inc. has committed fraud but whether the appellants are party to the such fraud or otherwise. It is found that the appellants have placed order for the goods they require for further exports, the goods were supplied under cover of excise invoice and ARE 1 issued by M/s. Singh Inc. and the very same goods have been exported by the appellant, the payment against purchases made by the appellant to the M/s. Singh Inc. including duty charged in the invoices. This shows that even if M/s. Singh Inc. has availed the wrong credit without of receipt of inputs and without manufacture of final product but if the goods were supplied, even though, some different goods the present appellants cannot know fraud committed by the M/s. Singh Inc. In normal course of transaction of excisable goods, the buyer is concerned about the nature and quality of the goods for which he placed order and invoice issued there for. If the buyer is receiving the goods alongwith invoices thereafter it is not obligatory on the buyer to find out whether goods actually manufactured by the supplier or whether duty was paid genuinely or otherwise, therefore in my view when the appellants have purchased the goods bonafidely and paid there for, no doubt can arise at the end of the appellants as buyers. It is only on investigation, the appellant came to know that their supplier M/s. Singh Inc. has committed fraud in availing Cenvat credit and utilising the same. The appellants have forgone their rebate claim thereafter. The person can be penalise only when either he colluded with fraudulent person or atleast he knows about the fraud in the transaction made with him. In the present case it was established that the supply of goods under the cover of invoice and ARE1 made to the appellant by manipulating the same was not known to the appellants therefore without the knowledge of the appellants if any fraud has been committed the appellants cannot be held responsible and consequently penalty cannot be imposed. From the entire findings, I observed little substance in the evidence such as statement of CHA that the goods received in the port were transported from different place. In this regard it could not establish that the goods were not supplied by M/s. Singh Inc. as the invoicing by M/s. Singh Inc. and payment there for by the appellant have not been disputed by the investigation, therefore the evidences is not conclusive to allege the involvement of the appellants in fraudulent activity of M/s. Singh Inc. I have gone through one order on the identical issue in the case of Babul Jain and Others Vs. Commissioner of Central Excise Thane-I passed by this Tribunal vide order NO. A/3314-3329/15/EB dated 16/7/2015 wherein the identical facts were existing. In that case penalty was imposed under Rule 26 on various similar placed persons but on the clear evidences that against the transaction the invoice amount though initially paid by cheque but subsequently it was reversed by cash payment or the cheque payment was made to some different person which is not the case here. In the same case, in case of one of the party, since no such evidences of cash payment or similar transactions were available, the said party was absolved from the penalty under Rule 26. The relevant findings of the division bench of this Tribunal is reproduced below:
9. Appeal No. E/723/10: The appellant in the present case is a merchant exporter. From the investigation statements made by Shri. Babul Jain, partner of Rainbow Silks and other details as discussed in the impugned order, it appears that the appellant is an established exporter of textiles for the last so many years and they procured certain textile material i.e. printed polyster fabric through one broker, Shri. Ajay Mittal who supplied them the said goods vide Central Excise invoice No. 73 dated 20/4/2014, invoice no. 99 dated 25/4/2004 and 108 dated 15/5/2004 and the corresponding ARE-1s. The ARE-1s are of M/s. Globe Traders, Bhiwandi, a Muni Group of Company. From the investigation, it is clear that the appellant has paid the amount through account payee cheques deposited in the account of Globe Traders. It is also clear that, thereafter, the cheques were issued by Globe Traders in the name of local parties of Surat. From the investigation it comes out that the appellant had no connection with Shri. K.K. Gupta, Shri Dashrath More, Shri. Deepak Jare, and also Shri. M.K. Patel, Superintendent and he was dealing with Shri. Ajay Mittal from whom they have bought the goods in good faith. It is also appears that for getting the rebate claim, the invoices and dutypaid character got verified by the department from the Range official. Further , appellant, as soon as he came to know about the whole episode, has returned the rebate sanctioned to him. Keeping in view the overall facts and the conduct of the appellant during the purchase of the goods, claiming the rebate and also during the investigation, etc. we are of the view that the appellant was not aware of the wrong doings of the Muni Group of Companies and was not aware that the invoice and the goods had come from different source and hence the goods are confiscable and in view of these facts, in our view, no penalty under Rule 26 is called for. Appeal is therefore allowed.
From the above decision, it is clear that merely because supplier of the goods have committed fraud the buyer of the goods cannot be penalised. It is necessary to establish beyond doubt that the buyer is knowingly involved in the fraud committed by the supplier which in the present case has not been established. Therefore the appellants are not liable for penalty under Rule, 26. Since considering the facts of the case, I incline to waive penalties, I need not to go into the legal issues whether penalty under unamended Rule 26 is imposable for the offence committed prior to 1/4/2007 and also on the issue whether composite penalty can be imposed under Rule 26 and 27. As per my above discussion, i set aside the impugned order and allow the appeals of the appellants.
(Order pronounced in court on _________________) Ramesh Nair Member (Judicial) sk 12 APPEAL NO. E/87417/14, E/87753/14, E/87752/14, E/86855/14