Customs, Excise and Gold Tribunal - Delhi
Ishar Alloys Steel Ltd. vs Commissioner Of Central Excise on 5 June, 2000
Equivalent citations: 2000(121)ELT192(TRI-DEL)
ORDER A.C.C. Unni, Member (J)
1. By the impugned order dated 7-1-98 Commissioner of Central Excise, Indore disallowed Modvat credit to the tune of Rs. 24,79,523.74 to the appellants on the ground that the appellants had not received ship breaking scrap as claimed by them as input. Instead, what they had actually received was market scrap, but they had managed to procure excise duty-paying documents such as GPls of ship breaking scrap. The credit availed of by the appellants was therefore held as recoverable and penalty of Rs. 6 lakhs imposed.
2. We have heard Shri L.P. Asthana, ld. Advocate for the appellants and Shri Mewa Singh, ld. SDR for the Respondent Commissioner.
3. The appellants are a Company incorporated under the Companies Act, 1956 manufacturing at their factory at Indore, cast billets for melting iron and steel scrap with the aid of electric furnace. They were also availing of Modvat credit on the inputs procured for the manufacture of their final products. According to the appellants they were receiving ship breaking scrap as input by specific orders for such scrap from different persons engaged in this business.
4. By a Show Cause Notice dated 17-2-93, Collector of Central Excise, Indore alleged that the scrutiny of their records appeared to show that the scrap received by the appellants in their factory was nothing but market scrap known as 'Bhangar' including dust and the Inspection Reports were being manipulated by them so as to link Gate Passes available with the quantity of scrap received at their factory. It was also alleged that the statements given by various suppliers of the scrap showed that whereas Gate Passes of ship-breaking scrap were being supplied at a price of Rs. 350 only per M.T., the actual amount of duty paid was not being paid to them. It was also alleged among other things that the goods received by the appellants were not the goods originally cleared from ship-breaking yard, but only market scrap. It was further alleged that investigations showed that many of the suppliers of scrap to the appellants were in fact non-existent. It was further alleged that the scrap that the appellant had received was actually market scrap mixed with ship breaking scrap but under the cover of Gate Passes of ship-breaking scrap. The scrap received by the appellants had therefore lost its original identity as ship-breaking scrap. Contravention of Rule 57G was therefore alleged for the reason that the input utilised for the manufacture of the appellants' finished product were not received under proper duty paying documents and the credit that had been availed of on the Gate Passes was without actually receiving the goods shown in the said Gate Passes. Further allegation against the appellants was that they had only procured Gate Passes of ship-breaking scrap from bogus suppliers. The period mentioned in the SCN was 1-3-1988 to 31-8-91 and the date of SCN was 17-2-93.
5. Replying to the SCN, appellants contended that they had been purchasing ship-breaking scrap from persons engaged in the said business; all the payments made by them to the sellers of this scrap were by way of 'Account Payee' cheques; they had submitted periodically to the Department monthly RT 12 returns showing the details of the Modvat credit availed and utilised; that these returns were duly approved by the Range Superintendent. They denied the allegation that there was any manipulation on their part as regards the Gate Passes or as regards mixing of the two types of scrap and also about contravention on their part of Rule 57.
6. The Commissioner in the impugned order found against the appellants for the following reasons: The Manager of the appellant Company, Shri Jagmohan Singh had confirmed in his statement dated 1-8-91 that they had never ordered for supply of ship-breaking scrap; that the dealers of market scrap of Surat and Bhavnagar had in their statements admitted that their Bills were prepared as per the inspection reports prepared by the appellants and GPls of ship-breaking scrap had been supplied at a price of Rs. 350/- per M.T irrespective of the actual amount of duty payable and that ship-breaking scrap had first been unloaded at their godowns and after sorting they were supplied and whenever L.I and L.2 bundles were supplied to the appellants, no GPls accompanied them. One of the ship-breakers Shri J.I. Mehta, had admitted that since ship breaking scrap is mostly utilised by Rolling Mills who do not require any Central Excise GPls (since their final product was exempted from payment of Central Excise duty), they used to direct the ship-breakers to provide documents in the name of fake parties with the sole intention of availing Modvat credit benefit of ministeel plants who can avail the said benefit. Shri J.I. Mehta had also stated that GPls are supplied with market scrap which is a non-duty paid item. These statements had not been contradicted. Further, Shri Haroon Isa Bhalla of M/s. Malvi Ship Breaking Co. in his statement had admitted that the category of scrap L.I and L.2 and commercially heavy category scrap cannot be obtained by ship-breaking and that the goods supplied by them to the appellants were not .goods originally cleared from ship-breaking yard but they were actually market scrap. The appellants had not been able to show anything to the contrary. Further, the appellants had not given any satisfactory reply to the allegation in the SCN that their office correspondence showing the extra amount of a Rs. 350/- per M.T. had been given in cases where GP1 was provided by the supplier. This clearly establish that the appellants were well aware of the source of this scrap which was nothing but market scrap and the payment of Rs. 350/- per M.T. in cases where GPls were sent along with the goods had proved that the scrap was in fact only market scrap and not ship-breaking scrap. The Adjudicating Authority had observed that it was a pertinent point to note that whereas the duty leviable at the relevant period was Rs. 650/- per M.T., the offer of less amount to the supplier clearly showed that the offer was only for procuring GPls. Commissioner had observed that the appellants had not produced any evidence to show the contrary. Commissioner had also found the appellants had not submitted any defence to the allegation in Para 4(a) of the SCN alleging that they had received market scrap mixed with ship-breaking scrap and which resulted in the Gate Passes originally issued by the ship-breaking yard losing its identity. Several suppliers of scrap had confirmed mis position as per the statements given by them (vide Para 9.4 of the Order-in-Original - page 73). Six suppliers in their statements had admitted that the ship-breaking scrap and other local scrap were first unloaded and dumped in their godowns and thereafter despatched to actual users in accordance with the quantity shown in the Gate Passes. This clearly showed that the original Gate Pass relating to ship-breaking scrap had lost its identity as GP relating to ship-breaking scrap only and therefore reliance placed on such GPls by the assessee cannot be accepted. Besides, Indore Collectorate Trade Notice No. 50/89, dated 5-5-1989 extending Modvat credit on the basis of endorsed Gate Passes made it a condition that it will be allowed only in cases where the entire goods covered by GPls were transferred to the parties in original packages. In Para 9.15 of the impugned order, the Commissioner had also observed that the statements relied on by the Department had not been retracted. At the time of cross examination also they had reiterated their earlier statements. The Commissioner found that though the statement originally given by Shri Jagmohan Singh, General Manager of the appellant Company had been contradicted by him at the time of cross examination before the adjudicating authority the subsequent retraction was an afterthought and not worthy of any credences relying on" Tribunal decision in 1988 (35) E.L.T. 22 and 1987 (31) E.L.T. 373 (T). Further, reliance was also placed on the statement of Shri M.J. Lunkad of the appellant firm who had stated though at the time of investigation the actual rate of duty was Rs. 630/- per M.T., still the appellants were paying only an amount of Rs. 350/- per M.T. to the supplier as per the purchase order placed on the suppliers by the appellants. He had also confirmed at the time of adjudicatioin proceedings that though appellants were paying only Rs. 350/- to the suppliers of the scrap, they were taking Modvat credit of Rs. 630/- per M.T. because generally the suppliers were not giving them the Gate Pass. The amount of Rs. 350/- given was a negotiated price/incentive given to the supplier for giving appellants the Gate Pass. The Commissioner also relied on the following case law to hold that the legal position was not in favour of the appellants viz., (a) Siddharth Pigments Pvt. Ltd. v. CCE [1996 (82) E.L.T. 316]; (b) Rishi Iron & Steel v. CCE [1996 (87) E.L.T. 110 (New Delhi-CEGAT)], (c) Pushpam Pharmaceuticals Co. v. CCE [1995 (78) E.L.T. 401 (S.C.)]. He also relied on the Tribunal decision in M/s. Garware Plastics & Polyester Ltd. v. CCE [1994 (70) 365] holding that the burden was on the assessee to establish the duty paid nature of the inputs when they have been received without cover of authorised duty paying documents, especially when it is a case of deemed credit.
7. Ld. Counsel for the appellants argued that the appellants had placed order for heavy scrap which was nothing but ship-breaking scrap. He refers to the cross examination of certain witnesses as well as the original statements given by them in which the witnesses had explained the facts in greater detail. The suppliers viz., Shri Anwar Ali S/o Bachhu Bhai and Shri Nenumal Rajai had in the cross examination before the adjudicating authority clearly stated that whenever they used to get scrap from ship-breakers the same goods were sent to the appellants by endorsing the Gate Passes. They had also stated that apart from ship-breaking scrap they used to send to appellants scrap purchased from the local market and no Gate Passes were issued on the purchase of such scrap, except in the case of big companies. On cross examination of Suleman Bhai, another supplier, had stated that the scrap supplied by them to the appellants was ship-breaking scrap. Gate Passes were sent along with the said scrap. Ld. Counsel then referred to the cross examination of Shri Jamnadas Nagar, Manager of M/s. Amir Traders, Indore who were arranging for supply of material by his firm to the appellants. He had stated in reply to a querry from the adjudicating authority that Ishar Alloys used to receive goods with Gate Passes as well as without Gate Passes and if the goods were received with Gate Passes, an extra amount of Rs. 400/- used to be paid. Ld. Counsel clarified that this extra amount was being paid in addition to the payment of duty and not in lieu of the duty of Rs. 650/-.
8. The appellants have further contended that the adjudicating authority had failed to appreciate the evidence placed before him and the fact that all the witnesses had supported the case of the appellants by stating that whenever scrap was purchased by the appellants from the ship-breakers, such scrap had been sold to the appellants under the GPls on which duty had been paid and were endorsed to the appellants. Since there was no dispute about the receipt of the scrap and its weighment, its utilisation and payment to the suppliers, the allegations against the appellants were vague and contradictory in nature. Further, the SCN had not invoked Section 11A of the Central Excise Act and therefore demand of duty for the extended period was not maintainable. In any event, the penalty of Rs. 6 lakhs was uncalled for as there was no contumacious conduct on the part of the appellants.
9. Ld. SDR reiterated the findings of the Commissioner and prayed for the confirmation of the impugned order.
10. We have considered the submissions of both sides and have perused the record. We find that in the impugned order the Commissioner has given detailed reasons for arriving at his conclusions. We find that the appellants have failed to give satisfactory explanation to the main allegation against them that they had received inputs other than ship-breaking scrap along with Gate Passes showing the inputs as ship-breaking scrap. The statements given by the suppliers show that the ship-breaking scrap obtained from original dealers of such scrap were unloaded in the godowns of the secondary dealers and they got mixed up with the market scrap. While supplying the scrap to the appellants the scrap as well as the Gate Passes had thus lost their original identity as duty paying documents of ship-breaking scrap and to that extent the appellants had been taking Modvat credit available to ship-breaking scrap without actually receiving the ship-breaking scrap. They have thus contravened the provisions of Rule 57G. Their inability to explain the payment of Rs. 350/- to the suppliers for issuing Gate Passes also raise doubts about the bona fide nature of the transactions between them and the suppliers. The statements given by the suppliers during cross examination also fails to bring out clearly any material to support the appellants' case.
11. Having regard to the facts and circumstances of the case, we do not see any reason to interfere with the findings of the Commissioner either on the question of denial of Modvat credit or in relation to the quantum of penalty of Rs. 6 lakhs, imposed on them having regard to the total amount of Modvat credit illegally availed of.
12. Appeal is accordingly dismissed.