Custom, Excise & Service Tax Tribunal
Steel Mongers (I) Pvt. Ltd vs C.C.E., Chandigarh on 6 August, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Appeal No. E/1654-1655/2011
Date of Hearing: 28.10.2013
Date of pronouncement: 06.8.2014
[Arising out of Order-In-Appeal No. 36-38/CE/Appl/Chd-I/2011 dated 23.05.2011 passed by Commissioner of Central Excise (Appeal), Chandigarh ]
For approval and signature:
Honble Mr. Manmohan Singh, Member (Technical)
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 Their Lordships wish to see the fair copy of the Order?
Seen
4
Whether Order is to be circulated to the Departmental authorities?
Yes
Steel Mongers (I) Pvt. Ltd. Appellant/Applicant
Vs.
C.C.E., Chandigarh Respondent
Appearance Shri Tek Chand, Advocate - for the appellant Shri B.B. Sharma, AR - for the respondent CORAM:HONBLE SHRI MANMOHAN SINGH, MEMBER (TECHNICAL) Final Order No.53124-53125/2014 Per: Manmohan Singh ? Appellant have come in appeal against the Order-In-Appeal No. 135/BK/RTK/2011 dated 13.04.2011 and Order In-Appeal No.36-38/CE/Appl/Chd-I/2011 dated 23.05.2011. Commissioner (Appeals) confirmed the Order-In-Original No.77/ADC/RNR/CE/09 dated 31.03.2009 and Order-In-Original No. 50/DC/DB/2009 dated 18.12.2009 wherein penalties of Rs.5,00,000/- and Rs.3,35,904/- (equivalent illegal credit availed) were imposed on the appellants. Since issue involved in both appeals is common, these are taken for disposal together.
2. The contention of the applicant is that they are registered as dealers under Central Excise Rules and allegation against the applicant was that they had issued invoices without supply of any inputs and their customers has availed credit on the basis of invoices issued by the applicant. Even in the show-cause notice, allegation is that M/s Khemka Ispat Ltd. has issued invoices without supply of any raw material to the applicant and applicant further issued cenvetable invoices on the strength of which credit has been availed by M/s. S.K. Foil. During the relevant period, there were separate rules covering the Cenvat credit known as Cenvat Credit Rules 2002 and Cenvat Credit Rules 2004 and the rules for Central excise, known as Central Excise Rules, 2002. Rule 25 of Central Excise Rules provided for imposition of penalty for contravention of any of the provisions of Central Excise Rules or notification issued under these rules with intent to evade payment of duty. The applicant contended that they had not made any contravention of Central Excise Rules, if any contravention was made it was of the Cenvat Credit Rules and during the relevant period, there was no penal clause for imposing penalty in respect of allegation where the only cenvetable invoices were issued without delivery of the goods, it was only under Rule 26 of Central Excise Rules with effect from 1-3-2007, a specific rule was introduced to impose penalty for such contravention. The present dispute was prior to 1-3-2007, therefore, the penalty imposed under Rule 25 of Central Excise Rules was not sustainable.
3. On the other side, revenue contended that in the present case, applicant have issued cenvetable invoices without supply of any raw materials and on the basis of these fake invoices, M/s. S.K. Foil and JCBL unit II, Lalru took undue credit. The contention was that the applicants were registered dealers under Rule 9 of Central Excise Rules, 2002. As per the provisions of Rule 10 of Central Excise Rules, the applicants were duty bound to maintain daily stock account in respect of the excisable goods in their stock. In the present case, applicants had not received any material from the manufacturer of excisable goods under the cover of invoices and further issued invoices without maintaining any stocks, therefore, action of the applicant clearly contravened the provisions of Central Excise Rules.
4. The appellant was the dealer (first stage in case of appeal no. E-1654/11 and second stage dealer in case of appeal no. E-1655/11) registered under Rule 9 of the Central Excise Rules. The registration was for the purpose of passing on Cenvat credit of duty paid on excisable goods procured from the manufacturers of inputs and distributed to the users of inputs so that users of inputs could avail the Cenvat credit of duty paid on such inputs. The facts relevant in deciding the above appeals are as follows :
APPEAL NO. E-1654/11
5. During the course of investigations conducted by DGCEI, New Delhi in respect of fraudulent passing on of cenvat credit without the goods actually accompanying the cenvetable invoices of M/s Bhagwati Trading Company, Faridabad, it was found that the subject dealer was issuing cenvetable invoices to the appellants. Originally, M/s Khemka Ispat Ltd. had supplied the cenvetable invoices to M/s Bhagwati Trading Company. The appellants had subsequently issued cenvetable invoices to M/s S.K. Foils Ltd., Bhiwani (a manufacturer) on the strength of invoices of first stage dealer, viz., Bhagwati Trading Company as above. Shri K.P. Khemka, Director of M/s Khemka Ispat Ltd., Faridabad and Shri Rupesh Bansal, proprietor of M/s Bhagwati Trading Co. confessed having supplied invoices without actually supply of goods. These are allegations that sale and purchase of the Cold Rolled strips by these parties were paper transactions only with the intent to fraudulently passing on the cenvat credit on the part of M/s Steel Mongers (India) Pvt. Ltd., Faridabad and availing the same on the part of M/s S.K. Foils. Also the GRs submitted by M/s S.K. Foils showed that the same were generated to cover-up the paper transactions as was evident from the fact that the manufacturer and first stage dealer stated that they had not supplied the materials and only the paper transactions were made.
APPEAL NO. 1655/116. In this appeal, the appellant in the capacity of first stage dealer, supplied the cenvetable invoices to M/s JCBL, Lalru through M/s Swastik Steel Corporation, second stage dealer. The origin of impugned invoices was traced to M/s Khemka as above except the fact that in this appeal, the appellant acted as the first stage dealer.
7. The prolonged investigations revealed that these registered dealers have shown as if goods were purchased from one M/s. Khemka Ispat Ltd., Faridabad. The case of the department is that the said party has no facility for manufacture and has not manufactured any excisable goods and merely issued invoices to the respondents -dealers who in turn merely issued invoices to the manufacturer of final products and based on such invoices, the manufacturers like M/s S.K. Foils, Bhiwani and M/s JCBL, Lalru availed Cenvat credit. The show cause notices were issued inter-alia, proposing demand of duty from the manufacturers of final products who have actually availed Cenvat credit based on such fake invoices alongwith proposal of impositions of penalties under Rule 13 and 15 of the Cenvat Credit Rules, 2002 and Rule 26 of the Central Excise Rules, 2002. The original authority confirmed demand of duty from the manufacturers of final products and imposed varying penalties on respondents-dealers. All these parties, filed appeals before the the Commissioner (Appeals) who dismissed all the appeals and order passed by the adjudication authority were upheld.
8. The appellants argued that no statement of the appellant was recorded and the show cause notice did not show why it was not done. The SCN relies upon the statements of Shri Khemka and Shri Rupesh Bansal who stated that only invoices and no goods were sent. However, in his statement before authorities, Shri Aggarwal, Director of M/s S.K. Foils had stated that he received goods along with invoices from the appellants. Moreover, in the list of recipients of such goods submitted by Shri Rupesh Bansal, the name of the appellants did not figure. The appellant had purchased goods in Jan., 2004 whereas as per statement of Sh. Khemka, the company incurred huge losses and became almost in-operational by July-Sept., 2004. The appellant challenged imposition of penalty under Rule 26 which was akin to erstwhile Rule 209-A. They also cited the decision in the case of M/s Steel Tubes of India Ltd. 2007 (217) ELT 506 (T-LB) wherein it was held that penalty under Rule 209-A was not imposable where an assessee issued only invoices without movement of goods.
9. Learned AR relying on decision of the Tribunal in the case of V.K Enterprises v. CCE, Panchkula, reported in 2010 (249) E.L.T. 462 (Tri-Delhi) submitted that the respondents-dealers having issued invoices without actually supplying the goods shall be liable to penalties as held by the original authority. Relying on the decision in the case of Vinod Kumar Gupta v. CCE, Chandigarh reported in 2010 (252) E.L.T. 157 (Tri - Del), it was pointed out that even before amendment to Rule 26 with effect from 1-3-2007, a person who issues cenvatable invoices without supplying the goods was liable to penalty. He also referred that Notification No. 8/07 C.E. (N.T.) dated 1-3-07 which prescribed penalty on a person issuing invoices without delivery of goods, being clarificatory nature, was applicable retrospectively.
10. Heard both sides.
11. I have carefully considered the submissions from both sides and perused the records. Main issue for consideration is whether where only paper invoices are issued without the accompaniment of goods, cenvat credit could be availed by the recipient and whether penalty could be imposed for such fraudulent activity of issue of fake invoices.
12. It is evident from facts that, M/s. Khemka Ispat Ltd. have not undertaken any manufacturing activity and therefore, the question of their supplying any goods on the authority of invoices did not arise. Apparently the said party was only a manufacturer on paper. Therefore, the transactions between the said manufacturer and the respondents-dealers, were only paper transactions without actual movement of goods, thus fake in nature. The original authority rightly held that the concerned manufacturers of final products who have taken Cenvat credit based on invoices, were not eligible for Cenvat credit and were liable for imposition of penalties. The invoices issued by M/s Khemka Ispat were not legal invoices for the purpose of availment of cenvat credit and hence all consequent invoices issued on the basis of invoices of M/s Khemka Ispat were also not valid documents for the purpsose of availment of credit irrespective of the fact as to whether the subsequent sale by dealers were with or without material and whether the payment has been recorded as made against the cenvat by these dealers shown on such invoices of M/s Khemka Ispat. Further, M/s S.K. Foils themselves are manufacturers of cold rolled strips and have shown the receipt of same item under invoices of M/s Khemka. Keeping in view the fake nature of invoices involving mens rea, appellants are liable for imposition of penalty under Rule 13 of Cenvat Credit Rules, 2002 and under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 for their act in the sale of cenvatable invoices without being accompanied by the goods. Thus it is observed that imposition of penalty of Rs.5,00,000/- (Rupees five lakhs only) is proper and does not require any interference.
13. The appellant also facilitated M/s JCBL, Lalru to take cenvetable credit in manufacture of bus bodies. While agreeing with the appellants that Rule 13 of Cenvat Credit Rules applied to the persons taking or utilizing the credit, the adjudicating authority had found the appellants liable to penal action under Rule 25 and 26 of the Central Excise Rules. Once fraudulent activity has surfaced, whole transaction gets vitiated and becomes liable for imposition of penalty. I also find that penalty is rightly imposed. I agree with the imposition of penalty of Rs.3,35,904/- imposed upon the appellants by the adjudicating authority which was later upheld by Commissioner (Appeals) also.
14. I have also examined the contention of the appellant that penalty under rule 26 could only be imposed from 01.3.2007 on ward when amendment in rule 26 was made and subsection 2 was added to rule 26. Under Rule 26 of Central Excise Rules, penalty can be imposed only on the person who has acquired possession or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner dealing with, any excisable goods which he knows or has reason to believe are liable to confiscation.
Notification No. 8/07 C.E. (N.T.) dated 1-3-07 which prescribed penalty on a person issuing invoices without delivery of goods, reads as follows :
6.?Rule 26 of the said rules, shall be re-numbered as sub-rule (1) thereof, and in sub-rule (1), as so re-numbered,-
(a) with effect from the date on which the Finance Bill, 2007 receives assent of the President, for the words, rupees ten thousand, the words, two thousand rupees shall be substituted;
(b) after sub-rule(1) as so re-numbered, the following sub-rule shall be inserted, namely:-
(2) Any person, who issues -
(i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or
(ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.
15. I find that in this case, applicants are registered under the Central Excise Rules as registered dealer and by virtue of rules they are authorized to issue cenvatable invoices to their customers in respect of the goods supplied by them. In the present case, the applicants issued invoices without supplying any goods on the strength of which credit has been availed by their customers. The applicants are duty bound to maintain time and correct stock of excisable goods and they are duty bound to issue invoices which shall contain description, classification, time and duty of removal, rate of duty, quantity and value of goods and duty payable thereon. In these circumstances, as the applicant being a registered dealer has not complied with the condition of the Central Excise Rules, prima facie, I find that it is not a fit case for waiver of penalty. I have referred judgement of tribunal in the case of V.K. Enterprises Vs. CCE Panchkula reported in 2010 (249) E.L.T. 462 (Tri-Delhi) where it is held that the respondents-dealers having issued invoices without actually supplying the goods shall be liable to penalties as held by the original authority and also in Vinod Kumar Gupta v. CCE, Chandigarh reported in 2010 (252) E.L.T. 157 (Tri - Del), wherein it was held that even before amendment to Rule 26 with effect from 1-3-2007, a person who issues cenvatable invoices without supplying the goods was liable to penalty. Further honble Punjab and Haryana High Court in the case of M/s Vee Kay Enterprises Vs. Commissioner of Central Excise referred at 2011 (266) E.L.T. 436 (P&H) at para 10 justified imposition of penalty.
Para 10. Inspite of? non-applicability of Rule 26(2), penalty could be levied as the appellant was concerned in selling or dealing with the goods which were liable to confiscation inasmuch as the appellant claimed to have sold the goods in respect of which the cenvat credit was taken. In such a case, Rule 25(1)(d) and 26(1) are also applicable. The person who purports to sell goods cannot say that he was not a person concerned with the selling of goods and merely issued invoice or that he did not contravene a provision relating to evasion of duty. The appellant issued invoices without delivery of goods with intent to enable evasion of duty to which effect a finding has been recorded and which finding has not been challenged. We are, thus, unable to hold that appellant was not liable to pay any penalty
16. In both the cases in hand, undisputedly, the credit was sought to be passed on without invoices being accompanied by the goods. Such an act is certainly a major violation of the provisions of law. Being so, in such cases, question of imposition of penalty upon the dealer first stage or second stage who facilitated such illicit transaction, cannot be faulted with. These dealers have been instrumental in committal of fraud to defraud the revenue. There is no force in the submissions of appellant.
17. In view of above findings, appeals are, therefore, dismissed and order passed by the adjudicating authority and approved by the Commissioner (Appeals) is upheld.
(pronounced in Court on 06.8.2014) (MANMOHAN SINGH) MEMBER (TECHNICAL) K. Gupta 1