Custom, Excise & Service Tax Tribunal
Rotocast Industries Limited vs Raipur on 29 April, 2024
CUSTOMS EXCISE & SERVICE TAX APPLELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH,COURT NO. 3
EXCISE APPEAL NO. 52365 OF 2019
[Arising out of Order-in-Appeal No. BHO-EXCUS/002-APP-538-18-19 dated
28-03-2019 passed by the Commissioner (Appeals) Central GST, Central
Excise & Customs, Raipur (CG)
ROTOCAST INDUSTRIES LIMITED
Plot No. 587, 591 & 615-B
Ulra Industrial complex Appellant
Raipur (CG)
Vs.
COMMISSIONER, (APPEALS)
Central GST, Central Excise & Customs,
Respondent
GST Bhwan, Tikrapara, Dhamtari Road Raipur (CG) WITH EXCISE APPEAL NO. 52367 OF 2019 [Arising out of Order-in-Appeal No. BHO-EXCUS/002-APP-538-18-19 dated 28-03-2019 passed by the Commissioner (Appeals) Central GST, Central Excise & Customs, Raipur (CG) SUSHIL KUMAR MALANI Director M/s. Rotocast Industries Ltd.
Plot No. 587, 591 & 615-B Ulra Industrial complex Appellant Raipur (CG) Vs. COMMISSIONER, (APPEALS) Central GST, Central Excise & Customs, Respondent GST Bhwan, Tikrapara, Dhamtari Road Raipur (CG) Appearance:
Present for the Appellant :Shri A. K. Prasad, Advocate Present for the Respondent:Shri M K Chawda, Authorized Representative CORAM:
HON'BLE DR RACHNA GUPTA, MEMBER (JUDICIAL) HON'BLE Ms.HEMAMBIKA R. PRIYA, MEMBER(TECHNICAL) Date of Hearing : 12/02/2024 Date of Decision : 29/04/ 2024
2 E/52365 /2019 FINAL ORDER No. 55664-55665 /2024 HEMAMBIKA R. PRIYA M/s. Rotocast Industries Ltd(hereinafter referred to as the appellant) has filed the present Excise Appeal No. 52365/2019 to assail the Order in Original dated 29.09.2018 which denied Cenvat credit of Rs. 1,97,53,930/- availed by it and ordered its recovery with interest and imposed an equal amount of penalty on it. Shri Sunil Kumar Melani, Director of the appellant has filed an Excise Appeal No. 52367/2019 to assail the penalty of Rs. 10,00,000/- imposed on him.
2. The brief facts are that the appellant during the relevant period were duly registered with central excise (now with GST) and engaged in the manufacture of steel granules and powder, cut wire shots and steel casting falling under chapters 72 & 73 of the Central Excise Tariff. They were also availing Cenvat credit on inputs, including MS Waste & Scrap. The Directorate General of Central Excise Intelligence received intelligence and investigated several manufacturers and traders including those which supplied the invoices to the appellant and the supporting manufacturers indicated in the invoices and came to the conclusion that the manufacturers and the traders did not exist at the addresses given in the invoices. The investigation concluded that only documents had been supplied to enable the manufacturers of final products, including the appellant to take Cenvat credit without actually supplying the goods. Based on the intelligence 3 E/52365 /2019 received and investigation by DGCEI and other enquiries, a Show Cause Notice dt 02.12.2016 was issued by the Commissioner of Central Excise, Raipur to 11 noticees, including the present two appellants. It is alleged that during the relevant period, the Appellant received only duty paying documents, without accompanying goods, from two 2nd stage dealers, namely (i) M/s. Jai Balaji Steel & Co., Raipur and (ii) M/s. Sandeep Commercial Company, Raipur/Bhillai. It has also been alleged that the the 2nd stage dealer, M/s. Jai Balaji Steel & Company, Raipur, in turn had received the invoices from the following five 1st stage dealers, viz., (i) M/s. RMS Steel Tech Company, Raipur, (ii) M/s. Jetking Trading and Agencies (P) Ltd., Raipur, (iii) M/s. Yes Commtrade (India), Raipur, (iv) M/s SR Metallic, Raipur & (v) M/s. Bright Metal & Steel, Raipur. It was alleged that the above five 1st stage dealers did not exist and that all transactions with them were fictitious/fake. It was further alleged that another 2nd stage dealer, M/s. Sandeep Commercial Company, Raipur/Bhillai, from whom only documents had been received by the Appellants without the duty paid goods. It was alleged that the 2nd stage dealer had also merely indulged in paper transactions (i.e. without supply of duty paid goods) from the two 1st stage dealers viz., (i) M/s. RMS Steel Tech Company, Raipur, & (ii) M/s. Jetking Trading and Agencies (P) Ltd., Raipur. It was further alleged that the five 1st stage dealers had shown procurement of scrap from the following manufacturers located in Dhanbad, Jharkhand, which were non-existent, viz., i) High Tides Infra Project Pvt. Ltd., 4 E/52365 /2019 Dhanbad, ii) Supreme Multi-Trade Pvt Ltd., Dhanbad and iii) Singh Minerals & Infratech, Dhanbad. Therefore, the allegation was that the manufacturers of M S waste and scrap but also the first stage dealers dealing in them, were all fictitious and that all transactions were paper transactions without movement of the accompanying duty paid goods. It has also been alleged that equivalent quantity of non duty paid scrap or bazaar scrap/kabadi was supplied in place of the duty paid waste and scrap. Accordingly, the show cause notice dated 02.12.2016 was issued to the appellant.
3.1. During the adjudication proceedings, the Appellants sought cross- examination of 28 persons which comprised 24 persons whose statements were relied upon as well as 4 DGCEI officers who were directly associated with investigations. The cross- examination of all the 28 persons was allowed by the adjudicating authority. However, except for 4 DGCEI officers (whose cross examination was conducted on 08/09-03-2018), none of the other 24 persons appeared despite three opportunities being provided by the adjudicating authority. The adjudicating authority passed the impugned order and confirmed the full demand along with interest and imposed penalties.
4. At the outset, the ld counsel for the appellant submitted that similar proceedings were initiated on the basis of the same investigations against M/s. Prakash Industries Ltd. vide Show cause notice dated 26.05.2017 wherein the duty paid MS scrap had been procured directly by the party from the same 5 first 5 E/52365 /2019 stage dealers, namely, (i) M/s. RMS Steel Tech Company, Raipur,
(ii) M/s. Jetking Trading and Agencies (P)Ltd., Raipur, (iii) M/s. Yes Commtrade (India), Raipur, (iv) M/s. SR Metallic, Raipur; and
(v) M/s. Bright Metal & Steel, Raipur, as well as one other. The same allegations were made that the party had received only invoices from these dealers without receipt of duty paid goods and, accordingly, Cenvat Credit amounting to Rs.22,25,89,453/- was proposed to be denied. Investigations were done on similar lines, as in the present case, and the evidences relied upon were also the same. The said case was adjudicated and decided against the party vide Order-in-Original dated 19.06.2018. However, on appeal the CESTAT, New Delhi, vide Final Order No. 50426- 50430/2019 dated 27.03.2019 [2019-TIOL-3405-CESTAT-DEL], set aside the Order-in-Original and allowed the appeal holding that the party had correctly availed the Cenvat Credit. On similar lines, he contended that the present appeals should also be allowed.
4.1 On merits, the learned counsel contended that show cause notice did not provide the details of the invoices of the 1st stage dealer and also did not indicate the names of the manufacturers from where the 1st stage dealers were alleged to have procured the scrap. The invoices of the 1st stage dealers are not RUDs to the instant show cause notice. Unless the invoice number of the 1st stage dealer or the name of the manufacturer is mentioned and supplied, it cannot be said that the supplies were not genuine. Further, in order to comply with Rule 9(5) of the Cenvat 6 E/52365 /2019 Credit Rules, 2004, he contended that the appellants had verified the fact that the invoices issued by the 2nd stage dealers were in the prescribed format as per Rule 11 of the Central Excise Rules, 2002, and the dealer was duly registered with Central Excise authorities. The appellant had duly remitted the payments for the supplies, including the Central Excise duty through proper banking channels. They had also verified that the invoices were accompanied by the goods mentioned therein. The goods were transported to the appellants' factory through vehicles accompanied by bilties/GR's, the details of which were entered in their records. The appellants took all reasonable precautions before taking credit, there is no responsibility cast on the appellant to verify whether the 1st stage dealers who supplied the goods to the 2nd stage dealers or the manufacturers who supplied scrap to the 1st stage dealers, were genuine or not. As per Rule 9(8) of the Cenvat Credit Rules, 2004, the 1st and 2nd stage dealers are required to file periodical returns which was done. It is not the case of the department that this was not done by the two 2nd stage dealers in question.
4.2 The learned counsel further submitted that Shri Sushil Malani, Director of the appellant company had clearly stated in answer to question no. 10 of his statement dated 19.09.2015 that they had taken all necessary precautions and had fully complied with the provisions of Rule 9(5) of the Cenvat Credit Rules, 2004. He further contended it is established law that statements of those witnesses cannot be relied upon if they have not been 7 E/52365 /2019 subjected to examination-in-chief by the adjudicating authority and thereafter allowed cross-examination by the noticee, as per Section 9D of the Central Excise Act, 1944. He also submitted that no kabari or bazaar scrap was found in the factory premises of the appellants when the officers visited the premises on 19.09.2015, neither was there any discrepancy in raw material or finished goods stocks.
4.3 The learned counsel further stated that as all the manufacturers and dealers were duly registered with Central Excise, it has to be presumed that the addresses given in the registration certificates were duly physically verified and inspected by the jurisdictional Central Excise officers and found to be in order. Whenever a manufacturer/dealer is registered by the Central Excise Department, the department is required to verify the premises of the registrant within 5 days as per para 5.7 of Chapter 2 of the Supplementary Instructions, 2005, relating to Central Excise [Also refer para 5.6 of Board's Circular No 662/53/2002-CX, dated 17-9-2002]. He stated that lt was obvious that the verification was duly done in these cases and no discrepancies were found. There is no allegation of collusion with departmental officers.
4.4 The learned counsel further contended that the buyer of duty paid goods is required to exercise due diligence only in respect of the immediate supplier of the raw material, and is not required to go behind the immediate supplier and verify the existence or antecedents of the manufacturer/dealer from whom 8 E/52365 /2019 the dealer has procured the duty paid goods. In this regard, he placed reliance on the decision in Commissioner vs Juhi Alloys Ltd-[2014 (302) E.L.T. 487 (All.)]. He submitted that the appellant had purchased the duty paid MS waste and scrap during the disputed period from two 2nd stage dealers, M/s. Jai Balaji Steels & Company, Raipur and M/s. Sandeep Commercial Co., Raipur/Bhillai. It is not the case of the department, that these two second stage dealers were fictitious, fake or bogus or that they had not remitted the duty to the Government. The procurement of duty paid MS waste and scrap from the two 2nd stage dealers were all regular and in accordance with law. The supplies were made against regular purchase orders. The goods were received against invoices. The goods were also accompanied by weighment slips from the supplier (2nd stage dealer). On receipts in the appellant's premises, the goods were once again weighed on the appellant's computerized weigh bridge and computerized weighment slips were generated. When the goods were received in the appellant's factory, GRN (Goods Receipt Note) was also generated. These details were duly entered in Part-1 of the RG-234 register of the Appellants and thereafter credit was taken in Part-II of the register.
4.5. The learned counsel further stated that as regards M/s. RMS Steel Tech Co., Raipur, the department's investigation revealed that the company had a genuine address though it was found closed at the time of the visit of the officers. In this regard, he 9 E/52365 /2019 further submitted that the invoices of the 2nd stage dealer in which details of this first stage dealer, is found relating to the period 18-12-2012 to 23-02-2015. He contended that the department has not been able to establish that this particular 1st stage dealer was not in existence during the relevant period. In any case, the 1" stage or 2nd stage dealer can send the goods directly to the buyer without first bringing it to his godown or office premises, which is a very common trade practice and is referred to as "Bill to- Send to" system. Further, in his statement dated 30.09.2016 (RUD-49) Shri Anil Kumar Shivdasani, Director Maa Mahamaya Steels Pvt Ltd, had confirmed sale of finished goods to RMS Steel Tech Co and others. This has not been denied by the department, and consequently is contrary to the stand of the department that the firm RMS Steel Tech Co is fictitious. 4.6. The learned counsel also stated that in the case of M/s. Jetking Trading and Agencies (P) Ltd, the registered address of this dealer was found to exist and the only ground for suspecting its transactions was that the access to its premises was not possible for heavy vehicles carrying waste and scrap of iron and steel. In respect of M/s. S.R. Metallic, Raipur, the learned counsel submitted that this 1" stage dealers registered premises were existing but the premises were found closed on physical verification on 29.09.2015. On this ground, the dealer has been labelled as a fake company and that fake invoices had been issued without accompanying goods. With respect to another 1st stage dealer M/s. Yes Commtrade (India), the ld counsel 10 E/52365 /2019 submitted that the only ground for holding this company to be non-existent was that it had the same address as another 1st stage dealer, M/s. S.R. Metallic, Raipur. He submitted that traders often shared the same postal address but different room nos, gali Nos etc., which did not make the company a fake/nonexistent. Similarly, M/s Bright Metal & Steel, 1st stage dealer, the registered premises of this dealer were found to exist and the only ground to hold the company to be fictitious is that at the time of visit by the departmental officers on 01-10-2015, it was found closed. The learned counsel contended that all the five 1st stage dealers are legitimate firms/companies is established from the fact that the department has chosen to make them all Noticees in the instant show cause notice.
4.7 The learned counsel also contended that as per the department, the mastermind behind creation of fictitious firms and supply of fictitious invoices was Shri Rajendra Manohar Soni, and Shri Pradeep Agarwal. However, the department made no efforts to either locate or interrogate Shri Soni with the help of Central Excise Registration applications, Bank KYC paper etc. The telephone Nos. of Shri Soni were given by Shri Pardeep Agarwal in his statement dated 07-10-2015. Even though Shri Soni has been alleged to be directly involved in the activity of passing on ineligible Cenvat credit, he has not been made a noticee. 4.8 As regards transporters, the ld counsel submitted that no document was made RUDs to the show cause notice despite the investigations conducted with transporters. He further stated that 11 E/52365 /2019 paragraph 7 of the show cause notice lists 85 instances where the transport owners denied having supplied the goods claimed by the 1st stage dealers involved in the instant case. He pointed out that the chart reveals that none of the consignees/recipients were either the appellant or the two 2nd stage dealers from whom the appellant had procured the duty paid scrap. Hence, the investigations with the transporters has not led to any adverse conclusions against the appellant. On the issue of demand being time barred, learned Counsel submitted that there is no evidence to show that the appellant had either colluded with the suppliers or that they were aware of any irregularities on part of the suppliers.
5. The learned counsel submitted that there is no evidence to show that Shri Sushil Kumar Malani, Director, had knowingly abetted the availment and utilization of irregular Cenvat credit. He also submitted that to impose penalty under Rule 26, some goods have to be held liable for confiscation. Since there was no proposal in the show cause notice holding any goods liable for confiscation, no penalty can be imposed under Rule 26 of the Central Excise Rules, 2002.
6. The learned Authorised Representative submitted that 2nd stage dealer, as the case may be, do not pay any duty, but are instrumental in passing the Cenvat credit of the duty which was paid by the manufacturer. In order to pass on the Cenvat credit by a dealer, the invoices issued by them mandatorily require to capture details of manufacturer if invoices are issued by 1st stage 12 E/52365 /2019 dealer, and if the invoices are issued by 2nd stage dealer, then the invoice must contain details of manufacturer and its 1st stage dealer along with details of duty payment. The learned Authorised Representative submitted that the appellant has not offered any evidence to controvert the Panchnama which proves their non- existence. Once the manufacturer was found to be non- existent, no duty would have been as well as the appellant's case is also not on the ground that the manufacturers had paid duty. The ld AR contended that the non-existence of 1st stage dealer is evident from the panchnama/statement drawn. Further he stated that the appellant has not offered any evidence to controvert these panchnamas which establish that they were non-existent. 6.1 The learned Authorised Representative went on to submit that the Sale-Purchase transactions were verified from the Commissioner, Commercial Tax Department of Chhattisgarh wherein these 1" stage dealers were said to be located. The Assistant Commissioner, Commercial Tax Department, Chhattisgarh vide letter dated 25.10.2016 has communicated that no purchase had been undertaken by any of the 1st stage dealers. The learned Authorised Representative submitted that enquires from RTO in respect of vehicles mentioned on the invoices for transportation of goods revealed them to be car, motor cycle, moped, auto rickshaw, pick up, Scooter etc. which are incapable to transport the subject goods. Statements of various transporters of the vehicles mentioned on the relevant invoices issued by 1st stage dealer to the 2nd stage dealer is further 13 E/52365 /2019 evident of the fake transaction. Therefore, in the light of the several corroborative evidences which establish beyond any reasonable doubt along with statements admitting the fact of non- existent manufacturers, and 1st stage dealers as well as non- payment of duty, the transaction shown by the 2nd stage dealer has no locus to establish their genuineness. In the circumstances, consideration of allowing Cenvat Credit to the beneficiary- appellant would be an unjust enrichment to them and financial accommodation for the reason that no duty was paid to the Government on the subject goods at the end of the manufacturer. The learned Authorised Representative further submitted that to sustain a claim of Cenvat Credit on purchases, the purchasing dealer has to prove and establish the actual physical movement of the goods & genuineness of transactions, by furnishing the details referred to above and mere production of tax invoices would not be sufficient to claim Cenvat credit. This view was taken by the Hon'ble Supreme Court in the case of The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited reported in (2023) 4 Centax 223 (S.C.) wherein it was held that Input Tax Credit would be available to purchasing dealer only after the discharge burden to establish actual receipt of goods; mere production of invoice and payment to selling dealer by account payee cheque was not sufficient. Though this case is about GST credit, but the underline principles of availing credit under the erstwhile law of Central Excise and present law of GST has not change. He further submitted that the rationale of Cenvat Credit 14 E/52365 /2019 is to avoid cascading effect. Once it is established that no duty was paid, the question of cascading effect of tax on tax does not arise. There cannot be any claim of seeking Cenvat Credit on the plea of maintenance of record or payment of an amount as duty by beneficiary to the 2nd Stage dealer. Merely mentioning or naming an amount as duty, it does not acquire character of duty unless said amount is paid to Government Exchequer, which is absent in the present case. The learned Authorised Representative further submitted that fake invoicing is where a registered person issues invoices for the supply of goods without actually supplying such goods. Generally, a fake invoice passes through a chain of fake invoice generators before it lands in the lap of a recipient of goods who is actually involved in making outward supply of goods. Though there might be various reasons for availing fake invoicing, one dominant reason is the availment of the undue Cenvat credit to reduce outward tax liability. 6.2 The learned Authorised Representative contended that the burden of proof of Cenvat Credit always lies with the claimant of the credit. The dealer who claims Cenvat Credit has to prove beyond doubt, the actual transaction by furnishing the name and address of the selling dealer, details of the vehicle delivering the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars etc. The claim of appellant that the reimbursement of duty to the 2nd stage dealer is not sufficient when the investigation has proved beyond reasonable doubt that no duty on the said goods was paid 15 E/52365 /2019 to the Govt. Keeping in view the said modus and to curb such practices, the Government under Rule 9 (5) of Cenvat Credit Rules, 2004 lays the onus on the beneficiary for the receipt, disposal, consumption and inventory of the inputs in which the relevant information regarding the value, duty paid, Cenvat credit taken and utilized, the person from whom the inputs have been purchased is recorded. The ld AR went to submit that Cenvat Credit is to be denied to Buyer if the supplier fails to pay duty to the Government even after collecting from the buyer. He contended that Cenvat Credit is in the nature of a benefit/concession and not a statutory right, and therefore, the conditions for such availment of credit has to be scrupulously followed, failing which, no benefit can be conferred on the assessee. He relied on the Hon'ble Supreme Court in the case of ALD. Automotive Pvt. Ltd. v. The Commercial Tax Officer & Ors. (Civil Appeal Nos. 10412-10413 of 2018)] reported in [2018 (364) E.L.T. 3 (S.C.)].
6.3 The learned Authorised Representative submitted that as per the records, the invoices of 2nd stage dealer did not contain details of the manufacturer. In absence of these details, it cannot be said that recipient has discharged their statutory obligation. He also contended that it was evident that 1st stage dealers were nonexistent and there was actually no transaction effected, except paper transactions. He further submitted that the appellant has not contested the non-existence of the 1st stage dealer and manufacturer. The only contention raised by the appellant is that 16 E/52365 /2019 they have paid duty, which the ld AR contended is not duty. The said 2nd stage dealer has not paid this amount as duty to the Govt. Even the said dealer has not paid the duty to 1st stage dealer as he was not in-existence and further to manufacturer since the manufacturer was non-existent. Therefore, this amount supposedly represents duty which was never paid to the Government. The learned Authorised Representative submitted that mere production of a tax invoice, establishment of the movement of goods and receipt of the same and the consideration having been paid through bank accounts would not enable the Cenvat Credit, unless the credit is available by virtue of its payment to the Government account. The seller and purchaser have an independent contract without the junction of the Government. It is clear that the literal nomenclature and the statutory language, mandates that the burden of proof to establish the eligibility is with the purchaser to claim Input Tax and otherwise the claim would be frustrated.
7. We have heard both the sides and perused the records placed before us. We find that the impugned order was passed based on the wide scale investigations conducted by the Directorate General of Central Excise Intelligence and the jurisdictional Commissionerates, wherein certain manufacturers and 1st stage dealers were alleged to be non-existent. The flow of credit and the involvement of manufacturers, 1st stage dealers and 2nd stage dealers to the appellant is represented in the table below:
17 E/52365 /2019 Manufacturer (Pays 1st Stage dealer 2nd Stage dealer Duty) (Do not pay duty but (Only passes Cenvat passes duty paid by credit by giving manufacturer by reference of 1st stage giving reference of dealer and manufacturer manufacturer who paid duty)
1. M/s High tides infra 1. M/s S.R Metallics 1.M/s Jai Balaji steels project Pvt. Ltd., company.
2. M/s Bright Metal
2. M/s Supreme multi and Steel. 2.M/s Sandeep trade Pvt. Ltd. And Commercial.
3. M/s Jetking trading
3. M/s Singh Mineral and agencies Pvt. Ltd.
and Infratech (all
being non- existent 4. M/s RMS steel tech
manufacturers) and company.
5. M/s Yes Commtrade
7.1 We note that the instant SCN was part of the larger
investigation involving allegations of the same intermediate parties qua different sets of ultimate manufacturers and all those cases which reached this Tribunal have been decided in favour of the assessees and against the department. These are: (a) Ashok Sharma vs CCE Raipur decided by Final Order No. 50426-
50430/2019 dated 27.3.2019 passed in Excise Appeal No. 53371- 53373 of 2018, 53433/2018 and 53741/2018 (b) Fortune Metaliks Ltd. vs CCE Raipur decided in Final Order No. 51708-51709/2021 dated 6.8.2021 passed in Excise Appeal No. 51044-51045/2019
(c) Trishul Mehta Industries vs CGST in Final Order dated 27.12.2021 in Excise Appeal No. 52313/2019. In Ashok Sharma vs Commissioner of Central Excise, Raipur, the Tribunal held as follows:-
"16. Having considered the rival contentions, we find that the Revenue is not disputing the fact that First Stage Dealers raised invoices giving all the particulars required to be given under the provisions of Cenvat Credit 18 E/52365 /2019 Rules in respect of material supplied to the assessee-Appellant. It is also not being disputed that the assessee-Appellant has received inputs and entered the same in their Central Excise records. The said inputs were further used by the assessee-Appellant in the manufacture of their final product which were cleared by them on payment of duty. This fact is sufficient to prove the physical entry of the inputs in the assessee- Appellant's premises. Further, the ledger account and RG-23A register maintained by the assessee-Appellant supported by weighment slips also prove the receipt of the goods. During the course of arguments before this Tribunal, the assessee-Appellant also produced the invoices against which they have availed the Cenvat Credit along with supporting documents including lorry receipts and weighment slips. Therefore, the burden is cast upon the Revenue to prove that it was merely a paper transaction and goods were not received by the assessee Appellant, which it failed.
17. It is further shown that all the payments made to the First Stage Dealers are through banking channels by way of Cheques/RTGS. The Revenue has not brought on record any evidence to prove any flow back of monies.
18. The Revenue's reliance on the VAT Returns filed by the First Stage Dealers to contend that there is no mention of any receipt of goods from units at Dhanbad is untenable in as much as the VAT Returns sought to be relied upon by the Revenue only pertains to purchases within the State made by the said First Stage Dealers. Purchases made by the First Stage Dealers at Raipur, Chhattisgarh from units at Dhanbad, Jharkhand cannot be termed as "purchases within the State' and would thus not find any mention in the VAT Returns of such First Stage Dealers under the head "List of purchase from such dealers within the State from whom purchases of more than 3 lac in a year have been made."
19. From the available record, we also find that the assessee-Appellant have discharged its onus as required under Rule 9(1) & (5) of CCR, 2004 and as explained by Hon'ble Allahabad High Court in its decision in the case of Commissioner Excise Customs and Service Tax Vs Juhi Alloys limited 2014(302) ELT 487.
20. In view of the above, we find no reason to sustain the impugned Order dated 19.06.2018 and the same is hereby set aside in toto. All the appeals filed by the Appellants are allowed with consequential relief." 7.2 Similarly, the Tribunal, in the case of M/s Drolia Electrosteel P Ltd vs Commissioner, Raipur in Final Order Nos 19 E/52365 /2019 51470-51472/2023 dated 30.10.2023, in identical facts and circumstances held as follows:
"22. From these five RUDs, it is evident that the "non-existent manufacturers/ dealers‟ were all given registrations by the Central Excise Commissionerate. According to the learned counsel for the appellant they all have also been filing excise returns with the department. It needs to be pointed out at this stage that duty is paid by the manufacturer and Cenvat credit can be taken on the strength of it. However, if some traders want to buy goods from the manufacturer and further sell and also pass the benefit of the Cenvat credit, they need to be registered with the Central Excise department. Cenvat credit can be taken only on invoices issued by those traders who are registered with the Central Excise department and not on the strength of invoices issued by any other trader. The registered dealers could be first stage dealers who buy goods from the manufacturers and further sell or second stage dealers who buy goods from first stage dealers and further sell. The traders‟ invoices issued by the first or second stage dealer also mention the invoice number of the original manufacturer who paid the duty.
23. Thus, registration of a trader by the Central Excise is one of great responsibility as Cenvat credit becomes available on the strength of the invoices issued by such traders and every rupee available as Cenvat credit is a rupee less of tax paid in cash. The case of the Revenue in this appeal is that the manufacturers and the traders did not exist at all but they were still registered by the department. There is no justification for such registrations by the department. The DGCEI or the Commissionerate does not investigate or even question the officers who issued these registrations to manufacturers and dealers who did not even exist. Further, if the allegedly non-existent registrants were also filing returns which were also being accepted and scrutinized by the officers as claimed by the learned counsel for the appellants, there does not appear to be any investigation as to how the Returns of the "non- existent‟ Registrants were being accepted by the officers.
24. Once the registration is issued by the department, the buyer of goods can procure goods from such a registered trader and take credit on the strength of such invoices. The case of the Revenue is that the traders and the manufacturers never existed but they issued Cenvatable invoices only on paper and had not supplied duty paid scrap at all and they could have supplied bazar scrap (post consumer scrap) against such invoices.
20 E/52365 /2019
25. What is more interesting is that after investigating and concluding that the manufacturers and traders did not exist at all and cancelling their registration, the Show Cause Notice was issued not only to the three appellants herein but also to those very manufacturers and traders who were supposed to not exist at all and at the addresses where they were found to not exist as per the investigation proposing imposition of penalties on them. Needless to say that if they had not existed, SCN could not have been issued to such non-existent entities. As per the SCN, the manufacturers and traders did not exist and for that reason Cenvat credit taken by the assessee needed to be reversed but the manufacturers and traders also existed at the addresses indicated therein and they were asked as to why penalties should not be imposed on them.
26. The impugned order also does not mention that although the SCN was issued, it could not be served on these non-existent manufacturer and traders and the notices were returned undelivered. It proceeds on the belief that the SCN was served upon them and that they had not sent any replies in defence. In paragraph 23.3 of the impugned order, the Commissioner, inter alia, recorded that "the noticee no. 4,5,6,7,8 and 9 did not submit their reply to show cause notice which was issued over an year ago. In order to ensure natural justice, opportunities of personal hearing were extended to them but they did not appear on any of the dates scheduled for personal hearing to defend their case. It is observed that the Noticees did not intend to defend their case...". The first stage dealers in dispute in this case are noticees no. 4&5 and the manufacturers are noticees no. 7,8 &9 above. In the impugned order, however, no penalties have been imposed against them relying on some case laws. Thus, according to the impugned order, while these entities did not exist at all and for that reason, Cenvat credit is inadmissible on the basis of the second stage dealer's invoices issued on the basis of the invoices issued by these manufacturers and first stage dealers on the one hand, they did exist and had been served the SCN and notices of personal hearing but such opportunities were not availed.
27. Like the Schrodinger's cat which is both dead and alive, according to the Revenue, these firms both existed and did not exist. Their existence was presumed when they were registered and their existence was denied when their registrations were cancelled. In the SCN and the impugned order, their existence was presumed when the SCN and the notices for personal hearing was sent but in the same SCN and the impugned order their existence is denied to deny the Cenvat credit to the assessee.
21 E/52365 /2019
28. The case of the appellant is that it had placed orders on the registered traders, received the goods, accounted for them in its records and availed Cenvat credit on the invoices. Balancing the two sides, we find that the issue tilts in favour of the appellant. When the department registered the so called "non-existent manufacturers/dealers‟ and it cancelled registrations much later, after this investigation, the irresistible conclusion is that the officers had either fraudulently issued the registrations or they issued registrations believing that the manufacturers/traders existed and only much later came to know that they did not exist at all. There is no evidence or allegation of fraud by the officers, hence, it is reasonable to presume that they believed that the manufacturers/traders existed. Such being the case, the appellant cannot be faulted for also believing that the manufacturers/traders existed and trusting the registrations issued by the department and placing orders on the traders. The appellant, as the buyer, cannot be expected to investigate if the departmental officers had issued the registrations correctly or not and take business decisions accordingly. The appellant is also neither required nor is competent to launch an investigation to see if the registered dealer who was issuing to him an invoice had, in fact, maintained the records properly and that he had procured the goods from a first stage dealer who existed at his address and further that first stage dealer had, in fact, procured the goods from a manufacturer and that such manufacturer (who is registered with the department) existed, manufactured the goods, accounted for them properly and issued a correct CENVATABLE invoice to the first stage dealer.
29. The reasonable precautions which the appellant or any other assessee is expected to take is placing orders on a registered manufacturer or dealer and receiving goods along with a Cenvatable invoice indicating all required details. The assessee is not required to launch an investigation. At any rate, as discussed above, Revenue itself was ambiguous about the existence of these units from the time they were registered until and including when the impugned order was issued. We, therefore, find no grounds to deny Cenvat credit to the assessee. Consequently, the penalties imposed on Drolia and Choudhary also cannot be sustained.
30. In view of the above, the impugned order is set aside and all three appeals are allowed."
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8. In the instant case, we note that the appellant had verified that the invoices issued by the 2nd stage dealers were as per the prescribed format under Rule 11 of the Central Excise Rules, 2002, and the said dealer was duly registered with the central excise authorities. The goods were transported in vehicles which had GRs/bilties. The record of the receipts and usage was maintained in the statutory records by the appellant. The payment was remitted through banking channels. Shri Sushil Malani, Director has in his statement stated that all necessary precautions were taken by them as per the provisions of Rule 9(5) of the Cenvat Credit Rules, 2004. It is evident that the appellant had taken all reasonable precautions as per legal provisions. Consequently, the penalties imposed on the appellants can also not be sustained.
9. In view of the discussions and the consistent stand taken by the Tribunal in the aforementioned cases, we set aside the impugned order and allow the appeals.
(Pronounced in the open Court on 29.04.2024) (DR. RACHNA GUPTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER(TECHNICAL) ss