Custom, Excise & Service Tax Tribunal
Sujana Metal Products Ltd vs To 5. The Commissioner Of Central Excise on 5 January, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH
CHENNAI
Appeal Nos.E/102-106/2010 & E/137/2010
[Arising out of Order-in-Original No.14/2009 dt. 26.11.2009 passed by the Commissioner of Central Excise, Chennai-II]
1. Sujana Metal Products Ltd.
2. Endeavour Industries Ltd.
3. Omnicron Bio-Genesis Industries Ltd.
4. Victoria Steel Enterprises Ltd.
5. Future Tech Industries Ltd.
6. Commissioner of Central Excise, Chennai-II Appellants
Versus
1 to 5. The Commissioner of Central Excise,
Chennai-II
6. M/s.Sujana Metal Products Ltd. Respondents
Appearance:
Shri B. Venugopal, Advocate For the Assessees Shri M. Rammohan Rao, JC (AR) For the Revenue CORAM : Honble Shri R. Periasami, Technical Member Honble Shri P.K. Choudhary, Judicial Member Date of Hearing : 20.7.2015 Date of Pronouncement :05.01.2016 FINAL ORDER No.40015-40020/2016 Per R. Periasami
All these 6 appeals are arising out of common adjudication order passed by Commissioner of Central Excise, Chennai-II. Therefore, we take up all the appeals for disposal together by a common order. Out of six appeals, five appeals are filed by assessees and one appeal by Revenue against the same OIO.
2. The brief facts of the case are that M/s.Sujana Metals Pvt. Ltd. are manufacturers of TMT bars falling under chapter heading 7214.2090 of First Schedule to CETA 1985 and are registered with Central Excise department, discharging Central Excise duty and also availing cenvat credit. An offence case was registered against the assessees by the Headquarters (Preventive), Central Excise Commissionerate on the allegation that the main appellant viz. M/s.Sujana Metal Products Ltd. in order to avail ineligible and irregular cenvat credit entered into a conspiracy with M/s. Victoria Steel Enterprises Ltd., M/s.Future Tech Industries Ltd., M/s.Endeavour Industries Ltd. & M/s.Omnicron Bio-Genesis Industries Ltd. (co-noticees) who are Central Excise Registered Dealers. It is alleged that the appellant-assessee availed ineligible and irregular credit of duty paid on MS scrap as if it was supplied by M/s.Victoria Steel Enterprises Ltd. based on the documents prepared indicating bogus transaction particulars, without actual/physical movement of the M.S. Squares said to have been used in the manufacture of TMT bars thereby contravened the provisions of Rule 4 (1) of Cenvat Credit Rules, 2004. Accordingly, a show cause notice dt. 3.11.2008 was issued to the main appellant viz. M/s.Sujana Metal Products Ltd. demanding irregular availment of cenvat credit and also proposed for penalty on them as well as for imposition of penalties on the other 4 co-noticees. The adjudicating authority in his order-in-original dt.26.11.2009 dropped the proposal of recovery of cenvat credit of Rs.8,21,75,995/- against the main appellant, M/s.Sujana Metal Products Ltd. However, he imposed penalty of Rs.1,00,00,000/- under Rule 15 (i) of CCR 2004 and also imposed penalty of Rs.5000/- under Rule 15A of CCR 2004 on them. The adjudicating authority also imposed penalties of Rs.80 lakhs, 50 lakhs, 50 lakhs and Rs.2 lakhs respectively on the co-noticees under Rule 26 (2) (i) (ii) of Central Excise Rules, 2002 and imposed penalty of Rs.5000/- each on the co-noticees under Rule 15A of CCR 2004. Appellants filed these appeals only against the imposition of penalty and the Revenue reviewed the said OIO and filed appeal against the dropping of proposal of recovery of cenvat credit.
3. Heard both sides. Ld. A.R appearing on behalf of Revenue reiterated the grounds, particularly para 4.0 of GoA and submits that as per Rule 4 (1) of CCR, cenvat credit should be taken immediately on receipt of the inputs in the factory of manufacturer. In this case, the credit has been availed without receipt of any inputs and there is clear violation of Rule 4(1). He submits that adjudicating authority has no power to regularize the credit taking on documents without any supply of goods. He further submits that respondents have adopted a novel method of preparing only documents without actual movement of inputs. He showed the flow chart and the documents raised from assessee to registered dealer and the registered dealers in turn raised another set of documents and based on the said document they returned the cenvat credit to the main appellant i.e. Sujana Metal Products and entire transaction completed within a period of 2 days. He submits that they have violated the provisions of CCR and the activity indulged by the respondent is not within the legal framework of Excise Act and Rules. Therefore, he submitted that adjudicating authority cannot legalizeor take a lenient view and regularize the credit. He further submits that respondents have violated the rules and procedures and availed credit. He relied on the case law reported in State of Jharkhand Vs Ambay Cements - 2004 (178) ELT 55 (SC). He submits that interpretation of rule has to be strictly construed contained in a particular manner as it was prescribed and it is a mandatory provision. He further submits that respondents are liable for penalty both under Rule 15 (i) as well as under Rule 15A.
4. On the other hand, Ld. Advocate appearing for all the appellant-assessees submits that they are entitled to reverse the cenvat credit even under normal circumstances if the credit is wrongly taken. He further submits that they have not violated any of the provisions of Central Excise law and procedures and he particularly drew our attention to Rule 4 (1) of CCR. It is only a condition set out for availing the credit. It is not violation of the said rule. The rule only stipulates that assessee has to take credit on the inputs immediately on receipt of the same. He also admits that there is a violation to avail some other benefit i.e only to avail financial credit facility with the bank and to show balance turnover in their books of accounts. But for this there is no violation, there is no intention to evade payment of duty under Central Excise law. He submits that Rule 14 is not applicable for imposition of penalty as Rule 14 relates to a situation where there is contravention relating to clearance of the goods which are liable for confiscation. In the present case, there is no contravention and Rule 14 is not invokable. He submits that the adjudicating authority has rightly regularized the credit and dropped the proceedings in so far as demand of credit is concerned. He further submits that in their case, they have first debited the cenvat credit from their account even though there was no movement of inputs and again retook the credit through documents.
5. Regarding imposition of penalty on the main assessee, he submits that department has invoked Rule 15 (1) of CCR. He submits that the said rule would come to play only if there is removal of inputs or capital goods which is in contravention of CCR and no excisable goods are involved. The said rule cannot be invoked and no penalty can be imposed under Rule 15 (1) of CCR. Therefore he submits that there is no revenue loss nor any violation of central excise law. Therefore, imposition of penalty is not justified. If at all, any penalty is imposable, imposition of penalty under Rule 15(i) would suffice.
5.1 Regarding penalty on the co-noticees, he submits that all the four appellants are registered dealers and are governed under Rule 26 (2) (i) (ii) of the CER which is concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing of excisable goods. In this case, dealers have not availed any benefit. Therefore, higher penalty imposed under Rule 26 (2) not sustainable. As per rule 26 (2) (i) (ii), the maximum penalty imposable is Rs.5000 which is already imposed. They are not contesting Rule 15A penalty.
6. In his rejoinder, Ld. A.R submits that this is not a case of normal clerical mistake of reversing the credit and subsequently rectified by taking back the credit. The respondents have adopted a novel device to indulge in irregular availment of credit. He explained that Rule 4 (1) (a) clearly says that credit should be taken immediately on receipt of inputs. In the present case, credit was taken without receipt of the goods thereby, they violated 4(1) (a). Rule 26(2) came into to effect from 1.3.2007 and the same is applicable to the present case. He relied on the following case laws for imposition of penalty :-
(i) Vee Kay Enterprises Vs CCE -
2011 (206) ELT 436 (P&H)
(ii) V.K. Enterprises Vs CCE Panchkula 2011 (273) ELT 513 (Tri.-Del.)
7. Countering to this rejoinder, Ld. Advocate submitted that their case is first they debited the credit even though goods were not removed, but the same was taken back which was otherwise available to them on the inputs i.e. MS Squares and there is no violation of any of the Central Excise Rules. Under these circumstances penalties are not sustainable and cases relied upon by Revenue are not applicable to this case.
8. We have carefully considered the submissions of both sides and perused the records. Out of these six appeals, five are by assessee where the appellant-assessee filed appeals against imposition of penalties by the adjudicating authority and the Revenue is on appeal against dropping of demand and regularising the cenvat credit. On perusal of the SCN, proceedings and the impugned order, we find that the adjudicating authority has discussed the issue in detail. The period of dispute is from February 2007 to May 2008. He dropped the proposal for recovery of cenvat credit, however imposed penalty. The issue to be decided in these appeals is whether the appellants-assessees violated the provisions of Central Excise Act and Rules for indulging in circular paper transaction of flow of cenvat credit without physical movement of any inputs or goods. In this case, appellants-assessees have also admitted before the adjudicating authority that for raising the documents for clearance of M.S. squares from appellants premises to the dealers premises and in turn from dealers premises back to the first appellants (SMPL) premises without involving any manufacture of goods. The whole sequence of events has been explained in the impugned order at para 6.1 to 6.5 in the form of flow chart as under :-
SUJANA METAL PRODUCTS LIMITED, CHENNAI Transaction for the Quantity of 22,185.280 MTs of M.S. Squares ENDEAVOUR Rs.3,90,53,046/-
(10,675.370 MTs) SMPL => FUTURETECH => VICTORIA => SMPL Rs.8,21,75,995/- Rs.4,23,35,541/- Rs.8,21,75,995/- Rs.8,21,75,995/- (22,185.390 MTs) (11,191.360 MTs) (22,185.390 MTs) (22,185,390 MTs) OMICRON Rs.10,94,722/- (318.660 MTs)
As seen from the above sequence, we find that the main assessee (SMPL) have prepared the documents i.e. cenvat invoices for clearance of M.S. squares in the name of M/s.M/s.Endeavour Industries Ltd., M/s.Omnicron Bio Genesis Ltd. and M/s.Future Tech Industries Ltd. who are central excise registered deales who in turn prepared sale documents showing sale to Victoria for the entire quantity covering the three dealers. M/s.Victoria raised invoices in favour of SMPL and SMPL took the credit ofRs.8,21,75,995/-. On perusal of the records and the legal provisions we find that it is admitted from both sides that appellant as well as other appellants have not cleared any goods but they have issued cenvatable invoices without accompaniment of any of the goods which were mentioned in the invoices. This fact has been admitted by the appellant and their act is unauthorized under law. On perusal of various statements of Shri Dinesh Goyal, Vice President of the SMPL and Shri Mridul Kant Chaturvedi, Senior Commercial Manager, G.Kanniayan, Manager (Finance) and also statements of co-appellants it is found that entire paper transactions have been carried out for the purpose of showing higher turnover of transactions to the financial institutions and also to the bank. It is also clear that these co noticees who were the registered dealers have also been floated by the main assessee (SMPL) for this purpose. We find that SMPL, the main assessee is otherwise a regular manufacturer of TMT bars registered with Central Excise and regularly paying central excise duty on their final product and also availing the cenvat credit on various inputs which is not in dispute. It is noticed that there is separate proceedings initiated for the clandestine removal of finished goods without payment of duty. We find that SMPL had a sufficient cenvat credit in their RG-23A and RG-23D account availed on various inputs for manufacture of finished goods. Apparently the credit balance available with them was used for this circular paper transaction. It is evident from the findings at para-30 of OIO the Superintendent Headquarters (Preventive) vide letter dt.17.11.2009 and 22.11.2009 categorically confirmed that it is the SMPL, first appellant who started the chain by actually debiting the duty from their RG-23A and RG-23D account. It was also confirmed that SMPL had sufficient balance of credit for doing this transaction. It is also confirmed that original debit made by the SMPL for payment of duty of Rs.3,90,53,046/- + Rs.4,23,35,541/- + Rs.10,94,722/- which is not under dispute which in turn has come back through dealers invoices back to SMPL. The appellant started the chain and created cenvatable invoices showing sale of MS Squares and subsequently the dealers have also created the similar documents showing receipt and again sale of goods. We find the appellant indulged in the entire transaction and created cenvatable documents and manipulated to show higher sales turn over in their books of accounts and to show to the financial institutions, banks etc. Apparently, we find there is no allegation on the bonafide of the original credit first debited by the appellants in this chain of events. It is the SMPL who created the chain by way of paper transaction of sale and transfer of goods and again the main appellant received back the same as receipt from the registered dealer. We find that every dealer in this transaction had immediately neutralized the credit in respect of the entire quantity shown in the documents. Therefore, we find that appellants intentionally used the central excise provisions under Rule 4 (1) of CCR, created cenvat documents and debited duty without physical movement of goods and in turn took back the credit without receipt of any goods, which is clear violation of Central Excise Act and Rules. Appellants have deliberately chosen this novel method of violating Central Excise Rules and CCR. The Central Excise Act and the Cenvat Credit Rules are intended to facilitate and benefit every manufacturer of excisable goods by allowing credit on inputs and capital goods so as to eliminate cascading effect of duties paid on inputs. Any misuse of the said Rules and the provisions whether for any gain under Central Excise or any other purpose is a clear contravention and liable for penal action. Therefore, we hold that appellants intention of violation of CER is established beyond doubt and they are liable for penalty both under Rule 15 (1) and Rule 26. So appellants contention that penalty is imposable only under Rule 15 and not under Rule 26 (2) is not sustainable and not acceptable. In this regard, Rule 26 of CER provides penalty for certain offences The said rule is reproduced as under :-
RULE 26.?Penalty for certain offences. (1)?Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater.
(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.
As seen from the above sub-rule (2) of Rule 26 any person who issues excise duty invoice without delivery of goods or any other document or abets making such document or in any other manner liable to a penalty. In this regard, we rely Honble High Court of Punjab and Haryana in the case of Vee Kay Enterprises Vs CCE (supra) on an identical issue clearly held that penalty would be levied on the assessee under Rule 26 (2) of CER 2002. The relevant paragraphs of the said judgement are produced as under :-
"9. As regards applicability of provisions introduced on 1-3-2007 to alleged acts committed prior to the said date, the matter is covered by orders of this Court referred to above which are not shown to be distinguishable. Accordingly, we hold that the amended provisions will not apply to the acts committed prior thereto.
10. In spite 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.
11. As regards alternative submission of the appellant, that even if there is jurisdiction to levy penalty equal to the amount of duty evaded distinction in culpability may be found in person who actually evades the duty and the person who enables the same to be done. This distinction in culpability may be required to be gone into from case to case. The Tribunal does not seem to have been conscious of this issue.
12. The penalty prescribed is admittedly not the minimum. Its quantum will thus be in discretion to be exercised having regard to mitigating or aggravating circumstances. In the context of exercise of discretion of imposition of appropriate sentence, it was observed in State of Karnataka v. Puttaraja, AIR 2004 SC 433 :-
10.?It has been very aptly indicated in Dannis Councle MCGDautha v. State of Callifornia, 302 US 183 : 28 LD 2nd 711, that no formula of a foolproof nature is possible that would provide a reasonable criterion in determining a just and appropriate punishment in the infinite variety of circumstances that may affect the gravity of the crime. In the absence of any foolproof formula which may provide any basis for reasonable criteria to correctly assess various circumstances germane to the consideration of gravity of crime, the discretionary judgment in the facts of each case, is the only way in which such judgment may be equitable distinguished. Since in the present case the Tribunal has not considered the issue of quantum of penalty, the matter may require fresh consideration of the Tribunal to determine the quantum of penalty which ought to be levied on the appellant. Accordingly, we allow these appeals partly as above and remand the matters to the Tribunal for passing an appropriate orders on the quantum of penalty."
The ratio of the above citation is applicable to this case as the main appellant and other co-appellants have wilfully indulged in issuing invoices without physical transfer of goods in the form of circular chain beginning from the main assessee SMPL and again ending with the same assessee SMPL. We also rely the Tribunals decision in the case of V.K. Enterprises Vs CCE Panchkula wherein the Tribunal clearly held that issue of invoice without actual delivery of goods is major violation of contravention of the Act and upheld the penalty. The relevant paragraph of Tribunals order are reproduced as under :-
"10.?The Larger Bench in Tata Iron & Steel Co. Ltd. case had held that while imposing a penalty, the gravity of offence must be looked into. The broad principle that the punishment must be proportioned to the offence is of universal application and is required to be followed save where the statute bars the exercise of discretion either in awarding punishment or releasing an offender on probation in lieu of sentencing him forthwith.
11.?In the course of the arguments, the ld. Advocates appearing for the appellants have merely highlighted the facts that the appellants in process of issuing invoices and passing on the credit, got enriched only to the extent of 1 to 3% of the credit passed on and that, therefore, they cannot be held to be equal partners in the commission of offence. That gravity of offence or violation of provisions of law does not depend upon the actual benefit that the offender obtains from his illegal acts. Gravity of offence essentially depends upon the nature of violation of the provisions of law and its effect in general. There may be cases where violation of the provisions of law may not enure to any individual benefit to the offender. Can it be then said that such offender cannot be penalised at all? Being so, merely because the monetary benefit differs from offender to offender in relation to the offence relating to the same act by various persons that cannot be a criteria to hold that the gravity of offence would differ from person to person in such cases.
12.?In 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 our considered opinion, in such cases, question of exercise of any discretion in favour of the offender or showing any leniency to the offenders cannot arise.
13.?In our considered opinion, therefore, we do not find any fault with the imposition of equal amount of penalty as directed by the adjudicating authorities in all these cases. The appeals, therefore, are dismissed."
9. The ratio of the above High Court and other Tribunals decisions are clearly applicable to this case. Therefore, appellants are liable for penalty. However, considering the peculiar facts of the instant case, where this entire circular paper transaction was created by the appellant and also considering the fact that there is apparently no revenue loss to the Department, the quantum of penalty imposed by L.A is on the higher side in respect of appellants, at Sl.No.1,2,4 & 5 of the Cause Title. Therefore, considering overall circumstances of the case, we reduce the penalty imposed under Rule 26 (2) (i) (ii) on the appellants as under :-
S.No. Appeal No. Appellants Penalty Imposed (Rs.) Penalty Reduced to (Rs.)
1.
E/102/2010 Sujana Metal Products Ltd.
1,00,00,000/- under Rule 15 (i) of CCR 2004 25,00,000/-
(Rupees Twenty Five lakhs only)
2. E/105/2010 M/s.Victoria Steel Enterprises Ltd.
80,00,000/-
Rule 26 (2) (i) (ii) of CER 2002 20,00,000/-
(Rupees Twenty lakhs only)
3. E/106/2010 M/s.Future Tech Industries ltd.
50,00,000/-
Rule 26 (2) (i) (ii) of CER 2002 12,50,000/-
(Rupees Twelve lakhs fifty thousand only)
4. E/103/2010 M/s.Endeavour Industries Ltd.
50,00,000/-
Rule 26 (2) (i) (ii) of CER 2002 12,50,000/-
(Rupees Twelve lakhs fifty thousand only) However, imposition of penalty of Rs.5000/- each on all the appellants under Rule 15A is upheld.
10. As far as Appeal No.E/104/2010 of M/s. Omnicron Bio-Genesis Industries Ltd., we find that the penalty imposed by the adjudicating authority is quite reasonable, therefore we uphold the same. Thus, the assessees appeals at Sl.No.1,2,4 & 5 of Cause title are partly allowed in the above terms and Appeal No.E/104/2010 filed by M/s. Omnicron Bio-Genesis Industries Ltd. is dismissed.
11. As far as the Revenues appeal, pleading for demanding cenvat credit taken by the main appellant, we find that issue is well dealt by the adjudicating authority in his findings this circular chain of bill trading transaction initiated by SMPL by using / adopting actual credit balance of Rs.8,21,75,995/- available in their RG-23A and RG-23D account and created cenvatable invoices to three dealers mentioned above. The initial credit debited by SMPL is not under dispute and the department had admitted that appellant had sufficient balance of credit in their accounts which is clearly confirmed by the Superintendents letter dt. 17.11.2009 and 22.11.2009. Though the appellants have created the documents by way of issuing documents and subsequently taking the credit without receipt of the goods, the appellants at the first instance have paid the duty by debiting the cenvat account which was again taken back by above paper transaction. Therefore, we do not find any infirmity in the order of adjudicating authority in so far as regularizing the credit and dropping of recovery of credit. Accordingly, the Revenues appeal is rejected.
In the result, assessee's appeals filed by M/s. Sujana Metal Products Ltd., M/s.Endeavour Industries Ltd., M/s.Victoria Steel Enterprises Ltd. and M/s.Future Tech Industries Ltd. are partly allowed. Appeal filed by M/s.Omnicron Bio-Genesis Industries Ltd. is dismissed. The Revenue's appeal is rejected.
(Proceedings dictated in court on 20.7.2015
and the order pronounced in open court on 05.01.2016)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
gs
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