ST : Where assessee had availed credit in a fraudulent manner without any invoices without actually receiving any goods, assessee was liable to penalty under rule 15(2) of Cenvat Credit Rules, 2004

ST : Where assessee had availed credit in a fraudulent manner without any invoices without actually receiving any goods, assessee was liable to penalty under rule 15(2) of Cenvat Credit Rules, 2004

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[2013] 37 taxmann.com 309 (New Delhi - CESTAT)

CESTAT, NEW DELHI BENCH

AIP Industries

v.

Commissioner of Central Excise, Ludhiana*

MS. ARCHANA WADHWA, JUDICIAL MEMBER 
AND RAKESH KUMAR, TECHNICAL MEMBER

STAY ORDER NO. 57835 OF 2013 
APPLICATION NO. E/STAY/350 OF 2011 
APPEAL NO. E/293 OF 2011

JUNE  4, 2013 

I. Rule 15 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Confiscation and penalty - Stay order - Assessee, a registered manufacturer, had shown purchase of raw materials from outside State and production and clearance of goods outside State, in excess of its capacity to manufacture - Most of assessee's machineries were not in working condition - Assessee had taken huge Cenvat credit but could not produce evidence thereof on Departmental visit - On confirmation with State VAT Department, it was found that assessee was not buying raw material and was also not selling any goods outside State - Most of assessee's buyers and suppliers had denied entering into any transaction with assessee - Assessee's power consumption was also not in consonance with production claimed by assessee - Department sought recovery of fraudulent credit taken against bogus invoices, along with interest and penalty - Assessee argued that even if credit was bogus, it was used to pay allegedly bogus duty on allegedly bogus production and, therefore, no recovery could be made from assessee - HELD : Prima facie, assessee had availed credit in a fraudulent manner without any invoices without actually receiving any goods - Assessee had, without manufacturing any goods, passed on the Cenvat credit by issuing bogus invoices to other manufacturers on basis of which those manufacturers may have taken Cenvat credit - Said action of assessee would attract penalty under rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of Central Excise Act, 1944 - Hence, pre-deposit of penalty was ordered in part [Paras 6 & 7] [In favour of revenue]

II. Rule 3 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Utilization of - Stay order - Assessee took fraudulent credit without receiving any goods and without any invoices –When penalty was levied, assessee argued that penalty was paid by debiting Cenvat credit - HELD : Even if payment had been made by debiting Cenvat credit amount, same was meaningless as entire Cenvat credit had been availed in a fraudulent manner without receiving any goods and without any invoices [Para 6] [In favour of revenue]

EDITOR'S NOTE

 

Assessee's argument was strange. Suppose, Mr. X takes fake credit of Rs. 10 and uses it to pay fake duty of Rs. 12 (balance Rs. 2 is paid in cash).

Now, by action of assessee, Department get Rs. 2 in cash with a risk that assessee's bill might have been used by some manufacturer to take credit of Rs. 12. If that is the case, department losses Rs. 10 and, therefore, it is right in seeking reversal of credit of Rs. 10.

Probably, this argument will be taken up in details in final hearing.

Naveen Bindal for the Appellant. Ranjana Jha for the Respondent.

ORDER

 

Rakesh Kumar, Technical Member - The facts leading to filing of this appeal and stay application are, in brief, as under.

1.1 The appellant having their factory at B-15, Phase II, Focal Point, Ludhiana has obtained Central Excise registration on 16/5/05 for manufacture of copper ingots, copper wire and insulated copper wire. The first ER-1 return for the month of August 2006 was filed by them on 11/9/06 in which they showed production and clearance of the goods. However, in the month August 2006 itself they had shown availment of Cenvat credit to the tune of Rs. 80,29,482/-. Their factory was visited by the Central Excise officers on 29/8/06 and it was found that there was only one unbranded enamelling machine in working condition. Though beside this, there were three wire drawing machines, one electric oven, one submersible put machine and two rewinding machines none of them were installed. Beside this, there was one DG set of 85 KVA, one crucible for melting and six moulds but the same were not in working condition and were unused. At that time, the stock of raw material was checked and it was found that there was 500 kg. of bare copper wire (raw material) and copper wire scrap in 10 bags totally weighting 1200 kgs. There was also stock of 300 kg. of bare copper wire of different seizes and 200 kg. of enamelled copper wire. From the condition of their factory it appeared that the factory except for enamelling of wire was not in a condition to manufacture the quantity of wire whose manufacture and clearance has been shown during August 2006. In subsequent months during the period from September, 2006 to May 2007 the appellant took further Cenvat credit of Rs. 5,71,91,775 and thus Cenvat credit availed during the period from August 2006 to May 2007 was Rs. 6,52,21,257. In the ER-1 returns they had not enclosed the relevant details of the invoices regarding the Cenvat credit availed. The Jurisdictional Range staff asked the appellant vide letter dated 25/9/06, 11/10/06, 30/10/06 to supply the records regarding Cenvat credit and also the invoices on the basis of which the Cenvat credit had been taken, but the appellant did not supply any records. Subsequently summons were served to the appellant for producing the records on 29/11/06, 12/12/06, 17/1/07, 6/2/07, 7/3/07, 20/6/07, 11/7/07, 6/8/07, 24/10/07, 30/10/07, 31/10/07, 15/11/07, 2/1/08 and 1/2/08, but they failed to produce any document. On visit to their factory also the officers could not find any records.

1.2 Since, the appellant every month were showing procurement of huge quantity of inputs, and raw material from outside the state and were also showing the sale of huge quantity of finished product to buyers outside the state, the investigating officers conducted inquiry with the Assistant Excise and Taxation Commissioner, Ludhiana, Government of Punjab, for furnishing ICC data for 2006-2007 in respect of the appellant regarding their purchases from outside the State of Punjab and sales to buyers outside Punjab. The Assistant Excise and Taxation Commissioner, Ludhiana vide letter dated 24/7/07 informed that during this period, as per ICC check post data the appellant did not purchase any material from outside Punjab and their sales to buyers outside Punjab were also nil. From this it appeared that they were availing Cenvat credit without any valid documents and were showing fictitious sales by issuing bogus invoices.

1.3 Inquiries was also conducted with the parties from whom the appellant had shown purchase of goods in their sales tax returns. The details of which are given in paras 10.5 to 10.5.15 of the show cause notice. Among the suppliers, except for Shri Inder Pal Singh, Partner of M/s Gujral Traders, Mandi Gobindgarh, other supplier denied having supplied any ingots and copper wire to the appellant. Shri Inder Pal Singh, however, claimed that he had sold mild steel ingots/billets valued at Rs. 2,99,43,991 to the appellant during 2006-2007 and the mild steel billets valued at Rs. 2,55,16,931 during period from 1/4/07 to 30/6/07 and that since these goods had been manufactured in exempted areas, and they did not attract any excise duty, no duty had been paid and no Cenvat credit had been passed on. On inquiry with one of the buyers of the appellant Shri Joginder Pal of M/s Joginder Chemicals, it was found that Shri Joginder Pal had purchased different types of metals like nickel plates/zinc from the appellant and no enamelled copper wire had been purchased.

1.4 On inquiry with Punjab State Electricity Board, it was found that their power consumption was not in consonance with the production shown in the RG-1 register.

1.5 From the above investigation, it appeared that the appellant had availed Cenvat credit amounting to Rs. 6,52,21,254 in a fraudulent manner without actually receiving any goods during the period from August 2006 to May 2007 and without any manufacturing activity, this credit had been passed on to other persons by showing bogus production and issuing bogus invoices without supply of any goods. The entire amount of Cenvat credit fraudulently taken appeared to have been passed on by them to various persons.

1.6 Accordingly, a show cause notice dated 18/6/09 was issued to the appellant for :—

(a)		recovery of the allegedly fraudulently taken Cenvat credit amounting to Rs. 6,52,21,254 from the appellant alongwith interest unit, under rule 14 of Cenvat Credit Rules, 2004 read with proviso to section 11A (1) of Central Excise Act, 1944 ;
(b)		imposition of penalty on the appellant firm under rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of Central Excise Act, 1944, imposition of penalty on them under Rule 25 of Central Excise Rules, 2004 and also imposition of penalty on Shri Navneet Aggarwal, Proprietor of the appellant firm under rule 26 of the Central Excise Rules, 2002.

1.7 The above show cause notice was adjudicated by the Commissioner vide order-in-original dated 2/11/10 by which —

(a)		the Cenvat credit demand of Rs. 6,52,21,254 was confirmed against the appellant alongwith interest, and
(b)		penalty of Rs. 6,52,21,254 was imposed on the appellant firm under Rule 15(2) of Cenvat Credit Rules, 2004 and also penalty of some amount on them under Rule 25 of Central Excise Rules, 2004.

Penal proceedings against Shri Navneet Aggarwal, Proprietor were dropped.

1.8 Against this order of the Commissioner, the present appeal has been filed alongwith stay application.

1.9 Consequent upon the above investigation, proceeding was also been initiated against the appellant for cancellation of their Central Excise registration dated 16/5/05, which had been cancelled by the Assistant Commissioner and the appeal filed by the appellant against the Assistant Commissioner order had been dismissed vide order-in-appeal dated 22/12/06 passed by the Commissioner (Appeals). The appellant had filed an appeal No. E/821/2007-SM against the Commissioner (Appeals)/order dated 22/12/06 and the same was disposed of by the Tribunal vide final order No. 857/2009 - SM (BR) dated 20/07/2009 by which the matter was remanded to the original Adjudicating Authority for denovo decision after supplying them the required documents.

1.10 In the adjudication proceedings before the Commissioner, the appellant had claimed that they have deposited an amount of Rs. 6,52,21,257/- by a debiting the Cenvat credit account in August 2009 in pursuance of the Tribunal's final order No. 857/2009 - SM dated 20th July, 2009. The Commissioner as can be seen from para 4.28 of the order has not accepted this plea observing that this payment cannot be treated as against the demand raised in the show cause notice.

2. Heard both the sides.

3. Shri Naveen Bindal, Advocate, the learned Counsel for the appellant, pleaded that the allegation against the applicant is of taking bogus Cenvat credit without receiving any goods, that since the Cenvat credit had been utilized towards payment of duty in respect of the goods cleared by the appellant and since the allegation of the department is that there was no manufacture by the appellant, even if the appellant have taken the Cenvat credit, in question, fraudulently, the same would stand reversed by them, that as regards penalty of equal amount imposed on the appellant, as shown in the ER-1 return for August 2009, this penalty stands paid by the appellant from Cenvat credit account and that in view of this, the requirement of pre-deposit of interest and balance amount of penalty may be waived for hearing of the appeal and recovery thereof may be stayed till the disposal of the appeal.

4. Mrs. Ranjana Jha, learned Jt. CDR, opposing the stay application, pleaded that the appellant have taken huge amount of Cenvat credit without actually receiving any material, that in spite of being repeatedly asked, they have not produced the documents on the basis of which the credit has been taken, that the appellant do not have any manufacturing activity and fraudulently taken Cenvat credit has been passed on by them to various persons by issuing bogus invoices, that the appellant's plea that they have paid an amount of Rs. 6,52,21,257 as shown in their ER-1 return for August 2009 is without any basis, that this amount is shown to have been paid through Cenvat credit, but since Cenvat credit itself has been availed in a fraudulent manner without any document, the same cannot be accepted as payment, that the appellant in ER-1 return for August 2009 have made a remarks "payment of penalty of Rs. 6,52,21,257 imposed by CESTAT, New Delhi vide final order No. 857/2009-SM dated 20th July, 2009 under protest, that the final order No. 857/2009-SM dated 20th July, 2009 was in respect of cancellation of their registration certificate and by this order the matter had been remanded to the original Adjudicating Authority and, as such, there was no imposition of penalty in that order, that payment of this amount through Cenvat credit is meaningless, as the credit itself has been taken in a fraudulent manner without any documents, that the appellant up-till-now have not produced any documents on the basis of which such huge amount of Cenvat credit has been taken by them, that the appellant have committed a huge fraud by not only availing huge amount of Cenvat credit in a fraudulent manner without any invoices, but have also passed on this huge amount of credit to various persons without supplying any goods as they have no manufacturing facility, that this action of the appellant would attract penalty under rule 15 (2) of Cenvat Credit Rules, 2004 read with section 11AC of Central Excise Act and that in view of this, this is not the case for waiver from the requirement of pre-deposit. She emphasized that the appellant's claim that they have paid an amount of Rs. 6,52,21,257 towards penalty is without any basis and is a false claim.

5. We have heard both the sides and perused the record.

6. The appellant had taken Central Excise registration for manufacture of copper ingots, copper wire and insulated copper wire. It appears that they started filing ER-1 return from August 2006 and from the very first month itself, every month, they have availed huge amount of Cenvat credit. Total Cenvat credit availed during the period from August 2006 to May 2007 is Rs. 6,52,21,257. They have neither filed the Cenvat credit returns nor in the ER-1 they have given the invoice details, though the appellant were time and again asked by the Jurisdictional Central Excise officers to produce the invoices on the basis of which the Cenvat credit had been taken and in this regard a total of 14 summons had been served on them under Section 14 of the Central Excise Act, 1994, but they have neither appeared before the officers nor produced the records. It is not disputed that during visit to their factory by the officers on 28/9/06, only an enamelling machine was found to be working in condition and all other machines including DG sets either are not working or not installed. It is also seen that huge quantity of inputs are claimed to have been purchased from outside Punjab and huge quantity of finished products are claimed to have been sold to buyers outside Punjab. In both the cases, the consignments have to pass ICC, check posts at the interstate border. However on inquiry with the Assistant Commissioner of Excise and Commercial Taxation, Ludhiana it was found that during the period of dispute, neither the appellant have received any goods from outside Punjab nor they have sold any goods to buyers outside Punjab. Inquiry with the suppliers within Punjab revealed that none of them had supplied any copper ingots, copper wire etc. to the appellant under cenvatable invoices. In these circumstances, we are ofprima facie view that the department's case against the appellant is on their strong footing and the evidence on record clearly indicates that the Cenvat credit of Rs. 6,52,21,257 has been availed by the appellant in a fraudulent manner without any invoices without actually receiving any goods and this action of the appellant would attract penalty under section 15(2) of Cenvat Credit Rules, 2004 read with section 11-AC of Central Excise Act, 1944. The action of the appellant become more serious in view of the fact that they have, without manufacturing any goods, passed on the bogus Cenvat credit by issuing bogus invoices to other manufacturers on the basis of which those manufacturers may have taken the Cenvat credit. Though the appellant claim that as per their remark in the ER-l return for the month of August 2009 they had paid an amount of Rs. 6,62,21,257/- towards penalty, no TR-6 challans in this regard had been produced and if this payment had been made by debiting the Cenvat credit amount, the same is meaningless as all the evidence on record prima facie, shows that the entire Cenvat credit has been availed by them in a fraudulent manner without receiving any goods and without any invoices. In fact, in the Tribunal's order No. 857/2009 SM dated 20th July, 2009 there was no orders regarding penalty and this order was only in respect of the cancellation of the registration certificate. Therefore, the appellant's claim in their remark in the ER-1 return for August 2009 that amount of Rs. 6,62,21,257/- was debited by them for payment of penalty imposed by CESTAT, New Delhi vide final order No. 857/2009-SM dated 20th July 2009 is false.

7. In view of the facts discussed above, we are of the view that this is not the case for waiver and this is the case where prima facie penalty equal to the fraudulently taken Cenvat credit would be attracted under rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944. We, therefore, direct the appellant to deposit an amount of Rs. 2,00,00,000 (Rupees Two Crores) towards penalty within a period of eight weeks from the date of this order. On payment of this amount within the stipulated period, the requirement of pre-deposit of balance amount shall stand waived and recovery thereof stayed till the disposal of the appeal. Compliance to be reported on 12-8-2013.