Fake Invoices: CENVAT Credit not allowable

Commissioner, Central Excise & CGST Vs Prem Jain Ispat Udyog Pvt. Ltd. (CESTAT Delhi)

Under rule 4(1) of the Credit Rules, CENVAT credit of inputs to be used in the manufacture of final product is allowable to the manufacturer only on receipt of the goods along with invoices in the factory of manufacturer. Rule 4(5) of the Credit Rules also casts a burden of proof regarding the admissibility of the CENVAT credit upon the manufacturer taking such credit. The respondent failed to comply with the above provisions of the Credit Rules. It was, therefore, not entitled to take CENVAT credit amounting to Rs. of Rs. 86,38,805/-on the strength of invoices which were not genuine.

The Commissioner (Appeals), as can be seen from the order, even after accepting that the invoices had been issued fraudulently still proceeded to grant relief to the respondent by holding that they were not bogus or fake and, therefore, CENVAT credit taken on the basis of such invoices are admissible. This finding is contrary to the factual position emerging from the records. M/s Aditya Enterprises was not in existence; M/s Shree Ram Engineering & Casting was not a manufacturing unit and in fact was engaged in construction of residential apartments; and M/s Ganesh Udyog and M/s L.S. Construction were not found on the mentioned address. It is clearly established that neither these firms were engaged in the manufacture of goods nor they had sold or cleared the goods but had generated invoices only for the purpose of passing CENVAT credit. It is also difficult to accept the finding of the Commissioner (Appeals) that the respondent was not a party to the fake transactions. It is only the respondent who was to gain by adoption of such a mode and, therefore, the conclusion that even though only invoices were received by the respondent without the goods, the respondent had no role to play is perverse. The respondent may have received the raw materials for manufacturing purposes, but there is nothing to link the said purchase of the raw material with the invoices against which CENVAT credit was taken by the respondent. It was imperative for the respondent to establish the purchase of such raw materials with the invoices issued by the aforesaid firms.

The order dated 16.10.2018 passed by the Commissioner (Appeals), therefore, cannot be sustained and is set aside.

FULL TEXT OF THE CESTAT DELHI ORDER

The Commissioner, Central Excise & CGST, Udaipur has filed this appeal to assail the order dated 16.10.2018 passed by the Commissioner (Appeals) Central Goods and Service Tax, Jodhpur¹, by which the two appeals one filed by M/s Prem Jain Ispat Udyog Pvt. Ltd.² and the other by its Director have been allowed and the two orders dated 31.08.2017 passed by the Additional Commissioner have been set aside. The Additional Commissioner, by the aforesaid orders, had disallowed CENVAT credit of Rs. 83,38,805/- under rule 14 of the CENVAT Credit Rules 2004³ and imposed penalty on the respondent as also its Director.

2. The respondent was engaged in the manufacture of M.S. Ingot and Bars and availed CENVAT credit claiming that the inputs were used for manufacture of the final products.

3. A show cause notice dated 23.11.2016 was issued to the respondent mentioning therein that it had availed CENVAT credit amounting to Rs. 86,38,805/- in respect of inputs (scrap) used by them in the manufacture of final product. The show cause notice mentions that the credit had been used fraudulently on fake invoices received without receiving the goods from the so-called manufacturers and dealers namely: M/s Aditya Enterprises; M/s Shree Ram Engineering & Casting; M/s M. K. Engineering Works; and The firms namely M/s Chakradhari Metal Co., Jamshedpur, M/s L.S. Construction, Jamshedpur and M/s Tirupati Associates, Jaipur abetted with the manufacturing units for facilitation of undue CENVAT credit to appellant by issuing fake bills without supplying the goods. The transporters namely M/s Transport Corporation of Rajasthan, Jaipur, M/s Goyal Parivahan, Jaipur, and M/s Roop Laxmi Transport Company, Jaipur also abetted by issuing bilties on commission basis without receiving any goods. The payment made by the appellant was only an eye wash as the so-called manufacturers/dealers returned the amount either in cash or in another account of the buyer after deducting the commission charged for issue of fake documents viz invoices and bilties. Further, Shri Prem Chand Jain Director of M/s Prem Jain Ispat Udyog Pvt. Ltd., Kota with knowledge indulged in procurement of invoices without the goods from various manufacturers and dealers.

4. A reply was filed to the aforesaid show cause notice by the respondent, denying the allegations contained in the show cause notice.

5. The Additional Commissioner, by order dated 23.08.2017 disallowed the credit availed by the respondent for the reason that the declared registered factory premises of the so called manufactures were non-existent and these manufacturers were either not working or working on papers only. The relevant portion of the order on this aspect is reproduced below:

“59. I find that investigation in the matter was carried out by the Officers of DGCEI and it was found that the premises of M/s Aditya Enterprises, Plot No. IV, Bokaro Industrial Area, Balidih, Bokaro (Jharkhand) was not in existence. Further, in the premises of M/s Shree Ram Engineering & Casting, Near Red Rose School, Mango, Jamshedpur also it was found that there was nothing like a manufacturing unit and the said premises were being used for the activity of construction of a residential apartment. Similarly location of M/s Ganesh Udyog at Baramandi, Near Asvati Hospital, B.P. Polythechnic, Dhanbad; locations of M/s L.S. Construction at near Kali Mandir Road, Godown, Gharabanda, Jamshedpur, Jharkand was also not available.

60. Thus I find that it was categorically proved that the declared registered factory premises of the so called manufactures (as involved in the present case) were non-existent and not working and were working only on papers.

61. I also find that statement of the concerned persons who were involved in the issue of the fake documents were recorded by the authorities and from all the statements it transpired that the manufacturers / assessees were not engaged in manufacture of goods and had not sold or cleared the impugned goods but had only generated invoices with the sole purpose of passing on Cenvat credit. The statements so recorded are summarised as under for the sake of ready reference.”

(emphasis supplied)

6. Thereafter, the Additional Commissioner examined the statements of Shri Sudarshan Singh, proprietor of M/s Aditya Enterprises, Nitish Pandey, partner of Shri Ram Engineering & Casting, Ajay Kumar Singh, partner of L.S. Construction, Satish Pandey, proprietor of Bajarang Steel Tranders and Jeetu Agarwal proprietor of Tirupati Associates and concluded that all the firms were bogus and were not engaged in manufacturing or trading activity or sales of goods and were only issuing invoices to pass on CENVAT credit. In such circumstances, the CENVAT credit availed by the respondent was denied.

7. The respondent and its Director filed appeals before the Commissioner (Appeals), who by order dated 16.10.2018, allowed the appeals and set aside the order passed by the Additional Commissioner. The relevant portions of the order passed by the Commissioner (Appeals) are reproduced below:

“4.1. Further, at the time of personal hearing held on 08.10.2018, they have submitted that appellant purchased the goods after payment of duty and though it is a fact that the goods were non-duty paid but appellant was not party to any fraud, therefore, credit of duty could not be said to have been wrongly availed. xxxxxxxxxx

4.2 Further, there is a marked difference between a forged document and document issued by fraud, a forged or a bogus documents is one which is concocted and created and it is, in fact, a non-existent document and it has no value in the eyes of law as it does not lawfully exists at all. On the other hand, a document issued in the context of a fraud or mis-representation, and according to the settled law, such document is at the best voidable one and is valid till it is set aside. The transaction that takes place on the basis of such document is a good and valid transaction and can even give a good title to the holder in due course for the valuable consideration without notice.

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5.3. I find that the appellant contended that the subject invoices were issued fraudulently but were not fake. I agree with the said contention of the appellant I find that there is a marked difference between a forged documents and documents issued by fraud, a forged or a bogus documents is one which is concocted and created and it is in fact a non existent document and it has no value in the eyes of law as it does not lawfully exist at all. On the other hand, a document issued in the context of a fraud or mis representation, and according to the settled law such document is at best voidable one and is valid till it is set aside. I find that the transaction that takes place on the basis of such document is a good and valid transaction and can even give a good title to the holder in due course for the valuable consideration without notice.

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I therefore, hold that the invoices are issued fraudulently but the same are not bogus or fake and therefore the cenvat credit taken on the basis of such invoices are admissible to the appellant.

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5.7 I find that department has made out a case of irregular availment of cenvat credit mainly based on the statement of manufacturers, dealers and transporters. However I find that all the transactions related to inputs purchased was duly recorded in the book of accounts and inventory records. The appellant have purchased the goods from the manufacturers and registered dealers.

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5.8 I find that the appellant received material though the material received was either before receiving the invoice or after receiving the invoices, but it does not mean that the material mentioned in the invoices was not received, not utilized/consumed for the manufacture of final products on which duty had been paid. There is also no case of the department that the appellant was not entitled to take credit of duty paid on inputs which were admittedly used for manufacture of final products on which duty was paid. The case of the department is only that the invoices were not received with the material and the material was not received in the trucks the number of which was mentioned in the above said invoices. I find that for long distance, it is not necessary that the direct truck is available and goods loaded in the truck are not transshipped. It is also a fact on records that the truck number was not mentioned by the GTA service provider but was mentioned by the person who raised the invoices, but all these facts do not change the basic question that the invoices were not fake, appellant was not a party in the fraud there was no involvement of appellant in the conspiracy to issue invoices fraudulently.”

(emphasis supplied)

8. Shri O.P. Bisht learned authorised representative appearing for the Department submitted that:

(i) The respondent was not entitled to CENVAT credit as they were taken on the strength of invoices which were not genuine and under which neither material was supplied by the supplier nor material was received by the respondent;

(ii) As per rule 4(1) of the Credit Rules, CENVAT credit of inputs to be used in the manufacture of final product is allowable to the manufacturer only on receipt of the goods along with invoices in the factory of manufacturer. Further, rule 4(5) of the Credit Rules casts a burden of proof regarding the admissibility of the CENVAT credit upon the manufacturer taking such credit. Since the respondent failed to comply with the above provisions of the Credit Rules, it was not entitled to take CENVAT credit amounting to Rs. of Rs. 86,38,805/- on the strength of invoice which were not genuine;

(iii) The respondent had connived with the concerned person of various manufacturing firms namely M/s Aditya Enterprises, M/s Shree Ram Engineering & Casting, M/s M. K. Engineering Works and M/s Ganesh Udyog, who were either working on paper only or were involved in issuing bills, without production and clearance of goods; and

(iv) The respondent in connivance with the manufacturers and dealers had devised a novel modus operandi for availing undue CENVAT credit.

9. Shri Vijay Kumar learned counsel appearing for the respondent however supported the impugned order passed by the Commissioner (Appeals) and in support of this contention placed reliance upon the following decisions:

(i) Gian Castings Pvt. Ltd. Commissioner of C. Ex., Chandigarh⁴; and

(ii) Dutt Multimetals Pvt. Ltd. Commissioner of C. Ex., Chandigarh⁵.

10. The submissions advanced by the learned authorized representative for the appellant and the learned counsel appearing for the respondent have been considered.

11. The respondent had availed CENVAT credit of Rs. 86,38,805/-on the strength of invoices during the period November 2011 to December 2013 and details of CENVAT credit taken against the invoices issued by suppliers are as under:

12. The following facts emerge from the order passed by the Additional Commissioner in respect to each of the firm/companies that issued the invoices:

“(1) Aditya Enterprises Bokaro

(i) That investigation found that the premises of M/s Aditya Enterprises was not in existence;

(ii) That no manufacturing activities were carried out at the premise of M/s Aditya Enterprises and they had filed NIL returns during the said period; and

(iii) Sudarshan Singh, proprietor of M/s Aditya Enterprises in his statement dated 24.04.2014 stated that since August 2011, no goods had been produced. They were doing job work and never sold any excisable goods and had not issued any invoice. They filed Nil ER-1 return upto 02/2013 and thereafter no ER-1 was filed.

(2) Shree Ram Engineering & Casting

(i) On visiting the premises of M/s Shree Ram Engineering & Casting, it was found that there was nothing like manufacturing unit and the said premises were being used for the activity of construction of a residential apartment;

(ii) M/s Shree Ram Engineering & Casting had not filed any return for the relevant period and moreover it also transport from the investigation that M/s Bajrang Steel Traders had purchased fake bills from the above parties; and

(iii) Shri Nitish Pandey partner of M/s Shree Ram Engineering & Casting in his statement dated 27.04.2015 stated that he had not purchased any excisable goods and only sold the bills using the name of companies/firms to pass on CENVAT to various companies, including M/s Tirupathi associates.

(3) M.K. Engineering Works

(i) That all the MS Scrap purchased by the Respondent from M/s M.K. Engineering Works, Jamshedpur was received under their excisable invoices. However, ER-1 returns of M.K. Engineering Works for the month of July 2011 to March 2013 forwarded by Assistant Commissioner, by letter dated 03.03.2016 revealed that they had produced 23.847 MT of scrap involving Rs. 40,713/- of duty, whereas the Respondent had shown purchase of 1620.650 MT of M.S.Scrap involving Rs. 31,14,664/- of duty during the relevant period from M.K. Engineering Works, which had been passed on to them under the said 57 bills. They agreed that the quantity as purchased by them was not produced in M.K. Engineering Works and it was purchased from somewhere else. He also stated that they had taken CENVAT Credit of Rs.31,14.664/, whereas the said company had not paid such amount of duty in respect of clearances of scrap during the relevant period. He also admitted that the said CENVAT amount had been passed on to them by issuing invoices without accompanying the goods and it was not admissible to them.

(4) Tirupati Associates

(i) M/s Tirupati Associates had purchased Scrap from various suppliers under different invoices as detailed below: –

(ii) Location of M/s Ganesh Udyog & M/s L.S. Construction were not available at given addresses;

(iii) Shri Ajay Kumar Singh partner in L.S. Construction in his statement dated 30.07.2014 stated that the firm is registered as dealer and the activity of the firm is looked after by Sh. Nitesh Pandey who issued the invoices;

(iv) Shri Satish Pandey proprietor in Bajrang Steel in his statement dated 30.09.2014 stated that they are registered as dealer and purchase fake bills of sponge iron and scrap from M/s Aditya Enterprises, Shri. Ram Engineering & Casting, M/s Ganesh Udyog etc. and on the basis of these bills they issue fake invoices in order to pass on CENVAT credit. All these activities were carried out by Nitish Pandey and he only signed the papers and used to receive Rs. 10,000/- p.m.;

(v) Shri Jeetu Agarwal proprietor in Tirupati Associates in his statement dated 30.07.2014 stated that Shri Sumit Khandelwal, Proprietor of M/s Balaji steels handed over the bills and bilties of supplier’s companies and got issued the bills in the name of buyer. Further, the goods shown to have purchased and sold were ever received in his premises.

13. Shree Prem Chand Jain, Director in his statement dated 02.02.2016 stated that he had no information as to from where the suppliers purchased the goods. Since the bills and bilties were received later, he did not know whether the said goods were manufactured/produced in their factories and central excise duty payment thereon had been made or not. When pointed out that the goods were received without invoice and bills/bilties had been arranged later, the CENVAT credit in respect of those invoices/bills were inadmissible, he accepted the fact and reversed the CENVAT Credit amounting to Rs. 55,24,141/-vide entry number 1 dated 02.02.2016.

14. Investigation carried out with the Transporters also revealed that they never transported any goods to the respondent and they had issued the bilties on the basis of details provided by M/s Tirupati Associates, Jaipur to them without ensuring whether goods were transported or not. Thus, the same were not genuine and were prepared only to help in availing the CENVAT credit.

15. It has also been established that no vehicle mentioned in the invoices was used for the transportation of the goods and these vehicles were not engaged for the transportation of goods from the premises of supplier to the premises of assessee located in Kota.

16. The manufacture/dealers also deposed that they had issued only the invoices based on invoices which were received by them from the manufacturer/main dealer and thus the assessee had not received any input along-with the invoices and only invoices were procured in collusion with the dealers.

17. Further, the consignments shown to have been transported in trucks were actually never transported and the records establish that only paper transactions were made with commission amount exchanging hands.

18. Thus, it is established that the manufacturer/dealers issued only the invoices and no goods were dispatched by the manufacturer/dealers with the invoices.

19. Under rule 4(1) of the Credit Rules, CENVAT credit of inputs to be used in the manufacture of final product is allowable to the manufacturer only on receipt of the goods along with invoices in the factory of manufacturer. Rule 4(5) of the Credit Rules also casts a burden of proof regarding the admissibility of the CENVAT credit upon the manufacturer taking such credit. The respondent failed to comply with the above provisions of the Credit Rules. It was, therefore, not entitled to take CENVAT credit amounting to Rs. of Rs. 86,38,805/-on the strength of invoices which were not genuine.

20. The Commissioner (Appeals), as can be seen from the order, even after accepting that the invoices had been issued fraudulently still proceeded to grant relief to the respondent by holding that they were not bogus or fake and, therefore, CENVAT credit taken on the basis of such invoices are admissible. This finding is contrary to the factual position emerging from the records. M/s Aditya Enterprises was not in existence; M/s Shree Ram Engineering & Casting was not a manufacturing unit and in fact was engaged in construction of residential apartments; and M/s Ganesh Udyog and M/s L.S. Construction were not found on the mentioned address. It is clearly established that neither these firms were engaged in the manufacture of goods nor they had sold or cleared the goods but had generated invoices only for the purpose of passing CENVAT credit. It is also difficult to accept the finding of the Commissioner (Appeals) that the respondent was not a party to the fake transactions. It is only the respondent who was to gain by adoption of such a mode and, therefore, the conclusion that even though only invoices were received by the respondent without the goods, the respondent had no role to play is perverse. The respondent may have received the raw materials for manufacturing purposes, but there is nothing to link the said purchase of the raw material with the invoices against which CENVAT credit was taken by the respondent. It was imperative for the respondent to establish the purchase of such raw materials with the invoices issued by the aforesaid firms.

21. The two decisions in Gian Castings and Dutt Multimetals rendered by learned single members do not help the respondent. In these cases there was no evidence, whereas in the present case there is enough evidence on the record to establish that fake invoices were issued only to benefit the respondent.

22. The order dated 16.10.2018 passed by the Commissioner (Appeals), therefore, cannot be sustained and is set aside. The appeal is, accordingly, allowed.

(Order Pronounce on 15.02.2022)

Note:

1. the Commissioner (Appeals)

2. the respondent

3. the CENVAT Rules

4. 2015 (319) E.L.T. 339 (Tri.-Del.)

5. 2017 (346) E.L.T. 115 (Tri.-Chan.)