Fraudulent availment of Cenvat Credit: CESTAT reduces penalty

Dolphin Metals I Ltd Vs C.C.E. (CESTAT Ahmedabad)

The brief facts of the case are that based on the intelligence, an investigation was undertaken against M/s Nisha Industries which revealed that the appellant had wrongly availed CENVAT credit on invoices without actual receipt of inputs; that the finished goods were found at both the manufacturing and dealer’s premises which were not accounted for; that the finished goods were also removed without payment of duty. The appellant herein is one of the suppliers of the said Cenvatable inputs on which M/s Nisha Industries had availed Cenvat Credit allegedly without actual receipt of goods.

The entire case was made out on the basis of the vehicles which were shown to have transported the goods were not capable to transport such bulky goods. The appellant’s defense on this is that there is a clerical error in mentioning the vehicle no.; that instead of GJ 2V 5889, dispatch clerk wrote the vehicle no. as GJ 2Y 5889. Similarly instead of GJ 18U 1999, it should be GJ 8U 1999. I find that there is no corroboration to this submission of the appellant that whether the goods were transported through the vehicle claimed by them. Therefore, this defense of the appellant is of no help to them. It is also a fact on record that M/s Nisha Industries who had availed the Cenvat Credit against the demand of Cenvat Credit amount, they had opted for the Sabka Vishwas (Legacy & Dispute Resolution) Scheme, 2019. Though the opting of SVLDRS should not have any bearing on the other cases who are contesting before this Tribunal but it shows that M/s Nisha Industries has accepted the demand of fraudulent Cenvat Credit. Accordingly, the appellant is liable for penalty under Rule 26 (2) for wrongly passing of the credit. However, penalty imposed is maximum amount which is provided in the Rule 26 (2) (ii). Considering overall facts and circumstances of the case, I am of the view that the appellant deserve some leniency on the quantum of penalty. Accordingly, I reduce the penalty from Rs. 12,94,547/- to Rs. 5,00,000/-.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The brief facts of the case are that based on the intelligence, an investigation was undertaken against M/s Nisha Industries which revealed that the appellant had wrongly availed CENVAT credit on invoices without actual receipt of inputs; that the finished goods were found at both the manufacturing and dealer’s premises which were not accounted for; that the finished goods were also removed without payment of duty. The appellant herein is one of the suppliers of the said Cenvatable inputs on which M/s Nisha Industries had availed Cenvat Credit allegedly without actual receipt of goods. A show cause notice was issued to M/s Nisha Industries along with other noticees including the present appellant wherein it was alleged:

• that the appellant had supplied goods to M/s Nisha Industries vide invoices no. 68 and 90; that only invoices were provided to M/s. Nisha and the goods were not accompanying the said invoices;
• that in respect of invoice no. 68, the vehicle is a loading rickshaw & is therefore incapable of carrying the 16,975 kgs of goods stated in the invoice to have been supplied to M/s Nisha;
• the owner of the vehicle mentioned in the invoice no. 68 in his statement deposed that his vehicle was never used to transport the said goods; that he had never heard the name of the appellant; he further stated that his vehicle’s capacity is only of 500 kgs;
• that the vehicle no. mentioned in invoice no. 90 is a maxi/taxi as per the RTO report which is incapable of carrying 16,350 kgs stated to have been transported through the said vehicle.
• the Director of the appellant on being shown the evidence failed to offer any reasoning for the discrepancy. he vaguely stated that the goods may have been sent later on and that the vehicle number may have been wrongly mentioned in the invoice.

The said Show Cause Notice in addition to proposing the demand of wrongly availing of Cenvat Credit from M/s Nisha Industries, also proposed penalty on the appellant. The adjudicating authority vide order dated 07.03.2011 imposed penalty of Rs. 12.96 lacs under Rule 26(2) of the Central Excise Rules, 2002 on the appellant. Being aggrieved by the Order in Original, the appellant filed an appeal before Learned Commissioner (Appeals) who vide his impugned Order in Appeal upheld the penalty. Therefore, the appellant filed the present appeal. As regard the case of M//s Nisha Industries though they had filed an appeal before this Tribunal but they had opted for the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and accordingly, their appeal has been dismissed as withdrawn.

2. Shri Rohit Lalwani, learned Counsel appearing on behalf of the appellant submits that the appellant had supplied the goods to M/s Nisha Industries under the cover of their following invoices:

He submits that the appellant had received the payment of goods supplied under the above invoices from M/s Nisha Industries. He submits that the department’s case is based only on the statement without corroborative evidence to prove that the appellant was involved in any clandestine removal of goods, even the buyer did not deny the receipt of the goods from the appellant and the goods are properly accounted for in the RG23 A Pt. I register. There was no evidence of cash transaction between the parties which can provide that the goods were being removed clandestinely. The only basis of imposition of penalty was assumption by the department without substantial proof.

2.1 As regards the invoice no. 68 dated 17/07/2008, only ground is that the owner of the vehicle denied to have transported the goods. The goods were transported by vehicle no. GJ 2V 5889 but dispatch clerk wrote the vehicle no. as GJ 2Y 5889 which is a clerical mistake on the part of the clerk of input supplier. Director Shri Deepak Bhagat answered in question 4 in the statement dated 17.04.2010 that the invoices were issued by them and goods were supplied to M/s Nisha Industries against those invoices. It is not the department’s case that the goods were delivered to any other manufacturer or trader. In this connection the department recorded the statement of Truck owner instead of Driver who physically transported the goods and therefore, no statement of the truck owner would be enough to substantiate any allegation on the Appellant.

2.2 As regard the invoice no. 90 dated 20.08.2008, it is his submission that as regard the discrepancy in mentioning the vehicle no. in invoice was a clerical mistake by a clerk. However, the correct vehicle no. is GJ8U 1999 and not GJ 18U 1999. Therefore, credit cannot be denied only on the ground of the RTO report. He submits that it has not been proved by the department that the goods have not been received by M/s Nisha Industries and there was no evidence that the goods were not supplied. The quantity received under the invoice was duly accounted for in the Excise record by the consignee.

2.3 As regard the invoice no. 97 dated 10.09.2008, he submits that due to oversight the quantity of goods received and CENVAT credit was not found entered in Excise records. However, the credit was duly accounted in RG-23 Part II. Therefore, it would be concluded that the goods were not delivered with invoice. He submits that the appellant have not managed the transportation of goods but the same was provided by the buyer M/s Nisha Industries. Therefore, the Director of the appellant did not give any confession of non-supply of goods covered/removed under disputed invoices to the buyer.

2.4 In view of the above facts, appellant submitted that the quantity of goods removed under excise invoices no. 68 dated 17.07.2008, 90 dated 20.08.2008 and 97 dated 10.09.2008 have been properly accounted for in the books of accounts and duty has been paid on the same which is reflected in Monthly returns i.e ER-1 of respective month as well as the sale proceeds has been received through cheque. He placed reliance on the following judgments:

(1) Shri Prayank Prayagraj Aggarwal & Ors. v.CCE & ST, Ahmedabad, 2014-TIOL-3225-CESTAT-Ahm

(2) Commissioner v Motabhai Iron and Steel Industries, 2015 (316) E.L.T. 374 (Guj.)

(3) Commissioner of Central Excise, Delhi-III v. M/s Vee Gee Faucets Pvt. Ltd., 2015 (329) E.L.T. 76 (P&H)

3. Shri Shri V. Lukose, learned Superintendent (Authorised Representative) appearing on behalf of the Revenue reiterates the findings of the impugned order.

4. I have carefully considered the submission made by both sides and perused the records. I find that in the impugned order, the learned Commissioner (Appeals) upheld the penalty of Rs. 12,94,547/- by giving following finding:

8. In the present appeal the matter to be decided is only with respect to penalty imposed upon M/s Dolphin Metal (1) Ltd of Rs. 12,94,547/- under Rule 26(2) of the Central Excise Rules, 2002 by the adjudicating authority vide the impugned order. I shall examine the allegation with regard to fraudulent availment of Cenvat credit which is based on documentary evidences & corroborated by the statements as under:

9. In respect of invoice no.68 and invoice no.90 of M/s Dolphin Metal (1) Ltd issued in favour of M/s. Nisha Industries, I find that evidence in the form of statements of transporter are very clear wherein transportation of goods has been denied. The appellant states that with regards to invoice No. 68 of the appellant, there has been error in writing the vehicle no. in the purchase invoice and the goods were actually transported in vehicle bearing No. GJ 2V5889. However, Shri Bhogilal Nath owner of the vehicle No. (GH 2Y 5889 as mentioned in invoice) vide his statement dated 03.02.2010 has denied any transportation of the same. Further, in case of invoice No. 90/20.08.08 vehicle mentioned in the invoice is a Taxi/ Maxi as per the report of RTO and hence incapable to transport the goods. The appellant in this regard submits that the vehicle no. mentioned in the invoice is incorrect and stated that goods were not transported in the vehicle mentioned in the invoice No. 68 but adds that goods might have been delivered later but no such evidence has been furnished.

10. As regards the debit note worth Rs. 39,46,865/- issued to M/s Dolphin Metal (1) Ltd. it was stated by the Proprietor of M/s. Nisha Industries, that it is regarding reversal of proportionate Cenvat Credit, for inferior quality material received from them. I find their contention is not true as the same has been refuted by the Director of the appellant. I observe that Shri Dipak A Bhagat, Director of M/s Dolphin Metals (1) Ltd. in his statement 10.11.2009, as regards voucher no 1 did 28.3.2009 raised by the appellant for the amount of Rs. 39,46,865/-(Debit note), it is stated that he has neither received any such debit note from M/s. Nisha Industries, nor have they supplied any goods of inferior quality to them. He has also confirmed that they have not received any correspondence as regards supply of inferior quality of goods and they have not raised any credit note to the said appellant to that effect and the said payment is still outstanding. I find that the contention of the appellant does not corroborate with the evidence on record. Thus based on the evidences / documents/ statements of the Proprietor of M/s. Nisha Industries (Manufacturing as well as Dealer unit) and statements dated 10.11.2009, 01.04.2010 and 19.04.2010 of Shri Deepak A. Bhagat, Director of the appellant, it is amply clear that the appellant issued invoices without corresponding supply of inputs to M/s. Nisha Industries (Manufacturing as well as Dealer unit) to enable them to fraudulently avail the Cenvat credit. I find that the Cenvat credit has been taken by M/s. Nisha Industries (Manufacturing as well as Dealer unit) without receipt of goods mentioned in the invoices and the same is required to be recovered.

11. From the above discussion, I find that appellant in collusion with M/s. Nisha Industries committed the offence of passing on the fraudulent Cenvat credit which in turn enabled M/s. Nisha Industries to evade payment of duty and therefore liable to penalty in terms of Rule 26 of the Central Excise Rules, 2002. Therefore, the above discussion leads me to the view that the impugned order is correct in all respects and needs to be upheld. I find that the adjudicating authority is justified in imposing penalty on the appellant and therefore I do not find it proper to interfere with the impugned order.

12. In view of the foregoing discussion, I uphold the impugned order and reject the appeal.”

4.1 In the view of the submissions and records I find that there is no infirmity in the above finding. The entire case was made out on the basis of the vehicles which were shown to have transported the goods were not capable to transport such bulky goods. The appellant’s defense on this is that there is a clerical error in mentioning the vehicle no.; that instead of GJ 2V 5889, dispatch clerk wrote the vehicle no. as GJ 2Y 5889. Similarly instead of GJ 18U 1999, it should be GJ 8U 1999. I find that there is no corroboration to this submission of the appellant that whether the goods were transported through the vehicle claimed by them. Therefore, this defense of the appellant is of no help to them. It is also a fact on record that M/s Nisha Industries who had availed the Cenvat Credit against the demand of Cenvat Credit amount, they had opted for the Sabka Vishwas (Legacy & Dispute Resolution) Scheme, 2019. Though the opting of SVLDRS should not have any bearing on the other cases who are contesting before this Tribunal but it shows that M/s Nisha Industries has accepted the demand of fraudulent Cenvat Credit. Accordingly, the appellant is liable for penalty under Rule 26 (2) for wrongly passing of the credit. However, penalty imposed is maximum amount which is provided in the Rule 26 (2) (ii). Considering overall facts and circumstances of the case, I am of the view that the appellant deserve some leniency on the quantum of penalty. Accordingly, I reduce the penalty from Rs. 12,94,547/- to Rs. 5,00,000/-.

5. As per my above discussion and finding, the impugned order stands modified to the above extent. Appeal is partly allowed in above term.

(Pronounced in the open court on 31.12.2021)