Penalty u/s 25 of CER 2002 not imposable on mere statements without supportive evidences

Amit Rastogi Vs Commissioner of Central Excise & Central Goods & Service Tax (CESTAT Delhi)

CESTAT Delhi held that imposition of penalty under rule 25 of CER 2002 merely on the basis of statements without supporting evidences is untenable in law.

Facts- The Appellant had purchased copper scrap from the registered manufacturer – M/s. Star Delta Exim Pvt. Ltd., Khushkhera, Alwar. Thereafter, the Appellant as registered dealer, supplied the copper scrap to M/s.Continental Engines on cenvatable invoices.

In the course of investigation at the premises of M/s. Star Delta Exim Pvt., it was found that there was no plant and machinery, no electricity connection, no stock of raw materials or finished goods etc.

This appellant had claimed to have received copper scrap, being manufactured scrap from Star Delta Exim. Out of this, the appellant had sold some portion of copper scrap to Continental Engines Ltd, Bhiwadi.

The allegation against the appellant are set out in the SCN, that they in a planned manner in connivance with M/s.Star Delta Exim Pvt. Ltd. indulged in purchase and issuing of fake invoices, without supply of goods to Continental Engines Private Ltd. – Foundry Division, Bhiwadi. Thus, the appellant have contravened the provisions of Rule 4(1) read with 3(1) of CCR, 2004 and thus, appears to be liable for penalty under Rule 25 of CER 2002.

Penalty of Rs.56,017/- (equal to the cenvat credit disallowed) was imposed both on the appellant firm and it’s partner, Mr. Amit Rastogi under Rule 25 of CER 2002. Being aggrieved, these Appellant preferred appeal before the Commissioner (Appeals) however the plea was rejected.

Conclusion- Held that statements of Shri Satendra Singh, Shri Yogesh Singh and Shri Pawan Gupta of M/s. Star Exim are general in nature, and have not specifically implicated these appellants. Revenue have erred in drawing adverse conclusions based on the statements without finding any fault or errors in the books of accounts and other manufacturing records maintained by the parties. Further, there is no allegation that M/s. Continental Engines had procured raw materials from alternate source for manufacture of the finished products. Further, payments for purchases have been made to M/s. Star Exim through banking channels. Similarly, appellants have received payments from Continental Engines through banking channels. The goods were transported from the premises of Star Delta to the premises of the appellant on the GR issued by Rajasthan Golden Transport Services. Further, urges that the vehicle nos. used for transportation have not been disputed.

Further, under the facts and circumstances, no penalty can be imposed on these appellants under Rule 25.

FULL TEXT OF THE CESTAT DELHI ORDER

The issue in these appeals is whether penalty has been rightly imposed on the appellant firm and the other appellant, being the partner of the firm.

2. The brief facts are that appellant – Rajdhani Traders is a partnership firm having GSTIN (earlier ECC Number AAHFR5740 FED 002). The other appellant – Mr. Amit Rastogi is a partner of the firm. The case of Revenue is that these appellants have passed on inadmissible cenvat credit by issuing fake invoices without actual supply of goods.

3. As per records, the Appellant had purchased copper scrap from the registered manufacturer – M/s. Star Delta Exim Pvt. Ltd., Khushkhera, Alwar. Thereafter, the Appellant as registered dealer, supplied the copper scrap to M/s.Continental Engines on cenvatable invoices. The Revenue subsequently in the course of investigation at the premises of M/s. Star Delta Exim Pvt. , found that there was no plant and machinery, no electricity connection, no stock of raw materials or finished goods etc. A panchnama dated 9th April, 2013 was drawn. This appellant had claimed to have received copper scrap, being manufactured scrap from Star Delta Exim under cover of invoice nos.155 dated 8^th February 13, 159 dated 9th Feb,2013, 172 dated 15^th Feb., 2013 and No.173 dated 16 February, 2013. Out of this, the appellant had sold some portion of copper scrap to Continental Engines Ltd, Bhiwadi under cover of invoice nos.RT/BHD/0367, 379 and 0050 during March, 2013 to June, 2013.

4. The allegation against the appellant are set out in the SCN, that they in a   planned manner in connivance with M/s.Star Delta Exim Pvt. Ltd. indulged in purchase and issuing of fake invoices, without supply of goods to  Continental Engines Private Ltd. – Foundry Division, Bhiwadi. Thus, the appellant have contravened the provisions of Rule 4(1) read with 3(1) of CCR, 2004 and thus, appears to be liable for penalty under Rule 25 of CER 2002. Show cause notice was issued invoking the extended period of limitation to M/s. Continental Engines proposing to disallow cenvat credit of Rs.56,017/-, being alleged bogus credit received from these appellants along with penalty. These appellants were made the co-noticees with proposal to impose penalty. The show cause notice was adjudicated vide order-in­original dated 17^th June, 2019. M/s. Continental Engines had filed reply and contested the show cause notice. These noticees/appellants did not file any reply to the show cause notice nor appeared for personal hearing. Vide Order-in-Original dated 17th June, 2019, the proposed disallowance of cenvat credit was confirmed in the hands of M/s. Continental Engines along with penalty. Further penalty of Rs.56,017/- (equal to the cenvat credit disallowed) was imposed both on the appellant firm and it’s partner, Mr. Amit Rastogi under Rule 25 of CER 2002.

5. Being aggrieved, these Appellant preferred appeal before the Commissioner (Appeals). The grounds taken before the Court below were that the show cause notice was not served upon them, nor they had received any notice of personal hearing. It is further contended that they had purchased copper scrap from M/s. Start Delta under proper invoices and payment for the purchases were made through banking channels and there was no flow back of money. After the purchase so made of copper scrap, the appellants sold part of the scrap to M/s. Continental Engines, Bhiwadi. Further, payment for sales made to M/s. Continental Engines was also received through the banking channels and there was no flow back of money. The appellant have maintained proper records of the transactions in their books of accounts and in their statutory records. The appellants have regularly filed Returns disclosing the transactions. Mr. Amit Rastogi in the statement recorded by the Department on 15^th October, 2018 has categorically mentioned that they had received the goods physically in all cases. Further, Mr. Mahendra Sharma, Dy. Manager (Commercial) of M/s. Continental Engines Pvt. Ltd., in his statement has categorically mentioned that they have received the goods physically in all cases. Revenue erred in relying heavily upon the statements of Shri Satender Singh, Authorised Signatory of M/s. Star Delta, Shri Yogesh Singh, Authorised Signatory of M/s. Star Delta and Shri Pawan Gupta, Director of M/s. Star Delta. Further, submits that these statements relied upon by the Revenue are of generic nature and not inculpatory. The statements are in the nature of third-party evidence. Such third-party statements are not substantial evidence in absence of corroboration. Further, there is no allegation made out by the Department that M/s. Continental Engines, Bhiwari managed to procure goods from any other source. In such a scenario, the cenvat credit cannot be denied. As admittedly, M/s. Continental Engines cannot manufacture their final products without actual receipt of raw materials or inputs. As per records, the goods were transported from the premises of M/s. Star Delta to the premises of the appellant – M/s. Rajdhani Traders, on GR issued by Rajasthan Golden Transport Services, Bhiwadi. The Appellant had made payments for the transport service in cash on payment vouchers. No investigation was conducted at the end of the driver/owner of the vehicle by the Department.

6. The ld. Commissioner observed that the case is booked not only on the basis of statements of other persons/third party, but booked on the basis of statement tendered by the  partner of the appellant firm as well as Director/manufacturers of the so-called manufacturing companies. It was observed that the Directors of M/s. Star Exim Pvt. Ltd. have categorically stated that they have not manufactured any goods nor dealt with the goods physically. Further, observed that as there was no manufacture, there was no question of manufactured copper scrap and thus, the claim of having receipt of copper scrap and re-sold by trade to Continental Engines, is not tenable. The facts are supported by the punchnama drawn at M/s Star Exim, wherein, there is no manufacturing facility like machinery, electricity connection to manufacture any goods. As regards ground of limitation, it was held that as the duty has escaped due to the conscious wrongdoing, the proviso to section 11 is rightly invoked. As regards the contention that where penalty is imposed on the firm, penalty on the partner is not maintainable, it is observed that Mr.Amit Rastogi was involved in day-to-day working/functioning of the firm, was having complete knowledge of the affairs of wrongdoing, accordingly, the plea is rejected.

7. Being aggrieved these Appellants are before this Tribunal. The ld. Counsel, inter alia, urges that during the relevant period under dispute, M/s. Start Delta Exim was in existence and duly registered with the Department. The Authorised Signatory /Director of M/s. Star Delta in the statements have categorically stated that that Star Delta closed its production on 25^th March, 2013, but they have not surrendered its central excise registration with the Department. Further, statements of Shri Satendra Singh, Shri Yogesh Singh and Shri Pawan Gupta of M/s. Star Exim are general in nature, and have not specifically implicated these appellants. Revenue have erred in drawing adverse conclusions based on the statements without finding any fault or errors in the books of accounts and other manufacturing records maintained by the parties. Further, there is no allegation that M/s. Continental Engines had procured raw materials from alternate source for manufacture of the finished products. Further, payments for purchases have been made to M/s. Star Exim through banking channels. Similarly, appellants have received payments from Continental Engines through banking channels. The goods were transported from the premises of Star Delta to the premises of the appellant on the GR issued by Rajasthan Golden Transport Services. Further, urges that the vehicle nos. used for transportation have not been disputed.

8. Further, under the facts and circumstances, no penalty can be imposed on these appellants under Rule 25. It is further urged that in any case, no penalty is imposable on these appellants. Further, the show cause notice is time barred. The ld. Counsel has relied upon the following rulings in support of his contentions:-

(1) SMI Electrowire Pvt. Ltd. -2015(322)ELT 447(P&H)

(2) Super Trading Co.-2014(299) ELT 75 (T-Delhi)

(3) S. Alloy Castings Ltd.-2016(331) ELT 310(T-Bang.)

(4) Classic Strips Ltd.-2016(339) ELT 144 (Tbl.-Mumbai)

(5) Ajay Industrial Corporation -2009(237)ELT 175 (Tbl.- Delhi).

(6) Commissioner of Central Excise, Customs & Service Tax Juhi Alloys Ltd. – 2014 (302) ELT 487 (All.).

9. It is also urged that imposition of separate penalty is not justified both on the firm and the partner. Reliance is placed on the following rulings:-

(i) Vinod Kumar Gupta Vs. CCE-2013(287)ELT 54 (P&H)

(ii) CCE, Bhopal Vs. Davo Laboratories-2017(358)ELT 271 (Tribunal-Delhi).

(iii) Water & Co. Vs. CCE, Chennai-II -2017(356) ELT 446 (Tribunal-Chennai).

10. Opposing the appeals, the ld. Authorised Representative for Revenue relies on the impugned orders. He further states that penalties are imposed on the appellant firm as well as on Mr. Amit Rastogi for indulging in passing of fake credits.

11. Having considered the rival contentions, I find that the order of the Court below is vitiated as it has not decided the preliminary question or ground, that is non-receipt of the show cause notice by these appellants. Accordingly, these appeals are allowed by way of remand. The impugned order is set aside. The Adjudicating Authority is directed to record the service of show cause notice and thereafter, proceed to re-adjudicate the matter in accordance with law, after giving adequate opportunity of hearing to the appellants. These appeals are allowed by way of remand.

[order pronounced on 24.02.2023]