CA Urvashi Porwal
Brief of the Case
In the case of Sujana Metal Products Ltd. Versus The Commissioner of Central Excise, Chennai-II, it was held that creation of cenvat documents and debiting duty without physical movement of goods and in turn took back the credit without receipt of any goods, is a clear violation of Central Excise Act and Rules and is liable to penalty.
Facts of the Case
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.
Contentions of the Revenue
The Revenue reiterated the grounds 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). The adjudicating authority has no power to regularize the credit taking on documents without any supply of goods. The Revenue 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. The Revenue relied on the case law reported in State of Jharkhand Vs Ambay Cements – 2004 (178) ELT 55 (SC).
Contentions of the Assessee
The appellant-assessees submits that they are entitled to reverse the cenvat credit even under normal circumstances if the credit is wrongly taken. The assessee further submitted 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. But for this there is no violation, there is no intention to evade payment of duty under Central Excise law.
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that 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 appellant’s premises to the dealers’ premises and in turn from dealers’ premises back to the first appellant’s (SMPL) premises without involving any manufacture of goods.
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 dealers 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 of Rs.8,21,75,995/-. On perusal of the records and the legal provisions, 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. 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. 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. It was found that every dealer in this transaction had immediately neutralized the credit in respect of the entire quantity shown in the documents. Therefore, 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 appellant’s intention of violation of CER is established beyond doubt and they are liable for penalty both under Rule 15 (1) and Rule 26. In this regard, the Hon’ble CESTAT relied on the decision of Hon’ble 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 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.
The ratio of the above High Court 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 is on the higher side in respect of appellants, Therefore, considering overall circumstances of the case, the penalty has been reduced and the appeal is disposed off accordingly.