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2014 (12) TMI 1035 - AT - Central ExciseAvailing CENVAT credit on scrap - industrial scrap versus bazaar scrap - allegation that they have availed CENVAT credit on bazaar scrap procured under the guise of ship breaking scrap - The allegation is that the duty-paid scrap was diverted and the dealer supplied bazaar scrap using the duty-paying documents on the strength of which the appellant took the credit. - Interest u/s 11AB - Penalty u/s 11AC and Rule 26 - Onus to prove - Held that - Appellant did not place orders for the purchase of scrap directly on the manufacturer of scrap or dealer. The orders were placed through brokers such as Al-Karim Scrap Traders Pvt. Ltd., Singh & Sons, Maruti Trading Company and so on. These brokers, who placed the order for the scrap from the dealers and who supervised the supply of scarp, in their statements have confirmed that the supply of scrap made was of bazaar scrap and not from the duty paid scrap obtained from manufacturers. Further, it is a fact on record that the scrap received was not of the required quality and hence debit notes were issued to the suppliers (dealers) for supply of inferior quality scrap. Besides, the officials of the appellant-firm also corroborated the fact that what was received and used by the appellant was bazaar scrap and not industrially generated scrap. In these circumstances, the appellant could not be held to have satisfied/complied with the requirements of Rule 7(2) of CENVAT Credit Rules 2001/2002. Sub-rule (4) of Rule 7 of CENVAT Credit Rules, 2002 makes it abundantly clear that the onus of proving admissibility of CENVAT credit lies on the person availing the credit. In Besco Ltd. vs. Commissioner of Central Excise 2000 (8) TMI 217 - CEGAT, KOLKATA the Tribunal dealt with a situation where bazaar scrap was supplied and the same was shown to be purchased from dealers registered with the department who had issued the invoices without actually supplying the material. This Tribunal held that the department cannot be expected to go to the source from where the appellant ought to have procured the bazaar scrap and as long as the department can corroborate by evidences to show that mala fide nature of transactions, the same is sufficient. In the present case, from the statement of the brokers, it is evident that what was supplied by the registered dealers were scrap procured from bazaar and not duty paid scrap. Therefore, the onus shifts to the appellant to prove that the scrap purchased is duty paid scrap which the appellant has not discharged at all. Rule 7(4) of the CENVAT Credit Rules, 2002, as it stood at the relevant time, placed the onus to prove the eligibility to avail CENVAT credit on the person taking the credit. Once the Revenue discharges the burden that the particulars declared in the documents on the strength of which credit had been availed are not genuine or are fake, then the onus is on the assessee to prove that they have availed the credit correctly and are entitled for the credit. That onus cannot be countenanced on the ground of hardship or inconvenience. It is also on record that M/s. Simandhar Steel Movers (India) Pvt. Ltd., who was the main dealer from whom the appellant procured the scrap, did not participate in the appeal proceedings at all which also shows that the scrap supplied by them to the appellant is not duty paid. As regards the scrap procured from other dealers, through brokers, it is seen from the statements of brokers and also the transporters that the scrap was sourced from not the manufacturers but from various traders. Confirmation of demand of CENVAT credit fraudulently taken to the extent of ₹ 1,62,39,751/- along with interest thereon is clearly sustainable in law. The appellant is also liable to penalty for an equivalent amount under Rule 13 of the CENVAT Credit Rules, 2002 read with Section11AC of the Central Excise Act, 1944. - Decided against the assessee. As regards the confiscation of bazaar scrap seized, valued at ₹ 10,14,98,444/- from M/s. ISSAL, the said goods are not excisable at all. Therefore, the question of their confiscation and imposition of redemption fine in lieu of confiscation does not arise at all. - Decided in favor of assessee. Levy of personal penalty on dealers - Held that - Penalty can be imposed under Rule 26 only when notices had knowledge that the goods are liable to confiscation. In the present case, the goods supplied by the dealers are bazaar scrap which is not excisable and, therefore, the question of confiscation of such bazaar scrap would not arise at all. What the dealers have done is that they have supplied non-CENVATable scrap along with CENVAT documents. Penalty for issuing fake/bogus CENVAT document was provided for in the statute only in 2007. Since in the present case, the period is 2001-02, in the absence of specific provision in law for imposition of penalty for issue of fake/bogus documents, penalties imposed on the dealers and brokers will not sustain. Accordingly, we set aside the penalties imposed on the dealers and brokers.
Issues Involved:
1. Legitimacy of CENVAT credit availed by M/s. ISSAL on scrap. 2. Confiscation of MS scrap seized from M/s. ISSAL. 3. Imposition of penalties on dealers and brokers involved in the supply of scrap. Detailed Analysis: 1. Legitimacy of CENVAT Credit: The main issue revolves around whether M/s. ISSAL (now ISMT Ltd.) legitimately availed CENVAT credit amounting to Rs. 1,62,39,751/-. The adjudicating authority confirmed that M/s. ISSAL had been availing CENVAT credit on market scrap supplied by registered dealers and brokers, claiming it to be manufactured scrap on which excise duty had been paid. However, evidence showed that the scrap was, in fact, bazaar scrap, not industrially generated scrap on which excise duty is payable. Evidence and Findings: - During a search of M/s. ISSAL's factory on 12/08/2002, 706 MTs of market scrap were found, on which CENVAT credit had been availed. - Statements from officials of M/s. ISSAL confirmed that the scrap was bazaar scrap. - Debit notes issued by M/s. ISSAL to suppliers for inferior quality scrap further corroborated that the scrap was not duty-paid. - Enquiries revealed that some ship-breaking units alleged to have supplied scrap were non-existent, and no consignments passed through the Bhilad check post during the relevant period. - The Tribunal held that M/s. ISSAL did not comply with Rule 7(2) of the CENVAT Credit Rules, 2001/2002, which mandates taking reasonable steps to ensure that inputs are duty-paid. Conclusion: The Tribunal concluded that M/s. ISSAL fraudulently availed CENVAT credit on non-duty paid bazaar scrap. Consequently, they are liable to reverse the credit taken along with interest and are subject to a penalty equivalent to the credit amount under Rule 13 of the CENVAT Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. 2. Confiscation of MS Scrap: The adjudicating authority had ordered the confiscation of MS scrap valued at Rs. 10.15 crore seized from M/s. ISSAL, with an option to redeem the same on payment of a fine. However, the Tribunal found that the seized goods were not excisable. Conclusion: The Tribunal set aside the confiscation of goods and the consequent redemption fine, as the goods in question were not excisable. 3. Imposition of Penalties on Dealers and Brokers: Penalties were imposed on various dealers and brokers under Rule 26 of the Central Excise Rules, 2000, for their alleged involvement in the fraudulent availment of CENVAT credit by M/s. ISSAL. Arguments and Findings: - The dealers contended that they procured goods from manufacturers who discharged excise duty, and no evidence was provided by the Revenue to show that they supplied bazaar scrap. - Brokers argued that they merely facilitated transactions and had no knowledge of the scrap being non-duty paid. - The Tribunal noted that penalty for issuing fake/bogus CENVAT documents was introduced only in 2007, and the period in question was 2001-02. Conclusion: The Tribunal set aside the penalties imposed on the dealers and brokers, as there was no statutory provision for such penalties during the relevant period. Summary of Judgments: (i) M/s. ISSAL is not eligible to avail the credit of Rs. 1,62,39,751/- and must reverse the credit along with interest. They are also liable to a penalty under Rule 13 of the CENVAT Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. (ii) The confiscation of goods valued at Rs. 1,14,98,444/- is set aside, and no fine in lieu of confiscation is payable. (iii) Penalties imposed on the dealers and brokers are set aside due to the absence of specific statutory provisions at the relevant time. Disposition: The appeals are disposed of in the above terms.
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