2004 (9) TMI 530 - AT - Central Excise

Demand - fraudulent misuse of Modvat credit by multiple firms and individuals - denial of Modvat credit - Including paper transactions - Non-existent goods - HELD THAT - We find that the demand of duty admittedly relates to duty on non-existent goods, which were never manufactured and never cleared. Interestingly, Modvat credit on the inputs is inter alia being denied on the ground that M/s. SGMCPL did not have manufacturing facility and did not manufacture and clear any goods and in the same breath, the Central Excise duty is being demanded from them on the goods manufactured and cleared by them. Admittedly when there was no manufacturing facility available with M/s. SGMCPL and no manufacturing activity was carried out by them there was no question of manufacturing and clearing any excisable goods by them. They were therefore neither eligible to take any credit on the inputs nor were obliged to pay any Central Excise duty on the non-existent finished goods. Whatever amount of Modvat credit they have taken in records was used to pay Central Excise duty for clearance of these non-existent goods. Therefore, the appellants are only challenging the duty demand and not the denial of Modvat credit. Since the demand of duty relates to the excisable goods, which were never in existence and were neither manufactured nor cleared, the demand cannot sustain. It therefore has to be set aside. Accordingly the demand of duty along with interest leviable thereon is set aside. We however uphold the denial of Modvat credit. Further, it is observed that whatever act has been done/committed by the appellants resulting into the contravention of any of the provisions of the Central Excise Act or the Rules made thereunder if any, admittedly was not done/committed with an intent to evade payment of duty, no penalty can be imposed on any one of the appellants. Accordingly, penalty on all the appellants before us is set aside. Accordingly the impugned order in so far as it relates to the present appellants is set aside and the appeals are allowed.

Summary

Issues Involved:
The judgment involves issues related to fraudulent misuse of Modvat credit by multiple firms and individuals, including paper transactions, non-existent goods, denial of Modvat credit, demand of Central Excise duty, imposition of penalties, and sustainability of the impugned order.

Fraudulent Misuse of Modvat Credit:
The investigations revealed that various firms and individuals, including M/s. SGMCPL, M/s. JACL, and others, engaged in fraudulent activities by taking Modvat credit without physically receiving goods, issuing invoices for non-existent goods, and passing on Modvat credit to buyers through paper transactions. The transactions were carried out to show higher turnover for financial benefits.

Denial of Modvat Credit and Duty Demand:
The department disallowed Modvat credit amounting to Rs. 1,33,66,487.52 to M/s. SGMCPL and demanded duty of Rs. 1,27,10,724/- under Section 11A(1) of the Central Excise Act, 1944. However, the Tribunal found that the demand of duty was unsustainable as it related to non-existent goods that were never manufactured or cleared by M/s. SGMCPL.

Imposition of Penalties:
The impugned order imposed penalties under various sections and rules on M/s. SGMCPL and other appellants. However, since the fraudulent activities were not done with the intent to evade duty payment, the Tribunal set aside the penalties imposed on all the appellants.

Sustainability of the Impugned Order:
The Tribunal found that the impugned order was not sustainable as it demanded duty on non-existent goods and denied Modvat credit based on the lack of manufacturing activity by M/s. SGMCPL. The demand of duty was set aside, while the denial of Modvat credit was upheld. The appeals of the present appellants were allowed, setting aside the impugned order in their regard.