2006 (1) TMI 274 - AT - Central Excise

Penalty imposed upon the manufacturers along with imposition of personal penalties of varying amounts on other appellants in terms of the provisions of Rule 26 - Cenvat/Modvat on inputs - Demand - Limitation - Extended period - HELD THAT - In the present case the manufacturers being in the knowledge of the fact that the credit was traveling only on the basis of the invoice without actual travel of the inputs is established from the statements of the various persons recorded during the course of investigation. As such we do not find any force in the appellants plea of the demand being barred by limitation. It is further seen that in the said decision of IDL Chemicals Ltd.R 1996 (7) TMI 337 - CEGAT CALCUTTA . The Tribunal observed that the credit taken on the basis of the fake and non genuine duty paying documents is required to be reversed. Accordingly we are of the opinion that the reversal of credit by M/s. AIA Engineering Pvt. Ltd. and Bhagwati Autocast Ltd. is justified. However we find that the said reversal was made by the appellants during the course of investigation itself except by M/s. Bhagwati Autocast Ltd. Taking all these facts into account we reduce the penalties on the said three appellants to Rs. 2 lakhs each (Rupees two lakhs only). Penalties imposed upon the other appellants under the provisions of Rule 26 we find that the appellants reliance on the Tribunal decision in the case of Ruby Impex v. Commissioner of Central Excise 2004 (7) TMI 165 - CESTAT NEW DELHI as appropriate. In terms of the said decision provisions of Rule 209A cannot be invoked for imposition of penalty when the dealers have not physically dealt with the goods and there are no goods involved which are liable to confiscation. Ld. Advocate contends that the provisions of Rule 26 of Central Excise Rules 2002 are pari materia to Rule 209A of the erstwhile Central Excise Rules. Admittedly there are no goods involved which are liable to confiscation inasmuch as the Revenue s own case is that the no inputs were supplied under the cover of the invoices. In the said scenario the above decision of the Tribunal is fully applicable. We accordingly set aside the penalties imposed upon the other appellants under the provisions of Rule 26 of Central Excise Rules. All the appeals disposed of in above terms.

Summary

Issues:
Denial of Modvat credit, imposition of personal penalties, fraudulent issuance of invoices, denial of credit based on non-receipt of duty paid inputs, applicability of Tribunal decisions, reversal of credit, penalties under Rule 26 of Central Excise Rules.

Analysis:
The judgment by the Appellate Tribunal CESTAT, Mumbai pertains to multiple appeals against the denial of Modvat credit by the Commissioner of Central Excise Ahmedabad. The manufacturing units were accused of availing Modvat credit based on invoices from dealers without actually receiving the inputs, leading to the imposition of personal penalties under Rule 26 of Central Excise Rules, 2001 and 2002.

Upon investigation, it was discovered that a factory involved in trading activities of Iron and Steel scrap had colluded with registered dealers to issue fraudulent invoices, facilitating buyers to avail Modvat credit without actual supply of goods. The invoices issued contained vehicle numbers incapable of transporting materials, indicating malpractice. The manufacturing units involved were found to have received scrap different from what was invoiced, with knowledge of the fraudulent activities.

The Tribunal rejected the appellants' reliance on previous decisions, stating that the credit availed without actual receipt of duty paid inputs was not acceptable. The judgment highlighted that the manufacturers were aware of the fraudulent transactions and had reversed the credit during the investigation. Consequently, penalties were reduced for some appellants who reversed the credit promptly.

Regarding penalties imposed under Rule 26, the Tribunal referred to a relevant decision stating that penalties cannot be imposed when no physical goods are involved or liable for confiscation. As the Revenue confirmed that no inputs were supplied under the invoices, the penalties under Rule 26 were set aside for the other appellants. The judgment concluded by disposing of all appeals based on the above analysis and considerations.

In summary, the judgment addressed issues of fraudulent credit availing, denial of credit based on non-receipt of inputs, applicability of Tribunal decisions, reversal of credit, and penalties under Rule 26 of Central Excise Rules, providing a detailed analysis of the circumstances and legal principles involved in each issue.