2009 (3) TMI 749 - AT - Central Excise

Issues Involved:
1. Fraudulent availment and utilization of Modvat credit.
2. Validity of Modvat credit based on incorrect vehicle registration numbers.
3. Reliance on retracted statements and subsequent submissions.
4. Imposition of penalties and confiscation of goods.
5. Previous Tribunal decision on penalty imposition.

Issue-wise Detailed Analysis:

1. Fraudulent Availment and Utilization of Modvat Credit:
The Revenue alleged that the assessee availed and utilized Modvat credit of Rs. 2,74,164/- on brass/copper scrap purchased from the open market without proper central excise duty documents. The assessee allegedly obtained fraudulent modvatable invoices from registered dealers, substituting the same against the purchases for manufacturing brass sheets and circles. The Joint Commissioner of Central Excise disallowed this Modvat credit under Rule 57-I(1) of the Central Excise Rules, 1944, and imposed equivalent penalties. The Commissioner (Appeals) later set aside this order, but the Tribunal found that the Department had established that the vehicles mentioned in the duty documents could not carry the goods, indicating fraudulent intent to avail Modvat credit.

2. Validity of Modvat Credit Based on Incorrect Vehicle Registration Numbers:
The Department's investigation revealed that vehicles listed in the invoices had carried goods exceeding their capacity, as per R.T.O. certification. Some vehicles were even two-wheelers, incapable of transporting the quantities mentioned. The Commissioner (Appeals) erred by accepting the Modvat credit to the extent of the loading capacity of the vehicles. The Tribunal emphasized that the entire amount of Modvat credit was inadmissible since the material was never received, and the registered dealers had issued invoices without supplying the goods.

3. Reliance on Retracted Statements and Subsequent Submissions:
The Commissioner (Appeals) relied on retracted statements and subsequent submissions by the assessee, which were considered afterthoughts. The Tribunal noted that the statements were retracted without supporting evidence and emphasized that the Department had not verified the subsequent information provided by the assessee. The Tribunal held that the Department's reliance on the original statements and the evidence of incorrect vehicle numbers was justified, and the assessee's explanations were not credible.

4. Imposition of Penalties and Confiscation of Goods:
The Joint Commissioner had imposed various penalties and ordered the confiscation of brass scrap. The Tribunal upheld the recovery of the fraudulently availed Modvat credit along with interest and imposed an equivalent penalty under Rule 57-I(4). However, the Tribunal ruled that a separate penalty under Rule 173Q was not imposable once a penalty under Rule 57-I(4) was imposed. Additionally, penalties on the partners of the assessee under Rule 209A were deemed unsustainable, following the Bombay High Court's judgment in Commissioner of Customs (EP) v. Jupiter Exports. The confiscation of brass scrap and its redemption on payment of fine was upheld.

5. Previous Tribunal Decision on Penalty Imposition:
The Tribunal referenced a previous decision where the penalty on Shri K.T. Nagar, a registered dealer, was confirmed. The Tribunal had earlier set aside the Commissioner (Appeals) order that had exonerated Shri Nagar, affirming that the issuance of duty-paying documents without dispatching physical stock constituted a valid basis for imposing penalties.

Conclusion:
The Tribunal partially allowed the Revenue's appeal, modifying the Commissioner (Appeals) order. The Modvat credit of Rs. 2,74,164/- was recoverable with interest, and an equivalent penalty was imposed. Separate penalties on the partners were not sustainable, and the confiscation of brass scrap was upheld. The Tribunal's decision emphasized the necessity of corroborative evidence and the inadmissibility of Modvat credit based on fraudulent documentation.

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