2009 (8) TMI 998 - Commissioner - Central Excise

Summary

Issues Involved:
1. Sustainability of Demand Against Appellant No. 1
2. Allegation of Collusion and Fraud
3. Liability for Duty Forfeited by Fraud
4. Sustainability of Penalty Against Appellant No. 2

Issue-Wise Detailed Analysis:

1. Sustainability of Demand Against Appellant No. 1
The records indicate that Appellant No. 1 received goods on invoices from trading firms under Form 48 (West Bengal Rules, 1995) and Form 31 (U.P. Trade Tax Department), evidencing physical entry of goods verified by the Trade Tax Department. The appellant recorded these goods in their statutory records, used them in manufacturing finished products, and cleared these products after paying central excise duty. Payments for these goods were made through cheques or drafts. The department's contention that Appellant No. 1 availed CENVAT credit without receiving goods was deemed untenable, as the department failed to prove that any alternative raw material was used.

2. Allegation of Collusion and Fraud
The impugned order suggested collusion and fraud by Appellant No. 1. However, it was noted that the appellant recorded the consignment in their statutory records and showed production of finished goods, which were cleared after paying central excise duty. The department did not provide tangible evidence to prove that the alleged inputs were not received or that any other raw material was used. The department also failed to show any financial gain resulting from the alleged collusion. Therefore, the allegation of collusion and fraud was not substantiated, and Appellant No. 1 was not liable for penal action.

3. Liability for Duty Forfeited by Fraud
According to CBEC Circular No. 766/82/2003-CX., dated 15-12-2003, if the manufacturer-supplier received payment from the buyer, action should be initiated against the manufacturer-supplier under Sections 11D and 11DD. The Hon'ble CESTAT in Bharav Exports v. CCE (2007) held that credit to appellants based on invoices issued by the input manufacturer is not deniable, but the department can confirm duty against those issuing bogus invoices. In this case, the bona fide of Appellant No. 1 was not challenged, and the main culprits were the trading firms. Therefore, the demand against duty forfeited by fraud should be confirmed against the trading firms, not Appellant No. 1.

4. Sustainability of Penalty Against Appellant No. 2
The adjudicating authority did not demonstrate how Appellant No. 2 was instrumental in contravening the provisions of the CENVAT Credit Rules, 2002/2004. The imposition of a penalty on Appellant No. 2 was considered patently wrong and illegal unless it was proven that the appellant had personal knowledge or reasonable belief that the goods were liable to be confiscated, as held in M/s. Bindu S. Mehta v. CCE, Rajkot (2000). Since the case against Appellant No. 1 was not established, the penalty imposed on Appellant No. 2 was not sustainable.

Conclusion:
The Order-in-Original No. 9-Jt.Commr/2009 dated 27-5-2009 was set aside. The appeals filed by M/s. Frontier Alloys Steels Ltd. and the Director of the firm, Shri Manu Bhatia, were allowed.