2010 (6) TMI 704 - AT - Central Excise

Summary

Issues involved: Alleged fraudulent passing of Cenvat credit based on fake documents, liability of registered dealers and manufacturer, penalties imposed.

Summary:

Issue 1: Alleged fraudulent passing of Cenvat credit based on fake documents
The case involved M/s. Sulabh Impex Incorporation allegedly issuing fake invoices to registered dealers, who then passed on the credit to the manufacturer, resulting in a demand of Rs. 3,46,797/- under Rule 14 of Cenvat Credit Rule, 2004. The original authority confirmed the demand, along with penalties, which was upheld by the Commissioner on appeal.

Issue 2: Liability of registered dealers and manufacturer
The learned Advocate argued that the registered dealers were not aware of the fake nature of the documents and that the manufacturer should not be questioned for transactions between the importer and dealers. The Advocate also cited guidelines to support the claim that non-payment of duty by the supplier does not justify denying credit to bona fide purchasers. The SDR, however, contended that since the goods were never imported and the Bills of Entry were fake, the registered dealers were complicit in the fraud. The Tribunal found that while the manufacturer had taken credit based on fake documents, there was no evidence that the dealers and manufacturer were aware of the fraud, leading to the setting aside of penalties on the dealers.

Conclusion:
The Tribunal upheld the demand of duty along with interest for the manufacturer, M/s. G.L. Metallica (P) Ltd., while setting aside the penalty. The penalties on registered dealers M/s. Agarwal Products and M/s. Yash Industries were also set aside due to lack of evidence of their awareness of the fraudulent activities.