2010 (10) TMI 1004 - AT - Central Excise

Summary

Issues:
Imposition of penalty under Section 11AC of the Central Excise Act, 1944 based on issuance of fake cenvatable invoices and availing inadmissible Cenvat credit.

Analysis:
The case involved appeals against the imposition of penalties under Section 11AC of the Central Excise Act, 1944 on the basis of fake cenvatable invoices issued by M/s. Ganpati Trade Link. The investigation revealed that M/s. Satish Metal Works (SMW) and M/s. Friends Enterprises (FE) admitted to purchasing these fake invoices and passing on cenvatable invoices to the appellants. A show cause notice was issued against the appellants for appropriation of demand and imposition of penalty under relevant rules. The appellants contended that they were unaware of the fraudulent nature of the invoices as they received goods through SMW/FE and discharged their duty liability using account payee cheques. They argued that no fraud or collusion could be attributed to them as they had received goods against duty paid invoices.

The advocate for the appellants emphasized that the appellants had availed Cenvat credit on duty paid invoices in good faith and had no knowledge of the fraudulent scheme orchestrated by M/s. Ganpati Trade Link. The appellants maintained that they had received goods through legitimate channels and had fulfilled their duty obligations accordingly. They argued that since there was no evidence of their involvement in the fraud, penalties should not be imposed on them.

On the other hand, the Departmental Representative (DR) contended that the appellants were aware of the fraudulent activities of M/s. Ganpati Trade Link as admitted by SMW/FE. The DR argued that since the appellants had availed credit based on fake invoices, they were liable for reversal of credit with interest. The DR cited a Supreme Court decision to support the position that in cases of proven fraud, penalties are justified.

After hearing both sides, the Member (J) of the Appellate Tribunal examined the facts and submissions. It was noted that the appellants did not dispute the reversal of credit with interest but sought waiver of the imposed penalties. The Tribunal found that the appellants had taken proper care in receiving goods and availing credit correctly based on legitimate documents. The suppliers, SMW/FE, confirmed supplying goods to the appellants with duty paid invoices, further supporting the appellants' position. Consequently, the Tribunal concluded that no fraud or collusion could be attributed to the appellants, and therefore, penalties were not justified. The impugned orders confirming penalties were set aside, and the appeals were allowed.