2009 (9) TMI 951 - AT - Central Excise

Waiver of pre-deposit - penalty u/r 25 (1)(b) and (d) - clandestine manufacture and removal - fake invoices - demand of duty with interest and penalties.

Summary

Issues Involved:
1. Whether the duty-paid goods procured by the dealers can be treated as excisable goods.
2. The meaning and scope of "dealing in goods" and whether possession is necessary.
3. Applicability of Rule 25 for imposing penalties on dealers and manufacturers issuing invoices without supplying goods.
4. Liability of registered manufacturers for duty on goods cleared using Cenvat credit.
5. Validity of invoices issued without supplying goods for taking and passing on Cenvat credit.
6. Impact of Settlement Commission decisions on earlier transactions.
7. Imposition of penalties on directors, partners, proprietors under Rule 26 prior to its amendment.

Detailed Analysis:

1. Excisable Goods:
The term "excisable goods" includes goods specified in the Central Excise Act subject to duty. The duty-paid goods procured by dealers and manufacturers, who took Cenvat credit, are considered excisable goods. This imposes an obligation to account for the receipt, storage, and disposal of such goods.

2. Dealing in Goods:
"Dealing in goods" includes activities beyond physical possession, such as purchasing or selling. The dealers who diverted goods to the grey market and issued invoices without supplying goods were held to have dealt with the goods. The issuance of invoices for passing on Cenvat credit is considered dealing with goods "in any other manner."

3. Rule 25 Penalties:
The registered dealers and manufacturers who issued invoices without supplying goods rendered the goods liable for confiscation under Rule 25. Their actions justified penalties under Rule 25 of the Central Excise Rules, 2002.

4. Liability of Registered Manufacturers:
Manufacturers like M/s United Chain Industries and M/s Kay Iron Works, who availed credit on inputs without receiving goods, were liable to pay back the irregularly taken credit along with interest. They were also subject to penalties under Rule 13(2) of the CENVAT Credit Rules, 2001/2002, Rule 15(2) of the CENVAT Credit Rules, 2004, and Section 11AC of the Central Excise Act, 1944.

5. Validity of Invoices:
Invoices issued without actual supply of goods are invalid for taking and passing on Cenvat credit. The fraudulent issuance of such invoices by dealers and manufacturers led to the denial of credit and imposition of penalties.

6. Impact of Settlement Commission Decisions:
The Settlement Commission's decisions for ultimate users do not affect the liability of earlier parties (dealers and manufacturers). Each party's offense is considered separately, and the settlement by ultimate users does not waive the duty payable by manufacturers at earlier stages.

7. Penalties under Rule 26:
Penalties under Rule 26 can be imposed on individuals involved in dealing with goods liable for confiscation. However, penalties on proprietors of proprietary concerns were set aside as the concern and proprietor are not distinct entities. Penalties on brokers and commission agents were also set aside as their roles did not attract Rule 26 before its amendment. For directors and other individuals, penalties were reduced considering their roles and the penalties imposed on their respective companies.

Judgment:
- Appeals by M/s United Chain Industries and M/s Kay Iron Works were rejected.
- Appeals by various dealers were rejected.
- Appeals by proprietors and brokers were allowed.
- Penalties on directors and other individuals were partly allowed with reduced penalties.
- Stay petitions were disposed of.