2015 (12) TMI 1668 - AT - Central Excise

Imposition of penalties - CENVAT credit availed on the basis of forged invoices - whether, penalty can be imposed on the appellants in the terms of Rule 15(1) and 15(2) ibid? - Held that - the conditions of Rule 3 ibid has not been violated in this case. The documents available in the case file show that the appellant was not aware of the fact regarding non-payment of Central Excise duty by the supplier of raw Bidis into the Central Government account - filing of FIR and lodgment of the criminal case by the appellant prove the fact that appellant was not aware of non-payment/deposit of the duty by the suppliers of goods and that based on the invoice / TR-6 Challan the cenvat credit was taken by it on receipt of the raw Bidis into the factory. Thus, malafides cannot be attributed to the appellants, justifying imposition of penalties - penalties set aside - the matter is remanded to the original authority for necessary verification of the actual cenvat credit involved in the case, which can be reversed by the appellant - appeal allowed by way of remand.

Summary

Issues:
1. Disallowance of cenvat credit based on forged invoices.
2. Imposition of penalties under Rule 15(1) and 15(2) of the Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Disallowance of cenvat credit based on forged invoices
The appellant, a manufacturer of H.M. Brand Bidi, availed cenvat credit using invoices from raw Bidi manufacturers in Orissa. An investigation revealed that between April 2003 to March 2008, the appellant had availed cenvat credit of Rs. 13,76,239 based on forged invoices. The Department issued a show cause notice seeking disallowance of the credit and penalties. The adjudication order disallowed the credit, confirmed the demand, and imposed penalties under Rule 15(1) and 15(2) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld the decision, reducing some penalties. The appellant contested the penalties, arguing lack of knowledge about the suppliers' non-payment of excise duty at the time of availing credit. The Tribunal considered evidence, including statements and documents, and found that the appellant was not aware of the non-payment by suppliers. The appellant had taken credit in good faith based on genuine documents. The Tribunal set aside the penalties imposed, emphasizing that malafides could not be attributed to the appellant.

Issue 2: Imposition of penalties under Rule 15(1) and 15(2) of the Cenvat Credit Rules, 2004
The Tribunal examined the statement recorded from Shri Ramesh Chand Joshi, the manager, under Section 14 of the Central Excise Act, 1944. The statement revealed that the appellant had followed proper procedures based on genuine documents like invoices and TR-6 Challans. Payments for raw Bidis were made through legitimate means like cheques, demand drafts, and cash. The appellant maintained detailed records of transactions. The Tribunal noted that the appellant had cooperated with authorities, filing an FIR and a complaint against the suppliers for fraudulent activities. This demonstrated the appellant's lack of knowledge about the suppliers' malpractices. Considering the evidence and circumstances, the Tribunal concluded that penalties under Rule 15(1) and 15(2) were unwarranted. The impugned order was set aside, and the matter was remanded for verification of the actual cenvat credit involved. The appeals were allowed, and penalties on the appellants were revoked.

This detailed analysis of the judgment highlights the issues, arguments presented by both sides, relevant legal provisions, and the Tribunal's findings, providing a comprehensive understanding of the case.