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2017 (4) TMI 1325 - AT - Central ExciseCENVAT credit - fake invoices - Clandestine removal - shortage of 45.102 MT of final product - penalty - whether the CESTAT was justified in law in rejecting the appeal filed by the Appellant/ Revenue against the Respondent/ Assessee, who availed CENVAT credit on the basis of invoices issued by M/s M. K. Steels Pvt. Ltd., Kolkata as sequel to an enquiry and fake nature of the said invoices was proved and M/s Sarala Ispat (P) Ltd., Durgapur, who were mentioned to be the manufacturer of goods in the said invoices was found to be non-existent? - Rules 3, 9(3) & 7 of the Cenvat Credit Rules, 2004. Held that - it is not disputed by the Revenue that appellant, M/s JRW did receive the inputs. What is disputed is that the invoices, accompanying the inputs and the Cenvat showed therein is doubtful and/or fraudulent. Appellant, M/s JRW have also lead evidence of usage of road permits i.e. for transportation of goods. The road permits are pre-authenticated documents issued by the Trade Tax Department and appellant is required to keep proper records of their usage. The appellant also filed copy of road permit issued by M/s KE to -M/s M. K. Steels Pvt. Ltd for transport of MS Ingots in question. Further, the appellants have lead evidence that payment for the purchase of input was made by cheque - the appeal filed by M/S JRW and its Authorized Signatory, Harpinder Singh is allowed. Facts are similar to the case of Commissioner of Customs, Central Excise & Service Tax Versus Juhi Alloys Ltd. 2014 (1) TMI 1475 - ALLAHABAD HIGH COURT , where it was held that The goods were demonstrated to have travelled to the premises of the assessee under the cover of Form 31 issued by the Trade Tax Department, and the ledger account as well as the statutory records establish the receipt of the goods. In such a situation, it would be impractical to require the assessee to go behind the records maintained by the first stage dealer. Penalty on Mr. Neeraj Agarwal & Authorized Signatory - M/s Kartikey Enterprises - Held that - they have been party to the fraud in passing the illegitimate Cenvat credit in collusion with the said Mr. Mukesh Agarwal and the three trading firms, namely; M/s M. K. Steels, M/s U.K. Ispat & M/s Shree Hanuman Trading Company. All these three traders had their business premises, at Kolkata/Howrah - penalties confirmed. Appeal allowed in part.
Issues Involved:
(i) Whether Cenvat credit amounting to ?27,07,106/- has been rightly disallowed to appellant M/s JRW, Kanpur. (ii) Whether duty amounting to ?1,29,179/- has been rightly held liable or leviable for the alleged shortage of 45.102 MT of the final product. (iii) Whether penalties imposed on all the appellants are sustainable. Issue-wise Detailed Analysis: 1. Disallowance of Cenvat Credit: The core issue revolves around whether the Cenvat credit amounting to ?27,07,106/- was rightfully disallowed to M/s JRW. The Department conducted an investigation and found that M/s JRW had received M.S. Ingots from M/s KE, who in turn procured them from three dubious traders: M/s M.K. Steels, M/s U.K. Ispat, and M/s Shree Hanuman Trading Company. These traders were found to have issued fake invoices, and the credit of Central Excise duty mentioned in these invoices was not paid to the government. The Department concluded that M/s JRW failed to take reasonable steps to ensure the authenticity of the duty-paid nature of the goods as mandated by Rule 7(2) & Rule 7(4) of Cenvat Credit Rules, 2002 read with Rule 9(3) & 9(5) of Cenvat Credit Rules, 2004. The Additional Commissioner and the Commissioner (Appeals) upheld the disallowance of Cenvat credit, emphasizing that M/s JRW showed extreme carelessness or collusion in verifying the authenticity of the dealers and the duty-paid nature of the goods. 2. Duty Liability for Shortage of Final Product: The second issue pertains to the duty amounting to ?1,29,179/- for the alleged shortage of 45.102 MT of the final product. During the inspection, the final product was found short by this quantity, and the Authorized Signatory of M/s JRW admitted that these products were cleared without entering them in the records. Consequently, the duty was held recoverable. 3. Penalties Imposed: The third issue is the sustainability of penalties imposed on the appellants. Penalties were imposed on M/s JRW, its Authorized Signatory Harpinder Singh, Mr. Neeraj Agarwal (Authorized Signatory of M/s KE), and M/s KE under various sections and rules. The Department argued that the appellants were part of a conspiracy to pass illegitimate Cenvat credit using fake invoices. The Commissioner (Appeals) confirmed the penalties, stating that M/s JRW and M/s KE were aware of the fraudulent nature of the transactions. Tribunal's Findings: The Tribunal considered the rival contentions and referred to the case of Juhi Alloys Ltd., where it was held that an assessee taking Cenvat credit on inputs should take reasonable steps to ensure the duty-paid nature of the goods. In the present case, the Tribunal found that M/s JRW did receive the inputs and made payments by cheque, similar to the facts in Juhi Alloys Ltd. The Tribunal allowed the appeal of M/s JRW and its Authorized Signatory Harpinder Singh, finding that they took reasonable steps and acted with due diligence. However, the Tribunal dismissed the appeals of Mr. Neeraj Agarwal and M/s KE, confirming the penalties. It was found that they were part of the fraud in passing illegitimate Cenvat credit in collusion with the three dubious trading firms. Conclusion: - Appeals of M/s JRW and its Authorized Signatory Harpinder Singh were allowed. - Appeals of Mr. Neeraj Agarwal and M/s Kartikeya Enterprises were dismissed, and penalties were confirmed. (Dictated and pronounced in Court)
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