2010 (10) TMI 398 - AT - Central Excise

Waiver of pre-deposit - Bogus manufacture - Cenvat credit - The appellant during the period from April 2003 to December 2005 they took Cenvat credit on the basis of the invoices for purchase of HR coils from SAIL, but instead of using those HR coils in their factory for manufacture of CR strips, the HR coils were sold as such, and only bogus manufacture of CR strips was shown in their records and thereafter the sale of CR strips was shown to various customers under their invoices, without actually selling any material and thereby enabling the so called buyers of CR strips to take Cenvat credit on the basis of such bogus invoices - Held that the appellant have not been able to establish prima facie case in their favour and as such it is the Department which has a strong case against them. As regards the conduct of the appellants, the nature of the allegations against them, which prima facie appear to be supported by concrete evidence on record, are of very serious nature and amount to a massive fraud - Decided against of assessee. Waiver of pre-deposit - demand from units engaged in slitting - The units engaged in slitting of the HR coils which had been done by them in respect of the HR Coil received by them from the appellant - It is not the allegations of the department that it is they who are involved in the illicit sale of the HR coils in respect of which Cenvat credit has been taken by the appellant - Held that the requirement of pre-deposit the penalty imposed on them for hearing of their appeals would cause undue hardship - Accordingly, the pre-deposit of penalty of them is waived and the recovery thereof stayed.

Issues Involved:
1. Waiver of pre-deposit of Cenvat credit demand.
2. Confirmation of Cenvat credit demand and penalties.
3. Alleged fraudulent activities by the appellants.
4. Admissibility of statements recorded under Section 14 of the Central Excise Act.
5. Prima facie case and undue hardship.

Detailed Analysis:

1. Waiver of Pre-deposit of Cenvat Credit Demand:
The appellants sought a waiver from the requirement of pre-deposit of Cenvat credit demand amounting to Rs. 12,13,66,764/- along with interest and penalties. The tribunal examined whether the appellants could be granted waiver under the first proviso to Section 35F of the Central Excise Act, which allows for dispensing with the pre-deposit if it causes undue hardship and if conditions are imposed to safeguard the revenue.

2. Confirmation of Cenvat Credit Demand and Penalties:
The Commissioner of Central Excise, Ghaziabad, confirmed the Cenvat credit demand of Rs. 12,13,66,764/- against Appellant No. 1 along with an equivalent penalty under Section 11AC of the Central Excise Act. Additionally, penalties were imposed on Appellant Nos. 2, 3, 4, and 5 under Rule 26 of the Central Excise Rules, 2002.

3. Alleged Fraudulent Activities by the Appellants:
The appellants were accused of taking Cenvat credit on HR coils without using them in the manufacture of CR strips. Instead, the HR coils were allegedly sold outside, and the production and sale of CR strips were falsely shown in records. The investigation revealed that during the period from December 2002 to December 2005, the appellants did not have an electricity connection and the available generators were insufficient to run the rolling mills, suggesting no manufacturing activity occurred.

4. Admissibility of Statements Recorded under Section 14 of the Central Excise Act:
The statements of Shri Yashpal Sharma, Dy. G.M. of Appellant No. 1, and Shri Upender Goel, Director of Appellant No. 1, recorded under Section 14 of the Central Excise Act, were considered admissible evidence. These statements indicated that there was no production of CR coils during the disputed period, and the sales shown were bogus. The tribunal noted that these statements were not retracted and thus held significant evidentiary value.

5. Prima Facie Case and Undue Hardship:
The tribunal assessed whether the appellants had established a prima facie case and whether the pre-deposit would cause undue hardship. Given the serious nature of the allegations and the evidence supporting the department's case, the tribunal found that the appellants did not establish a prima facie case. Consequently, the tribunal directed Appellant No. 1 to deposit Rs. 12,00,00,000/- within eight weeks. Upon compliance, the requirement of pre-deposit of the balance amount of Cenvat credit, interest, and penalties for Appellant Nos. 1, 2, and 3 would be waived, and recovery stayed till the disposal of the appeals.

Separate Judgments for Appellant Nos. 4 and 5:
The tribunal found that Appellant Nos. 4 and 5, who were involved in slitting HR coils, were not directly implicated in the alleged fraudulent activities. Therefore, the requirement of pre-deposit of penalties for these appellants was waived, and recovery stayed till the disposal of their appeals.

Conclusion:
The tribunal's decision balanced the need to safeguard revenue with the appellants' claim of undue hardship. While a significant pre-deposit was required from Appellant No. 1, the penalties for Appellant Nos. 4 and 5 were waived, reflecting the varying degrees of involvement and evidence against the parties.

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