2011 (7) TMI 338 - AT - Central Excise

Penalty - Rule 13 of Cenvat Credit Rules, 2002, read with Section 11AC - Cenvat credit - fake invoices - the respondent has not made any effort to confirm the existence of supplier of goods and the person who issued/generated/prepared the invoices to verify the correctness of duty amount on the basis of which they availed the credit - The respondents never disclosed this fact but suppressed it - Therefore, the penalty to be imposed under Rule 15(2) as invoked in the show cause notice - Rule 15(2) is in pari-materia with Erstwhile Rule 57(1)(4) of the modvat scheme - Therefore order the restoration of penalty imposed by the original adjudicating authority as per para 2 of his order imposing penalty equivalent to the credit or by option avail benefit of 25% of penalty if they pay up the duty demanded along with the interest and the reduced penalty within 30 days - The Revenue s appeal is upheld accordingly.

Summary

Issues Involved:
- Availment of cenvat credit on fake invoices
- Imposition of duty, interest, and penalty
- Reduction of penalty on appeal
- Applicability of Rule 13(1) of Cenvat Credit Rules, 2004
- Argument of being a bonafide job worker
- Violation of Rule 7(2) of Cenvat Credit Rules, 2002
- Penalty imposition under Rule 15(2)
- Upholding of penalty by the original adjudicating authority

Analysis:

1. The case involved the appellant, engaged in the manufacture of processed manmade fabrics, who availed cenvat credit on invoices issued by non-existent suppliers, amounting to Rs.6,89,682. The original adjudicating authority confirmed the duty, imposed penalties, and ordered interest recovery. On appeal, the demand of duty and interest was confirmed, but the penalty was reduced. The Revenue contested this reduction, arguing that penalties should not be less than the central excise duty involved, especially in cases of fraud. The Revenue sought quashing of the Order-in-Appeal and restoration of the original order.

2. The respondents claimed to be bonafide job workers who trusted the merchant manufacturers. They received grey fabrics with excise invoices from traders, arguing they followed Rule 9(3) of Cenvat Credit Rules, 2002 by recording all transactions diligently.

3. The original adjudicating authority found that the appellant failed to verify the identity and address of the non-existent suppliers, contravening Rule 7(2) of Cenvat Credit Rules, 2002. The authority invoked penalties under Rule 13 of the Rules and Section 11AC of the Central Excise Act, 1944, for suppression of facts and contravention of provisions.

4. The Commissioner (Appeals) upheld the view that forged documents are null and void, and fraud cannot be ratified. The presence of a fictitious person on a fraudulent invoice vitiates the entire transaction involving the supply of goods.

5. The respondents made no effort to confirm the existence of the suppliers or verify the accuracy of duty amounts on invoices. This lack of due diligence and suppression of facts further strengthened the case against them.

6. Regarding penalty imposition under Rule 15(2), it was noted that the penalty should be based on available evidence, not the defense presented by the assessee. Citing a precedent, it was emphasized that penalties should align with the seriousness of the charges.

7. Ultimately, the Tribunal found in favor of the Revenue, upholding the restoration of the penalty imposed by the original adjudicating authority. The respondents were given the option to avail a reduced penalty by paying the duty demanded, interest, and the reduced penalty within 30 days.