2011 (7) TMI 437 - AT - Central Excise

Clandestine removal - Search and seizure - Reversal of credit - Rule 26 of the Central Excise Rules 2002 - illegal diversion of goods in the name of job work - held that - substantial quantity of CP1725G resin had been illicitly diverted under the guise of job work challans for M/s Tanishq. Confiscation Interest and penalty - Held that - Under Rule 15(1) of Cenvat Credit Rules 2004 any inputs or capital goods in respect of which cenvat credit has been taken wrongly shall be liable for confiscation. In this case the illicitly diverted CP1725G resin would be liable for confiscation under this rule as in respect of this illicitly diverted resin cenvat credit had been wrongly taken. - Confiscation with interest and penalty upheld.

Summary

Issues Involved:
1. Illicit diversion of CP 172 SG resin by M/s Natraj Plast Pvt. Ltd.
2. Use of CP 172 SG resin for manufacturing PVC Tapes and PVC Filler Cord.
3. Wrongful availing of Cenvat credit by M/s Natraj.
4. Imposition of penalties on M/s Natraj, its directors, and associated entities.

Detailed Analysis:

1. Illicit Diversion of CP 172 SG Resin by M/s Natraj Plast Pvt. Ltd.

The primary issue was whether M/s Natraj Plast Pvt. Ltd. illicitly diverted CP 172 SG resin, which was supposed to be used in manufacturing PVC products. The investigation revealed that M/s Natraj purchased 1102.715 MT of CP 172 SG resin from M/s Chemplast Sanmar but only used a small portion (104.01 MT) in manufacturing PVC Filler Cord. The remaining quantity was allegedly sold without invoices to various entities, including M/s Aditya Plastics and M/s Mukesh Industries, without reversing the Cenvat credit. This illicit diversion was corroborated by statements from various individuals, including Shri Dinesh Gupta, Director of M/s Natraj, and other involved parties.

2. Use of CP 172 SG Resin for Manufacturing PVC Tapes and PVC Filler Cord

M/s Natraj claimed that CP 172 SG resin was used in manufacturing PVC Filler Cord and PVC Tapes. The department accepted the use of CP 172 SG resin in PVC Filler Cord but disputed its use in PVC Tapes. The department's conclusion was based on test reports from CIPET, which showed differences in the properties of PVC Tapes manufactured using CP 172 SG resin under supervision and those supplied to M/s Motherson Sumo. The Tribunal, however, accepted M/s Natraj's argument that differences in physical properties could arise due to variations in thickness and testing methods, thereby giving them the benefit of doubt for using 230.72 MT of resin in PVC Tapes.

3. Wrongful Availing of Cenvat Credit by M/s Natraj

M/s Natraj was found to have availed Cenvat credit on CP 172 SG resin without properly accounting for its use. The Tribunal upheld the department's finding that 768.03 MT of CP 172 SG resin was illicitly diverted, and M/s Natraj was liable to pay the Cenvat credit along with interest on this quantity. The Tribunal also upheld the imposition of penalties under Rule 15(2) of the Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944.

4. Imposition of Penalties on M/s Natraj, Its Directors, and Associated Entities

Penalties were imposed on various parties involved in the illicit diversion:
- M/s Natraj: Penalty under Rule 15(2) of the Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944, was upheld.
- Shri Dinesh Gupta: Penalty was reduced from Rs. 50 lakhs to Rs. 15 lakhs under Rule 26 of the Central Excise Rules, 2002.
- Shri Gaurav Gupta: Penalty was set aside as there was no evidence of his involvement.
- M/s Tanishq: Penalty under Rule 26 of the Central Excise Rules, 2002, was upheld.
- M/s Aditya Plastics and M/s Mukesh Industries: Penalties under Rule 26 of the Central Excise Rules, 2002, were upheld.

Conclusion

The Tribunal upheld the department's findings regarding the illicit diversion of CP 172 SG resin and wrongful availing of Cenvat credit by M/s Natraj. Penalties were imposed on the involved parties, with some modifications. The matter was remanded to the adjudicating authority for re-determination of the quantum of Cenvat credit and penalties. The appeals were disposed of accordingly.