2011 (3) TMI 966 - AT - Central Excise

Duty and interest under section 11AB - Shortage of final products namely, waste and scrap - The fact that finished goods were supplied to Railways also does not prove his bonafides - In the first place the Appellant could have procured sub-standard raw material from non-duty paying sectors and thus cheated the Railways also in the matter of quality - It is also possible that the raw material is shown to be procured without actually procuring any such material and final products were manufactured from raw material from proper sources but excess raw material and credit are shown based on the basis of fraudulent invoices - For deciding the fraud in question the only relevant issue is that the supplier was not having such material on the date of supply. This position is not contested - Since this is a case of fraud the extended time under section 11A of the Act for demanding the duty evaded, applies

Summary

Issues:
1. Shortage of final products involving Central Excise duty
2. Recovery of Cenvat credit based on invoices from unapproved suppliers
3. Adjudication leading to confirmation of duty elements, interest, and penalties
4. Appellant's contentions regarding shortage of goods, invoice specifications, Cenvat credit denial, possession of valid invoices, and invoking extended period for demand
5. Department's argument of fabricated invoice, fraud in credit invoices, and rejection of appellant's contentions
6. Decision on the appeal and provision for payment opportunity as per Delhi High Court ruling

Shortage of Final Products:
The Appellant, a manufacturer of Elastic Rail Clip for Indian Railways, faced a surprise check revealing a shortage of final products involving Central Excise duty. The Appellant claimed the shortage was cleared later, but the department disputed the clearance, leading to a show cause notice for duty evasion.

Recovery of Cenvat Credit:
Further investigations uncovered that the Appellant had taken credit based on invoices from unapproved suppliers, raising concerns about the authenticity of the raw material sources. A Show Cause Notice was issued to recover Cenvat credit taken on such invoices, leading to penalties under the Cenvat Credit Rules, 2004.

Adjudication and Appeal:
The adjudication resulted in the confirmation of duty elements, interest, and penalties, which the Commissioner (Appeal) upheld, prompting the Appellant to appeal before the Tribunal challenging the adjudication order.

Appellant's Contentions:
The Appellant argued against the demand, citing payment of duty for the goods found short, correct invoice specifications, necessity of raw material for final products supplied to Railways, possession of valid invoices, and contesting the extended period for demand under the Central Excise Act.

Department's Argument:
The department contended that the Appellant's claims were fabricated, highlighting the fraudulent nature of invoices for credit, lack of stock with suppliers, and invoking the extended period for demanding duty evaded due to fraudulent practices.

Decision and Payment Opportunity:
The Tribunal rejected the Appellant's arguments, citing inconsistencies and fraudulent practices. However, in line with a Delhi High Court ruling, the Appellant was granted an opportunity to pay the dues within a specified period to partially allow the appeal, failing which the original order would stand.

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