2011 (3) TMI 1127 - AT - Central Excise

Cenvat credit reversal - Appellant was not having a factory at the address shown in ER-1 return after 2.11.2004 was detected by the department on 25-05-2005 during a surprise visit - Held that - Manufacturer operated from a factory not in existence at the relevant time, took cenvat credit, filed ER-1 return showing the address of such factory and claimed during investigation that he got the goods manufactured in an un-registered unit so the credit availed and passed on to the next stage of manufacture is basically fraudulent - It would have been desirable if the SCN detailed how much duty was paid through cash and how much duty was paid through the fraudulent credit - But this aspect does not strike at the root of the SCN because if any part of the duty has been paid through cash and that has been passed on to the next stage, it is not a matter of concern for the revenue - Further the violations of rules pointed out in the SCN are good enough reasons to deny the credit availed and passed on to the next stage through invoices issued from a factory which was not in existence - Decided against the assessee.

Summary

Issues:
1. Availment of Cenvat Credit after the sale of factory.
2. Disallowance of Cenvat Credit and imposition of penalties.
3. Compliance with Cenvat Credit Rules and manufacturing process.
4. Adjudication order and Commissioner (Appeal) findings.
5. Applicability of case laws to the current situation.

Issue 1: Availment of Cenvat Credit after the sale of factory
The Appellant had a factory which was sold, but they continued to file ER-1 returns showing activities at the old factory address. The department discovered this discrepancy during a visit. The Appellant claimed that they sent inputs for job-work to another unregistered unit, contesting the lack of duty demand on finished goods as evidence of no excise duty evasion.

Issue 2: Disallowance of Cenvat Credit and imposition of penalties
A Show Cause Notice was issued for recovery of Cenvat Credit availed after the factory sale, along with penalties and interest. The Adjudicating Authority disallowed the credit, imposed penalties, and ordered interest recovery. A personal penalty was also imposed on the proprietor of another entity involved.

Issue 3: Compliance with Cenvat Credit Rules and manufacturing process
The Appellant argued procedural compliance under Cenvat Credit Rules, contesting the vagueness of the Show Cause Notice and lack of duty demand on finished goods. However, the authorities emphasized the absence of a registered factory, questioning the utilization of availed credit in manufacturing goods on which excise duty was paid.

Issue 4: Adjudication order and Commissioner (Appeal) findings
Both the Adjudicating Authority and the Commissioner (Appeal) upheld the disallowance of credit, emphasizing the fictitious nature of production due to the non-existent factory. The Commissioner (Appeal) rejected the appeal, highlighting non-compliance with Cenvat Credit Rules and the absence of proper manufacturing premises.

Issue 5: Applicability of case laws to the current situation
The Appellant cited various case laws to support their arguments, focusing on credit denial scenarios in different contexts. However, the authorities noted the unique circumstances of the case, where goods were claimed to be manufactured at an unregistered unit, leading to fraudulent credit utilization. The judgments in the cited cases were deemed inapplicable due to differing factual backgrounds.

In conclusion, the Appellate Tribunal upheld the lower authorities' decisions, emphasizing the fraudulent nature of availing and passing on Cenvat credit in a scenario where the factory was non-existent. The judgment highlighted the importance of compliance with rules and the consequences of utilizing credit in a misleading manner. The case serves as a cautionary example of the repercussions of misrepresentation in excise duty matters.