2013 (4) TMI 30 - AT - Central Excise

Stay - Cenvat Credit - Fraud - Department is of the opinion that the appellants has done a well-organized fraud under which invoices are issued without actually supplying any material, on the basis of which appellant have availed Cenvat credit. The department, therefore, issued a show cause notice seeking recovery of the allegedly wrongly taken Cenvat credit alongwith interest, imposition of penalty on appellant under Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 and also for imposition of penalty under Rule 26 of the Central Excise Rules, 2002. Held that - In view of these circumstances, though the show cause notice issued to appellant by then Commissioner, Central Excise, Jammu is still pending adjudication, probability is more that the allegation against appellant of issuing bogus invoices is correct, as at this prima facie stage for deciding the question of dispensation from the requirement of pre-deposit under Section 35F, the question which has to be decided is as to whether the evidence on record indicates the likelihood of the allegations of the duty evasion being upheld and if there is slightest risk to the Revenue, the dispensation from the provisions of Section 35F should not be given and if it has to be given the stiff conditions have to be imposed to safeguard the interests of the Revenue. If the allegation against appellant of having issued bogus invoices are proved, the allegations against other appellant of having availed Cenvat credit in a fraudulent manner would also stand proved. In view of these circumstances, we are of the view that this is not the case for total waiver.

Issues Involved:
1. Allegation of fraudulent Cenvat credit availed by SMI Electrowire Pvt. Ltd.
2. Allegation of VKM issuing bogus invoices without actual supply of goods.
3. Imposition of penalties on various appellants including SMI, its Director and Accountant, transporters, and job workers.
4. Requirement of pre-deposit for stay of recovery during the pendency of appeals.

Issue-wise Detailed Analysis:

1. Allegation of fraudulent Cenvat credit availed by SMI Electrowire Pvt. Ltd.:
The appellant, SMI Electrowire Pvt. Ltd., was engaged in the manufacture of copper wire and availed Cenvat credit amounting to Rs. 90,63,027/- during 2005-2006 based on invoices issued by VKM for the supply of copper ingots. The department alleged that SMI fraudulently availed this credit without actually receiving any material, based on bogus invoices from VKM. The Commissioner confirmed the Cenvat credit demand along with interest and imposed an equal amount of penalty on SMI under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

2. Allegation of VKM issuing bogus invoices without actual supply of goods:
The department's inquiry revealed that VKM did not manufacture or supply any copper ingots and only issued bogus invoices. Statements from VKM's authorized signatory and other evidence indicated that no production took place at VKM's factory, and the invoices were issued without any actual supply of goods. VKM, located in a notified exempted area in J&K, availed duty exemption under Notification No. 56/2002-CE, and the department alleged that VKM issued invoices to enable other manufacturers to avail bogus Cenvat credit.

3. Imposition of penalties on various appellants including SMI, its Director and Accountant, transporters, and job workers:
Penalties were imposed on various appellants based on their alleged involvement in the fraudulent scheme. SMI's Director and Accountant were penalized under Rule 26 of the Central Excise Rules, 2002. Penalties were also imposed on the transport companies (KKR and UGT) and job workers (M/s Ganpati and JVI) for their alleged roles in the scheme. The appellants argued that the proceedings were premature as the show cause notice against VKM was still pending adjudication and there was no conclusive evidence of bogus invoices.

4. Requirement of pre-deposit for stay of recovery during the pendency of appeals:
The Tribunal considered the requirement of pre-deposit under Section 35F of the Central Excise Act, 1944, which mandates pre-deposit of the duty demanded or the penalty levied unless it causes undue hardship. The Tribunal evaluated whether the appellants had a prima facie case and the balance of convenience. Considering the evidence on record and the seriousness of the allegations, the Tribunal directed the appellants to deposit specific amounts as pre-deposit within eight weeks, failing which the appeals would not be entertained. Upon compliance, the requirement of pre-deposit of the balance amount of Cenvat credit demand, interest, and penalties would be waived, and recovery stayed till the disposal of the appeals.

Conclusion:
The Tribunal, after evaluating the evidence and submissions, directed the appellants to make pre-deposits to safeguard the revenue's interest while considering the appeals. The decision emphasizes the importance of prima facie evidence and the balance of convenience in granting waivers from pre-deposit requirements.

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