2006 (12) TMI 69 - AT - Central Excise

Cenvat/Modvat - Revenue contended that appellant utilised the wrong means in order to avail the credit and also to evade duty payment and accordingly demand were made along with penalty - Held that revenue contention was correct and allowed

Issues Involved:
1. Irregular availing of Modvat/Cenvat credit.
2. Description mismatch between received materials and invoices.
3. Admissibility of Cenvat credit based on duty payment.
4. Statements and evidences regarding the nature of scrap.
5. Limitation period for issuing show cause notice.
6. Penalty imposition under Rule 209A/Rule 26 of the Central Excise Rules.
7. Revenue's appeal against partial credit allowance by the Commissioner.

Detailed Analysis:

1. Irregular Availing of Modvat/Cenvat Credit:
The appellants were accused of irregularly availing Modvat/Cenvat credit on invoices issued by certain registered Central Excise dealers without actually receiving the materials covered by those invoices. The investigation revealed that the scrap described in the invoices did not match the actual scrap received.

2. Description Mismatch Between Received Materials and Invoices:
The scrap received by the appellants was described as stainless steel patta-patti in the invoices, but the actual materials included items like sheet cut ends, broken utensils, kitchen sinks, and chemical equipment. The proprietor of one dealer admitted that prime quality goods were sold to small fabricators, and the unutilized Cenvat credit was transferred to the appellants, who received locally procured bazaar scrap instead.

3. Admissibility of Cenvat Credit Based on Duty Payment:
The appellants argued that since the scrap was used for melting in the furnace, its physical appearance was immaterial as long as the chemical composition was correct. They contended that Cenvat credit should not be denied if the duty was paid on the scrap, regardless of any mismatch in description. However, the Tribunal found that the duty was paid on prime materials like patta-patti, not on the bazaar scrap actually received.

4. Statements and Evidences Regarding the Nature of Scrap:
The Tribunal noted that the appellants did not cross-examine the proprietor who admitted the mis-description of goods. Visual inspection reports by the appellants' representatives confirmed that the scrap received was not patta-patti but various other items. The Tribunal concluded that the appellants were aware of the mis-description and manipulated documents to avail of the credit.

5. Limitation Period for Issuing Show Cause Notice:
The appellants argued that the show cause notice was issued beyond the permissible period. However, the Tribunal held that the extended period was correctly invoked due to the appellants' suppression of facts with intent to evade duty. The Tribunal cited the Larger Bench decision in the case of Nizam Sugar Factory, which allows the extended period despite prior knowledge by the department.

6. Penalty Imposition Under Rule 209A/Rule 26 of the Central Excise Rules:
Penalties were imposed on the appellants under Rule 209A/Rule 26. The Tribunal reduced the penalty on the main appellant, M/s. Mukand Ltd., to Rs. 20 Lakhs, considering the circumstances. Penalties on other appellants were set aside as they did not physically deal with the goods liable to confiscation, following precedents in Godrej Boyce & Mfg. Co. Ltd. and Kamdeep Marketing Pvt. Ltd.

7. Revenue's Appeal Against Partial Credit Allowance by the Commissioner:
The revenue appealed against the Commissioner's decision to allow Cenvat credit to the extent of Rs. 11,01,266/-. The Tribunal agreed with the revenue, stating that verification by Central Excise officers is based on documents, not physical inspection. Therefore, the same reasoning for denying credit on other scrap applied, and the additional amount was also deemed irregularly availed.

Conclusion:
The Tribunal upheld the demand for Rs. 1,71,89,641/- against M/s. Mukand Ltd. and allowed the revenue's appeal, adding Rs. 11,01,266/- to the demand. The penalty on M/s. Mukand Ltd. was reduced to Rs. 20 Lakhs, while penalties on other appellants were set aside. The appeals were disposed of accordingly.

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