2013 (10) TMI 491 - AT - Central Excise

MODVAT/Cenvat credit issue of invoice without supply of material - Penalty - Held that - The statement of the authorized representative of Khemka reveals that with the loss of business in the year 2002 they entered into an arrangement with the first stage dealer for issuing invoices without the supply of goods so as to reflect some sale purchase books on accounts - the disputed period in the present appeal is February and March 2004. Rule 7(2) of Cenvat credit rule requires the recipient of the inputs to know the identity of the supplier of the goods was second stage dealer the rule stand satisfied by the manufacturer with Shri Amit Kumar proprietor of second stage dealer having deposed that they had in fact supplied to the manufacturer payment for which were made by them in cheque. Recipient of the inputs is expected to know his immediate supplier and there is no further requirement to find out as to from where his supplier has procured the inputs - the confirmation of demand of duty and imposition of penalty on M/s. Faridabad Autocomp Systems and Super Trading Company set aside - the imposition of penalty of M/s. Ayushi Steels Company even if the Revenue s case is accepted that they dealt only with the invoices without actually dealing with the goods even then no penalty can be imposed upon them inasmuch as the provision for imposition of penalty on the dealers were introduced vide Notification No.8/2007 CE (NT) - the period for the present case is prior to the date the penalty imposed upon M/s. Ayushi Steels Company Pvt. Ltd. also set aside Decided in favour of Assessee.

Summary

Issues:
- Denial of Modvat credit of duty to M/s. Faridabad Autocomp Systems Pvt. Ltd.
- Imposition of penalty on M/s. Faridabad Autocomp Systems Pvt. Ltd. and other appellants.
- Availment of Cenvat credit by M/s. Faridabad Autocomp Systems Pvt. Ltd.
- Investigation findings regarding the supply chain and receipt of goods.
- Compliance with Rule 7 of Cenvat credit Rules.
- Allegations of non-receipt of inputs by M/s. Faridabad Autocomp Systems Pvt. Ltd.
- Imposition of penalty on M/s. Ayushi Steels Company Pvt. Ltd.

Analysis:
The judgment revolves around the denial of Modvat credit of duty and imposition of penalties on M/s. Faridabad Autocomp Systems Pvt. Ltd. and other appellants based on the investigation findings related to the supply chain. The case involved a complex chain of transactions starting from the manufacturer, M/s. Khemka Ispat Ltd., and passing through first stage dealer M/s. Ayushi Steels Company Pvt. Ltd. to the second stage dealer M/s. Super Trading Company, ultimately reaching M/s. Faridabad Autocomp Systems Pvt. Ltd.

The investigations revealed discrepancies where the manufacturer and first stage dealer were issuing invoices without actual supply of goods. However, the appellant, M/s. Faridabad Autocomp Systems Pvt. Ltd., contended that they received goods from the second stage dealer, M/s. Super Trading Company, who confirmed the supply in their statement. The appellant argued that they complied with Rule 7 of Cenvat credit Rules by identifying their supplier, making payments through cheques, and maintaining proper records in their Cenvat credit account.

The judge scrutinized the investigation findings and statements of involved parties. It was noted that the allegations of non-receipt of inputs were not substantiated with concrete evidence. The judge emphasized that the recipient of inputs is expected to know their immediate supplier, and in this case, the second stage dealer's confirmation of supply was crucial. As there was no evidence to suggest an alternative source for the inputs, the judge set aside the confirmation of demand of duty and penalty on M/s. Faridabad Autocomp Systems Pvt. Ltd. and Super Trading Company.

Regarding the penalty imposed on M/s. Ayushi Steels Company Pvt. Ltd., the judge considered the introduction of penalty provisions post the relevant period and accordingly set aside the penalty. Ultimately, all three appeals were allowed in favor of the appellants based on the above considerations, highlighting the importance of compliance with Cenvat credit rules and the necessity of concrete evidence in establishing allegations of non-compliance.