2014 (3) TMI 713 - AT - Central Excise

Duty demand - misuse of area based exemption - fraudulent showing expansion of manufacturing capacity - Benefit of Notification No.49-50/2003 dated 10/6/2003 - Notification No.76/2003-CE dated 5.11.2003 - Mis dclaration of goods - Penalty u/s 11AC - Held that - Commissioner (Appeals) has not appreciated finding of adjudicating authority where investigations conducted by department have clearly brought out that fake transaction had been undertaken with the sole motive of showing procurement of machines and subsequently to show 25% expansion of existing capacity which was requirement of for eligibility for availment of exemption under Notification no..49-50/03 as amended. Above transaction could not be possible without Shri Ramesh Gupta who organized paper transaction with sole motive to avail benefit of area based exemption. I have no hesitation to hold that findings of Commissioner (Appeals) are erroneous as the Commissioner (Appeals) held that no doubt two machines actually supplied which were found installed in the factory. These observations are without any evidence and contrary to the investigations reported above. His basis for saying that no action has been taken against supplier for mis-declaration cannot ipso-facto result in granting unintended and fraudulent benefit to the respondent - Revenue has clearly made out a case for non-grant of exemption under Notification No.49-50/03 against the respondent - Decided in favour of Revenue.

Summary

Issues:
1. Validity of the Order-in-Appeal dropping the demand and penalties imposed on the respondent.
2. Interpretation of Notification No.49-50/2003 regarding area-based exemption scheme.
3. Allegations of fraud and misdeclaration in the procurement of machines for expansion of capacity.

Issue 1 - Validity of the Order-in-Appeal:
The Department filed appeals against the Order-in-Appeal that dropped the demand and penalties on the respondent. The Commissioner (Appeals) had set aside the demand of Rs.16,39,289/- along with penalties under Section 11AC and a personal penalty of Rs.15 lakh imposed on an individual under Rule 26 of Central Excise Rules, 2002. The Department contended that the machines installed were old and used, contrary to the claim made by the respondent.

Issue 2 - Interpretation of Notification No.49-50/2003:
The respondent claimed exemption under Notification No.49-50/2003 for an expansion in installed capacity by more than 25%. However, investigations revealed that the machines received were not new as declared but old ones. The Department argued that the respondent did not meet the requirements for the exemption due to misdeclaration and fraudulent practices in showing expansion of capacity.

Issue 3 - Allegations of Fraud and Misdeclaration:
The investigation exposed fraudulent activities by the respondent and their partner in organizing the procurement of fake invoices to falsely claim the area-based exemption. Evidence showed that the machines were never supplied as claimed, and records were manipulated to show receipt and installation to qualify for the exemption. The Tribunal found that the respondent's defense of the payment being advance money and not for the machines lacked credibility in the face of incriminating evidence from bank transactions and tax returns.

In conclusion, the Tribunal upheld the Department's appeals, ruling in favor of non-granting of exemption under Notification No.49-50/2003 due to the fraudulent actions of the respondent. The judgment highlighted the importance of thorough investigations in uncovering fraudulent practices and affirmed the findings of the adjudicating authority overruling the Order-in-Appeal.