2014 (6) TMI 451 - AT - Central Excise

CENVAT credit - Duty demand on dealer for passing duty when the goods were actually not received - Held that - Where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. Therefore, the duty demand upheld by the lower authorities cannot be sustained. - Once the duty demand cannot be sustained, mandatory penalty under Section 11AC read with Rule 15 or 25 also cannot be imposed. Penalty under Rule 25 CENVAT Credit Rules - Mandatory penalty under Section 11AC - Held that - The appellant had not chosen to seek cross-examination of both the parties even though their statements were relied upon. Moreover, the appellant has also not rebutted the evidences collected by the Revenue showing that vehicles were either non-existent or transporters fictitious. That being the case, this is a very clear case of supply of invoices and goods source of which is unknown which is something which has not been investigated but learned AR contended that goods from some other source might have been supplied. In any case, what is required to be established by the Revenue is that the appellant-dealer did not receive the goods and this has been established and therefore the contravention of provisions of CENVAT Credit Rules and Central Excise Rules can be said to have been proved. Under these circumstances, there cannot be any penalty on the Managing Director in the absence of a show-cause notice having been issued to him - Decided in favour of assessee.

Summary

Issues:
1. Incorrect CENVAT credit claimed by the appellant.
2. Demand of duty and penalty imposed by lower authorities.
3. Imposition of penalty under Rule 25 of CENVAT Credit Rules.
4. Appeal filed by the Managing Director regarding penalty imposition.

Detailed Analysis:
1. The case involved a registered dealer who was accused of wrongly claiming CENVAT credit for goods not received. The appellant had allegedly passed on credit for items supplied by a company that did not actually manufacture or supply the goods. The Revenue based its conclusions on various investigations and documents, including statements from involved parties and verification with the Sales Tax Department. The appellant argued that they had provided evidence like LR and invoices to the original authority, claiming to have supplied goods to other manufacturers without any evidence of non-receipt by them. The appellant contended that as a dealer, duty recovery should only apply to manufacturers, citing Rule 14 of CENVAT Credit Rules. The Tribunal agreed with this argument, stating that duty demand against the appellant was not sustainable.

2. Since the duty demand was found unsustainable, the Tribunal ruled that penalties under Section 11AC with Rule 15 or 25 could not be imposed. However, the question of imposing a penalty under Rule 25 of CENVAT Credit Rules was still open for consideration. The Tribunal noted that there was substantial evidence indicating that the appellant had received goods based on unknown sources, with fictitious transporters and non-existent vehicles involved. Despite the appellant's objections, the Tribunal found the contravention of CENVAT Credit Rules and Central Excise Rules proven. The Tribunal decided to impose a reduced penalty of Rs.20,000 under Rule 25 to bring closure to the litigation.

3. Additionally, the Tribunal addressed an appeal filed by the Managing Director of the appellant. It was established that no show-cause notice had been issued to the Managing Director, leading to the conclusion that no penalty could be imposed on him. Therefore, the Tribunal allowed the appeal filed by the Managing Director, setting aside any penalty imposed on him due to the absence of a show-cause notice.

In conclusion, the judgment primarily focused on the incorrect claiming of CENVAT credit by the appellant, the unsustainable duty demand and penalties, the imposition of a reduced penalty under Rule 25, and the decision regarding penalty imposition on the Managing Director based on the absence of a show-cause notice.