2014 (7) TMI 356 - AT - Central Excise

CENVAT Credit - paper transaction to enable fake credit - Equivalent penalty - Held that - The view of Commissioner (Appeals) holding that in view of payment of invoice price has been made by the dealer and such payment has been made through banking channel and of passing of the credit by such dealer on valid invoices could not be disputed are not correct. - His observation that the appellant have taken due care while procuring the duty paid inputs and Cenvat credit on such invoices cannot be denied simply on the ground that invoices were issued by the dealer fraudulently, is also not acceptable. Once the fraud is involved, it vitiates the transactions and no benefit can accrue on such invoices. Commissioner (Appeals) s finding that credit will be available even fraud at dealer stage is involved is not acceptable at all. Sachin Aggarwanshi floated the company to undertake paper transactions and these paper transactions have been proved by the confessional statements. It also came out that all these Central Excise transactions have been organized in such a way to facilitate illegal availment of credit by M/s Ved Trading Company. The role of Sachin in this fraudulent activity is clearly manifested. His subsequent actions and behavior in prolonging investigation and non-cooperation with the Department and later taking recourse to the legal forums to contest the Department s allegations have proved false as nothing substantive was found by the Police authorities who later closed the investigation. Mr. Sachin clearly became liable for penal action for executing fraudulent activities. Further investigations have clearly brought out that the paper transactions have taken place without actual movement of goods and credit has been passed on fraudulently. Such illegally availed credit requires to be reversed back along with penal action as whole fraud has been pre-mediated and executed with the sole intent to defraud the revenue. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Validity of Cenvat Credit availed by the appellant.
2. Existence and authenticity of the supplier, M/s Sidh Balak Enterprises.
3. Legitimacy of the invoices issued by M/s Sidh Balak Enterprises.
4. Findings of the Commissioner (Appeals) versus the Revenue's contentions.
5. Applicability of penalties and reversal of Cenvat Credit.

Detailed Analysis:

1. Validity of Cenvat Credit availed by the appellant:
The appellant, a manufacturer of various fittings, procured raw materials and availed Cenvat Credit based on invoices from M/s Sidh Balak Enterprises. The adjudicating authority disallowed the Cenvat Credit of Rs. 2,78,343/- and imposed a penalty of an equivalent amount, citing the non-existence of the supplier firm and fraudulent transactions.

2. Existence and authenticity of the supplier, M/s Sidh Balak Enterprises:
Investigations revealed that M/s Sidh Balak Enterprises was a fictitious entity. The registered premises were occupied by another firm, and the proprietor, Mr. Sachin Aggarwanshi, admitted that the firm did not own any office or godown in the declared locations. The firm was found to be non-existent, and the transactions were deemed bogus.

3. Legitimacy of the invoices issued by M/s Sidh Balak Enterprises:
The Revenue argued that the invoices issued by M/s Sidh Balak Enterprises were invalid as the firm did not have a registered godown or office. The invoices were considered paper transactions without actual receipt of goods. The CBEC Circular No.107/18/95-CX was cited, which mandates that cenvatable invoices should be issued only if the goods are received by the registered dealer.

4. Findings of the Commissioner (Appeals) versus the Revenue's contentions:
The Commissioner (Appeals) allowed the benefit of Cenvat Credit to the appellant, stating that the goods were procured from a registered dealer with valid duty-paying documents. The appellant had discharged its contractual liability through banking channels and provided sufficient evidence of receipt and payment for the goods. The Commissioner (Appeals) concluded that the appellant could not be held responsible for the dealer's fraud.

5. Applicability of penalties and reversal of Cenvat Credit:
The Tribunal disagreed with the Commissioner (Appeals), emphasizing that fraud vitiates all transactions. It was held that the appellant could not claim Cenvat Credit on invoices issued fraudulently by a non-existent dealer. The Tribunal referenced the case of Baldev Raj Murti, where it was established that transactions without actual receipt of goods are invalid. The Tribunal concluded that the credit availed must be reversed, and penalties were justified due to the fraudulent nature of the transactions.

Conclusion:
The Tribunal accepted the Revenue's appeal, set aside the Commissioner (Appeals)'s order, and upheld the original adjudicating authority's decision to disallow the Cenvat Credit and impose penalties. The fraudulent activities of M/s Sidh Balak Enterprises and the consequent invalidity of the invoices necessitated the reversal of the credit and penal action.