2014 (8) TMI 656 - AT - Central Excise

Denial of CENVAT Credit - Whether where only paper invoices are issued without the accompaniment of goods, cenvat credit could be availed by the recipient and whether penalty could be imposed for such fraudulent activity of issue of fake invoices - Held that - M/s. Khemka Ispat Ltd. have not undertaken any manufacturing activity and therefore, the question of their supplying any goods on the authority of invoices did not arise. Apparently the said party was only a manufacturer on paper. Therefore, the transactions between the said manufacturer and the respondents-dealers, were only paper transactions without actual movement of goods, thus fake in nature. The original authority rightly held that the concerned manufacturers of final products who have taken Cenvat credit based on invoices, were not eligible for Cenvat credit and were liable for imposition of penalties. The invoices issued by M/s Khemka Ispat were not legal invoices for the purpose of availment of cenvat credit and hence all consequent invoices issued on the basis of invoices of M/s Khemka Ispat were also not valid documents for the purpsose of availment of credit irrespective of the fact as to whether the subsequent sale by dealers were with or without material and whether the payment has been recorded as made against the cenvat by these dealers shown on such invoices of M/s Khemka Ispat. Under Rule 26 of Central Excise Rules, penalty can be imposed only on the person who has acquired possession or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner dealing with, any excisable goods which he knows or has reason to believe are liable to confiscation - applicants are registered under the Central Excise Rules as registered dealer and by virtue of rules they are authorized to issue cenvatable invoices to their customers in respect of the goods supplied by them. In the present case, the applicants issued invoices without supplying any goods on the strength of which credit has been availed by their customers. The applicants are duty bound to maintain time and correct stock of excisable goods and they are duty bound to issue invoices which shall contain description, classification, time and duty of removal, rate of duty, quantity and value of goods and duty payable thereon. In these circumstances, as the applicant being a registered dealer has not complied with the condition of the Central Excise Rules, prima facie, I find that it is not a fit case for waiver of penalty. Undisputedly, the credit was sought to be passed on without invoices being accompanied by the goods. Such an act is certainly a major violation of the provisions of law. Being so, in such cases, question of imposition of penalty upon the dealer - first stage or second stage - who facilitated such illicit transaction, cannot be faulted with. These dealers have been instrumental in committal of fraud to defraud the revenue. Decided against assessee.

Summary

Issues Involved:
1. Issuance of invoices without actual supply of goods.
2. Availment of Cenvat credit based on fake invoices.
3. Imposition of penalties under relevant rules and regulations.

Issue-wise Detailed Analysis:

1. Issuance of Invoices Without Actual Supply of Goods:
The appellant was accused of issuing invoices without supplying any inputs, allowing their customers to avail credit on fake invoices. Investigations revealed that M/s Khemka Ispat Ltd. issued invoices without supplying raw materials to the appellant, who then issued cenvatable invoices to M/s S.K. Foil. The appellant argued that any contravention made was under the Cenvat Credit Rules, not the Central Excise Rules, and that no penal clause existed for such contraventions before 1-3-2007, making the penalty under Rule 25 of the Central Excise Rules unsustainable. However, the revenue countered that the appellant's actions clearly contravened the Central Excise Rules by not maintaining stock records and issuing invoices without receiving any materials.

2. Availment of Cenvat Credit Based on Fake Invoices:
The facts demonstrated that M/s Khemka Ispat Ltd. did not undertake any manufacturing activity, and the transactions between them and the respondents-dealers were only paper transactions without actual movement of goods. The original authority found that the manufacturers of final products who took Cenvat credit based on these invoices were not eligible for such credit and were liable for penalties. The invoices issued by M/s Khemka Ispat were deemed illegal for availing Cenvat credit, and all consequent invoices issued based on these were invalid, regardless of whether subsequent sales involved actual material.

3. Imposition of Penalties Under Relevant Rules and Regulations:
The appellant challenged the imposition of penalties under Rule 26, arguing that it could only be imposed from 1-3-2007 onwards when an amendment to Rule 26 was made. However, the revenue cited precedents where penalties were imposed even before the amendment, arguing that the notification prescribing penalties was clarificatory and applicable retrospectively. The tribunal upheld the penalties, noting that the appellant's actions involved issuing invoices without supplying goods, thus violating the Central Excise Rules. The penalties of Rs. 5,00,000 and Rs. 3,35,904 were deemed proper and did not require interference.

Conclusion:
The tribunal concluded that the appellants were liable for penalties under Rule 13 of the Cenvat Credit Rules, 2002, and Rule 15 of the Cenvat Credit Rules, 2004, read with Section 11 AC of the Central Excise Act, 1944. The fraudulent issuance of invoices without accompanying goods was a major violation, justifying the imposition of penalties. The appeals were dismissed, and the orders passed by the adjudicating authority and upheld by the Commissioner (Appeals) were affirmed.