2015 (1) TMI 216 - AT - Central Excise

CENVAT Credit - Penalty u/s 11AC - appellant company had paid the entire amount of disputed Cenvat credit even before the issue of show cause notice alongwith interest and after issue of the adjudication order also paid 25% of the amount towards penalty - Bogus invoices - Held that - On perusal of these two invoices placed on record, it is seen that these invoices mention M/s Bhagwati Trading Company and M/s Ayushi Steels Company Ltd. as the first stage dealers and both the invoices mention the original manufacturer from whom the goods had been received by the first stage dealers as M/s Pasondia Steel Profiles Ltd., Ghaziabad . In respect of M/s Pasondia Steel Profiles Ltd., there was an investigation by the Department in course of which it had been revealed that while they were purchasing HR Coils, the same were being sold as such but they were still availing Cenvat credit of the same by showing the HR Coils were used in the manufacture of CR Sheets, while there was no such manufacturing activity and they had passed on such wrongly availed Cenvat credit to a number of dealers including M/s Ayushi Steels Company Ltd. and M/s Bhagwati Trading Co. by issuing bogus invoices without supply of any CR Sheets. So far as the supply of CR Sheets from M/s Pasondia Steel Profiles Ltd. is concerned, the same has to be treated as bogus and as such when M/s Pasondia Steel Profiles Ltd. had not supplied any CR Sheets to M/s Ayushi Steels Company Ltd., M/s Ayushi Steels Company Ltd. could not have supplied that material to M/s Steel Mongers (India) Pvt. Ltd. and M/s Steel Mongers (India) Pvt. Ltd. could not have supplied that material to appellant company. Therefore, notwithstanding the fact that no inquiry had been conducted by the Department with the transporters, since M/s Friendz Auto Ltd. have not produced any evidence in support of their claim of having received the CR Sheets, in my view, Cenvat credit cannot be allowed on the basis of invoice issued by M/s Steel Mongers (India) Pvt. Ltd. to them in respect of supply of CR Sheets. Therefore, the Cenvat credit amounting to ₹ 86,845/- has been correctly denied. There is no evidence that during the period of dispute M/s Pasondia Steel Profiles Ltd. were not selling HR Coils. On the contrary,the allegation against them is that during that period they were purchasing HR Coils and selling the same as such while showing their consumption in the manufacture of CR Sheets. There is no investigation to prove that M/s Pasondia Steel Profiles Ltd. had issued only bogus invoices to M/s Bhagwati Trading Company regarding supply of HR Coils. Therefore, the denial of Cenvat credit of ₹ 79,117/- on the basis of the invoice of M/s Steel Mongers (India) Pvt. Ltd. regarding supply of HR Coils is not correct and to this extent the impugned order has to be set aside. Cenvat credit demand is concerned, the Cenvat credit demand of ₹ 86,845/- is upheld but the impugned order confirming the Cenvat credit demand of ₹ 79,117/- is set aside. Since Assessee have wrongly availed Cenvat credit of ₹ 86,845/- in respect of CR Sheets while as discussed above, had not been received by them, penalty would be imposable on them in terms of Rule 15 (2) readwith Section 11 AC. However, since the entire amount of Cenvat credit had been paid before the issue of show cause notice and the interest and 25% of the penalty had been paid within period of 30 days of the date of communication of the order, the penalty is reduced 25% of the Cenvat credit demand upheld - As regards penalty on M/s Steel Mongers (India) Pvt. Ltd., the second stage dealer, since they had wrongly availed the Cenvat credit based on the invoice for CR Sheets issued by the first stage dealer, while no material has been received by them, penalty on the same in terms of the Rule 15 (2) of Cenvat Credit Rules, readwith Section 11AC of the Central Excise Act, would be attracted. However, looking to the fact that only the Cenvat credit demand of ₹ 86,845/- has been upheld, penalty on them is reduced to ₹ 20,000 - Decided partly in favour of assessee.

Summary

Issues:
1. Cenvat credit demand based on invoices issued by M/s Steel Mongers (India) Pvt. Ltd.
2. Allegations of bogus invoices and non-supply of goods by M/s Pasondia Steel Profiles Ltd.
3. Imposition of penalties under Rule 25 of Central Excise Rules, 2002.
4. Appeal against Commissioner (Appeals) order upholding Cenvat credit demand.
5. Appeal against setting aside penalties on the appellant company and M/s Steel Mongers (India) Pvt. Ltd.

Issue 1: Cenvat credit demand based on invoices by M/s Steel Mongers (India) Pvt. Ltd.:
The appellant company took Cenvat credit based on invoices from M/s Steel Mongers (India) Pvt. Ltd. for HR Coils and CR Sheets. The Department alleged non-supply of goods by M/s Steel Mongers (India) Pvt. Ltd. due to investigations revealing bogus activities by the original supplier, M/s Pasondia Steel Profiles Ltd. The Tribunal examined the invoices and upheld the denial of Cenvat credit for CR Sheets but set aside the denial for HR Coils due to lack of evidence against M/s Pasondia Steel Profiles Ltd.

Issue 2: Allegations of bogus invoices and non-supply of goods by M/s Pasondia Steel Profiles Ltd.:
Investigations revealed that M/s Pasondia Steel Profiles Ltd. engaged in fraudulent activities by issuing bogus invoices for CR Sheets without any actual supply. This led to a chain of non-supply of goods affecting the Cenvat credit claims by the appellant company and M/s Steel Mongers (India) Pvt. Ltd. The Tribunal concluded that no goods were supplied as per the invoices, justifying the denial of Cenvat credit for CR Sheets.

Issue 3: Imposition of penalties under Rule 25 of Central Excise Rules, 2002:
Penalties were imposed under Rule 25 of Central Excise Rules, 2002, on M/s Bhagwati Trading Company, M/s Ayushi Steels Company Ltd., and M/s Steel Mongers (India) Pvt. Ltd. for their roles in the alleged fraudulent activities. The Tribunal reviewed the penalties, considering the nature of the violations and reduced the penalties based on the upheld Cenvat credit demands.

Issue 4: Appeal against Commissioner (Appeals) order upholding Cenvat credit demand:
Both the appellant company and M/s Steel Mongers (India) Pvt. Ltd. appealed to the Commissioner (Appeals) against the Assistant Commissioner's order. The Commissioner upheld the Cenvat credit demand but set aside penalties on the appellant company and M/s Steel Mongers (India) Pvt. Ltd. The parties filed further appeals against specific aspects of the Commissioner's decision.

Issue 5: Appeal against setting aside penalties on the appellant company and M/s Steel Mongers (India) Pvt. Ltd.:
The Revenue appealed against the Commissioner (Appeals) decision to set aside penalties on the appellant company and M/s Steel Mongers (India) Pvt. Ltd. The Tribunal considered arguments from both sides regarding the imposition of penalties and the correctness of the Commissioner's decision in this regard.

This detailed judgment by the Appellate Tribunal CESTAT NEW DELHI addressed various issues related to Cenvat credit demand, allegations of fraudulent activities, imposition of penalties, and appeals against the Commissioner (Appeals) decision. The Tribunal analyzed the evidence, including invoices and investigation findings, to determine the validity of the Cenvat credit claims based on the invoices issued by M/s Steel Mongers (India) Pvt. Ltd. The decision highlighted the importance of substantiating claims with evidence and the consequences of engaging in fraudulent practices in the context of Central Excise Rules and Cenvat Credit Rules. The Tribunal's nuanced approach in reviewing penalties and upholding or setting aside various aspects of the lower authorities' decisions demonstrates a thorough consideration of the legal and factual complexities involved in the case.