2015 (2) TMI 385 - HC - Central Excise

Availment of CENVAT Credit - Bogus invoices - Invoices issued without actual transfer of goods - Held that - The appellant, unearthed a fraud allegedly perpetuated by one Shri R.K.Gupta, proprietor M/s R.K.Enterprises whereby MODVAT/CENVAT credit was passed on without any actual transaction. A search of the residential premises of Shri R.K.Gupta led to recovery of voluminous incriminating evidence in the shape of slips, fake GR books, numbering machines, blank cheques, stamps of various officers of the department and it also transpired that the alleged office in Faridabad was a single room rented out by Shri R.K.Gupta without any godown from where he could have transferred these goods. Shri R.K.Gupta made a statement on 16.01.2001 under Section 14 of the Central Excise Act, 1944 stating that parties from whom he procured goods are located in Delhi, Hisar, Gurgaon, Mathura, Baddi and Faridabad. The GR books of M/s Paradise Tempo Transport Service, Bata Chowk, Faridabad and Golden Transport Company, Nehru Ground, NIT Faridabad, recovered from his office were printed by him as these companies do not exist. Admittedly, the respondents received goods which were less than six metric tonnes. A perusal of the provisions of the statue reveals that initial onus to establish culpability or violation vis-a-vis provisions of the Act lies upon the department but once the department prima-facie proves the culpability of a dealer, the onus to prove that the transaction is legal and valid shifts to the dealer. A perusal of the original statement made by Shri R.K.Gupta as detailed in the order in original, reveals that the respondents were not named as beneficiaries of fraudulent MODVAT/CENVAT credit. A perusal of the record reveals that the respondent has failed to prove any consumption of raw material much less its receipt and as the transport companies have been found to be fake, the judgment in Garima Enterprises s case (2004 (8) TMI 291 - CESTAT, NEW DELHI) cannot be relied as a precedent . The CESTAT, however, failed to consider these significant facts and by placing implicit reliance upon the judgment in Garima Enterprises s case (2004 (8) TMI 291 - CESTAT, NEW DELHI), wrongly allowed the appeal. Consequently, the appeals are allowed, the impugned orders are set aside and the appeals are restored to the CESTAT for adjudication afresh and in accordance with law after examining the entire material on record particularly whether there is any material on record to prove that the goods allegedly received by the respondents was consumed/utilised. The CESTAT shall grant an opportunity to the respondent to adduce evidence to prove receipts of goods, their consumption and use and only thereafter decide the appeals. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Evidentiary value of general statements in identifying bogus transactions.
2. Preponderance of evidence and probabilities in establishing the commission of offenses.

Issue-wise Detailed Analysis:

1. Evidentiary Value of General Statements in Identifying Bogus Transactions:
The appellant contested the orders of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), arguing that the tribunal wrongly relied on a general statement by Shri R.K. Gupta, who admitted to indulging in bogus transactions and passing MODVAT/CENVAT credit without actual transfer of goods. The appellant highlighted that the inquiry revealed incriminating evidence such as fake GR books, rubber stamps, and the absence of a godown, indicating that Shri R.K. Gupta operated from a residential premise. The appellant argued that the statement should be read in its entirety, considering the material recovered and the respondents' failure to prove the receipt and consumption of goods. The CESTAT's reliance on a judgment in "Garima Enterprises (P) Ltd. Vs. Commissioner of Central Excise, Delhi-IV" was contested as inapplicable to the present case.

2. Preponderance of Evidence and Probabilities in Establishing the Commission of Offenses:
The appellant argued that the preponderance of evidence and probabilities established the commission of offenses by the respondents. Despite Shri R.K. Gupta not naming the respondent as a beneficiary, he detailed the modus operandi of the fraudulent transactions, implicating the respondent. The appellant contended that the statement by Shri Deepak Kumar Jain, Director of the respondent, and the submitted documents did not discharge the onus to prove the transactions' genuineness. The CESTAT was criticized for ignoring the preponderance of evidence and setting aside the orders of the adjudicating and appellate authorities.

Findings and Judgment:
The High Court reviewed the show cause notice, the orders in original and appeal, and the CESTAT's order. It was noted that the appellant unearthed a fraud involving Shri R.K. Gupta, who admitted to issuing MODVAT/CENVAT credit invoices without actual delivery of goods. The Assistant Commissioner of Central Excise and Customs, Yamuna Nagar, disallowed CENVAT credit and imposed penalties, concluding that the transactions were bogus and the transport companies were fake.

The respondents' appeals were dismissed by the Commissioner of Central Excise (Appeals), who upheld the fraudulent nature of the transactions and the penalties imposed. However, the CESTAT allowed the respondents' appeals, relying on the judgment in Garima Enterprises' case and Shri R.K. Gupta's statement that transactions below six metric tonnes were genuine.

The High Court found that the CESTAT wrongly placed the onus on the department to prove the non-receipt of goods and failed to consider that the respondents did not prove the existence of the transport companies or the consumption of the goods. The reliance on Garima Enterprises' case was misplaced as the respondents failed to prove any consumption of raw material.

Conclusion:
The High Court allowed the appeals, set aside the CESTAT's orders, and restored the appeals for fresh adjudication. The CESTAT was directed to examine the entire material on record and grant the respondents an opportunity to adduce evidence to prove the receipt, consumption, and use of the goods. The parties were directed to appear before the CESTAT on 04.02.2015.