2016 (1) TMI 60 - AT - Central Excise

Denial of CENVAT Credit - Fraudulent credit - credit on invoices without actual receipt of goods - Held that - Appellants company neither received the inputs nor cleared final products and the entire transactions were only on paper with an intention to pass on irregular modvat credit to their buyers. We find in the present case as the transactions are only on paper and as such, the credit availed without receipt of inputs and credit utilization without clearance of final products will only pass on the undue benefit or credit with reference to buyers from respondent for such fictitious clearance of final products who in turn could have availed cenvat credit. In other words, as the appellants admittedly have not manufactured any item relevant to the present case, the question of payment of such duty on final products does not arise. As such, the passover of credit by them to a third party becomes crucial for full compensation of revenue loss due to this illegal acts. In this situation, we find that the credit of duty utilized for purported clearance of final product by the appellants resulting in cenvat credit availment by buyers stands recovered at the buyers end as admitted by both the sides. The appellants in the written submissions submitted that the full amount of cenvat credit in the improper paper transactions stand recovered along with 25% of penalty in pursuance of stay order of the Tribunal. The plea of the appellants is that concessional penalty of 25% should be available to them as the full duty involved (irregular credit) stand recovered - appellants are eligible for reduced penalty of 25% in terms of proviso to section 11 AC - Appeal disposed of.

Summary

Issues:
1. Fraudulent availing of cenvat credit by the appellants.
2. Challenge against the penalties imposed.
3. Eligibility for reduced penalty under section 11 AC of the Central Excise Act, 1944.

Issue 1: Fraudulent availing of cenvat credit by the appellants:
The case involved three appeals where the appellants were engaged in manufacturing machinery for sugar and paper mills. Investigations revealed fraudulent availing of cenvat credit by the appellants through transactions only on paper, without actual receipt of materials. The Revenue confirmed the demand of cenvat credit and imposed penalties, including on individuals. The Tribunal initially decided on the appeals, which were later challenged in the Punjab and Haryana High Court. Upon directions from the High Court, the Tribunal restored the appeals after recalling the earlier order.

Issue 2: Challenge against the penalties imposed:
The appellants raised various grounds during the appeals, disputing their role as manufacturers and the issuance of supplementary invoices. However, during arguments, they requested closure of proceedings by availing the benefit of a 25% penalty under section 11 AC of the Act and waiver of penalties imposed on individuals. The Revenue contested the plea for reducing the penalty, citing non-payment of the full amount within the prescribed time.

Issue 3: Eligibility for reduced penalty under section 11 AC:
After hearing both sides and examining the appeal records, it was found that the appellants had not received inputs or cleared final products, engaging in transactions solely on paper to pass on irregular modvat credit. The Tribunal determined that the appellants were eligible for a reduced penalty of 25% under the proviso to section 11 AC. Citing precedents and considering the recovery of the full amount of cenvat credit, the penalty was reduced to 25% of the confirmed demand. Additionally, the penalty imposed on an individual was reduced to a specified amount.

In conclusion, the appeals were disposed of with the demand and interest confirmed against the appellants, with penalties reduced as per the proviso to section 11 AC. The already deposited penalties were appropriated towards the reduced amounts, bringing the case to a close in favor of the appellants.