2018 (1) TMI 106 - AT - Central Excise

CENVAT credit - Duty paying documents - taking credit without receipt of goods - fraudulent activity or not - Appellant is engaged in Manufacturing activity or not - Difference of opinion - matter referred to Third Member.

Summary

Issues Involved:
1. Entitlement of M/s. JSL Stainless Ltd. to avail Cenvat Credit on goods supplied by M/s. National Udyog and M/s. Ridhi Sidhi Alloys Pvt. Ltd.
2. Validity of penalties imposed on M/s. National Udyog, M/s. Ridhi Sidhi Alloys Pvt. Ltd., and individuals associated with these entities.

Detailed Analysis:

1. Entitlement of M/s. JSL Stainless Ltd. to Avail Cenvat Credit:
Arguments by Appellants:
- The appellants argued that M/s. Ridhi Sidhi Alloys Pvt. Ltd. is a manufacturer of copper nickel alloys ingots, which were received by M/s. JSL, and this fact was not disputed by the Revenue.
- They contended that M/s. Ridhi Sidhi Alloys Pvt. Ltd. paid duty on the goods supplied to M/s. JSL, making the denial of Cenvat Credit unsustainable.
- Regarding supplies from M/s. National Udyog, the appellants asserted that it was not the Revenue's case that M/s. National Udyog did not supply goods with duty-paying invoices, nor that the goods were not transported to M/s. JSL.

Arguments by Revenue:
- The Revenue maintained that M/s. AIP Industries did not have the manufacturing capacity for the goods in question, implying that M/s. National Udyog and M/s. Ridhi Sidhi Alloys Pvt. Ltd. could not have received the goods against duty-paying documents.
- The Revenue argued that M/s. JSL should not be entitled to Cenvat Credit as the invoices showed M/s. AIP Industries as the manufacturer, which was not the case.

Tribunal's Findings:
- The Tribunal found that the receipt of goods by M/s. JSL against duty-paying documents from M/s. National Udyog and M/s. Ridhi Sidhi Alloys Pvt. Ltd. was not in dispute.
- The Tribunal referred to previous decisions, including CCE Vs. Juhi Alloys Ltd., which established that a buyer is entitled to assume that the duty has been paid if they have taken reasonable steps to ensure this.
- The Tribunal concluded that M/s. JSL, being a bona fide purchaser, was entitled to Cenvat Credit as they had made payments through account payee cheques and received goods against duty-paying documents.

Separate Opinion by Member (Technical):
- The Member (Technical) agreed with the entitlement of Cenvat Credit for goods received from M/s. Ridhi Sidhi Alloys Pvt. Ltd. but differed regarding goods from M/s. National Udyog.
- It was found that M/s. AIP Industries did not have the facility to manufacture the goods, and the transport documents were fake, indicating that M/s. National Udyog did not receive the goods.
- The Member (Technical) held that M/s. JSL fraudulently availed Cenvat Credit on invoices from M/s. National Udyog and upheld the demand for reversal of credit along with interest and penalties.

2. Validity of Penalties:
Penalties on Entities and Individuals:
- The Tribunal initially imposed penalties on M/s. National Udyog, M/s. Ridhi Sidhi Alloys Pvt. Ltd., and individuals associated with these entities.
- The Member (Technical) upheld the penalties on M/s. JSL Stainless Ltd. under Section 11AC of the Act for fraudulent availment of credit.
- Penalties on M/s. National Udyog, Shri Ram Kishan Gupta, and Shri Jagdish Jindal were upheld for the period after 1.3.2007 under Rule 26 (2) of Cenvat Credit Rules, 2002.

Conclusion:
- The Tribunal's majority opinion allowed M/s. JSL to avail Cenvat Credit on goods supplied by M/s. National Udyog and M/s. Ridhi Sidhi Alloys Pvt. Ltd.
- The Member (Technical) dissented, finding that M/s. JSL fraudulently availed Cenvat Credit on invoices from M/s. National Udyog, and upheld penalties for fraudulent credit availment.
- The matter was referred to the Hon'ble President to resolve the difference of opinion between the Members.