2018 (5) TMI 1512 - AT - Central Excise

Recovery of erroneous refund made - Area Based Exemption - N/N. 56/02-CE - allegation of non-supply of copper scrap by M/s Vikash Traders - issuance of bogus invoices - Held that - A perusal of chart obtained by VKM through RTI from Punjab Sales Tax Department issued by ICC, Madhopur, reveals that it contains the details of the consignments of copper scrap transported from Delhi to VKM Jammu which passed through the state of Punjab and entered the state of J&K. It also contains the name of the suppliers, date of entry at ICC, Madhopur, bill number and data commodity code, value of the consignment and number of the vehicle. Therefore, merely on the basis of the statements of Shri DK Jain of M/s Vikash Traders, it cannot be inferred that this firm had issued bogus invoices for scrap without any supply - There is no evidence that the TIN Numbers were falsely obtained by the respective suppliers. Moreover, the Department s allegation that no copper scrap was being received in the factory of VKM is also not compatible with the statement of Shri Shankar Lal Gupta dated 21.01.2009 wherein he had stated that copper scrap received was being returned back under the invoice of copper ingots. Whether the Department s allegation that there was no manufacturing activity in the factory of VKM is not sustainable or not? - Held that - the Department does not dispute that there were other machinery also, namely, two hydraulic cylinders, one each blower and chimney, one pusher machine, one EOT Crane, Rails, one air compressor, 26 moulds rails fixed on the ground for movement of moulds, one electronic weighing machine, two winch machines, two hydraulic oil tanks of 12000 Ltr. Capacity and one DG Set of 62.5 KVA capacity. There is no evidence that these machines were not in working order. Moreover, it is seen that while during the period of dispute, there was no power connection, the power requirement was being met by 62.5 KVA DG Set. At the time of officers visit to the factory, the total working hours DG Set were 8066.Since the unit had started functioning; sometime in December 2004 it would amount to working of about 12 hours per day. Therefore, the working of the DG Set also is not compatible with the Department s allegation that there was no manufacturing activity. No inquiry has been conducted with the adjoining units of other manufacturers to prove that the power generated by the DG Set in VKM was being sold to other manufacturers. It is also seen that for running of the DG Set HSD, was being used and there is record of purchase of HSD also which also stands verified by the Department. The allegation against VKM is showing bogus receipt of copper scrap and bogus manufacture and clearances of copper ingots without manufacturing and clearing any goods. This is the allegation which has been upheld against VKM in the impugned order. If this is so, there would be no duty liability against VKM and since VKM have paid the duty and have taken its refund under N/N. 56/02- CE, it amounts to non-payment of duty. Hence, there cannot be any further recovery of duty from there, as refund under N/N. 56/02-CE given to VKM is of the duty which was paid by them, while the same were not required to be paid. Penalty u/r 26 of CER - Held that - This penalty has been imposed mainly on the ground that these appellants colluded with VKM in helping them either in issuing the bogus invoices, or issuing bogus GRs or actively conniving with VKM in the availment of erroneous refund under Notification No. 56/02-CE. Since we have already held that VKM had duly received copper scrap in their factory and manufactured copper ingots question of grant of erroneous refund does not arise - penalties set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged non-manufacture of copper ingots by VKM and fraudulent availing of duty exemption.
2. Reliability of statements by Shri D.K. Jain and other suppliers.
3. Alleged non-receipt of copper scrap by VKM.
4. Alleged non-existence of suppliers and transporters.
5. Alleged non-functioning of VKM's manufacturing unit.
6. Legitimacy of refund claims under Notification No. 56/02-CE.
7. Imposition of penalties under Rule 26 of Central Excise Rules.
8. Denial of Cenvat credit to buyers of copper ingots from VKM.
9. Additional issue of duty demand on higher electricity consumption for M/S Ganpati Rollings (P) Ltd.

Detailed Analysis:

1. Alleged Non-Manufacture of Copper Ingots by VKM and Fraudulent Availing of Duty Exemption:
The core allegation against VKM was that they did not manufacture any copper ingots and only showed bogus production to avail of duty exemptions under Notification No. 56/02-CE. During the period from December 2004 to November 2006, VKM was accused of claiming refunds fraudulently. The Tribunal found that VKM had indeed received copper scrap, manufactured copper ingots, and the documentary evidence supported the actual movement of goods. The Tribunal also noted that the unit had been regularly inspected by jurisdictional Central Excise officers who verified the production and duty payment details.

2. Reliability of Statements by Shri D.K. Jain and Other Suppliers:
The statements by Shri D.K. Jain, proprietor of M/s Vikash Traders, were inconsistent. Initially, he stated that his firm supplied copper scrap to VKM but later retracted and claimed that only invoices were issued without actual supply. The Tribunal found these statements unreliable due to frequent retractions and lack of corroborative evidence. The Tribunal emphasized that statements need to be consistent and supported by independent evidence to be credible.

3. Alleged Non-Receipt of Copper Scrap by VKM:
The Tribunal found that VKM had received copper scrap from various suppliers, and the transportation records corroborated this. The evidence included entries at check posts in Rajasthan, Haryana, and Punjab, toll tax exemption records, and import/export registers verified by toll tax authorities. The Tribunal dismissed the Department's claim of non-receipt of scrap as it was not compatible with the documentary evidence.

4. Alleged Non-Existence of Suppliers and Transporters:
The Department claimed that several suppliers were non-existent or untraceable. However, the Tribunal noted that the suppliers were registered with VAT authorities, and payments were made through banking channels. The Tribunal also found that the transporters had indeed transported the goods, as evidenced by GRs and statements from transporters. The Tribunal concluded that the suppliers and transporters were legitimate and had conducted actual transactions.

5. Alleged Non-Functioning of VKM's Manufacturing Unit:
The Department argued that VKM's unit was not operational due to the absence of power connection and insufficient generator usage. The Tribunal found that VKM used a DG set for power, and the meter readings were consistent with the production levels. The Tribunal also noted the purchase of light diesel oil and other machinery in the unit, indicating active manufacturing operations.

6. Legitimacy of Refund Claims under Notification No. 56/02-CE:
The Tribunal held that VKM's refund claims were legitimate as they were based on actual duty payments and verified by jurisdictional officers. The Tribunal rejected the Department's argument that VKM's refunds were erroneous, noting that the refund orders were never challenged and had attained finality.

7. Imposition of Penalties under Rule 26 of Central Excise Rules:
The Tribunal set aside the penalties imposed on VKM and other appellants under Rule 26, as the allegations of fraudulent activities were not substantiated. The Tribunal held that VKM had duly received copper scrap and manufactured copper ingots, and there was no basis for imposing penalties.

8. Denial of Cenvat Credit to Buyers of Copper Ingots from VKM:
The Tribunal found that the buyers of copper ingots from VKM had received the goods, made payments through banking channels, and utilized the ingots in manufacturing finished goods. The Tribunal held that the denial of Cenvat credit was unjustified and allowed the appeals of the buyers.

9. Additional Issue of Duty Demand on Higher Electricity Consumption for M/S Ganpati Rollings (P) Ltd:
The Tribunal addressed the issue of duty demand based on higher electricity consumption for M/S Ganpati Rollings (P) Ltd. The Tribunal referred to the judgment in the case of R A Castings (P) Ltd, which held that higher electricity consumption alone is not sufficient to infer suppression of production. The Tribunal set aside the duty demand and penalties, noting the lack of tangible evidence of clandestine manufacture and removal of goods.

Conclusion:
The Tribunal set aside the impugned order, allowed all the appeals, and concluded that VKM had legitimately manufactured copper ingots and availed of duty exemptions. The penalties imposed under Rule 26 were also set aside, and the denial of Cenvat credit to buyers was reversed. The Tribunal emphasized the need for consistent and corroborative evidence to support allegations of fraudulent activities.