2004 (5) TMI 183 - AT - Central Excise

Disallowance of Modvat credit wrongly availed - duty demand - Confiscation of excess stock - penalty - Fraudulent availment of Modvat credit by various parties - HELD THAT - Since there are no goods to be moving, as found by the ld. Commissioner and credit has been availed only on documents without receipt of any goods, the question of liability of any goods to confiscation does not arise and has not been determined. To effect and uphold penalty liability goods should have been found to be liable to confiscation. Since it is the case of Revenue itself that there were no goods which actually moved, the liability under Rule 209A arrived only on account of role in fraudulent availment of credit cannot be upheld. All appeals as regards Rule 209A are to be allowed after setting aside the order of penalty under the rule. Since no goods have moved the penalty under Rule 173Q read with other rules cannot be approved as far as alleged fraudulent Modvat credit is concerned, as penalty under Rule 173Q is related to value of the goods and since goods are admittedly as per the case of Revenue not to exist the value thereof cannot. Penalty under Rule 173Q read with the rules is to be set aside. The appeals were allowed in terms of penalty under certain rules being set aside, while other appeals were remitted for rehearing and de novo adjudication on all issues. The judgment concluded by disposing of the appeals in the above terms, addressing the various issues raised in the case.

Summary

Issues involved:
The issues involved in the judgment are the disallowance of Modvat credit wrongly availed, confirmation of duty amounts, confiscation of excess stock, imposition of penalties and interest, and fraudulent availment of Modvat credit by various parties.

Disallowed Modvat Credit:
The Commissioner found that Modvat credit of Rs. 1,26,17,981/- wrongly availed by a company on goods not received in the factory should be disallowed and recovered under Rule 57-I(1) of the Central Excise Rules, 1944. The Commissioner upheld the charges made in the Show Cause Notice based on statements recorded, indicating false production entries to cover up the false receipt of raw materials. Orders were passed for disallowance of the Modvat credit, confirmed duty on raw material found short, and confiscation of excess stock of raw material and finished goods. Penalties were imposed on individuals involved in the fraudulent availment of Modvat credit.

Show Cause Notices to Suppliers:
Show Cause Notices were also issued to the suppliers of the company for their involvement in the alleged fraudulent activities related to Modvat credit. Orders were passed for disallowance of credit, confirmation of duty demands, and imposition of penalties on the suppliers for their roles in the fraudulent availment of Modvat credit.

Penalty and Confiscation Issues:
The judgment addressed the penalties imposed under various rules for fraudulent activities related to Modvat credit. It was found that since there were no goods actually moving and credit was availed only on documents without receipt of any goods, the liability of goods to confiscation does not arise. The penalty liabilities under certain rules were set aside due to the lack of existence of goods as per the case presented by the Revenue. The eligibility to credit was also discussed, with the order remitted back for rehearing and redetermination based on the submissions made by the company.

Disposition of Appeals:
The appeals were allowed in terms of penalty under certain rules being set aside, while other appeals were remitted for rehearing and de novo adjudication on all issues. The judgment concluded by disposing of the appeals in the above terms, addressing the various issues raised in the case.