2005 (5) TMI 224 - AT - Central Excise

Cenvat/Modvat - Job work - evasion of Central Excise duty - Demand and penalty - seeking cross-examination - principles of natural justice to the manufacturer - HELD THAT - Perusal of Rule 209A does not indicate that for aiding and abetting of availment of incorrect Modvat credit penalty could be imposed without arriving at a liability to confiscation of excisable goods. The allegation is that inferior goods have been used and that credit has been availed on AS 304 grade steel that no such steel of AS 304 grade arrived at the factory. If that would be so then there were no goods which were liable to confiscation at best it would be a case of taking credit without goods coming and be a case of incorrect account maintained for ulterior motive. That could not be a cause for penalty under Rule 209A. No penalty for non-existent goods under Rule 209A could be imposed. Therefore the penalty imposed under Rule 209A cannot be upheld for incorrect accounting. The penalties on these two appellants i.e. Shri C.I. Vaghani Shri Satish Kulkarni are to be allowed after setting aside the penalty imposed on them irrespective of the allegations in the notice sustained or other more. was not admissible as narrated above. He therefore has rendered himself liable for penalty under Rule 209A of CER 1944. The request for cross-examination of the various persons whose statements have been relied upon to bring on record evidence of one of the varieties of steel was substituted it was imperative to be granted. The denial of cross-examination has resulted in the violation of principles of natural justice to the manufacturer. The Commissioner s finding on this issue as well as the attempt of non-supply of the documents relied upon and required by defence would itself render the order to be set aside on grounds of denial of Natural Justice and remand be called for re-adjudication. Thus the appeals are allowed.

Issues Involved:
1. Alleged incorrect availment of Modvat credit.
2. Validity of proceedings under erstwhile Rule 57-I(1)(ii) post substitution with CENVAT Rules.
3. Allegations against individual appellants for aiding and abetting in evasion of duty.
4. Denial of cross-examination and inspection of documents.
5. Application of Section 38A of the Central Excise Act, 1944.

Detailed Analysis:

1. Alleged Incorrect Availment of Modvat Credit:
M/s. Milton Polyplast (I) Pvt. Ltd. (MPL) were accused of availing Modvat credit on 11,58,018.50 kg. of AS304 grade steel but only consuming 98,537.07 kg. for manufacturing tiffins, substituting the rest with inferior rolling grade steel. This substitution allegedly led to impermissible excess Modvat credit. The Commissioner found strong circumstantial evidence of this substitution, indicating receipt of duty-paying documents for AS304 grade steel while using rolling grade steel, thereby committing fraud.

2. Validity of Proceedings Under Erstwhile Rule 57-I(1)(ii):
The appellants argued that the demand under Rule 57-I(1)(ii) was invalid due to the substitution of Modvat Rules with CENVAT Rules. The Commissioner, however, upheld the validity based on Section 38A of the Central Excise Act, 1944, which ensures the continuation of rights, privileges, obligations, or liabilities acquired under the repealed rules. The Tribunal referenced the case of Kisan Sahkari Chini Mills Ltd. to support this interpretation.

3. Allegations Against Individual Appellants:
Shri C.I. Vaghani and Shri Satish Kulkarni were accused of actively participating in the evasion of duty by substituting duty-paying documents of AS304 grade steel with rolling grade steel. The Commissioner imposed penalties under Rule 209A, stating their roles in aiding and abetting the evasion. However, the Tribunal found inconsistencies in the Commissioner's findings and ruled that penalties under Rule 209A could not be imposed without establishing the liability to confiscation of excisable goods. Hence, the penalties on these individuals were set aside.

4. Denial of Cross-Examination and Inspection of Documents:
The Commissioner rejected the appellants' request for cross-examination of individuals whose statements were relied upon and denied access to certain documents. The Tribunal found that this denial violated the principles of natural justice, as the appellants were not given a fair opportunity to defend themselves. This procedural lapse was significant enough to warrant setting aside the order on grounds of denial of natural justice.

5. Application of Section 38A of the Central Excise Act, 1944:
The Tribunal examined the applicability of Section 38A, which was introduced to ensure that the repeal or substitution of rules does not affect ongoing proceedings. The Tribunal referred to the case of Sunrise Structural & Engg. Ltd., concluding that the proceedings were not preserved by Section 38A. The Tribunal emphasized that the word "amendment" includes repeal and substitution, thus supporting the continuation of proceedings under the new rules.

Conclusion:
The Tribunal allowed the appeals, setting aside the penalties on the individual appellants and ruling that the proceedings were not validly continued under Section 38A. The denial of cross-examination and inspection of documents constituted a violation of natural justice, further justifying the decision to set aside the Commissioner's order. The Tribunal's decision underscores the necessity of adhering to procedural fairness and the proper application of legal provisions in adjudicating cases of alleged duty evasion.

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