2006 (4) TMI 36 - Commission - Central Excise

Central Excise Cenvat Revenue pleads that inputs not used in final product and removed clandestinely, credit thereof not available - Manipulation of invoices to show fictitious removal of final product Recovery of credit as separate payment when amounts to double levy of duty Immunity granted

Issues Involved:
1. Eligibility of CENVAT credit utilization.
2. Allegations of fictitious transactions and document manipulation.
3. Settlement of duty liability and interest.
4. Immunity from penalty and prosecution.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit Utilization:
The applicant, engaged in trading cotton/man-made yarn and grey textile fabrics, was alleged to have fabricated challans and self-made vouchers to falsely project the manufacture of grey fabrics, thereby availing CENVAT credit on yarn which was not actually used in production. The Revenue contended that the applicant must repay the misutilized CENVAT credit amounting to Rs. 1,53,33,622/- in cash, not by adjustment from available CENVAT credit. The Commission, however, observed that Rule 3(3) of the CENVAT Credit Rules permits the utilization of CENVAT credit for payment of duty on inputs removed as such. Thus, the applicant's utilization of CENVAT credit for payment of duty on purported fabrics was deemed permissible, rendering the demand for separate payment as double duty levy.

2. Allegations of Fictitious Transactions and Document Manipulation:
Investigations revealed that the applicant did not engage any powerloom owner nor supply any yarn to them, but instead fabricated documents to falsely show the manufacture and sale of grey fabrics. The Revenue alleged that the applicant manipulated records to evade sales tax and abused the CENVAT credit scheme. Despite these allegations, the Commission noted that the Revenue did not investigate whether the invoices issued by the applicant for the purported sale of fabrics were used by purchasers to claim CENVAT credit. The Commission concluded that the applicant's actions, though manipulative, did not justify the denial of CENVAT credit since the removal of inputs as such is allowed under the rules.

3. Settlement of Duty Liability and Interest:
The applicant accepted the entire duty liability of Rs. 2,05,62,959/- as demanded in the Show Cause Notice and had paid the duty before the notice was issued. The Commission settled the duty at the same amount, allowing the adjustment of the amount already utilized for payment of duty on purported fabrics and the amount paid by debit entry. The Commission imposed simple interest at 10% per annum on the belated payment of duty to the extent of Rs. 52,29,337/-, considering the applicant's cooperation and full disclosure of duty liability.

4. Immunity from Penalty and Prosecution:
The Commission granted immunity to the applicant and co-applicant from penalty and prosecution under the Central Excise Act, acknowledging the applicant's cooperation and full disclosure during the proceedings. The immunities were granted under Section 32K(1) of the Act, with the provision that the order of settlement would be void if obtained by fraud or misrepresentation of facts.

Conclusion:
The Commission settled the case by allowing the adjustment of CENVAT credit utilized for payment of duty on purported fabrics, imposing interest on the belated payment of duty, and granting immunity from penalty and prosecution. The decision emphasized the permissibility of utilizing CENVAT credit for removal of inputs as such and highlighted the need for thorough investigation by the Revenue into the use of manipulated invoices by purchasers.

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