2009 (9) TMI 362 - AT - Central Excise

Cenvat Credit- The appellants M/s. United Chain Industries and M/s. Kay Iron Works (herein after referred to as manufacturers) are registered as manufacturers of excisable goods. There are demands of duty along with interest besides penalties imposed on both of them. Dealer passing credit without supplying goods. Issuing Cenvatable invoices without supplying goods is a fraud committed on revenue. Statutory obligation to account for the goods applicable when input purchased and credit taken. To account for the goods not merely mean making entries in registers took credit prepared invoice for goods already diverted and received payment for diverted goods. Registration by dealer solely for passing on credit and intent to evade duty proved when invoice issued without supplying goods. Duty paid by manufacturer and goods diverted by dealers liable for confiscation. Documents issued not valid for passing credit. Dealers liable to penalty. personal penalty imposed on proprietor penalty on broker and commission agent and penalty on directors imposed.

Issues Involved:
1. Whether the duty-paid goods procured by the dealers can be treated as excisable goods.
2. The meaning and scope of "dealing in goods" and whether possession is necessary.
3. Applicability of Rule 25 for penal action against dealers and manufacturers issuing invoices without supplying goods.
4. Liability of manufacturers receiving Cenvatable invoices and showing production and clearances using Cenvat credit.
5. Validity of invoices issued without supply of goods for taking and passing on Cenvat credit.
6. Impact of settlement by ultimate users on earlier transactions.
7. Imposition of penalties on directors, partners, proprietors under Rule 26 prior to its amendment.

Detailed Analysis:

1. Whether the duty-paid goods procured by the dealers can be treated as excisable goods:
The term "excisable goods" is defined as goods mentioned in the Schedules to the Central Excise Act, 1985, subject to excise duty. The inputs involved in the case, such as HR coils and CR coils, are clearly excisable goods. There is an obligation to account for the receipt, storage, and disposal of these goods in the manner prescribed, especially when Cenvat credit has been taken. This obligation is a continuing one, even when the credit is transferred through dealers.

2. The meaning and scope of "dealing in goods" and whether possession is necessary:
The term "dealing in goods" includes a wide range of activities such as selling, purchasing, transporting, and other manners of dealing with excisable goods. Possession is not a must for dealing in goods like purchase or sale. The registered dealers, by issuing invoices without supplying the goods and taking credit, have dealt with the goods. This fraudulent activity renders the goods liable for confiscation and the dealers liable for penal action.

3. Applicability of Rule 25 for penal action against dealers and manufacturers issuing invoices without supplying goods:
Rule 25 of the Central Excise Rules provides for penal action against any person who deals with excisable goods liable for confiscation. The registered dealers and manufacturers, by issuing invoices without supplying goods, have rendered the goods liable for confiscation. Therefore, they are liable for penalties under Rule 25.

4. Liability of manufacturers receiving Cenvatable invoices and showing production and clearances using Cenvat credit:
Manufacturers like M/s. United Chain Industries and M/s. Kay Iron Works, who received Cenvatable invoices without receiving goods and utilized the credit for payment of duty on capital goods, are liable to pay back the credit taken and utilized. Their actions constitute fraud, and they are liable for penalties under Rule 13(2) and Rule 15(2) of the Cenvat Credit Rules, read with Section 11AC of the Central Excise Act, 1944.

5. Validity of invoices issued without supply of goods for taking and passing on Cenvat credit:
Invoices issued without the supply of goods are invalid documents. No credit can be passed through such documents, and no such credit should be taken by the recipients. The registered dealers and manufacturers who issued or received such invoices are liable for penalties.

6. Impact of settlement by ultimate users on earlier transactions:
The settlement of cases by ultimate users before the Settlement Commission does not affect the liability of earlier parties like M/s. United Chain Industries and M/s. Kay Iron Works. The offences by the ultimate users are separate from those of the earlier parties. Each irregularity must be addressed separately, and one fraud cannot rectify another.

7. Imposition of penalties on directors, partners, proprietors under Rule 26 prior to its amendment:
Prior to its amendment, Rule 26 provided for penalties on any person dealing with excisable goods liable for confiscation. The roles of directors, partners, and proprietors in dealing with the goods render them liable for penalties. However, considering the circumstances, the penalties imposed on individuals like Shri Praveen Chandra, Yash Pal Sharma, and Arun Ghai were reduced.

Judgment:
- Appeals by M/s. United Chain Industries and M/s. Kay Iron Works were rejected.
- Appeals by various dealers like M/s. V.K. Enterprises, M/s. Vijay Enterprises, and others were rejected.
- Appeals by individuals like Shri Rupesh Bansal, Vishal Arora, and Vinod Goel were allowed.
- Penalties on Shri Praveen Chandra, Yash Pal Sharma, and Arun Ghai were reduced.
- Stay petitions were disposed of.

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