2024 (12) TMI 666 - AT - Central Excise

Recovery of cenvat credit with interest and penalty - manufacture of Excisable goods or not - applicability of section 11 D of the Central Excise Act, read with the provisions of rule 25 /or rule 27 of the Central Excise Rules 2002, read with section 11 AC of the Central Excise Act, 1944 - whether the appellant actually received the excisable goods from Koolmint at its factory on which credit was availed and whether they could be subjected to the provisions of section 11 AC read with rule 15 of the Central Excise Rules? - invocation of Extended period of limitation. HELD THAT - There is no satisfactory explanation emanating from the evidence on record or the response of Koolmint to such a wide variation of consumption data, except for a bland statement stating that wherever the average consumption of electricity per KG was higher, it indicated the use of DG set for longer period of time. That being so, we note from records that in March 2003, the average consumption of electricity per KG was 810KWH, while the 50 KW generator was made use of for 30.10 hours and 8KW generator for 11.20 hours, likewise in January 2004, average consumption of electricity was 18744 KWH per KG, while both the 50 KW generator and 8KW generator were operational merely for 25 hours. That being the factual position, on record the argument of the appellant is not borne out to be true and is therefore clearly unsustainable and lacking merit. For the reason, the appellant s plea is unacceptable. The premise, therefore that electricity consumption was low and refuting it by claiming consumption of electricity produced by the DG sets is not at all satisfactorily forthcoming. The appellant have not placed any other argument to refute the said contention of the department. The plea of the appellant that they used to work on electricity generated from the DG sets is a bland statement and lacks any evidence/credence in support. The show cause notice clearly makes meticulous recordings of the time period for which the generator was run incorporating even law timelines of 5, 10, 15 or 20 minutes. The fact that that casts a strong shadow of doubt on the veracity of these figures is that at all places these figures are recorded in odd numbers and multiples of 5. Isn t it quirky that not even on a single occasion did the DG set operate for a length of time in a multiple of an even integer - There is no worthwhile claim of any manufacturing activity being undertaken, out of power generated by the operation of the DG sets. Moreover, the said statement of Sri Agarwal has neither been refuted, nor retracted till date. Thus the submission by the appellant does not lend any credence to the argument made in defence by them rather goes into strengthen the department s claim casting serious aspersions on the appellants claim for manufacture of finished goods used as inputs by their family concern. This is moreso when an analysis of stated manufacture is undertaken with energy source being power generated by DG sets vis a vis that supplied by Assam State Electricity Board. The thick web of mutuality of interest is therefore quite evident between the different businesses of noticees. No formal agreement of any quantity discounts are placed on record, particularly so when almost the entire quantity (99%) said to be produced was indicated as sales to only one firm i.e. the appellant Kaizen Organics Pvt. Ltd. - While there is no significant and satisfactory evidence, to establish the to and fro movement of raw materials and finished goods, the availment of cash refund and Cenvat credit by the appellant amounts to extreme misuse of policy provisions in good measure. To further accentuate their undue pecuniary gains by way of illegal reflection of quantity and recourse to discounts not backed by a shred of evidence, is a clear pointer to the ill machinations and sinister design of the appellant and reinforces the common saying that greed and deceit have no ends and are a bottomless pit. Extended period of limitation - HELD THAT - The fact that the basic foundation of such database was set up on the edifice of fraud and deception, treachery and deception renders such reports/returns as ab initio void and a nullity in law. No shelter can be claimed under the guise of having tendered such returns to the department. For its contumacious conduct the appellant despite filing of such returns shall indeed be liable to all consequences in law including that of imposition of penalties. On the principle that fraud vitiates everything and in view of the matter, no illegality surfaces out of the department s action in the matter and the department was completely justified in invoking extended period of limitation. Applicability of Section 11 D of the Central Excise Act - HELD THAT - There are no hesitation in stating unequivocally that the appellant is certainly guilty of all charges that have been made out against them. The false and manipulated receipt and dispatch entries, cannot plug-in and come to the rescue of the appellants. Such record keeping is ab initio null and void. It stems from falsehood and forgery. There is no merit in the appellant s plea as regards the proposition of Section 11 D of the Central Excise Act as it is established from records that the amount of ₹9560962 was collected by the appellant Koolmint under the guise of Central Excise duty and therefore the provisions of section 11 D ibid are squarely applicable. The goods said to be manufactured were not manufactured, there being no requisite infrastructure to undertake said manufacture, the appellant could not have collected any duty in terms of section 3 of the Central Excise Act and the amount so collected is clearly recoverable from the appellant. There are no infirmity, or any illegality in the order passed by the learned Commissioner, The impugned order is required to be maintained - appeal dismissed.

Summary

Issues Involved:

1. Alleged misuse of exemption notification and fraudulent refund claims by M/s Koolmint Manufacturing Company.
2. Alleged irregular availment of Cenvat Credit by M/s Kaizen Organics Private Limited.
3. Allegations of manipulation and misdeclaration by the appellants.
4. Applicability of extended limitation period under section 11A of the Central Excise Act.
5. Imposition of penalties under section 11AC of the Central Excise Act.

Detailed Analysis:

1. Alleged Misuse of Exemption Notification and Fraudulent Refund Claims by M/s Koolmint Manufacturing Company:

The department alleged that M/s Koolmint Manufacturing Company misused the exemption notification No. 32/99-CE by not actually manufacturing the excisable goods in their factory premises. They were accused of gross over-invoicing, misdeclaration, and misrepresentation of facts with the intention of passing irregular Cenvat credit to their customer, M/s Kaizen Organics Private Limited. The investigation revealed that Koolmint cleared goods by paying the entire amount of duty from the Account Current without availing credit on inputs or capital goods and claimed refunds for the duty paid. The adjudicating authority found that Koolmint did not have the necessary infrastructure to manufacture the claimed quantities of methanol, DMO, and menthol flakes, as evidenced by the low power consumption and inadequate labor force. The department also highlighted discrepancies in transportation records, indicating non-receipt of raw materials and non-transport of finished goods. The tribunal upheld the department's findings, concluding that Koolmint did not engage in actual manufacturing and was involved in fraudulent refund claims.

2. Alleged Irregular Availment of Cenvat Credit by M/s Kaizen Organics Private Limited:

M/s Kaizen Organics Private Limited was accused of availing Cenvat credit on goods purportedly received from Koolmint without actual receipt of the goods. The department's investigation, supported by evidence such as transportation records and statements from transporters, suggested that the goods were not physically delivered to Kaizen. The tribunal found that Kaizen could not have availed of any Cenvat credit due to the non-receipt of materials and the fraudulent nature of the transactions. The tribunal rejected Kaizen's defense that they acted in good faith, emphasizing that credit was availed based on paper invoices arising from forgery and manipulation.

3. Allegations of Manipulation and Misdeclaration by the Appellants:

The department accused the appellants of manipulating records and misdeclaring facts to claim undue fiscal benefits. The tribunal noted significant discrepancies in electricity consumption, labor employment, and transportation records, supporting the department's allegations. The tribunal concluded that the appellants engaged in a fraudulent scheme to secure pecuniary benefits by misusing government policies and incentives. The tribunal found the appellants guilty of suppression, misstatement, and deceit, leading to the evasion of central excise duty.

4. Applicability of Extended Limitation Period Under Section 11A of the Central Excise Act:

The department invoked the extended limitation period under section 11A(1) of the Central Excise Act, citing suppression and misdeclaration by the appellants. The tribunal upheld the invocation of the extended period, rejecting the appellants' argument that they had filed all returns and maintained records. The tribunal emphasized that the returns and records were manipulated and forged, rendering them null and void. The tribunal concluded that the department was justified in invoking the extended period due to the fraudulent nature of the appellants' actions.

5. Imposition of Penalties Under Section 11AC of the Central Excise Act:

The adjudicating authority imposed penalties on the appellants under section 11AC of the Central Excise Act for their contumacious and dishonest conduct. The tribunal upheld the imposition of penalties, citing the appellants' deliberate defiance of law and fraudulent actions. The tribunal referenced legal precedents supporting the imposition of penalties in cases of deliberate misconduct and defiance of statutory obligations. The tribunal found no merit in the appellants' arguments against the imposition of penalties, concluding that their actions warranted punitive measures.

Conclusion:

The tribunal dismissed the appeals filed by the appellants, affirming the findings of the adjudicating authority. The tribunal concluded that the appellants engaged in a fraudulent scheme to evade central excise duty and secure undue benefits. The tribunal upheld the imposition of penalties and the recovery of amounts under sections 11A and 11D of the Central Excise Act, finding no infirmity or illegality in the order passed by the learned Commissioner.