2013 (8) TMI 129 - AT - Central Excise

Rule 11 of the central Excise Rules read with Rule 25 of the Central Excise Rules,2002 - Two of the appellants, are second stage dealers as defined in rule 2 (s) of Cenvat Credit Rules, 2004 for selling of excisable products and issuing invoices showing excise duty payment on the goods as per provisions of Rule 11 (7) of Central Excise Rules, 2002 - Two second stage dealers had procured non-duty paid MS scrap from open market and supplied it under invoices which showed payment of duty on materials which were used by buyers(manufacturers) who were not interested in taking Cenvat credit Held that - Non-duty paid goods cleared to the manufacturers under invoice showing duty payment there is a clear violation of rules with intent to evade payment of excise duty on final products manufactured (by paying such duty through fraudulent credit) - This duty liability is not on the second stage dealer. But, still in my view, the situation will be covered by Rule 25 (d) and also in respect of non-duty paid goods supplied to the manufacturer under invoice showing duty payment. So, both the goods were liable to confiscation. This explains the slight contradiction between the orders of the two lower authorities. But this is not critical to the adverse consequence that visits the appellants due to his misdeeds. The reason that the goods were not available to confiscation should not be a reason to avoid penalty - Hon ble High Court of Punjab and Haryana in the case V. K. Enterprises Vs. CCE 2011 (7) TMI 970 - CESTAT, DELHI has held that penalties can be imposed in such cases under Rule 25 of the rules as it existed at that time. Since there is decision of a High Court in line with argument in present case, it is not considered necessary to follow any decision of the Tribunal to the contrary Appeals filed by dealers rejected Decided against the Assessee.

Issues Involved:
1. Fraudulent procurement and supply of non-duty paid MS scrap.
2. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002.
3. Validity of Cenvat credit taken by the manufacturer.
4. Applicability of Rule 26 (2) for penalty imposition.
5. Liability of goods for confiscation.

Issue-wise Detailed Analysis:

1. Fraudulent procurement and supply of non-duty paid MS scrap:
The Revenue's investigation revealed that M/s Amman Steels and M/s Alagappa and Co., second stage dealers, procured non-duty paid MS scrap from the open market and supplied it under invoices showing duty payment. This fraudulent activity was corroborated by statements from authorized signatories of both dealers, admitting that the goods supplied were non-duty paid scrap, and the duty payments shown in the invoices were based on other materials sold to buyers not taking Cenvat credit.

2. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002:
The adjudication imposed penalties on the dealers under Rule 25 of the Central Excise Rules, 2002, and confirmed the demand of duty with interest from the manufacturer, AAPL. The dealers contested the imposition of penalties, arguing that Rule 26 (2), which allows for such penalties, came into force only on 01-03-2007, after the issuance of the impugned invoices.

3. Validity of Cenvat credit taken by the manufacturer:
The manufacturer, AAPL, argued that they were bona fide purchasers who took all reasonable care to ensure duty was paid on the goods. They claimed to have paid for the goods by cheque, accounted for the raw materials, and manufactured excisable goods cleared on payment of duty. However, the Revenue countered that the lower prices and differing descriptions of goods indicated AAPL's awareness of the fraud, justifying the extended period for duty demand.

4. Applicability of Rule 26 (2) for penalty imposition:
The dealers argued that penalties could not be imposed under Rule 25 as it stood before the introduction of Rule 26 (2). They cited various tribunal decisions supporting their stance. However, the Revenue referred to a Punjab and Haryana High Court decision allowing penalties under Rule 25 as it existed at the relevant time.

5. Liability of goods for confiscation:
The dealers contended that the adjudication order did not specify which goods were liable for confiscation. The Commissioner (Appeal) held that duty-paid goods sent to parties not involved in the proceedings were liable for confiscation, justifying the imposition of penalties. The Tribunal concluded that both duty-paid and non-duty paid goods were liable for confiscation, and the absence of goods for confiscation should not preclude penalty imposition.

Conclusion:
The Tribunal found no merit in the appeals filed by the dealers and the manufacturer, confirming the penalties and duty demands. The fraudulent activities were evident, and the penalties were justified under Rule 25 of the Central Excise Rules, 2002. All three appeals were rejected, upholding the adjudication and Commissioner (Appeal) orders.

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