2013 (9) TMI 415 - AT - Central Excise

CENAVT credit - Credit availed based on only Invoices - Reasonable steps - Fraudulent Transmission of Cenvat Credit - Penalty - appellants strongly contended that the fact that M/s. Itisha was not paying duty, as reflected in the invoices issued by him, came to fore only as a result of investigations conducted by the Revenue. The said appellants have also been the victim of fraud committed by M/s. Itisha and as such, they should not be penalized. In fact, it stand specifically contended before us that neither of the manufacturer-appellant or their representative has admitted in the statements recorded during the course of investigations that they were aware of the fact of non-payment of duty by M/s. Itisha. It was pleaded that by making to reverse the Cenvat credit, they have already been penalized and further imposition of penalty on them is not justified. It is to be noted that though the provisions of Rule 7 of Cenvat Credit Rules, 2004 cannot be stretched too far, at the same time, it was the preliminary duty of the manufacturing unit to at least verify the fact of the manufacturing unit who has supplied the goods to them. Be that as it may, since it has been proved beyond doubt that the manufacturer as well as the manufacturing unit have availed Cenvat credit based on only documents and reversal thereof is not seriously challenged, it would amount to availment of Cenvat credit wrongly in contravention of provision of Cenvat Credit Rules. It is also not disputed that the extended period of limitation will apply in this case as the entire modus operandi of passing on the credit by M/s. Itisha, without having manufacturing unit, only on documentary evidence and even without paying the same to Government of India, has been un-earthed after detailed investigation, a fraud committed by M/s. Itisha. It is well settled that fraud vitiates everything and disadvantage of such fraud cannot be taken by anyone. Once there is no dispute as regards ineligible Cenvat credit availed by the manufacturers and manufacturing units and the same being reversed on being pointed out, the penalties on the manufacturing unit and the manufacturer under the provisions of Rule 15 of Cenvat Credit Rules, 2004 are correctly fastened on them. The manufacturers/manufacturing units cannot shirk away from the responsibility of availing the ineligible Cenvat credit on the face of it. All the defences raised by the ld. Counsel for appellants are very weak on the face of it. - Decided against the assessee by majority order.

Issues Involved:
1. Fraudulent transmission of Cenvat credit.
2. Time-barred demand.
3. Reasonable steps under Rule 7 of Cenvat Credit Rules.
4. Bona fide commercial transactions.
5. Penalties on job workers and dealers.
6. Applicability of Rule 7 to dealers.
7. Appropriation of duty paid.
8. Invocation of extended period.
9. Imposition of penalties.

Detailed Analysis:

1. Fraudulent Transmission of Cenvat Credit:
The case involves fraudulent transmission of Cenvat credit by M/s. Itisha Aluminium Industries, which was found to have not manufactured or supplied the claimed quantities of Aluminium Ingots. The investigation revealed that the premises lacked necessary infrastructure like electricity and proper machinery, and the invoices were fabricated. The proprietor admitted to creating fake invoices and misusing Cenvat credit.

2. Time-Barred Demand:
In the case of M/s. Sampath Aluminium Pvt. Ltd., the Commissioner (Appeals) held that the demand was time-barred as the show cause notice did not invoke fraud, suppression, or mis-declaration. This decision was accepted by the Department, and hence, similar demands were also held time-barred for other appellants.

3. Reasonable Steps Under Rule 7 of Cenvat Credit Rules:
Appellants argued that they complied with Rule 7 by receiving goods under proper invoices and making payments by cheque. However, the investigation showed that appellants did not take reasonable steps to ensure the duty was paid on the received raw materials. Statements from various appellants indicated a lack of verification of the supplier's legitimacy and the actual receipt of goods.

4. Bona Fide Commercial Transactions:
Appellants contended that they engaged in bona fide commercial transactions and fulfilled all legal requirements. However, the investigation and statements revealed that many transactions were based on fake invoices without actual receipt of goods, undermining their claim of bona fide transactions.

5. Penalties on Job Workers and Dealers:
Job workers argued that they did not take Cenvat credit and only processed goods received from principals, thus penalties should not apply to them. The Tribunal found that job workers did handle goods, and in some cases, received non-duty paid goods, justifying penalties.

6. Applicability of Rule 7 to Dealers:
Rule 7 was found not applicable to dealers. Therefore, penalties under Rule 7 and Section 11AC could not be imposed on dealers. This was upheld for M/s. Jankilal & Nandlal Metal Pvt. Ltd.

7. Appropriation of Duty Paid:
The Tribunal upheld the appropriation of duty paid by M/s. Panchmahal Steels Ltd. under Section 11A(2B), even though the extended period could not be invoked. The amount paid was appropriated towards the actual liability.

8. Invocation of Extended Period:
The Tribunal upheld the invocation of the extended period due to clear evidence of fraudulent activities and collusion among appellants. Statements and evidence showed that appellants knowingly availed Cenvat credit without receiving goods.

9. Imposition of Penalties:
Penalties were upheld for manufacturers and job workers due to their involvement in fraudulent activities. The Tribunal found that appellants were aware of the fraudulent nature of transactions and did not take reasonable steps as required under Rule 7. However, penalties on dealers were set aside as Rule 7 did not apply to them.

Conclusion:
The Tribunal upheld the reversal of Cenvat credit with interest and penalties on manufacturers and job workers. The appeal by the Revenue was allowed to the extent of duty appropriation, and penalties on dealers were set aside.

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