2014 (3) TMI 415 - AT - Central Excise

Denial of CENVAT Credit - Manufacturer recipients took cenvat credit on the basis of invoices issued by second stage dealer - Revenue contends that both the first stage dealer and the second stage dealer only issued invoices without the movement of inputs - Held that - It is observed that no investigation has been done at the end of the manufacture recipients end to the effect that the vehicles used for transport of inputs from second stage dealer to the manufacturers factory were not capable of transporting the inputs received by manufacturer. There is also no evidence on record that manufacturer recipients were aware of the fact that inputs received by them were not the same inputs which were received by the first stage dealer which was sold to second stage dealer without movement of inputs. Except in the case of M/s. Apex Alloys Steel Pvt. Ltd. there is no evidence that cheque payments made were subsequently compensated by the second stage dealer by cash payment after deducting his commission. In the absence of any such evidence cenvat credit cannot be denied to the manufacturer recipients and it cannot be held that extended period of five years is applicable. - cenvat credit is admissible to the manufacture recipients, except in the case of M/s. Apex Alloys Steel Pvt. Limited, on merits as well as time bar. - Decided partly in favor of assessee. Regarding penalties - for the period prior to 01.3.2007 on the first stage dealer or second stage dealer - Held that - first appellate authority was justified in upholding penalties against appellants even for the period prior to amendment of Rule 26 of the Central Excise Rules, 2002 - levy of penalty confirmed.

Summary

Issues Involved:
1. Alleged non-movement of inputs between first stage and second stage dealers.
2. Admissibility of cenvat credit to manufacturer recipients.
3. Imposition of penalties on appellants.

Analysis:

Issue 1: Alleged non-movement of inputs
The Revenue alleged that the first stage dealer and second stage dealer issued invoices without the actual movement of inputs. The Revenue claimed that the vehicles mentioned in the transport documents were incapable of transporting the quantities involved. Both dealers admitted to preparing documents without actual movement of inputs. The second stage dealer was accused of passing on credit to manufacturers without receiving inputs.

Issue 2: Admissibility of cenvat credit
Advocates for the appellants argued that the manufacturer recipients were not aware of the alleged irregularities. They contended that no investigation proved the non-movement of inputs. The appellants claimed the demand was time-barred, as they had no intention to take inadmissible credit and had both inputs and duty paying documents available at the time of credit availing.

Issue 3: Imposition of penalties
The Revenue defended the penalties, citing evidence that only documents were prepared without actual input movement. The investigation revealed that the first and second stage dealers were aware of the lack of input movement. Precedents were cited to justify the imposition of penalties on the appellants.

The judgment held that cenvat credit was admissible to the manufacturer recipients, except in one case, where evidence showed cash payments were made after cheque payments. The appeals of some appellants were allowed, while others were rejected based on the admissibility of credit and imposition of penalties. The decision was based on the lack of evidence proving awareness of irregularities by manufacturer recipients and the applicability of penalties even before the amendment of Rule 26 of the Central Excise Rules, 2002.