2014 (3) TMI 552 - AT - Central Excise

Availment of CENVAT Credit - fraudulent credit - Revenue made out a case against the first applicant that the three other applicants, namely, M/s. Santhosh Kumar Steels, M. Manikandan, M/s. Sri Amman Steels supplied non-duty paid scrap under cover of invoices showing excise duty payment to enable the first applicant to take CENVAT credit - investigation showed that the dealers had obtained duty paid items like MS wires, CR coils, CR sheets etc., and they have also procured non-duty paid iron and steel scrap from the market and they issued invoices to the applicant apportioning the duty paid on such goods received but sent the non-duty paid scrap under the cover of invoices. Held that - Prima facie, I do not see any reason as to why HR sheets, coils, wires etc., should go for melting in such large quantities. No convincing explanation has been forthcoming from the appellant for such strange practice. If such goods are scrap the normal course of events is that the manufacturer of the goods himself re-melts the goods rather than selling it to a dealer who sells it to some other manufacturer for melting. In such circumstances, there is a strong prima facie case that what was used was non-duty paid scrap and the invoices on which credit was taken related to prime materials which were sold to others. Therefore, I consider it proper to call for a pre-deposit of 50% of the duty demanded from the manufactures, namely, M/s. K.S.G. Castings & Products within six weeks from the date of the order - Conditional stay granted.

Summary

Issues:
Allegations of supplying non-duty paid scrap under cover of invoices for CENVAT credit, imposition of penalty for issuing mismatched invoices, fraud on Revenue, pre-deposit requirements for appeals.

Analysis:
In this case, the Appellate Tribunal CESTAT Chennai considered five stay petitions related to appeals involving the supply of non-duty paid scrap under invoices for CENVAT credit. The Revenue alleged that three dealers supplied non-duty paid scrap to enable the first applicant to take CENVAT credit. The investigation revealed discrepancies in the goods supplied and the invoices issued. A Show Cause Notice was issued to the applicants and a managing partner. The counsel for the applicants argued that they obtained goods with proper documents showing excise duty payment, disputing the Revenue's claims. The investigation took two years to establish the alleged offense, questioning the lack of reasonable care by the applicants regarding the nature of the goods for CENVAT credit.

The counsel for the dealers contended that the alleged events occurred before an amendment that allowed penalties for mismatched invoices, arguing against the imposition of penalties under prior provisions. The Revenue argued that the goods dispatched were non-duty paid scrap, supported by statements from various individuals involved. The Tribunal noted the lack of convincing explanations for the large quantities of certain materials going for melting, raising suspicions of non-duty paid scrap usage. A pre-deposit of 50% of the duty demanded from the manufacturers was ordered within six weeks.

Regarding the dealers, citing a judgment from the Punjab and Haryana High Court, the Tribunal decided that penalties could be imposed under previous provisions for such fraud. The dealers were directed to deposit 10% of the demanded amount within six weeks. However, the requirement of pre-deposit for the managing partner's penalty was waived for appeal admission. The Tribunal ordered the waiver of remaining dues subject to the pre-deposit requirements and stayed recovery during the appeal's pendency. Compliance with the order was to be reported by a specified date.