2014 (7) TMI 530 - AT - Central Excise

CENVAT Credit - removal of inputs from the registered premises to the adjacent unregistered premises - storage of goods outside the factory premises at nearby premises own by the assessee - storage beyond the excisable area - the facts were noticed during physical verification by the department - Difference of opinion - Matter referred to larger bench with following questions of law - Whether no pre-deposit is to be ordered as held by Member (Judicial). OR Whether pre-deposit by respective appellants to the extent directed by learned Technical Member should be ordered.

Issues Involved:

1. Denial of credit of Rs. 1,10,90,641/- to the appellant.
2. Imposition of penalties under Section 11AC and Rule 25.
3. Penalties on the Director and Authorized Signatory under Rule 26 of Central Excise Rules, 2002.
4. Shortage of inputs detected during factory inspection.
5. Credit taken on invoices without actual receipt of inputs.
6. Credit taken on self-invoices without goods being returned.
7. Procedural violations regarding storage of inputs outside registered premises.

Issue-wise Detailed Analysis:

1. Denial of Credit of Rs. 1,10,90,641/-:

The Commissioner denied credit on various grounds, including physical shortages of inputs like Arsenic Metal, Lead concentrate, and Zinc concentrate, as well as credit taken on invoices without actual receipt of inputs. The appellants argued that the shortages were due to inputs stored in an adjacent plot, which the officers did not verify. The Tribunal noted that the adjacent plot, though owned by the appellant, was not registered with the excise department, thus the inputs stored there could not be considered. The Tribunal referenced a similar case (Munjal Showa Ltd. vs. CCE, New Delhi) to support that procedural violations should not result in the denial of substantive rights to take Modvat credit.

2. Imposition of Penalties under Section 11AC and Rule 25:

The Commissioner imposed a penalty equal to the denied credit amount under Section 11AC and an additional penalty under Rule 25. The Tribunal found that the appellants had already deposited Rs. 35.67 lakhs and considered this sufficient for the purpose of Section 35F. It was noted that penalties should be reconsidered in light of the procedural nature of the violations.

3. Penalties on the Director and Authorized Signatory under Rule 26:

Penalties of Rs. 15 lakh and Rs. 10 lakh were imposed on the Director and Authorized Signatory respectively. The Tribunal found that the appellants had made a prima facie case that the inputs were stored in an adjacent plot. Given the procedural nature of the violations, the penalties on the individuals were also reconsidered.

4. Shortage of Inputs Detected During Factory Inspection:

The significant shortages of Lead concentrate and Zinc concentrate were a major part of the denial of credit. The Tribunal noted that the appellants immediately informed the Commissioner about the adjacent plot where the inputs were stored. The Tribunal found that the visiting officers should have taken this into consideration, and thus the shortages were not actual but pseudo shortages.

5. Credit Taken on Invoices Without Actual Receipt of Inputs:

The appellants reversed credit on certain invoices after it was found that there were no actual movements of goods. The Tribunal found that the credit taken on these invoices was improper and agreed with the reversal.

6. Credit Taken on Self-Invoices Without Goods Being Returned:

The Tribunal noted that the appellants had taken credit on their own invoices without proper documentation or evidence of goods being returned. This was considered a procedural violation, and the credit taken on these invoices was not justified.

7. Procedural Violations Regarding Storage of Inputs Outside Registered Premises:

The Tribunal acknowledged that storing inputs in an unregistered adjacent plot was a procedural violation. However, it emphasized that such procedural lapses should not result in the denial of substantive rights to take Modvat credit.

Separate Judgments Delivered:

One member of the Tribunal waived the requirement of pre-deposit for the remaining confirmed duty and penalties, considering the deposit of Rs. 35.67 lakhs sufficient. However, another member differed, emphasizing the fraudulent nature of the activities and ordered a pre-deposit of Rs. 50 lakhs towards duty and Rs. 32 lakhs towards penalties.

Conclusion:

The Tribunal's decision was split, with one member favoring no additional pre-deposit and the other member ordering substantial pre-deposits due to the fraudulent nature of the violations. The matter was referred to the Hon'ble President for a final decision on the requirement of pre-deposit.

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