2015 (8) TMI 802 - AT - Central Excise

Denial of CENVAT Credit - Capital goods - Imposition of penalty - Held that - Assessee availed credit on the basis of invoices showing the description of material MS Round, M.S. Wire, M.S. Wire coils etc. received from the registered dealers. The rate of duty is higher than M.S. scrap. On investigation, it was found that the dealers supplied non-duty paid scrap procured from the market and issued invoices of M.S. Rounds, M.S. Wire etc. to the Applicant No.1 in order to claim cenvat credit under Cenvat Credit Rules, 2004. It is well known that M.S. Rounds, M.S. wire etc. are virgin material which cannot be used as scrap in the furnace. - Prima facie, it is difficult to accept that a prudent business would use virgin material as scrap and such statement is contrary to the statements of dealers and this virgin materials usually cannot be used in melting scrap in the Furnace. We find that Rule 9 (5) of Cenvat Credit Rules, 2004 provides that the burden of proof regarding admissibility of the Cenvat credit shall lie upon the manufacturer taking such credit. It is apparent from the evidences, namely statements, process of manufacture etc. that the applicant received non-duty paid M.S. scrap, S.S. scrap in the guise of MS & HR plates, MS Wire coil, MS Round coils etc. from various registered dealers and availed cenvat credit, which is not permissible under Cenvat Credit Rules. - Partial stay granted.

Summary

Issues:
Delay in filing appeals, demand of duty on MS scrap, penalties on registered dealers, admissibility of Cenvat credit, burden of proof on manufacturer, compliance with Cenvat Credit Rules.

Analysis:

1. Delay in Filing Appeals:
The applicants filed COD applications to condone a 3-day delay in filing their appeals, citing urgent business work as the reason for the delay. The advocate submitted that the appeals were prepared within the stipulated period but were filed late due to unavoidable circumstances. The tribunal considered the facts and circumstances, ultimately condoning the delay and allowing the COD applications.

2. Demand of Duty on MS Scrap:
The case involved M/s. Praveen Foundry Pvt. Ltd., a manufacturer of castings, facing a demand of duty amounting to Rs. 25,48,085 along with penalties and interest. The original authority alleged that the company received MS scrap but the duty documents indicated different goods. Penalties were also imposed on registered dealers for supplying non-duty paid MS scrap with varied descriptions. The tribunal examined the discrepancies in the duty documents and the actual material received, emphasizing the inadmissibility of availing credit based on incorrect invoices.

3. Penalties on Registered Dealers:
Several registered dealers were penalized for supplying non-duty paid scrap under misleading descriptions like MS Rounds, MS Wire, etc. The tribunal considered the submissions made by the dealers' advocate regarding the recording of materials in their records to argue against the penalties. Reference was made to a previous tribunal order directing a pre-deposit of 10% of penalties for registered dealers in a similar situation.

4. Admissibility of Cenvat Credit:
The tribunal scrutinized the process of availing Cenvat credit by Applicant No.1, highlighting discrepancies between the material received and the invoices presented. It was established that the dealers supplied non-duty paid scrap under false descriptions, leading to the ineligibility of the applicant to claim credit. The burden of proof regarding the admissibility of Cenvat credit lay with the manufacturer, and in this case, the applicant failed to provide sufficient evidence to support their claim.

5. Compliance with Cenvat Credit Rules:
Rule 9(5) of the Cenvat Credit Rules, 2004 was invoked to emphasize the burden of proof on the manufacturer to justify the admissibility of Cenvat credit. The tribunal found that the applicant received non-duty paid scrap disguised as virgin materials, which contradicted the statements provided by dealers. The tribunal directed the applicant to make a substantial deposit within a specified period, failing which penalties and recovery proceedings would continue.

6. Conclusion:
The tribunal's decision focused on the discrepancies in the material received, the admissibility of credit, and the burden of proof on the manufacturer. Compliance deadlines were set for both the applicant and the registered dealers, with specific instructions for pre-deposits to waive penalties and stay recovery proceedings during the appeal process. Compliance reporting was scheduled for a specific date to monitor adherence to the tribunal's directives.