2017 (10) TMI 201 - AT - Central Excise

CENVAT credit - duty paying documents - issue of fake invoices without receipt of duty paid goods - Held that - it is established that dealer M/s Dhanlaxmi Steels has fraudulently issued fake invoices, therefore Cenvat Credit on such fake invoices cannot be allowed. It is settled law that fraud vitiates everything therefore whether there is involvement of Appellant in such fraud, Cenvat Credit on such invoices cannot be allowed - it is established that the Appellant was very much party to the fraud committed by M/s Dhanlaxmi Steels. In such situation, the Appellants submission regarding receipt of input and use thereof in production is of no help to them. Even if it is accepted that Appellant have received the input, since it has no linkage with duty payment by the manufacturer the credit on fake invoices cannot be allowed. Penalty u/s 11 AC read with Rule 15 of CCR, 2004 - Held that - M/s. Mohit Ispat Ltd. indulged themselves in fraudulently availing Cenvat Credit. Therefore the proviso of section 11A is clearly invokable consequently section 11 AC which has almost same ingredients as in proviso, the penalty was rightly imposed. Personal penalty on the Appellants namely Shri Harshvardhan, Director and Shri Dayanand Shenai, General Manager of M/s Mohit Ispat Ltd. - Held that - the penalty on these Appellants were imposed u/r 26(2)(ii) of CER, 2002. The said provision was inserted in Rule 26 w.e.f. 01.03.2007 vide N/N. 18/2007-CE (N.T.). The period involved in present case is October, 2006. It is a settled law that the penal provision, which was not existing at the time of committing offence and the same was enacted subsequently, cannot be invoked retrospectively - penalty set aside. Decided partly in favor of appellant.

Summary

Issues:
Fraudulent availing of Cenvat Credit based on fake invoices, liability of the appellant in the fraud, denial of Cenvat Credit, imposition of penalties under Cenvat Credit Rules, 2004, and Central Excise Rules, 2002.

Analysis:

Fraudulent Availing of Cenvat Credit:
The case involved M/s Mohit Ispat Ltd. availing Cenvat Credit based on 14 invoices issued by M/s Dhan Laxmi Steels, Raipur, which were later found to be fake. The investigation revealed that M/s Dhan Laxmi Steel was not operational at the time, and the source of material was bogus. The Adjudicating Authority confirmed the demand against M/s Mohit Ispat Ltd., alleging fraudulent activities in availing Cenvat Credit.

Liability of the Appellant:
The appellant argued that they purchased inputs legitimately from M/s Dhan Laxmi Steels and made payments through banking channels, thus claiming no involvement in any fraudulent activities by the supplier. However, the tribunal found evidence suggesting the appellant's connivance in the fraud, as cash withdrawals from a Goa-based account linked to the supplier were facilitated by the appellant, indicating their involvement in the fraudulent scheme.

Denial of Cenvat Credit:
The tribunal held that since the supplier fraudulently issued fake invoices without actual goods supply, the Cenvat Credit based on such invoices cannot be allowed. The tribunal emphasized that fraud vitiates everything, and even if the appellant received the inputs, the lack of linkage with duty payment by the manufacturer rendered the credit on fake invoices inadmissible.

Imposition of Penalties:
Regarding the imposition of penalties under Section 11AC and Rule 15 of Cenvat Credit Rules, 2004, the tribunal upheld the penalties, considering the fraudulent activities of M/s Mohit Ispat Ltd. in availing Cenvat Credit. The tribunal also addressed the personal penalties imposed on the director and general manager of the company, highlighting the retrospective application issue of Rule 26(2)(ii) of Central Excise Rules, 2002, and set aside the penalties imposed on these individuals based on legal precedents.

Conclusion:
The tribunal dismissed the appeal filed by M/s Mohit Ispat Ltd. and allowed the appeals filed by the director and general manager of the company, considering the evidence of fraudulent activities and the legal aspects related to the denial of Cenvat Credit and imposition of penalties. The judgment was pronounced on 21/09/2017.