2005 (7) TMI 179 - AT - Central Excise

Cenvat/Modvat - scrap - Evidence - Appreciation of the statements - Misdeclaration - Input - whether the description of 'CRCA scrap' actually observed and M.S. offcuts etc. mentioned on the duty documents should lead to a conclusion that the inputs allegedly received and taken credit, were not covered by the duty paid documents - HELD THAT - The allegation of segregation and bundling will not in any case being any charges on the Second Stage Dealers the assessee. The perusal of the statement of Shri Abdul H. Khan of Kohinoor Trading Company dated 30-7-2001 indicates no press bundling but only hand bundling to have been done, as well as it indicates they buy A-grade scrap at Tender price from M/s. Bajaj; thereafter they sort out good pieces sell on Modvat credit only the remainder quantity at pro rata duty. There appears to be nothing improper in this approach that cannot call for denial of the credit on invoices issued by such dealers. They had received the scrap classified as 'M.S. Offcuts of M.S. Sheets'. Same we sorted out, thereafter sent as M.S. Scrap . Mere change of nomenclature, will not call for denial of credit. This Tribunal in the case of Singh Scrap Processors Ltd. v. CCE, Mumbai 2002 (4) TMI 114 - CEGAT, MUMBAI had held that removal of impurities in the scrap purchased compressing with aid of mechanical press to form billets would amount to manufacture. If the dealers activities, amounted to manufacture, as per this decision then the dealers should have been brought under the Excise net for the activity of segregation bundle billet formation. The denial of the credit on the dealers invoices, for the reason, as arrived, cannot be upheld when no efforts are made to bring this activity of the dealers under excisable manufacture. If the dealer status is not questioned, then the dealers need not maintain the records of inputs for which they have not issued Modvatable invoice, as in the case herein the facts revealed. There is nothing incriminating in sale of goods prices at higher value no Modvat invoice issued. We therefore find no reason to arrive at for denying the credit as availed penalty on the assessee or/ the dealers as arrived in this case. The duty, interest penalty orders are therefore to be set aside. Before parting, we would like to observe that the decision of Sunshine Structures Engineering Ltd. v. CCE 2004 (8) TMI 697 - CESTAT MUMBAI relied by the appellant will not help the assessee for the period under Cenvat Rules also when the order is not being upheld on merits, we do not go into question of applicability of the decision for part of period. Appeal disposed off, on merits, by setting aside the order and allowing the appeals.

Summary

Issues involved:
- Availing credit of duty paid on inputs
- Allegations of evasion of Central Excise duty
- Imposition of penalties on dealers
- Denial of credit and imposition of penalties on the appellant
- Scrutiny of scrap procurement process
- Interpretation of Modvat and Cenvat credit schemes

Analysis:

Issue 1: Availing credit of duty paid on inputs
The appellant, engaged in manufacturing SG Iron Castings, faced allegations of availing credit on inputs that did not meet manufacturing specifications. The Preventive officers initiated an inquiry based on information suggesting irregularities in availing credits. The case involved discrepancies in the description of scrap received and the actual material used in manufacturing, leading to allegations of evasion of Central Excise duty.

Issue 2: Allegations of evasion of Central Excise duty
The allegations against the appellant included colluding with registered dealers to avail Modvat credit on Cold Rolled Cold Annealed Scrap (CRCA Scrap) while misrepresenting the material as off cuts of M.S. Sheets. The investigation highlighted discrepancies between invoices and actual materials received, raising concerns of intent to evade payment of Central Excise duty.

Issue 3: Imposition of penalties on dealers
Penalties were imposed on first and second stage dealers for their role in the supply chain of scrap materials. The penalties were imposed under Rule 209A of Central Excise Rules, 1944, read with Rule 26 of Central Excise (No. 2) Rules, 2001, indicating accountability at various stages of the supply chain.

Issue 4: Denial of credit and penalties on the appellant
The appellant was demanded a significant amount and faced penalties for allegedly availing credit on invoices that did not meet the criteria under Central Excise Rules and Cenvat Credit Rules. The case involved a detailed examination of the documentation related to scrap procurement and credit availing processes.

Issue 5: Scrutiny of scrap procurement process
The judgment scrutinized the entire scrap procurement process, including the role of first and second stage dealers, segregation of scrap, and discrepancies in descriptions of materials received. The Commissioner's conclusions were challenged based on the evidence presented regarding the nature of scrap received and its utilization in manufacturing processes.

Issue 6: Interpretation of Modvat and Cenvat credit schemes
The judgment delved into the interpretation of Modvat and Cenvat credit schemes concerning the eligibility of duty paid inputs for credit availing. The Tribunal emphasized that the actual price paid for scrap by dealers was irrelevant to the credit eligibility, focusing instead on the duty paid on inputs received by the appellant.

In conclusion, the judgment highlighted the complexities of credit availing processes, the importance of accurate documentation, and the need for transparency in the supply chain to prevent evasion of Central Excise duty. The decision set aside the duty, interest, and penalty orders, emphasizing the need for a thorough examination of facts and adherence to legal provisions in excise matters.