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TMI Blog2009 (9) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... Aar Steels, M/s. Bhagwati Trading Company, M/s. Om Iron & Steel, M/s. Ayushi Steels Co. Pvt. Ltd. 1.3 There is penalty imposed under Rule 25(1)(b) and (d) on a manufacturer namely M/s. Bhupendra Steels Pvt. Ltd., who has supplied invoices. 1.4 Penalties have been imposed on other appellants namely, S/Shri Praveen Chandra, Director in M/s. Kay Iron Works (Jorian) Pvt. Ltd., Rupesh Bansal, Proprietor in M/s. Bhagwati Trading Company, Vishal Arora, Proprietor in M/s. Vee Aar Steels, Vinod Goel, Proprietor of M/s. Vee Kay Enterprises, Vijay Goel, Satpal Singh (broker and commission agent), Yash Pal Sharma, DGM in M/s. Pasondia Steel Profiles and Aran Ghai, Director of M/s. Bhupendra Steels (P) Ltd. under Rule 26 of the Central Excise Rules. 1.5 All the above appeals arise out of a common order in original passed in pursuance of common investigations relying on common evidences and therefore, are being dealt with by this common order. 2. Heard both side extensively on 15-7-09 and 17-7-09 and perused the records. As the basic facts are not in dispute and the appellants heard extensively, we waive pre-deposit of the dues as per the impugned order and proceed to finally dispose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two parties. Show cause notices were also issued in respect of some brokers who facilitated transaction between the dealers and the manufacturers and the manufacturers and the ultimate users proposing penalties. The notices were also issued to concerned Directors of some companies, partners and proprietors of some firms proposing imposition of the penalties. (e) Commissioner vide impugned order has demanded duty, imposed penalties on various persons and the details are as follows: (1) Against, M/s. Kay Iron Works (Jorian) Pvt. Ltd., Yamunanagar, he confirmed the demand of CENVAT credit of Rs.1,95,98,046/- relating to the period 2000-2001 to 2005-2006 under Rule 12 of the Cenvat Credit Rules 2001/2002 read with Rule 14 of Cenvat Credit Rules 2004 read with Section 11A of the Central Excise Act, 1944 along with interest; imposed a penalty of Rs.1,95,98,046/-; adjusted an amount of Rs. 58,04,836/- (rupees fifty eight lakhs four thousand eight hundred thirty six only) already deposited by them is appropriated against this demand. (2) Against, M/s. United Chain Industries, Yamunanagar, he confirmed the demand of CENVAT credit of Rs. 1,32,04,657/- relating to the period 2000-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoices without receiving the inputs as held by the Commissioner; they have not manufactured any goods using those inputs; they have only prepared accounts as if finished goods were manufactured and issued invoices to the ultimate users who have taken Cenvat credit based on the invoices issued by them; some of the ultimate users having been in the exempted sector have not utilised the credit by the time the investigations were commenced. The ultimate users who have utilised the Cenvat Credit have gone to the Settlement Commission and settled their cases. The appellant-companies namely M/s. United Chain Industries and M/s. Kay Iron Works have also been penalised by the Settlement Commission as a co-noticees. (b) There is no manufacture involved on the part of M/s. United Chain Industries and M/s. Kay Iron Works; as no manufacture is involved the question of levy of any excise duty in terms of Section 3 of the Central Excise Act does not arise; when there is no duty involved the question of recovery of interest and imposition of any penalty under 11 AC does not arise. (c) The entire scheme involving the dealers, manufacturers and the ultimate users was to enable availment of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se duty invoices without delivery of the goods specified therein or abets in making such invoices or (ii) Any other document or abets in making such document on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater." 4.3 Learned Advocate Ms. Seema Jain appearing for Shri Rupesh Bansal, Vee Aar Steels, Bhagawati Trading Co., Shri Vishal Arora, Om Iron & Steel and Ayushi Steel Co. P. Ltd. made the following additional submissions: (a) The erstwhile Rule 173Q (i) (bbb) provided for penalty if any manufacturer, producer, registered person of a warehouse or a registered dealer "enters wilfully any wrong or incorrect particulars in the invoice issued for the excisable goods dealt by him with intent to facilitate the buyer to avail of credit of the duty of excise in respect of such goods which is not permissible under these rules". (b) Central Excise Rules, 2002 did not have similar provisions til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by them towards payment of duty on the capital goods cleared by them. Since they have taken credit on the inputs and utilised the same irregularly, the order for recovery of the said amount of credit is fully justified. Whether the person who has received the invoices and taken credit has utilised or the same is lying in balance is altogether a different matter and has no relevance to their liability to pay back the credit taken and availed by them. The penalty imposed is also justified. (c) The possession is not a necessary ingredient to come to a conclusion that a person has dealt with the goods. He relies on the decision of the Hon'ble Supreme Court in the case of Sachidananda Banerjee, ACC, Calcutta v. Sitaram Agarwal reported in 1999 (110) E.L.T. 292 (S.C.) in which the expression "in any way concerned in any manner dealing with prohibited goods". (d) Learned DR also relies on the decision of the Tribunal in the case of Dr. Writers Food Product - Order No. A/200-201/WZB/09/EB/CI dated 4-6-09 [2009 (242) E.L.T. 381 (Tribunal - Mumbai)] which after relying on the judgment in the case of Sachidananda Banerjee cited supra and distinguishing the decision in the case of Steel T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ultimate user of the credit? (g) What is the impact on earlier transactions, when the ultimate user of Cenvat credit has admitted irregular taking of credit and settled their cases before the Settlement Commission? Whether, because of payment of duty by the ultimate users, the duty payable by manufacturers at earlier stages could be held as not payable or waived? (h) Whether penalties can be imposed on Directors, partners, proprietors under Rule 26 in respect of their role prior to amendment carried out in Rule 26 vide Notification 8/2007-C.E. (N.T.) with effect from 1-3-2007. 8. A submission has been made that once central excise duty has been paid the goods can not considered as excisable goods and the obligation in respect of excisable goods can not be applied. This overlooks the definition of excisable goods which reads as follows: "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Act, 1985 as subject to a duty of excise and includes salt. It also overlooks the fact that the validity of credit taken depends upon use of the inputs in the manufacture of final product; after credit is taken on the duty paid excisab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it lying in the cenvat account is permitted as cash refund in a situation when the manufacturer is not able to utilise the credit due to exports under bond by him. 8.2 Every manufacturer, especially the small scale units may not be able to procure the inputs directly from the manufacturer of the inputs and avail the cenvat benefit. The dealers, who were in the chain of distribution, were permitted to register themselves with excise authorities and issue cenvatable invoices while selling duty paid goods. For the purpose of distributing credit, the first stage dealers and second stage dealers have been introduced and they were permitted to register and pass on the credit while selling the goods to the actual manufacturer who will be using duty paid inputs. These dealers are permitted to pass on credit, to the buyer of goods, proportionate to the duty paid on goods supplied by them. (9.1)The role of the registered dealer, in the context of Cenvat Scheme, can also be to be analysed at this stage. The dealer need not be the manufacturer or the consumer. The first stage dealer receives the goods from the manufacturer or from other approved persons/premises under cover of invoice; he pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first stage dealer" and "second stage dealer" have been defined as follows: "First stage dealer" means a dealer, who purchases the goods directly from, (i) the manufacturer under cover of invoice issued in terms of an invoice issued in terms of the provisions of Central Excise Rules or from the depot of the said manufacturer, or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or (ii) An importer or from the depot of an importer or from the premises of the consignment of the importer, under cover of an invoice. ''Second stage dealer" means a dealer who purchases the goods from a first stage dealer. 9.1 The registered dealers, thus, have specific roles and obligations in the context of Cenvat Scheme. The role of the dealers, thus, include procurement of duty paid inputs along with duty paying documents; maintaining accounts of receipt and storage and disposal of the inputs; while selling the goods to second stage dealers/or manufacturers issue cenvat invoices to pass on proportionate credit to the buyers relating to the goods sold to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturer or the godown/branch office of the manufacturer and he did not receive the goods, he was not entitled to take the credit. The important conditions which have to be fulfilled for taking the credit are that the duty paid goods should be received and the duty paying documents should also be received and both the conditions should be fulfilled before taking the credit. It should be remembered that inputs may emanate from exempted sector, in which case mere receipt of the goods will not entitle the recipient to credit. If any one of these conditions is not fulfilled, the dealer is not entitled to take the credit. 10.3 Once he is not entitled to take the credit, he is not entitled to pass on the credit. The role of the dealer issuing invoices without supplying the goods, receiving money in cheque and returning the same to the receiver of the invoices after retaining dealer's commission is a fraud played on the exchequer. The issue of invoice by the dealer and passing on the credit to the manufacturer/second stage dealer is the "invisible foundation" for the edifice of evasion. The dealer who has taken the registration solely for the purpose of dealing in with excisable goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived payments in respect of the said diverted goods; in the process they passed on the credit of duty paid by SAIL in respect of goods for which they prepared the invoices; they received commission as a percentage of value of the goods. No doubt that it may be true that they have not carried the goods as head loads, over the shoulders. Whatever they have done was in relation to duty paid goods on which credits have been taken and in respect of which they have a clear obligation to account for its disposal in the manner prescribed in the statutory Rules. It was not a child's play that they were carrying on. The position of the second stage dealers are not significantly different as they have also dealt with the goods and taken their commission and based on the credit to ultimate customers who have availed the credit of duty paid by SAIL. 11. A submission has been made that the parties to whom M/s. United Chain Industries and Kay Iron Works have supplied invoices have admitted their availing the Cenvat credit irregularly and got their cases settled before the Settlement Commission and these two parties were also penalised as co-noticees. As the said ultimate users have paid duty, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eels Pvt. Ltd. has also not supplied the goods mentioned in the invoices and supplied only the invoices has to be upheld. The documents issued by these dealers/manufacturers without supply of goods are clearly invalid documents and no credit could have been passed through such documents and no such credit should have been taken by M/s. United Chain Industries and Kay Iron Works. 12.2 Rule 25 of the Central Excise Rules, is attracted in respect of wide range of activities as it provides for penal action on "any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner deals with, any excisable goods which he knows or reason to believe are liable for confiscation." For selling or purchasing of any goods, the physical possession or transport is not a must. The registered dealers have clearly dealt with the duty paid goods procured from SAIL on which credit has been taken by M/s. United Chain Industries and Kay Iron Works. The action of the registered dealers in having diverted the said goods, have rendered the said goods liable for confiscation. The role of M/s. Bhupendra St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have approached the Hon'ble Settlement Commission with respect to such separate show cause notices issued to them and not in pursuance to the instant show cause notice. The penalty on M/s. United Chain Industries and M/s. Kay Iron Works as supplier of invoices to the ultimate users is in relation to abetment of offences committed by the ultimate users. The show cause notices issued to other parties pertain to violations committed by them and are not subject matter of the present proceedings. One fraud cannot rectify the other and each needs to be visited separately by the legal consequences. The consequences of offences arising out of actions/omissions by M/s. United Chain Industries and M/s. Kay Iron Works cannot be mitigated by subsequent offences by others and the decision in respect of such offences. 13.4 In respect of M/s. United Chain Industries and M/s. Kay Iron Works, the credit taken by them is irregular; the utilisation is irregular and the consequences as per Rule 14 and 15 of Cenvat Credit Rules to follow. The credit taken and availed has been rightly demanded from them; and penalties have been rightly imposed on them. 13.5 There is a grievance expressed on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of M/s. Bhupendra Steels (P) Ltd. under Rule 26 of the Central Excise Rules. Prior to amendment Rule 26 provided for imposition of penalty on "any person" who acquires possession of, or in any way concerned in transporting, removing, depositing, keeping, concealing, "selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe or liable to confiscation under the Act or these rules". The roles of these persons are in relation to the dealing in the goods as discussed earlier. The submission that there was no provision similar to 173Q (bbb) in the Central Excise Rules, 2002 till the amendment by Notification 8/2007-C.E. (N.T.), dated 1-3-2007 is true. Provisions enabling imposition of penalty on any person issuing invoice/document without of delivery of goods or abetting in making such documents has been specifically inserted in Rule 26 with effect from 1-3-2007 as Rule 26(2). With this amendment issue of invoices, without any goods being involved, to enable taking credit by the recipient of such invoices are also covered. When the goods are dealt with, as in the present case, then the provision under unamended Rule 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt by an India based importer who sells the goods imported by him on high sea sale basis; the orders for import could be placed with out even seeing the goods; the goods could be transported by ships and sale takes place on high sea sale basis. In such cases, the party who sells on high sea sale basis has purchased and sold but he has not taken possession or transported. It is a common knowledge that there are similar situations in domestic transactions of selling or purchasing. A Delhi based trader may order a consignment in Mumbai, but may transfer the consignment by sale to a party in Chennai and he may not take physical possession or be concerned about transporting. 16.2 The reliance has been placed on the extract from principles of statutory interpretation by Justice G.P. Singh, regarding retrospective operation of penal statutes and a submission was made that Rule of construction against retro activity of penal loss is not restricted to acts providing for criminal offences but applies also to laws which provides for other penal consequences of a severe nature. As we have held that the action of these two manufacturers appellants attract the provisions of Rule 14 and 15 of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess they passed on the credit of duty paid by SAIL. In respect of the second stage dealers, situation is identical as in the case of the first stage dealers except that they have shown purchase from first stage dealers the duty paid goods. Possession of the goods is no doubt a must for the purpose of transporting. However, possession is not a must for dealing otherwise in the goods like purchase or sales. (c) There is also a clear obligation on the part of any registered dealers who have purchased the excisable goods and taken credit and passed on the credit to the manufacturer of final products not to act in any way which is prejudicial to utilisation of the input for the intended purpose. There is also a continuing obligation to account for the goods on which the credit was taken and passed on. The goods have moved in an undisclosed direction and financial transactions have been fraudulently made to avail and utilise ineligible credit. There is a clear obligation on the part of any manufacturer who has received the excisable goods and taken credit to utilise the same for the intended purpose. Thus, the obligation is on the manufacturer/registered dealer to account for the go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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