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TMI Blog2009 (9) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... Ex(BR), 1353 /2009- Ex(BR), 1381 /2009- Ex(BR), 1382 /2009- Ex(BR), 1383 /2009- Ex(BR), 1403 /2009- Ex(BR), 1404 /2009- Ex(BR), 1405 /2009- Ex(BR), 1406 /2009- Ex(BR), 1407 /2009- Ex(BR), Shri Justice R.M.S. Khandeparkar, President and Shri M. Veeraiyan, Member (Technical) For the Appellant : Shri S.S. Agarwal, Shri Alok Arora, Shri K.K. Anand, Shri Kamaljeet Singh, Ms. Seema Jain, Shri Prabhat Kumar, and Shri Dabbas, Advocates For the Respondent: Shri P.K. Singh. Shri K.P. Singh, B.K. Singh, DRs JUDGEMENT Per M. Veeraiyan (for the Bench): 1.1 The appellants, M/s. United Chain Industries and M/s. Kay Iron Works ( herein after referred to as manufactrers) are registered as manufacturers of excisable goods. There are demands of duty along with interest besides penalties imposed on both of them. 1.2 There are penalties under Rule 25 (1)(b) and (d) imposed on the dealers - appellants namely, M/s V.K. Enterprises, M/s Vijay Enterprises, M/s Anuj Enterprises, M/s Pawan Steels, M/s Rajat Enterprises, M/s J.V. Steel Traders , M/s Pasondia Steel Profiles, M/s Vee Aar Steels, M/s Bhagwati Trading Company, M/s Om Iron & Steel, M/s Ayushi Steels Co. Pvt. Ltd. 1.3. There is penalty i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoices so issued by them, the said 9 parties have taken cenvat credit and used them for payment of excise duty on goods manufactured by them. c) The goods procured by the first stage dealers from SAIL have been sold in cash in grey market; no goods were sent by them to the manufacturer / second stage dealers. The second stage dealers have also not sent the goods to the manufacturers. Some of the transport companies which are shown to have transported are found to be not existing. In some cases, the transport documents prepared in the name of existing companies are found to be fake. The manufacturers have admitted not receiving the goods as per invoices but taking credit and utilizing such credit for the purpose of paying duty on goods manufactured/ or shown to have been manufactured. The documentation relating to sales and purchases have been completed and including settlement of amount mentioned in the invoices by cheques. d) On the basis of investigation show cause notices have been issued to the above two parties, the dealers who issued invoices to these two parties. Show cause notices were also issued in respect of some brokers who facilitated transaction between the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahavir Enterprises are not in appeal before us. (4) Penalties under Rule 26 of the Central Excise Rules, 2001/2002 have been imposed on the persons as detailed below: Sl.No. Name of the person Amount of penalty in Rs. 1. Shri Praveen Chandra, Director in M/s Kay Iron Works (Jorian) 50,00,000/- 2. Shri Rupesh Bansal, Proprietor in M/s Bhagwati Trading Company 20,00,000/- 3. Shri Vishal Arora, Proprietor in M/s Vee Aar Steels 10,00,000/- 4. Shri Vinod Goyal, Proprietor of M/s Vee Kay Enterprises 5,00,000/- 5. M/s Shyam Roadlines 2,00,000/- 6. Shri Vijay Goel 40,00,000/- 7. Shri Satpal Singh 1,00,000/- 8. Shri Yash Pal Sharma, DGM in M/s Pasondia Steel Profiles 1,00,000/- 9. Shri Arun Ghai, Director in M/s Bhupender Steel (P) Ltd. 5,00,000/- Note: M/s Shyam Roadlines is not in appeal before us. 4.1. Learned Advocate Shri Prabhat Kumar appearing for the manufacturers namely, United Chain Industries, Kay Iron Works and their Director Shri Praveen Chandra submits the following. a) The appellants companies have received only invoices without receiving the inputs as held by the Commissioner; they have not manufactured any goods using thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 189 (Tri-Del.) vii) S.K. Colombowala v. C.C.E. (Import), Mumbai 2007 (220) ELT 492 (Tri-Mumbai) 4.2 Learned Advocate Shri Rajesh Kumar appearing for M/s Vijay Enterprises, M/s Anuj Enterprises, M/s Pawan Steel and M/s Rajat Enterprises made the following submissions: a) The appellants are registered dealers; they have merely issued invoices; they have not dealt with the inputs mentioned in the invoices; therefore, penal action under Rule 26 cannot be taken against the appellants. b) He relies on the decision of the Larger Bench in the case of Steel Tubes of India Ltd. reported in 2007 (217) ELT 506 (Tri-LB) where it has been held where an assessee is only issuing invoices wherein there is no moment of goods, they cannot be visited with penalty under Rule 209A. c) He also submits that Rule 26 was amended by issue of Notification 8/2007-CE (NT) dated 1.3.07 by inserting Rule 26(2) which is as follows: (b) after sub-rule (1) as so re-numbered, the following sub-rule shall be inserted, namely:- (2) Any person, who issues- (i) an excise duty invoices without delivery of the goods specified therein or abets in making such invoices or (ii) any other document or abets in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. C.C.E., Visakhapatnam - 2003 (161) ELT 285 (Tri-Bang.) ii) Arora Products vs. Addl. Commr. Of C.Ex. - 2009 (235) ELT 818 (Raj.) iii) Pearl Polymers Ltd. vs.C.C.E., Raigad - 2008 (226) ELT 566 (Tri-Mumbai) 6. Learned Jt. CDR Shri B.K. Singh and learned SDRs Shri P.K. Singh and Shri K.P. Singh took us through the relevant portions of the order of the Commissioner and made the following submissions: a) The registered dealers have dealt with the excisable goods on which credit has been taken. The action of these dealers in diverting the goods to grey market and still passing on credit by issue of cenvatable invoices have rendered the said diverted goods liable for confiscation. The penalty on them under Rule 25 of the Central Excise Rules is fully justified. b) M/s United Chain Industries and Kay Iron Works have irregularly taken credit based on only invoices received from the registered dealers and a manufacturer and without receiving goods mentioned in the said invoices. The credit so taken has been utilised 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 recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d invoices are raised enabling the manufacturers to take credit, whether provisions of Rule 25 can be invoked and penalty imposed against the persons ( i.e. the dealers and manufacturer) who issued such invoices? e) Whether persons who are registered as manufacturers and who are receiving Cenvatable invoices and showing production and clearances using such Cenvat credit can be treated as manufacturer and the duty of Central Excise on the goods said to have been cleared can be demanded from them? Whether persons who are registered as manufacturers and who are receiving Cenvatable invoices and showing production and clearances using such Cenvat credit was liable to pay back the credit so taken and utilised? f) Whether invoices issued without supply of goods valid documents for taking and passing on Cenvat credit of duty? If the invoices are invalid what are the consequences in respect of credit taken, passed on and utilised by different persons in the chain till 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? Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on input services. (9.3)The cenvat credit is credit given of duty paid by the manufacturer at earlier stages. In other words, this represents the actual duty paid by the manufacturer of excisable goods which has already reached the government accounts. When credit is allowed, it is a kind of return/release of amount already paid at the earlier stages usable only in the manner specified. When a cenvatable invoice is received along with goods, and the credit taken, the credit becomes available as if cash drawn from the money already deposited into the account of the government. When the manufacturer is permitted to use such credit towards duty payable on the final products cleared by them, he is required to pay a lesser amount in cash and utilise the credit taken by him of duty paid by the supplier on the inputs. The duty payable by the manufacturer of final products will be generally more than the credit taken by him. There are provisions when the credit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: Whole sale dealer means a person who buys or sells excisable goods whole sale for the purpose of trade or manufacture, and includes a broker or commission agent who in addition to making contracts for sale or purchase of excisable goods for others, stocks such goods belonging to others as an agent for the purpose of sale. 8.4.2 It should be noted that broker and commission agent have also been included under the category of whole sale dealers. 8.4.3 As per Section 6 of the Central Excise Act any prescribed person who is engaged in- (a) (b) the whole sale purchase or sale shall get himself registered with the proper officer in such manner as prescribed. 8.4.4 Rule 9 of the Central Excise Rules interalia provides for the registration of persons engaged in trade subject to such conditions safeguards and procedure as may be specified by notification by the Board. 8.4.5 In the context of Cenvat Credit scheme, the terms the 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 term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n credit, that there was no purchase of duty paid goods by them. The duty paid goods, in this has admittedly, originated from SAIL. If the duty paid inputs were purchased and no credit was taken, then the obligation for accounting receipt and disposal for central excise purposes may not be strict. Having purchased the inputs ( whether by the manufacturer or by dealer) and having taken credit in their cenvat accounts, they cannot escape from their statutory obligation to account for the goods. To account for the goods does not merely mean making entries in their book of accounts as receipt but to account for its disposal. The person to whom they invoiced having not received the goods, the persons who have issued cenvatable invoices have concealed the direction and destination and actual disposal of the goods on which they took cenvat credit and passed it on further. 10.2 If as a first stage dealer, he received the invoices only from the manufacturer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SAIL are not in dispute. Shri Mugesh Garg of M/s J V Steel Traders has clearly admitted the materials were sold in cash to various parties from SAIL stock yard itself. Similarly, Shri Yashpal Sharme DGM of M/s Pasnodia Steel Profiles has also clearly admitted that the materials purchased and lifted from SAIL stock yard were sent to cutters where the same was sold in cash to different parties . Thus they have purchased and sold the excisable goods and hence dealt with the goods. There is a continuing obligation to account for the goods on which the credit taken. The diverted goods are liable for confiscation as credit has been taken by them with out using the goods for the intended purpose; they have rendered themselves liable for penal action. 10.6. The first stage dealers have made entries in the stock registers; took credit; prepared invoices in relation to goods which have already been diverted; prepared or got prepared transport documents; received 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks have taken credit. The goods have admittedly not been supplied by the said dealers to M/s United Chain Industries and Kay Iron Works. This is confirmed by the dealers who supplied the invoices, the evidence from the transporters, the admission by representatives of M/s United Chain Industries and Kay Iron Works. Only on behalf of the registered-manufacturer, M/s Bhupendra Steels Pvt. Ltd., it was submitted that they supplied not only invoices but also the goods mentioned in the said invoices. However, major discrepancies in the transport documents were noticed; they contained registration numbers of auto rickshaw and jeep which were not capable of carrying the quantity of materials shown in the invoices. The recipients as per documents denied having received the materials. The transporters have also denied transporting the goods from M/s Bhupendra Steels Pvt. Ltd. Therefore, the finding of the Commissioner that the said M/s Bhupendra Steels 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 coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit taken by the ultimate users are, thus, the credit of duty paid by these two manufacturers. It is also claimed that in some cases, the invoices were given to units availing small scale exemption and they have not utilised the credit and therefore no revenue loss to that extent. The entire benefit of irregular Cenvat credit has gone only to the ultimate users. The Revenue loss was equivalent to the credit taken and utilised by the ultimate users. 13.3. It was also submitted that substantial recovery has already been made from the beneficiaries who have availed the credit, no recovery to that extent should be ordered from them. The offence at each stage has to be considered separately. The offences by the ultimate users are arising out of irregular credit of duty paid by these two manufacturers. Separate show cause notices were issued to such ultimate buyers of M/s United Chain Industries and M/s Kay Iron Works. These ultimate buyers have approached the Honble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Company, M/s Vee Aar Steels, and M/s Vee Kay Enterprises, under Rule 25, the question of separate penalties on the proprietors under Rule 26 of the Central Excise Rules does not arise. 14.3. Penalties have been imposed on the appellants Shri Satpal Singh, the broker and commission agent, and Shri Vijay Goel under Rule 26 of the Central Excise Rules. Unlike the dealers, the brokers have dealt with t he goods only as a link between the buyer and the seller of the goods. They were not required to Register themselves with Excise authorities and no violation of any obligation on their part has been cited. Therefore, we are of the view t hat role of the brokers may not attract the provisions Rule 26, before the amendment. 14.4. Penalties have been imposed on other appellants namely, S/Shri Praveen Chandra, Director in M/s Kay Iron Works ( Jorian) Pvt. Ltd., Yash Pal Sharma, DGM in M/s Pasondia Steel Profiles and Arun Ghai, Director of M/s Bhupendra Steels (P) Ltd. under Rule 26 of t he 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sited with penalty under Rule 209A. The said decision of the Tribunal relies on the Judgement of the Honble High Court of Bombay in the case of Jayanthilal Thakker and Company reported at 2006(195) ELT(Bom) in which it was held that the Charted accountant and the Law firm could not be held to have dealt with the goods in any other manner attracting the provisions of Rule 209A of the Central Excise Rules. From the facts disclosed in the order, there is no indication as to whether there were any goods at all involved, whether there was payment of sale consideration or there was any commission involved. The findings of the Tribunal in the said case that a person can not transport with out taking possession are unexceptionable. But the taking over of physical possession in respect of other activities like purchase or sale is not always necessary. Let us consider a case of an import by an India based importer who sells the goods imported by him on high sea sale basis; the orders for import could be placed without 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the Central Excise Act, 1985 as subject to excise duty. The inputs involved in the present cases are clearly excisable goods and there is obligation of accounting the receipt, storage and disposal goods in the manner prescribed is cast on the persons who have taken Cenvat credit. In view of this the term should include excisable goods on which the registered dealers/manufacturers have taken Cenvat credit. (b) The first stage dealers have purchased, from SAIL stock yard, the duty paid goods and sold the said goods without raising invoices, in the grey market on cash basis; they have shown the goods as if received in their registered premises; made entries in the stock registers; took credit; prepared invoices in relation to goods which have already been diverted; prepared or got prepared transport documents; received payments in respect of the said diverted goods; in the process 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses before the Settlement Commission, as the offences by the ultimate users are separate from the offences of these parties. 19. In the light of the above, the appeals are disposed of as follows: a) The appeals by M/s United Chain Industries and M/s Kay Iron Works are rejected. b) The appeals by M/s V.K. Enterprises, M/s Vijay Enterprises, M/s Anuj Enterprises, M/s Pawan Steels, M/s Rajat Enterprises, M/s J.V. Steel Traders , M/s Pasondia Steel Profiles, M/s Vee Aar Steels, M/s Bhagwati Trading Company, M/s Om Iron & Steel, M/s Ayushi Steels Co. Pvt. Ltd. and M/s Bhupendra Steels (P) Ltd. are rejected. c) The appeals by Shri 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, (broker) Satpal Singh (broker and commission agent) are allowed. d) The appeals of, S/Shri Praveen Chandra, Director in M/s Kay Iron Works ( Jorian) Pvt. Ltd., Yash Pal Sharma, DGM in M/s Pasondia Steel Profiles and Arun Ghai, Director of M/s Bhupendra Steels (P) Ltd. are partly allowed. The penalty imposed on Shri Praveen Chandra is reduced from Rs. 50 lakhs to Rs. 5,00,000/- (Rupees Five ..... X X X X Extracts X X X X X X X X Extracts X X X X
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