2025 (5) TMI 399 - AT - Central Excise

CENVAT credit fraudulently availed without procuring the goods and thus indulging only in paper transactions - violation of Section 9D and Section 33 of the Central Excise Act 1944 - HELD THAT - The appellant has not filed any appeal against the impugned order and as such they cannot request for quashing the impugned order by way of filing the cross-objections. The respondents could have helped themselves by bringing out any inadequacies in the grounds of review by the Committee of Chief Commissioners or the grounds of appeal in the appeal filed by the Department. It is failed to understand as to how the respondents would be benefitted by setting aside the impugned order which in fact discharges them from any liability. If the respondents had any objection to the reasoning given by the learned Commissioner in coming to the conclusion that was arrived at they were free to file an appeal against the impugned order. It is found that the respondents have not convinced on as to how the grounds of appeal taken by the Revenue in the instant appeal are not legally tenable. Conclusion - The respondents have not convinced on as to how the grounds of appeal taken by the Revenue in the instant appeal are not legally tenable. Appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the validity and propriety of penalties imposed under the Central Excise regime, specifically:

1. Whether the appellant (Revenue) was justified in seeking to impose penalties on various parties, including the respondents, for alleged fraudulent availment of Cenvat credit without actual procurement of goods.

2. Whether the adjudicating authority committed any error or illegality in dropping penalties against the respondents, particularly in light of the evidence and procedural safeguards.

3. Whether the respondents were denied principles of natural justice, including the right to be heard and access to documents relied upon in the show cause notice.

4. Whether the impugned order was beyond the jurisdiction or scope of the show cause notice, and whether reliance on material outside the notice was permissible.

5. Whether the respondents' contentions regarding actual supply of goods, payment transactions, and documentary evidence were rightly considered or ignored by the adjudicating authority.

6. Whether the provisions of Section 9D and Section 33 of the Central Excise Act, 1944, relating to adjudication and penalty proceedings, were complied with, and the impact of any non-compliance.

Issue 1: Justification for Penalty Imposition on Alleged Fraudulent Cenvat Credit Availment

The legal framework governing Cenvat credit and penalties is primarily found in the Cenvat Credit Rules, 2004, and the Central Excise Rules, 2002, supplemented by provisions of the Central Excise Act, 1944. The Revenue alleged that M/s Annapurna Impex Pvt Ltd. fraudulently availed Cenvat credit of over Rs. 28 crore without actual procurement of goods, based on an investigation and documentary evidence. The show cause notice invoked penalties under Section 11AC of the Central Excise Act and relevant rules.

The Court examined the evidence, including statements of directors, transporters, and documentary proof such as bank statements and delivery records. The adjudicating authority found that the appellant had indulged in paper transactions and confirmed the demand and penalties against the company and its directors. However, penalties against the respondents, including M/s Garg Industries, were dropped due to insufficient evidence of their complicity.

The Court upheld the adjudicating authority's findings, noting that the respondents had actually supplied goods, received payment through cheques, and that there was no direct evidence linking them to fraudulent transactions or payments to transporters. The principle that mere association or suspicion does not warrant penalty imposition was emphasized.

Issue 2: Procedural Fairness and Natural Justice

The respondents contended that they were denied reasonable opportunity of hearing, and that copies of documents referenced in the show cause notice were not supplied, violating natural justice. They also argued that the impugned order relied on material not part of the show cause notice and ignored their statements and documentary evidence.

The Court analyzed these contentions and found that the respondents had ample opportunity to present their case and that the adjudicating authority's reliance on evidence collected during investigation was within the scope of proceedings. The Court observed that the respondents had not challenged the order earlier by filing an appeal, which could have addressed these procedural grievances.

Regarding reliance on material outside the show cause notice, the Court held that such material was part of the investigation and integral to the case, and thus permissible for consideration. The Court further noted that the respondents failed to demonstrate any prejudice or denial of justice caused by procedural lapses.

Issue 3: Jurisdiction and Scope of the Impugned Order

The respondents argued that the impugned order was without jurisdiction and beyond the scope of the show cause notice. The Court examined the scope of the notice and the adjudication process and found that the order was within jurisdiction and consistent with the allegations made. The Court rejected the contention that the order improperly relied on extraneous material.

Issue 4: Evidence Regarding Actual Supply and Payment

The respondents emphasized that goods were supplied on freight-to-pay basis, payments were received through cheques, and there was no evidence of payment to transporters by them. They also pointed to statements of company directors affirming receipt of goods and bank statements supporting transactions.

The Court carefully considered these facts and found that the adjudicating authority had duly noted these submissions and evidence. The authority's decision to drop penalties against the respondents was based on the absence of positive, tangible, and conclusive evidence implicating them in fraudulent transactions. The Court affirmed this approach, underscoring the necessity of concrete proof before imposing penalties.

Issue 5: Compliance with Sections 9D and 33 of the Central Excise Act, 1944

The respondents contended that the provisions of Sections 9D and 33, which prescribe procedural safeguards for adjudication and penalty imposition, were not followed, rendering the proceedings invalid. They relied on precedents where non-compliance was held fatal to the case.

The Court noted that the appellant (Revenue) had not filed any appeal against the impugned order and that the respondents' cross-objections could not be treated as a vehicle to challenge the order in absence of an appeal by the Revenue. The Court observed that any procedural infirmities could have been raised in an appeal by the Revenue or in a review by the Committee of Chief Commissioners.

Consequently, the Court declined to entertain the respondents' arguments on procedural non-compliance at this stage, holding that the impugned order discharging the respondents from liability should stand.

Conclusions and Final Determinations

The Court allowed the Revenue's appeal challenging the dropping of penalty against the respondents but rejected the respondents' cross-objections seeking to set aside the impugned order. The Court held that the adjudicating authority's decision to drop penalties against the respondents was justified based on the evidence and legal principles.

The Court emphasized that the respondents had been exonerated due to lack of sufficient evidence implicating them in fraudulent availment of Cenvat credit and that procedural safeguards had not been violated in a manner causing prejudice. The Court further clarified that the respondents could not seek to overturn an order favorable to them through cross-objections when the Revenue had not appealed against that order.

In essence, the Court confirmed the principle that penalties for fraudulent credit availment must be based on clear and convincing evidence, and that procedural compliance and natural justice are integral but not absolute grounds to overturn favorable findings absent demonstrated prejudice or illegality.

Significant Holdings:

"The respondents have not convinced us on as to how the grounds of appeal taken by the Revenue in the instant appeal are not legally tenable."

"We fail to understand as to how the respondents would be benefitted by setting aside the impugned order, which in fact discharges them from any liability."

"If the respondents had any objection to the reasoning given by the learned Commissioner in coming to the conclusion that was arrived at, they were free to file an appeal against the impugned order."

"The findings and the decision arrived at by us, vide Final Order No.60122-60146/2024 dated 22.03.2024 remains the same, in respect of the respondents."