TMI Blog2009 (9) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... posed. - E/847, 941-947, 986, 1073, 1106, 1301-1302, 1353, - 609-630/2009-EX(PB) and Stay Order Nos. 876-897/20 - Dated:- 4-9-2009 - Justice R.M.S. Khandeparkar, President and Shri M. Veeraiyan, Member (T) S/Shri S.S. Agarwal, Alok Arora, K.K. Anand, Kamaljeet Singh, Ms. Seema Jain, Prabhat Kumar and Dabbas, Advocates, for the Appellant. S/Shri P.K. Singh, K.P. Singh and B.K. Singh, DRs, for the Respondent. [Order per: M. Veeraiyan, Member (T) (for the Bench) (Oral)]. - The appellants, M/s. United Chain Industries and M/s. Kay Iron Works (herein after referred to as manufacturers) 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 imposed under Rule 25(1)(b) and (d) on a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dealers and the manufacturers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26,60,677/- 15. M/s. Bhupendra Steel (P) Ltd. 20,33,984/- 16. M/s. Pasondia Steel Profiles 6,34,732/- Note: M/s. Royal Industries India, M/s. Radhika Enterprises, M/s. Royal Enterprises and M/s. 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/- No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) E.L.T. 506 (Tri.-L.B.) (ii) C.C.E., Indore v. Avanti LPG India Ltd. - 2004 (166) E.L.T. 186 (Tri.-Del.) (iii) Mohindra Enterprises v. C.C.E., Jalandhar - 2007 (214) E.L.T. 81 (Tri.-Del.) (iv) Saboo Berlac Ltd. v. C.C.E., Chandigarh - 2004 (177) E.L.T. 1114 (Tri.-Del.) (v) Kallatra Abbas Haji v. Government of India - 1994 (69) E.L.T. 212 (Ker). (vi) Bhagwati Trading Company v. C.C.E., Delhi-IV - 2009 (236) E.L.T. 189 (Tri.-Del.) (vii) S.K. Colombowala v. C.C.E. (Import), Mumbai - 2007 (220) E.L.T. 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) E.L.T. 506 (Tri.-LB) where it has been held where an assessee is only issuing invoices wherein there is no moment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and manufacturers. 4.6 Shri Alok Arora appearing for appellants Shri Vijay Goel submits that Rule 26 is not attracted on the brokers who have not physically dealt with the goods. 4.7 Advocate appearing for appellants M/s. J.V. Steel Traders, Shri Arun Ghai, Director and Bhupendra Steel P. Ltd. adopts the submissions made on behalf of the dealers by other Advocates. 5. On behalf of the appellants referred in para 4.2 to 4.7, the Advocates submitted the following decisions: (i) Rashtriya Ispat Nigam Ltd. v. C.C.E., Visakhapatnam - 2003 (161) E.L.T. 285 (Tri.-Bang.) (ii) Arora Products v. Addl. Commr. of C. Ex . - 2009 (235) E.L.T. 818 (Raj.) (iii) Pearl Polymers Ltd. v. C.C.E., Raigad - 2008 (226) E.L.T. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) What is the meaning of dealing in goods? What is the scope of the expression dealing in the goods "in any other manner"? For holding that a person has dealt with the goods, whether possession by him is a must? Whether the dealers who, after diverting the goods on which credit was taken, have issued the invoices without supplying the goods mentioned in the invoices can be held to have dealt with the goods? Whether issue of invoices for the purpose of passing on Cenvat credit can be treated as dealing with the goods "in any other manner"? (c) When the duty paid goods are disposed of in the grey market and 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? (d) 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? (e) Whether persons who are registered as manufacturers and who are receiving Cenv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed supra was rendered after taking note of the fact that the party was not working under Modvat scheme and no credit was not availed and therefore, the goods found excess should not be treated as excisable goods liable for confiscation. 8.1 To appreciate the legal issues raised in proper perspective, it would be appropriate to recollect certain salient features of the cenvat scheme. The scheme is aimed at avoiding cascading effect of taxes by allowing credit of duty paid at input stage; the credit scheme which was available in respect of duty paid inputs has been extended to duty paid capital goods and latter to service tax 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e freight. When he sells the goods he is expected to issue invoices for amounts which include the price/ paid by him, taxes borne by him, the expenses incurred by him and his margin and to recover all these amounts from the buyers. 8.4.1 The dealers in the context of Central Excise Law have some additional role to play and are required to fulfil certain obligations. Under the Central Excise Act, and the Central Excise Rules, the terms "wholesale dealer", "first stage dealer" and " second stage dealer" have been defined which may be reproduced. As per Section 2(k) of Central Excise Act, the term "wholesale dealer" is defined as follows: "Wholesale 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 wholesale dealers. 8.4.3 As per Section 6 of the Central Excise Act "any prescribed person who is engaged in- (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealers were not registered with excise authorities to deal in cenvatable invoices but to deal in duty paid excisable goods and, in the process, to issue cenvatable invoices while selling the said duty paid goods. The dealers are required to buy duty paid goods from the manufacturer along with duty paying documents and take credit. When the registered dealer issues invoices enabling the buyer to take credit, it goes without saying that the goods have to be supplied. 10.1 The role of the dealers in not supplying the goods and, at the same time, issuing of cenvatable invoices is a fraud committed on the Revenue. It is not the case of the dealers who have taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what the manufacturer does with the goods supplied by the dealer is a proposition which cannot be doubted. This applies to a bona fide supplier of goods. However, when the registered dealers have merely supplied the invoices enabling the recipient of said invoices to take the benefit of cenvat credit, the same have been undertaken with a view to unlawfully avail and utilise cenvat credit by the recipient of the invoices. 10.5 The first stage dealers have admittedly received from SAIL stock yards CR coils/HR coils along with invoices indicating duty payments on the said goods. The goods are excisable and the duty has been paid on the goods at the hands of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers. The demand from ultimate users being relatable to totally different products the question adjustment of their payment towards payment due from these two parties does not arise. Further, the cause of action in respect of these two parties is prior in point of time and even if duty is demanded on account of fraud committed by these two parties, the credit of duty so demanded cannot be passed on to the buyers of the inputs from them. One irregularity cannot be allowed to be regularised by a subsequent irregularity. 12.1 The registered dealers have issued invoices for inputs namely HR coils and CR coils based on which M/s. United Chain Industries and Kay Iron Works 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 discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which have been shown as sold by them. The credit utilised for a product which was different from the input, looses the identity as credit as duty paid in the inputs as such payments are in the nature of duty paid by them. Their claim that there was no manufacturing activity by them and therefore, they are not manufacturers; that they are only dealers in respect of the impugned invoices is not acceptable. When a manufacturer issues invoices of his final product to the buyer of the said final product, he passes on the duty paid on the final product and not the CENVAT credit that he had taken on the inputs (raw materials) which were earlier received in this factory. 13.2 The credit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some cases the persons such as Director, partner or proprietor or an employee have been issued with the show cause notices and separate penalties have been imposed in addition to penalties imposed on the company, partnership firm and proprietary concern. 14.2 Separate penalties have been imposed on the appellants namely, 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, under Rule 26 of the Central Excise Rules. It is settled law that any proprietary concern is not different from the proprietor. Since penalties have been imposed on the proprietary concerns namely, M/s. Bhagwati Trading 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 the goods only as a link between the buyer and the seller of the goods. They were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose activities are clearly covered by the provisions of Rule 25, the penalties are imposable under the said Section. As regards penalty imposed on the persons under Rule 26, as their role is covered under unamended Rule 26 (i.e. 26(1) in the present form), even before the amendment, the penalties on these persons are sustainable. Therefore, it is not a case of retrospective application of penal provision. 16.1 The reliance is being placed on the decision of the Larger Bench in the case of Steel Tubes of India Ltd. reported in 2007 (217) E.L.T. 506 (Tri.-L.B.). In the said decision it has been held that the assessee was only issuing invoices and there was no moment of goods, and therefore they cannot be visited with penalty under Rule 209A. The said decision of the Tribunal relies on the Judgment of the Hon'ble High Court of Bombay in the case of Jayanthilal Thakkar and Company reported at 2006 (195) E.L.T. 9 (Bom.) = 2007 (8) S.T.R. 312 (Bom.) in which it was held that the Chartreded 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 disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions of these parties. 17. In respect of some of the appellants submissions have been made that principles of natural justice have not been complied with as cross-examination of certain persons have not been granted. In the totality of facts and circumstances of the case, where all the concerned parties like registered dealers, brokers, transporters, manufacturers and ultimate users admitting their role in the fraudulent activities which are corroborated by documents and other circumstances including payment of substantial amounts of money during investigation by different parties, these submissions are devoid of merits. 18. From the above, the following emerges: (a) The term excisable goods has been defined as goods mentioned in the Schedules 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early invalid documents and no credit can be passed through such documents and no such credit can be taken by the recipients. (f) United Chain Industries and Kay Iron Works, having availed the credit in respect of inputs namely, HR coils and CR coils and having utilised the same towards payment of duty on capital goods, the credit so taken being irregular the same is recoverable from them along with interest. They are also liable for penalty under sub-rule (2) of Rule 13 of the Cenvat Credit Rules, 2001/2002, under sub-rule (2) of Rule 15 of the Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. Their liability to duty and penalty is unaffected by the subsequent events relating to the "ultimate users" including their settling the cases 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. Pavvan Steels. M/s. Rajat Enterprises. M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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