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2009 (8) TMI 998

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..... me Tax PAN and GIR No. ADTPG 6484G) passed on Cenvat credit on the basis of fake invoices. The proprietor of this unit, Shri S.K. Gupta, during the course of examination, has admitted as under : (a) He has not purchased any consignment of Central Excise duty paid goods. (b) He is ready to pay penalty as per provisions of Central Excise Rules & Act for wrongly passing CENVAT Credit. (c) After January, 2001 he has not submitted any return to the Department. (d) He has no godown at present. On the basis of above said Alert Circular, the preventive team of Central Excise, Division-II, Kanpur visited the factory premises of the appellant No. 1 on 21-11-06 where appellant No. 2 was present. He was enquired about the Cenvat Credit taken by the appellant No. 1 on the basis of Invoices issued by M/s. M.K. Steels, Kolkata. The appellant No. 1 informed the officers that they had taken Cenvat Credit on the basis of invoices issued by M/s. M.K. Steels, Kolkata during the financial year 2003-04, 2004-05 & 2005-06. The officers resumed the invoices, other relevant records and some GR s. The appellant No. l also tendered a chart showing details of invoice no., date, quantity, value & d .....

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..... h belongs to M/s. M.K. Steels where he is sole proprietor and he had continued business upto year 2005 from this premises. Further he has accepted that he has made business transaction with M/s. Frontier Alloys Ltd., Kanpur and issued invoices to M/s. Frontier Alloys Pvt. Ltd., Kanpur and also signed the chart showing the details of invoices issued by M/s. M.K. Steels, in favour of M/s. Frontier Alloys Steel Ltd., Kanpur in token of his acceptance. (b) Letter C. No. V (15)-3/AE/CE/BOL/2005/Pt. 1/9850 dated 27-12-06 issued by the Assistant Commissioner (Anti Evasion), Central Excise Commissionerate, Bolpur that there is no such manufacturer of M.S. Ingots named M/s. Sarala Ispat Pvt. Ltd., Durgapur under the jurisdiction of Central Excise Commissionerate, Bolpur. It clearly shows that M/s. Sarala Ispat Pvt. Ltd.. Durgapur is a fake unit. The enquiries were also made from the ICICI Bank vide letter C. No. V (12) DP-II/Enquiry/13/06/1301 dated 26-3-07 as most of the payments were made by the appellant No. 1 vide Bank Account No. 628805003242 of ICICI Bank, The Mall, Kanpur Branch, which were received by M/s. M.K. Steels in Bank Account No. 017505000064 of ICICI Bank Branch near Ratan .....

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..... That after the receipt of the said inputs i.e. M. S. Ingots the same had been used in the manufacture of M.S. Bars which again had been duly recorded in the statutory production records of the appellants and had been cleared on the strength of invoice issued by the appellant under rule 11 of CCR, 2002 and on payment of appropriated duty leviable thereon. As such the receipt of inputs its consumption in the manufacture of final product and its removal on payment of duty is not in dispute. 4. Because the adjudicating authority has misdirected himself in law in holding that under cover these disputed invoices no M. S. Ingots were received by the appellants. The appellants say that the said charge is only result of suspicion, surmises and conjectures in as much as in addition to form 31 issued and duly signed by the U. P. Trade Tax Department at the Border Check Post was a primary evidence of entry of goods under cover of documents along with Builties into Uttar Pradesh form 31 being submitted to the trade tax department along with returns for assessment before that the receipt of goods under the cover of Form 31 along with invoices and Builties is not subject to question and further t .....

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..... of duty from M/s. U.K. Ispat Udyog and M/s. Shree Hanuman Co. The supplier of M.S. Ingot to appellants through their invoices and had received the payments by cheque and their proprietor Shri S. K. Gupta during the course of his examination before the Central Excise officers, Kolkata had stated that he is ready to pay the penalty for wrongly passing cenvat crerdit. 10. That it is on record that appellant No. 1 had entered the goods in their statutory records when the same has physically delivered to them, this fact is also not in dispute. It is well settled by the catena of decisions that suspicion and presumption, howsoever grave, is not a substitute of proof. Consequently, the allegation has no force in the absence of any material placed on record. 11. Because regarding imposition of penalty the appellants submit that it is well settled by catena of decision that penalty is imposable on the act or omission or deliberate violation with disregard to the statue and in absence of any allegation made in the show cause notice regarding the activity/involvement of the Company, penalty cannot be imposed on the Noticees. Reliance is placed on the decision of Hon ble Supreme Court in Hindu .....

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..... le is not applicable against Director of the Company of the company who had not been found involved in any of the activity specified in the Rules ibid. 4. That since the provisions contained in Rule 13 of Cenvat Credit Rules, 2002 and Rule 15 of Cenvat Credit Rules, 2004 were inapplicable against Appellant No. 2 and the finding that the Appellant had planned strategy to mislead the Department is ex facie wrong and without evidence and consequently the imposition of penalty on him is illegal. Reliance is placed on : (i) 2007 (208) E.L.T. 432 (Tri.-Del.) - CCE, Meerut v. Rakesh Singhal (ii) 2005 (183) E.L.T. 163 (Tri.) - V. Madhu v. CCE, Coimbatore (iii) 2002 (140) E.L.T. 524 (Tri.) - J. Mitra & Co. Ltd. v. Commissioner 4. Shri Amit Awasthi, Advocate appeared for personal hearing on 21-8-2009 and reiterated the appeal memorandum and further submitted that the appellant No. l is registered vendor of Indian Railways and raw material received is only used for manufacturing of Parts and Components of railways after due inspection and as such no case for the revenue to established that the subjected raw material was not received in the factory. He had made payment only by account paye .....

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..... penal action. (iii) Who are liable to pay duty forfeited by fraud? (iv) Whether penalty of Rs. 2 lacs is sustainable against appellant No. 2? (i) The records placed before me proves the following facts :- Appellant No. 1 have received all the disputed goods on invoices of trading firms under cover of Form 48 issued under the West Bengal Rules, 1995 and Form 31 of U. P. Trade Tax Department evidencing the physical entry of the goods after proper verification by Trade Tax Department, other documents such as bilty and GR s , Form-31 inter alia shows quantity of the goods correlated with the annexure to the show cause notice and the Truck number along with description of the goods and duly stamped by the Trade Tax Department. The destination shown on the GR s clearly indicates receipt of the goods in the factory premises of the appellant No. 1. The copy of ledger account of the appellant reflects inward freight of the disputed consignments have been paid by them (appellant No. 1). Further the appellant No. 1 has made payments against these consignments by cheque or draft. They have recorded the consignment (raw material) related to the above mentioned firm in their statutory reco .....

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..... of the above trading firm, placed their orders for procuring of raw materials through brokers. This practice is very much prevalent in trade of Iron & Steel. It is proved by the document that they have received the quantity mentioned in the invoice in their unit and have made payments through cheques thereafter. On the contrary department have failed to prove beyond doubt that the goods were not received by the Appellant No. 1 and it was only a paper transaction. In my view this mode of transactions is bona fide on appellant s part, in this circumstances it has been accepted that buyer can take only those steps which are in their control. He is not expected to verify records of supplier to check whether in fact the supplier has paid duty on goods supplied by him. He cannot verify whether their supplier is in fact registered with excise. He has to rely on statements made by supplier and documents supplied by him. The only reasonable steps he can take is to ensure that the supplier seems to be trustworthy, inputs are in fact received and documents prima facie appear to be genuine. Making payment by cheque to seller will prove his bona fide. Further, CBEC, vide Circular No. 766/82 .....

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..... input-supplier carrying duty payment particulars, the credit of such duty can be taken. (f) R.S. Industries v. CCE - 2003 (153) E.L.T. 114 (CEGAT), the manufacturer supplied goods to buyer on duty paying document. The manufacturer had availed cenvat credit on inputs fraudulently. It was held that the buyer is not responsible for fraud of supplier and he is entitled to Cenvat credit on basis of a valid duty paying document. This judgment was challenged in Hon ble High Court, Delhi by the revenue but the judgment of the CESTAT was upheld by the Hon ble High Court [CCE v. R.S. Industries - 2008 (228) E.L.T. 347]. In the instant case it is on the record that the Appellant No. 1 were receiving goods regularly from above trading firm, invoice, were duly authenticated. These excise invoices contains all the particulars as prescribed under rules and above all the goods were received and recorded in the records of the appellant and further used in the manufacture of the final product which was supplied to Indian Railways. The Appellant No. 1 has made payment of the goods inclusive of excise duty by cheque as evident from ledger of the Appellant No. 1 as well as from record of ICICI Bank. T .....

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..... tiated against manufacturer-supplier u/s 11D and 11DD. Further, the Hon ble CESTAT in case of Bharav Exports v. CCE - 2007 (210) E.L.T. 136 had held that Credit to the appellants on the basis of invoice issued by input manufacture not deniable - However, department can book a fraud case against the party who issued bogus invoices and can confirm duty against them - Rule 57A of erstwhile Central Excise Rules, 1944, Rule 3 of Cenvat Credit Rules, 2004. In the instant case bona fide of Appellant No. 1 was not challenged on the records or otherwise by the department and the main culprit in this case are trading firm. Thus, in the light of CBEC circular and case law cited above the demand against duty forfeited by fraud can be confirmed against the trading firm. Thus, in the light of above findings I am of the opinion that Appellant no. 1 have physically received inputs on duty paying invoices and have correctly recorded in their records and availed cenvat credit on the same. Thus, in my opinion the demand of cenvat credit and penalty imposed vide impugned order upon Appellant No. l are not sustainable. (iv) As regards penalty of Appellant No. 2 is concerned I find that the adjudicating .....

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