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TMI Blog2006 (4) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... uired provisions of law. 3. The officers of the Directorate General of Central Excise Intelligence (DGCEI), Regional Unit, Pune received an intelligence that M/s. Rani Satee Fabrics and other proprietary firms of S /Shri Tulsiram Patodia, Mahesh Patodia and Vishnu Patodia are engaged in the trading of cotton/man-made yarn/fabrics and have obtained registration under Rule 9 of the Central Excise Rules, 2002 as required under Rule 12B of the said Rules for manufacture of cotton yarn on job work basis by engaging M/s. Malegaon Spinning Mills Ltd. (in short MSML) and grey cotton/man-made fabrics for getting manufactured from outside powerloom owners/weavers on job work basis from the cotton/polyester yarn as would be supplied by the applicant. The information also indicated that although the said firms have shown to have engaged local powerloom owners/weavers to manufacture grey fabrics, these weavers are fictitious and although these firms have shown to have sent input yarn after availing Cenvat credit, the same is diverted as such in clandestine manner for sale as yarn and they have maintained false and manipulated accounts for manufacture of grey fabrics and accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing adjudication. 7. The applicant and the co-applicant filed applications on 9-12-2005 before the Commission under Section 32E of the Act for settlement of the case covered by the aforesaid Show Cause Notice accepting the entire liability of Rs. 2,05,62,959/- as demanded in the Show Cause Notice. The applicant had paid the entire duty demanded before issue of Show Cause Notice. 8. The DGCEI vide F.No. DGCEI/MZU/I&IS'C/30-38/05, dt. 13-1-2006 then issued a corrigendum whereby para 14 and 16(i) of the Show Cause Notice dated 29-8-2005 have been fully substituted by fresh paras inter alia denying the adjustment of CENVAT credit already utilised. 9. The case came up for admission hearing on 8-2-2006 when the ld. Advocate representing the applicant submitted that the applicant had filed the application after receipt of the Show Cause Notice dated 29-8-2005 (supra) admitting the entire duty as demanded in the Show Cause Notice. The applicant had also paid the entire duty demanded from the balance available in its CTENVAT Account. Consequent to filing the application the Revenue had issued the corrigendum which is bad in law as it seeks to change the basic character of the Show Cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri L.G. Kulkarni, S.I.O. and G.G. Limaye, I.O from DGCEI, Pune. The Revenue submitted that the applicant had already utilised the Cenvat Credit of Rs. 1,53,33,622/- earned on the yarn, for the payment of duty on the stated fabric which the applicant never manufactured from the yarn on which it had availed Cenvat credit. The Revenue referred to the written report furnished by the Commissioner, Central Excise and Customs, Nasik vide letter dated 14-3-2006 (received in the Commission's office on 21 -3-2006). Submissions interalia made therein are summarized below:- (i) There is an apparent error in para 14 of the above referred Admission Order, in appreciation of the correct facts of the case. The relevant sentence reads, "it is not in dispute that the applicant had deposited the entire duty as demanded in the SCN from Cenvat Credit". The correct facts are that the applicant had already utilized Cenvat Credit of Rs. 15333362/-, earned on 'yarn, for the payment of duty on stated fabrics, which the applicant never manufactured from the yarn on which it had availed the Cenvat credit. Therefore the said amount being already utilised in the said manner before the detection of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth in the Show Cause Notice. (viii)When it proved and admitted that the applicant never manufactured fabrics from the yarn on which it had availed Cenvat credit, the further sale transactions have only two probabilities namely, either the applicant had diverted the credit availed on yarn in the guise of fabrics by mis-describing the description of the goods in relevant invoices or that the applicant had sold the yarn in clandestine manner and procured the fabrics from outside unknown source for sale under the said invoices. Both the probabilities are equally true and justifiably exist in their respective places and Revenue need not explore the degree of existence in as much as this is not the objective of the present SCN and hence not dealt with in the present SCN being not relevant for denial of Cenvat credit on the charge of sole non-use of inputs, which by itself is an independent and self proved fact. (ix) In the case of M/s. Rine Engg. P. Ltd. [2001 (131) E.L.T. 117] the department denied the Cenvat credit under the allegation of clandestine removal of inputs, which were not used in the final product. (x) In the case of M/s. Indag Rubber Ltd. [1997 (93) E.L.T. 572] the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere done by cheque also and the applicant had taken the same stand in his statements recorded by the Revenue. 15. The Bench then asked the Revenue as to whether it was their case that the invoices issued by the applicant for the purported sale of the fabrics had been used by the purchasers to claim Cenvat credit utilised. The Revenue replied that this aspect had not been considered. 16. The ld. Advocate for the applicant finally pleaded for immunities from interest, penalty and prosecution for the applicant and the co-applicant as applicable for which he relied on the following case laws (i) Tolani Shipping Co. Pvt. reported in 2004 (178) E.L.T. 1072 (Sett. Comm) (ii)Ishikawajima-Harima Heavy Industries reported in 2004 (174) E.L.T. 272 (Sett. Comm.) (iii) CCL, Delhi-II v. Machino Montell (I) Ltd., reported in 2004 (168) E.L.T. 466 (Tri.-LB) (iv) Supreme Court order in Civil Appeal No. D5977 of 2003 [2004 (163) E.L.T. A53 (S.C)] in CCE, Visakhapatnam v. Rashtriya Ispat Nigam Ltd., against CEGAT order reported in 2003 (161) E.L.T. 285 (Tribunal). 17. The Revenue opposed the grant of immunites to the applicant and the co-applicant 18. We have gone through the rival contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilise the CENVAT credit availed thereon. The Revenue's main contention is that in terms of Rule 2(g) read with Rule 3(1) of the said rules since the inputs were not used in the final product i.e., the fabrics, the basic requirement for the eligibility to (ENVAT credit stands violated and hence utilisation of the CEN VAT credit on such inputs is ineligible. The DGCEI in corrigendum dated 13-1-2006 have inter alia stated that the CENVAT credit utilised by the applicant for the payment of Central Excise duty on fabrics is not proper since the yarn on which the CENVAT credit had been availed had not been used in relation to the manufacture of final products i.e., fabrics and as such utilisation of CENVAT credit is not permissible as per Rule 3(3) of the said rules and hence cannot be appropriated against the duty demanded on the wrongly availed CENVAT credit. Accordingly the corrigendum seeks to recover the disputed amount as per proviso to sub-section (1) of Section 11A of the Act read with Rule 12 of the said Rules. 20. We observe that the Show Cause Notice dated 29-8-2005 in para 14.2 clearly states that the applicant suppressed the facts that it had ever manufactured grey cotto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether they had further availed the credit of the duty element reflected in those fictitious invoices to wards clearance of such fabrics by the applicant. To a pointed query on this issue the Revenue expressed that they had not examined the said aspect. Further, we observe from the Show Cause Notice dated 29-8-2005 that para 9.4 reads as below: "Notwithstanding this, the fact that M/s. SRI received the payment by cheque /demand drafts does not necessarily mean that it justifies sale of fabrics and not the diverted sale of yarn, in as much as for showing sale of fabrics it must demonstrate and prove that it has produced the fabrics and it son this front for stated production of fabrics, no evidence exist, least the authentic or corroborative, to Legally or otherwise justify the production of fabrics. The total non existence of evidence in this respect, does not even promote to remotely apply the theory of preponderance of probability to admit production of fabrics by NI / s. SRT. Therefore, the sale of fabrics as shown in the invoices and sale as shown to have been received by cheques/demand draft. in concealed arrangement can be squarely taken represent diverted sale of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in the Show Cause Notice and the corrigendum there to is that the impugned yarn was in fact not used in the manufacture of fabrics' but was removed as such to the market. 26. We therefore settle the case on the following terms and conditions under Section 32F(7)of the Act: - Central Excise Duty : Central Excise duty is settled at Rs. 2,05,62,959/-.By allowing adjustment of the amount already utilised for payment of duty on purported fabrics and the amount of Rs. 52,29,337/- paid by debit entry No. 1810 dated 30-3-2004, the entire duty amount stands paid. Interest: a case of diversion of inputs on which CENVAT credit was availed. The applicant has derived financial gain by not paying the full duty when it was due. The applicant is therefore liable to pay interest on the belated payment of duty to the extent of Rs. 52,29,337/-.However keeping in view the co-operation extended by the applicant during the proceedings and making full and true disclosure of its duty liability, the Bench levies simple interest @ 10% per annum from the date the duty was short paid till it was fully paid. The Bench grants immunity the applicant from interest in excess of 10% per annum. The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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