TMI Blog2006 (4) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 52 and 54 of the First Schedule to the Central Excise Tariff Act, 1985, produced or manufactured from the powerloom owners/weavers on job work basis by authorising them for such purpose and undertaking to comply with the required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking penal and interest provisions under the Central Excise Act, 1944 (in short the Act) and the Rules made thereunder. Penalty was also proposed to be imposed on the co-applicant. The Show Cause Notice is pending 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi reported in 1997 (96) E.LT. 659 (Tribunal). 12. The Revenue was represented by Shri Amarnath Kesari, Assistant Commissioner from Central Excise Commissionerate, Nasik and S/ Shri 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligibility of Cenvat credit on yarn inasmuch as once the said eligibility was established, rest of the things were matter of mere manipulation in/of the records, as evaluated at length 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce majority of them are literate, the applicant is not in a position to defend his case that the goods were actually produced. He further submitted that some payments to the job workers were 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., agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed or such capital goods are removed as such". The aforesaid Rule therefore clearly provides for removal of inputs as such. Therefore, had the applicant removed the yarn as such it was permitted to 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 rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash would have been appropriate and on sound reasoning had the Revenue conducted investigations on the use of the manipulated invoices from the buyers of the purportedly manufactured fabrics to ascertain 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substituted para 14 it is stated "it is a case of non-payment of duty on the inputs removed as such under the cover of finished goods". Hence it is clear that the conclusive allegation made by the Revenue 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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