TMI Blog2009 (9) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... ), 986 /2009- Ex(BR), 1073 /2009- Ex(BR), 1106 /2009- Ex(BR), 1301 /2009- Ex(BR), 1302 /2009- Ex(BR), 1353 /2009- Ex(BR), 1381 /2009- Ex(BR), 1382 /2009- Ex(BR), 1383 /2009- Ex(BR), 1403 /2009- Ex(BR), 1404 /2009- Ex(BR), 1405 /2009- Ex(BR), 1406 /2009- Ex(BR), 1407 /2009- Ex(BR), Shri Justice R.M.S. Khandeparkar, President and Shri M. Veeraiyan, Member (Technical) For the Appellant : Shri S.S. Agarwal, Shri Alok Arora, Shri K.K. Anand, Shri Kamaljeet Singh, Ms. Seema Jain, Shri Prabhat Kumar, and Shri Dabbas, Advocates For the Respondent: Shri P.K. Singh. Shri K.P. Singh, B.K. Singh, DRs JUDGEMENT Per M. Veeraiyan (for the Bench): 1.1 The appellants, M/s. United Chain Industries and M/s. Kay Iron Works ( herein after referred to as manufactrers) 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 9 parties (hereinafter referred as ultimate users) indicating the duty paid using the cenvat credit taken by them. In pursuance of the invoices so issued by them, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Royal Industries India 5,51,095/- 8. M/s Radhika Enterprises 10,91,037/- 9. M/s Pawan Steel 2,38,697/- 10. M/s Rajat Enterprises 6,73,131/- 11. M/s Royal Enterprises 83,983/- 12. Vijay Enterprises 7,26,885/- 13. M/s Mahavir Enterprises 1,42,579/- 14. M/s J.V. Steel Traders 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved the question of recovery of interest and imposition of any penalty under 11AC does not arise. c) The entire scheme involving the dealers, manufacturers and the ultimate users was to enable availment of credit wrongly by the ultimate users. Since duty stands demanded from the ultimate users which stands settled by them before the Settlement Commission, the order of demand from the manufacturers will amount to recovery of duty for the second time which is not permissible. d) In the case of Kay Iron Works they received invoices and took credit of ₹ 1.96 crores and passed on credit of about ₹ 83 lakhs to exempted units which were not utilised and in respect of the balance amount the recipient of the invoices, namely, ultimate users have paid a sum of ₹ 97.53 lakhs. e) In respect of United Chain Industries the eight parties (except Bhupender Steel Pvt. Ltd.) have settled the dues. The appellants have deposited a sum of ₹ 58 lakhs during the course of investigation. f) In support of his submissions, he relies on the following decisions: i) Steel Tubes of India Ltd. vs. C.C.E. 2007 (217) ELT 506 (Tri-LB) ii) C.C.E., Indore vs. Avanti LPG Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him with intent to facilitate the buyer to avail of credit of the duty of excise in respect of such goods which is not permissible under these rules. b) Central Excise Rules, 2002 did not have similar provisions till Rule 26 was amended by Notification No.8/2007-CE (NT), dated 1.3.2007 by inserting similar provision under Rule 26. 4.4 Shri Suresh Agarwal appearing for M/s V.K. Enterprises and Shri Vinod Goel submitted that Shri Vinod Goel is proprietor of M/s V.K. Enterprises. A penalty of 38,85,471/- has been imposed on M/s V.K. Enterprises and separate penalty of ₹ 5 lakhs has been imposed on the proprietor. He submits that the proprietary concern and the proprietor have not dealt with the goods and therefore, no penalty is imposable. At any rate, no separate penalty is warranted on the firm as well as the proprietor. He seeks setting aside the penalty imposed on the firm. 4.5 Shri Kamaljeet Singh, Advocate for appellants Pasondia Steel Profiles and Shri Yashpal Sharma submits that Rule 209A or Rule 26 is not attracted on brokers and manufacturers. 4.6 Shri Alok Arora appearing for appellants Shri Vijay Goel submits that Rule 26 is not attracted on the brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /200-201/WZB/09/EB/CI dated 4.6.09 which after relying on the judgment in the case of Sachidananda Banerjee cited supra and distinguishing the decision in the case of Steel Tubes India Ltd. cited supra held that a person cannot be given relief from penalty merely because he did not physically deal with goods removed clandestinely , without payment of duties. e) He submits that the decision in S.K. Colombowala v. C.C.E. (Import), Mumbai 2007 (220) ELT 492 (Tri-Mumbai) related to different parties to the same show cause notice and therefore concerned in the same case. The settlement of cases by the ultimate users relate to different cases arising out of different show cause notices and therefore the said decision cannot be applied to the facts of this case. 7. We have carefully considered the submissions from both sides. Following issues arise for consideration: a) Whether the duty paid goods procured by the dealers can be treated as excisable goods ? b) 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also over looks the fact that the validity of credit taken depends upon use of the inputs in the manufacture of final product; after credit is taken on the duty paid excisable goods, the law creates additional obligation of accounting of the goods in respect of on which credit has been taken. The goods on which credit was taken but not accounted is liable for confiscation in terms of Rule 15 of Cenvat Credit Rules. 8. The decision of this Single Member Bench of the Tribunal in the case of C.C.E., Indore vs. Avanti LPG India Ltd. has been relied upon to claim that raw materials received after due discharge of duty cannot come under the category of excisable goods and provision of Rule 209 (1)(b) cannot be invoked on the goods confiscated. The said decision has been given in the absence of evidence demonstrating the capacity of the party that they failed in their obligation under rule 209 (1)(b). Similarly the decision in the case of Mahindra Enterprises cited 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 conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need not be the manufacturer or the consumer. The first stage dealer receives the goods from the manufacturer or from other approved persons/ premises under cover of invoice; he pays the price and the excise duty involved to the manufacturer in addition to other levies like sales tax, octroi; he takes the cenvat credit of duty paid by the manufacturer. Once the credit of duty paid by the manufacturer of excisable goods was taken by the dealer he is under the obligation to account the goods on which cenvat credit has been taken by him and which credit he intends to pass on to the second stage dealer or to the manufacturer. 8.3 The role of the dealer, as is commonly understood is that he is the link between the manufacturer/producer and the consumer. The dealer buys the goods from the manufacturer or producer; he pays the price and the excise duty, if any, on the goods involved in addition to other levies like sales tax, octroi and also bears other charges like 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the inputs; while selling the goods to second stage dealers/ or manufacturers issue cenvat invoices to pass on proportionate credit to the buyers relating to the goods sold to them. The role of the second stage dealers is similar; while selling the goods by the second stage dealers to manufacturers, they are required to issue cenvat invoices to pass on proportionate credit to the buyers relating to the goods sold to them. 9.2 As per Rule 11(7) of Central Excise Rules, the provisions relating to removal of excisable goods under invoice shall apply mutatutis mutantis to the goods supplied by a first stage dealer or a second stage dealer. Rule 9(8) of Cenvat Credit Rules envisage that a first stage dealer or a second stage dealer, as the case may be, shall submit within fifteen days from the close of the quarter of a year to the Superintendent of Central Excise, a return in the form specified , by notification , by the Board. 9.3 The dealers 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturer/ second stage dealer is the invisible foundation for the edifice of evasion. The dealer who has taken the registration solely for the purpose of dealing in with excisable goods and passing on credit is having the knowledge of the implication of issuing cenvatable invoices. When such a dealer has issued invoices without actually supplying the goods, the intention to evade duty by the buyer of the invoices from him is evident. Without actually supplying the goods and by merely supplying the invoice, when the dealer has received the commission of 3% it is out of cenvat credit which is sought to be availed by the recipient of the invoices. It is a case of looting the treasury and sharing the booty by the dealers, the brokers and the procurers of invoices who actually utilised the credit. They have worked at tandem and in unison knowingly and with intention to evade the duty. 10.4. The submission that the supplier of goods is not concerned as to what the manufacturer does with the goods supplied by the dealer is a proposition which cannot be doubted. This applies to a bonafide supplier of goods. However, when the registered dealers have merely supplied the invoices enab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r availing the Cenvat credit irregularly and got their cases settled before the Settlement Commission and these two parties were also penalised as co-noticees. As the said ultimate users have paid duty, the demand of duty from them will amount to duplication of demand from both parties. This submission is not acceptable. M/s United Chain Industries and Kay Iron Works have admittedly received invoices for inputs from registered dealers/registered manufacturers and taken Cenvat credit irregularly and utilised the said credit towards payment of duty on their final products which are capital goods. The ultimate users have been demanded duty on account of irregular availment of credit on the said capital goods. The demand from these two appellants are towards the irregular credit availed on the inputs received by them. It is not a case that M/s United Chain Industries and Kay Iron Works supplied invoices for the very same inputs which they have received from others. 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 thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nited Chain Industries and Kay Iron Works. The action of the registered dealers in having diverted the said goods, have rendered the said goods liable for confiscation. The role of M/s Bhupendra Steels (P) Ltd. is identical to that of the dealers. They are, therefore, liable for penalty under Rule 25 of the Central Excise Rules, 2002. 13.1.The registered dealers have acted as intermediary in transfer of credit of duty paid on the inputs sold by the SAIL. However, the role of M/s United Chain Industries and M/s Kay Iron Works are entirely different from that of the registered dealers. Like the dealers, they have also played a role in diversion of the duty paid goods on which credit was passed by the dealers by accepting invoices with out the goods and taking credit. Thus they have availed the credit of duty paid on HR coils/ CR coils on the basis of ineligible documents; they have also utilised the credit for payment of duty towards capital goods 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Cenvat Credit Rules to follow. The credit taken and availed has been rightly demanded from them; and penalties have been rightly imposed on them. 13.5 There is a grievance expressed on behalf of M/s United Chain Industries and M/s Kay Iron Works that when there is demand of duty from M/s United Chain Industries and M/s Kay Iron Works and imposition of penalties, the other persons in the links, dealers, have only been imposed penalties. The dealers have merely passed on the credit but they have not utilised the credit and hence they were held liable for penalty and the question of demand of duty from them did not arise. However, as already held, M/s United Chain Industries and M/s Kay Iron Works, who also utilised the credit for payment of duty on their final products, stand on a different footing from the dealers. 14.1. Several registered dealers, registered manufacturers, were issued show cause notices; however, only in respect of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny goods being involved, to enable taking credit by the recipient of such invoices are also covered. When the goods are dealt with, as in the present case, then the provision under unamended Rule 26 (i.e Rule 26 (1), in the present form) shall have application even before amendment with effect from 1-3-2007. Penalty on these persons under Rule 26 before amendment is sustainable. As we have already held that these persons were concerned in dealing with the goods with the knowledge that the diverted goods were liable for confiscation, they are liable for penalty. However, considering the entire facts and circumstances in to account and also taking in to account that penalties have been imposed on the companies and firms, we are of the opinion that there is scope for reducing the penalties imposed on these persons. 15. There could be no dispute on the proposition that the penal statute cannot be applied retrospectively. In respect of persons 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other penal consequences of a severe nature. As we have held that the action of these two manufacturers appellants attract the provisions of Rule 14 and 15 of Cenvat Credit Rules read with Section 11AC, there is no retrospective application of penal provisions in their case. Similarly, as we have held that in respect of registered dealers, the rule 25 of the Central Excise Rules is applicable there is no retrospective application of penal provision in respect of such dealers. 16.3 The reliance placed on the decision of the Hon ble High Court of Kerala in Kallatra Abbas Haji cited supra relating to non-reliability of retracted confession of co-accused is not relevant as in the facts of the present cases the registered dealers , the transporters, the two manufacturers and the ultimate users have corroborated version of each other. The other evidence like banking transaction also corroborated 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived the excisable goods and taken credit to utilise the same for the intended purpose. Thus, the obligation is on the manufacturer/registered dealer to account for the goods on which the credit has been taken and that the said obligation is a continuing obligation even when the credit is transferred through the dealers. (d) The registered dealers have clearly dealt with the duty paid goods on which credit has been taken by the ultimate users. The action of the registered dealers in having diverted the said goods, have rendered the said goods liable for confiscation. Having diverted the goods and having taken credit and having passed on the credit, the registered dealers have by their action rendered the goods so diverted liable for confiscation; they have also rendered themselves liable for penal action. (e) The documents issued by these dealers /manufacturers without supply of goods are clearly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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