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Sujana Metal Products Ltd., Endeavour Industries Ltd., Omnicron Bio-Genesis Industries Ltd., Victoria Steel Enterprises Ltd., Future Tech Industries Ltd. And Commissioner of Central Excise, Chennai-II Versus The Commissioner of Central Excise, Chennai-II And M/s. Sujana Metal Products Ltd.

2016 (1) TMI 524 - CESTAT CHENNAI

Levy of penalty on dealers who issues Bogus Invoices - Cenvat Credit - Bogus credit - It is alleged that the appellant-assessee availed ineligible and irregular credit of duty paid on MS scrap as if it was supplied by M/s.Victoria Steel Enterprises Ltd. based on the documents prepared indicating bogus transaction particulars, without actual/physical movement of the M.S. Squares said to have been used in the manufacture of TMT bars thereby contravened the provisions of Rule 4 (1) of Cenvat Credit .....

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ppellant and also considering the fact that there is apparently no revenue loss to the Department, the quantum of penalty imposed by L.A is on the higher side in respect of appellants, at Sl.No.1,2,4 & 5 of the Cause Title. Therefore, considering overall circumstances of the case, we reduce the penalty imposed under Rule 26 (2) (i) (ii) on the appellants. - Decided partly in favorof appellant dealers.

Demand of cenvat credit - adjudicating authority dropped the demand of cenvat credit .....

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Appeal Nos.E/102-106/2010 & E/137/2010 - FINAL ORDER No.40015-40020/2016 - Dated:- 5-1-2016 - Shri R. Periasami, Technical Member And Shri P.K. Choudhary, Judicial Member For the Petitioner : Shri B. Venugopal, Advocate For the Respondent : Shri M. Rammohan Rao, JC (AR) ORDER Per R. Periasami All these 6 appeals are arising out of common adjudication order passed by Commissioner of Central Excise, Chennai-II. Therefore, we take up all the appeals for disposal together by a common order. Out of s .....

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n the allegation that the main appellant viz. M/s.Sujana Metal Products Ltd. in order to avail ineligible and irregular cenvat credit entered into a conspiracy with M/s. Victoria Steel Enterprises Ltd., M/s.Future Tech Industries Ltd., M/s.Endeavour Industries Ltd. & M/s.Omnicron Bio-Genesis Industries Ltd. (co-noticees) who are Central Excise Registered Dealers. It is alleged that the appellant-assessee availed ineligible and irregular credit of duty paid on MS scrap as if it was supplied b .....

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s well as for imposition of penalties on the other 4 co-noticees. The adjudicating authority in his order-in-original dt.26.11.2009 dropped the proposal of recovery of cenvat credit of ₹ 8,21,75,995/- against the main appellant, M/s.Sujana Metal Products Ltd. However, he imposed penalty of ₹ 1,00,00,000/- under Rule 15 (i) of CCR 2004 and also imposed penalty of ₹ 5000/- under Rule 15A of CCR 2004 on them. The adjudicating authority also imposed penalties of ₹ 80 lakhs, 5 .....

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y para 4.0 of GoA and submits that as per Rule 4 (1) of CCR, cenvat credit should be taken immediately on receipt of the inputs in the factory of manufacturer. In this case, the credit has been availed without receipt of any inputs and there is clear violation of Rule 4(1). He submits that adjudicating authority has no power to regularize the credit taking on documents without any supply of goods. He further submits that respondents have adopted a novel method of preparing only documents without .....

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and Rules. Therefore, he submitted that adjudicating authority cannot legalizeor take a lenient view and regularize the credit. He further submits that respondents have violated the rules and procedures and availed credit. He relied on the case law reported in State of Jharkhand Vs Ambay Cements - 2004 (178) ELT 55 (SC). He submits that interpretation of rule has to be strictly construed contained in a particular manner as it was prescribed and it is a mandatory provision. He further submits th .....

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the credit. It is not violation of the said rule. The rule only stipulates that assessee has to take credit on the inputs immediately on receipt of the same. He also admits that there is a violation to avail some other benefit i.e only to avail financial credit facility with the bank and to show balance turnover in their books of accounts. But for this there is no violation, there is no intention to evade payment of duty under Central Excise law. He submits that Rule 14 is not applicable for imp .....

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no movement of inputs and again retook the credit through documents. 5. Regarding imposition of penalty on the main assessee, he submits that department has invoked Rule 15 (1) of CCR. He submits that the said rule would come to play only if there is removal of inputs or capital goods which is in contravention of CCR and no excisable goods are involved. The said rule cannot be invoked and no penalty can be imposed under Rule 15 (1) of CCR. Therefore he submits that there is no revenue loss nor .....

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ny benefit. Therefore, higher penalty imposed under Rule 26 (2) not sustainable. As per rule 26 (2) (i) (ii), the maximum penalty imposable is ₹ 5000 which is already imposed. They are not contesting Rule 15A penalty. 6. In his rejoinder, Ld. A.R submits that this is not a case of normal clerical mistake of reversing the credit and subsequently rectified by taking back the credit. The respondents have adopted a novel device to indulge in irregular availment of credit. He explained that Rul .....

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ejoinder, Ld. Advocate submitted that their case is first they debited the credit even though goods were not removed, but the same was taken back which was otherwise available to them on the inputs i.e. MS Squares and there is no violation of any of the Central Excise Rules. Under these circumstances penalties are not sustainable and cases relied upon by Revenue are not applicable to this case. 8. We have carefully considered the submissions of both sides and perused the records. Out of these si .....

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The issue to be decided in these appeals is whether the appellants-assessees violated the provisions of Central Excise Act and Rules for indulging in circular paper transaction of flow of cenvat credit without physical movement of any inputs or goods. In this case, appellants-assessees have also admitted before the adjudicating authority that for raising the documents for clearance of M.S. squares from appellant s premises to the dealers premises and in turn from dealers premises back to the fir .....

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(11,191.360 MTs) (22,185.390 MTs) (22,185,390 MTs) OMICRON Rs.10,94,722/- (318.660 MTs) As seen from the above sequence, we find that the main assessee (SMPL) have prepared the documents i.e. cenvat invoices for clearance of M.S. squares in the name of M/s.M/s.Endeavour Industries Ltd., M/s.Omnicron Bio Genesis Ltd. and M/s.Future Tech Industries Ltd. who are central excise registered deales who in turn prepared sale documents showing sale to Victoria for the entire quantity covering the three .....

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ments of Shri Dinesh Goyal, Vice President of the SMPL and Shri Mridul Kant Chaturvedi, Senior Commercial Manager, G.Kanniayan, Manager (Finance) and also statements of co-appellants it is found that entire paper transactions have been carried out for the purpose of showing higher turnover of transactions to the financial institutions and also to the bank. It is also clear that these co noticees who were the registered dealers have also been floated by the main assessee (SMPL) for this purpose. .....

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or manufacture of finished goods. Apparently the credit balance available with them was used for this circular paper transaction. It is evident from the findings at para-30 of OIO the Superintendent Headquarters (Preventive) vide letter dt.17.11.2009 and 22.11.2009 categorically confirmed that it is the SMPL, first appellant who started the chain by actually debiting the duty from their RG-23A and RG-23D account. It was also confirmed that SMPL had sufficient balance of credit for doing this tra .....

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transaction and created cenvatable documents and manipulated to show higher sales turn over in their books of accounts and to show to the financial institutions, banks etc. Apparently, we find there is no allegation on the bonafide of the original credit first debited by the appellants in this chain of events. It is the SMPL who created the chain by way of paper transaction of sale and transfer of goods and again the main appellant received back the same as receipt from the registered dealer. We .....

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d of violating Central Excise Rules and CCR. The Central Excise Act and the Cenvat Credit Rules are intended to facilitate and benefit every manufacturer of excisable goods by allowing credit on inputs and capital goods so as to eliminate cascading effect of duties paid on inputs. Any misuse of the said Rules and the provisions whether for any gain under Central Excise or any other purpose is a clear contravention and liable for penal action. Therefore, we hold that appellant s intention of viol .....

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keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater. (2) Any person, who issues - (i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or (ii) any other document or abets in making such docu .....

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ts making such document or in any other manner liable to a penalty. In this regard, we rely Hon ble High Court of Punjab and Haryana in the case of Vee Kay Enterprises Vs CCE (supra) on an identical issue clearly held that penalty would be levied on the assessee under Rule 26 (2) of CER 2002. The relevant paragraphs of the said judgement are produced as under :- "9. As regards applicability of provisions introduced on 1-3-2007 to alleged acts committed prior to the said date, the matter is .....

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)(d) and 26(1) are also applicable. The person who purports to sell goods cannot say that he was not a person concerned with the selling of goods and merely issued invoice or that he did not contravene a provision relating to evasion of duty. The appellant issued invoices without delivery of goods with intent to enable evasion of duty to which effect a finding has been recorded and which finding has not been challenged. We are, thus, unable to hold that appellant was not liable to pay any penalt .....

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be in discretion to be exercised having regard to mitigating or aggravating circumstances. In the context of exercise of discretion of imposition of appropriate sentence, it was observed in State of Karnataka v. Puttaraja, AIR 2004 SC 433 :- 10. It has been very aptly indicated in Dannis Councle MCGDautha v. State of Callifornia, 302 US 183 : 28 LD 2nd 711, that no formula of a foolproof nature is possible that would provide a reasonable criterion in determining a just and appropriate punishment .....

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equire fresh consideration of the Tribunal to determine the quantum of penalty which ought to be levied on the appellant. Accordingly, we allow these appeals partly as above and remand the matters to the Tribunal for passing an appropriate orders on the quantum of penalty." The ratio of the above citation is applicable to this case as the main appellant and other co-appellants have wilfully indulged in issuing invoices without physical transfer of goods in the form of circular chain beginni .....

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he gravity of offence must be looked into. The broad principle that the punishment must be proportioned to the offence is of universal application and is required to be followed save where the statute bars the exercise of discretion either in awarding punishment or releasing an offender on probation in lieu of sentencing him forthwith. 11. In the course of the arguments, the ld. Advocates appearing for the appellants have merely highlighted the facts that the appellants in process of issuing inv .....

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provisions of law may not enure to any individual benefit to the offender. Can it be then said that such offender cannot be penalised at all? Being so, merely because the monetary benefit differs from offender to offender in relation to the offence relating to the same act by various persons that cannot be a criteria to hold that the gravity of offence would differ from person to person in such cases. 12. In the cases in hand, undisputedly, the credit was sought to be passed on without invoices .....

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The ratio of the above High Court and other Tribunal s decisions are clearly applicable to this case. Therefore, appellants are liable for penalty. However, considering the peculiar facts of the instant case, where this entire circular paper transaction was created by the appellant and also considering the fact that there is apparently no revenue loss to the Department, the quantum of penalty imposed by L.A is on the higher side in respect of appellants, at Sl.No.1,2,4 & 5 of the Cause Title .....

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.Future Tech Industries ltd. 50,00,000/- Rule 26 (2) (i) (ii) of CER 2002 12,50,000/-(Rupees Twelve lakhs fifty thousand only) 4. E/103/2010 M/s.Endeavour Industries Ltd. 50,00,000/-Rule 26 (2) (i) (ii) of CER 2002 12,50,000/- (Rupees Twelve lakhs fifty thousand only) However, imposition of penalty of ₹ 5000/- each on all the appellants under Rule 15A is upheld. 10. As far as Appeal No.E/104/2010 of M/s. Omnicron Bio-Genesis Industries Ltd., we find that the penalty imposed by the adjudica .....

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