1998 (9) TMI 601 - AT - Central Excise

Tribunal Upholds Penalties for Facilitating Wrongful Modvat Credit

The Tribunal upheld penalties imposed on the appellants under Rule 173Q(bbb) and Rule 209A for facilitating wrongful Modvat credit through fictitious ... Penalty on dealer - Imposition of - Order - Operative part delivery prior to issue of reasoned order - Validity - Evidence - Statement - Reliance upon - Penalty - Imposition of - Adjudication - Investigation Issues Involved:1. Legality of issuing two separate orders by the Commissioner.2. Allegations of issuing fictitious invoices and facilitating wrongful Modvat credit.3. Adequacy of evidence to support charges of non-transaction of goods.4. Applicability of penalties under Rule 173Q(bbb) and Rule 209A of the Central Excise Rules, 1944.Detailed Analysis:1. Legality of Issuing Two Separate Orders by the Commissioner:The appellants argued that the practice of issuing two separate orders by the Commissioner-one operative part and another detailed reasoned order-was illegal. They cited the Hon'ble Delhi High Court's judgment in Meghna Exports v. C.E.G.A.T., which criticized such practices. However, the Tribunal observed that while this practice is not appreciable, it was necessitated by the High Court's order directing the Commissioner to pass the adjudication order within three weeks. Thus, the Tribunal concluded that this practice, though inconvenient, does not render the orders illegal.2. Allegations of Issuing Fictitious Invoices and Facilitating Wrongful Modvat Credit:The show cause notice alleged that the appellants issued invoices without actual receipt or dispatch of goods, facilitating wrongful Modvat credit to the tune of Rs. 2.3 crores. The appellants countered that no action was taken against the purchasers who availed the Modvat credit, and therefore, no action should be taken against them. The Tribunal agreed with the Department that the recovery of Modvat credit is a separate issue and does not invalidate the proceedings against the appellants for issuing fictitious invoices.3. Adequacy of Evidence to Support Charges of Non-Transaction of Goods:The evidence included verification reports showing the godown was not used for loading/unloading, statements from the accountant, and discrepancies in transport vehicle details. The Tribunal found that the evidence was sufficient to sustain the charge that the appellants were issuing invoices without actual transactions of goods. The Tribunal noted that the appellants' explanations were inconsistent and that the retracted statements still held evidentiary value as there was no proof of coercion.However, the dissenting opinion by Member (Technical) P.C. Jain argued that the evidence was inadequate, emphasizing the need for direct evidence from transporters and buyers. He pointed out that the lack of such evidence casts doubt on the Revenue's case and that the circumstantial evidence was not sufficient to prove the allegations beyond reasonable doubt.4. Applicability of Penalties under Rule 173Q(bbb) and Rule 209A of the Central Excise Rules, 1944:The Tribunal upheld the penalties imposed under Rule 173Q(bbb) for wilfully entering incorrect particulars in invoices to facilitate wrongful Modvat credit. It was noted that the appellants' actions fell within the scope of this rule. Similarly, the penalty under Rule 209A for the second appellant was upheld, as his involvement in the transactions was evident.The dissenting opinion, however, argued that the penalties were not justified due to the lack of concrete evidence proving the appellants' intent to facilitate wrongful credit. The dissent emphasized that the investigation failed to establish that any impermissible credit was actually taken based on the invoices issued by the appellants.Conclusion:The majority opinion concluded that the evidence on record was sufficient to uphold the penalties imposed on the appellants under Rule 173Q(bbb) and Rule 209A. However, the dissenting opinion highlighted significant gaps in the evidence, suggesting that the penalties were not justified. Ultimately, the majority view prevailed, and the appeals were allowed, setting aside the impugned orders.