Fake invoices and Section 11D: duty demand fails without actual duty collection, but penalties were sustained.

Section 11D could not be invoked because the invoices were bogus, no goods were supplied, and the evidence showed only commission was received, so there was no actual collection of duty from buyers. Penalty on the manufacturer was sustained because issuing fake invoices with incorrect particulars to facilitate wrongful credit fell within Rule 173Q(1)(bbb). Penalty on the director was also sustained because involvement in the fake invoicing activity attracted the penal provisions under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944. The article thus records partial relief only on the duty demand, not on the penalties.

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Issues: (i) Whether the demand under Section 11D could be sustained when the invoices were issued without supply of goods and only a commission was received; (ii) Whether penalty on the manufacturer for issuing fake invoices was sustainable under Rule 173Q(1)(bbb) of the Central Excise Rules, 1944; (iii) Whether penalty on the director for involvement in issuing fake invoices was sustainable under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944.

Issue (i): Whether the demand under Section 11D could be sustained when the invoices were issued without supply of goods and only a commission was received.

Analysis: Section 11D applies where a manufacturer collects an amount as duty from customers and retains it without payment to the Government. The evidence showed that the invoices were bogus, no goods were supplied, and only commission was received. In such circumstances, the mere issuance of invoices showing duty-paid goods could not establish actual collection of duty from the buyer.

Conclusion: The demand under Section 11D was not sustainable and was set aside.

Issue (ii): Whether penalty on the manufacturer for issuing fake invoices was sustainable under Rule 173Q(1)(bbb) of the Central Excise Rules, 1944.

Analysis: Rule 173Q(1)(bbb) expressly covered a manufacturer who knowingly entered incorrect particulars in invoices with intent to facilitate wrongful availment of credit. Issuing fake invoices without supplying goods fell within that mischief. The plea that no penal provision existed for such conduct during the relevant period was rejected.

Conclusion: The penalty on the manufacturer was upheld.

Issue (iii): Whether penalty on the director for involvement in issuing fake invoices was sustainable under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944.

Analysis: The director was found to be involved in the issuance of fake invoices. The governing penal provisions were treated as applicable to persons concerned with such evasion-related activity, and the conduct was held to justify penalty notwithstanding the argument based on the date of insertion of the specific sub-rule.

Conclusion: The penalty on the director was upheld.

Final Conclusion: The demand under Section 11D failed, but the penalties for issuing fake invoices were sustained, resulting in only partial relief to the appellants.

Ratio Decidendi: Section 11D cannot be invoked unless there is actual collection of duty from buyers, whereas issuance of fake invoices to facilitate wrongful credit attracts the applicable penal provisions.

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