2016 (11) TMI 403 - AT - Central Excise

Tribunal waives penalties for exporters acting in good faith under Central Excise Rules

M/s. Vinayak Exim, M/s. Ashirwad Fashion, M/s. Sheetal Exports and M/s. Varun Impex Versus Commissioner of Central Excise, Mumbai-I

The Tribunal set aside the penalties imposed on merchant exporters under Rule 26 and 27 of the Central Excise Rules, 2002, as they were found to have ... Imposition of penalties u/r 26 and 27 of the Central Excise Rules, 2002 - utilisation of CENVAT credit Cenvat credit on the basis of fake and bogus input invoices - Rule 9 read with Rule 12B of the Central Excise Rules, 2002 - whether the appellants being merchant exporters are liable for penalty under Rule 26 in connection with the offence committed by M/s. Singh Inc., manufacturer - Held that: - the supply of goods under the cover of invoice and ARE1 made to the appellant by manipulating the same was not known to the appellants therefore without the knowledge of the appellants if any fraud has been committed the appellants cannot be held responsible and consequently penalty cannot be imposed. Validity of CHA statement - the goods received in the port were transported from different place - Held that: - In this regard it could not establish that the goods were not supplied by M/s. Singh Inc. as the invoicing by M/s. Singh Inc. and payment there for by the appellant have not been disputed by the investigation, therefore the evidences is not conclusive to allege the involvement of the appellants in fraudulent activity of M/s. Singh Inc. Merely because supplier of the goods have committed fraud the buyer of the goods cannot be penalised. It is necessary to establish beyond doubt that the buyer is knowingly involved in the fraud committed by the supplier which in the present case has not been established. Therefore the appellants are not liable for penalty under Rule 26 - Since penalties u/r 26 waived, there is no need to go into the legal issues whether penalty under unamended Rule 26 is imposable for the offence committed prior to 1/4/2007 and also on the issue whether composite penalty can be imposed under Rule 26 and 27 - appeal allowed - decided in favor of appellant. Issues Involved:1. Imposition of penalties under Rule 26 and 27 of the Central Excise Rules, 2002.2. Fraudulent availing and utilization of Cenvat credit by M/s. Singh Inc.3. Liability of appellants (merchant exporters) for penalties.4. Applicability of amended Rule 26 to the case.5. Composite penalty under Rule 26 and 27.Issue-wise Detailed Analysis:1. Imposition of penalties under Rule 26 and 27 of the Central Excise Rules, 2002:The Commissioner of Central Excise, Mumbai imposed penalties on the appellants under Rule 26 and 27 of the Central Excise Rules, 2002. The penalties were as follows:- M/s. Vinayak Exim: Rs. 9,98,876/-- M/s. Ashirwad Fashion: Rs. 4,41,838/-- M/s. Sheetal Exports: Rs. 21,97,894/-- M/s. Varun Impex: Rs. 10,80,000/-2. Fraudulent availing and utilization of Cenvat credit by M/s. Singh Inc.:The case was based on intelligence that M/s. Singh Inc. had availed Cenvat credit on the basis of fake and bogus input invoices without receiving the inputs. They issued Central Excise invoices showing the supply of goods to merchant exporters, including the appellants. The fraudulent availing of Cenvat credit by M/s. Singh Inc. was confirmed by an adjudication order dated 21/9/2010, which was not appealed against.3. Liability of appellants (merchant exporters) for penalties:The primary issue was whether the appellants were liable for penalties under Rule 26 and 27. The appellants argued that they had bonafidely purchased goods from M/s. Singh Inc. under the cover of excise invoices and were unaware of any fraud. They contended that they paid the full invoice amount, including excise duty, and claimed rebates accordingly. The investigation did not produce evidence of any cash transactions to establish the fake nature of transactions. The appellants also argued that they could not be held responsible for the fraudulent activities of M/s. Singh Inc. as they had no knowledge or reason to believe that the goods were liable to confiscation.4. Applicability of amended Rule 26 to the case:The appellants contended that the case pertained to the period 2003-04, and the amended provision of Rule 26, which came into effect from 1/4/2007, was not applicable. They argued that even if the goods supplied by M/s. Singh Inc. were not related to duty-paying invoices, the goods received by the appellants were not liable for confiscation.5. Composite penalty under Rule 26 and 27:The appellants argued that composite penalties under Rule 26 and 27 could not be imposed. They cited several judgments to support their claim, including Commissioner of Central Excise, Chandigarh-I Vs. Mini Steel Traders, Commissioner of C. Ex. & S.T. Chandigarh I Vs. Asim Enterprises, and others. The Revenue, on the other hand, argued that wrong quoting of statutory provisions does not vitiate the entire proceeding if the offence is otherwise established. They relied on judgments like J.K. Steel Ltd. Vs. Union of India.Judgment Analysis:The Tribunal found that the appellants had placed orders for goods for export, received the goods under excise invoices and ARE 1, and made payments, including duty charges, to M/s. Singh Inc. The Tribunal noted that the appellants could not have known about the fraud committed by M/s. Singh Inc. and that the appellants had no obligation to verify whether the goods were genuinely manufactured or whether duty was genuinely paid. The Tribunal concluded that the appellants had acted in good faith and had no knowledge of the fraud. Consequently, the penalties imposed on the appellants were set aside.The Tribunal also referenced a similar case (Babul Jain and Others Vs. Commissioner of Central Excise Thane-I) where penalties were not imposed due to the lack of evidence of the buyer's involvement in the supplier's fraud. The Tribunal emphasized that penalties under Rule 26 could only be imposed if it was established that the buyer was knowingly involved in the fraud, which was not the case here.Conclusion:The Tribunal set aside the impugned order and allowed the appeals of the appellants, concluding that the appellants were not liable for penalties under Rule 26 and 27 as they had no knowledge of the fraud committed by M/s. Singh Inc. The Tribunal did not delve into the legal issues regarding the applicability of the amended Rule 26 or the imposition of composite penalties, as the facts of the case led to the waiving of penalties.