2016 (12) TMI 916 - AT - Central Excise

Tribunal Upholds Appeal, Dismissing Fraudulent Credit Allegations Against Companies

M/s. Karnataka Metal Company, M/s. Agarvanshi Aluminium Ltd. Versus CCE, C & ST, Hyderabad And Vice-Versa

The Tribunal dismissed the appeal filed by the department, setting aside the impugned orders against Karnataka Metal Corporation (KMC) and Agarvanshi ... CENVAT credit - availing fraudulent credit by issuing CENVATable invoices without delivery of goods - clandestine removal - Held that: - One important aspect that has to be looked into is that when department alleges that no raw material was supplied by KMC and AAL to M/s. BDCPL and that only invoices were issued, the department has to prove how M/s. BDCPL could manufacture finished products on which they have paid excise duty during the relevant period. On conduct of inspection the stocks and statutory register of M/s. BDCPL did not show any discrepancy. In the absence of any evidence that M/s. BDCPL has procured raw material from any other source other than KMC/ AAL, and used the same to manufacture finished products, the allegation that KMC/AAL did not supply any goods but only issued invoices is not tenable. It is also to be noted that the Commissioner(Appeals) in the case of M/s. Khaitan Electrical Ltd., and KMC vide Order-in-Appeal No. 99/2009 dated 04.12.2009 and vide another Order-in-Appeal No. 26,27 and 28/2010 dated 26.02.2010 has set aside the demand interest and penalty raised against M/s. Prism Airtech and in the same order also set aside the penalty imposed against KMC who was a co-noticee - it was found that the overall evidences were similar in all the appeals. I am of the view, that department has failed to establish that appellants are guilty of indulging in activities of fraudulent availment of CENVAT credit as alleged in the notices, as the overall evidences were similar - appeal allowed - decided against Department. Issues:Fraudulent availment of credit through issuance of CENVATable invoices without actual delivery of goods, Allegations of clandestine clearance and fraudulent credit availing, Reduction of penalty by Commissioner (Appeals), Evidence based on private records recovered from residential premises, Allegations against Karnataka Metal Corporation (KMC) and Agarvanshi Aluminium Ltd. (AAL), Failure to establish fraudulent credit activities, Inconsistencies in evidence and lack of corroborative proof.Analysis:Issue 1: Fraudulent Availment of CreditThe appeals arose from allegations of fraudulent credit availing through the issuance of CENVATable invoices without actual delivery of goods. The investigation revealed that Karnataka Metal Corporation (KMC) and Agarvanshi Aluminium Ltd. (AAL) were involved in issuing invoices to M/s. Bhargavi Die-Cast Pvt. Ltd. without supplying materials, leading to fraudulent credit availing. However, the Tribunal found that the evidence presented by the department was insufficient to establish the fraudulent activities conclusively. The lack of proof regarding diversion of materials or substantiation of fraudulent credit led to the dismissal of the allegations.Issue 2: Reduction of PenaltyThe Commissioner (Appeals) had reduced the penalty imposed on KMC from Rs. 27,87,019 to Rs. 15,00,000. This reduction was challenged by the department in appeal E/293/2011. However, the Tribunal, after analyzing the evidence and previous judgments, concluded that the department failed to adequately prove the allegations of fraudulent credit availing. As a result, the impugned orders in appeals E/2770/2010 and E/2771/2010 were set aside, and the appeal filed by the department (E/293/2011) was dismissed.Issue 3: Evidence from Private RecordsThe investigation heavily relied on private records recovered from the residential premises of an individual named Shri. Prabhakar, who was associated with KMC. The department argued that these records, along with statements and documents from various entities, supported the allegations of fraudulent credit availing. However, the Tribunal noted inconsistencies in the evidence chain, highlighting gaps and lack of conclusive links in the department's case. The absence of proof regarding actual diversion of materials or non-supply of goods weakened the department's argument.Issue 4: Inconsistencies in EvidenceVarious orders-in-appeal in related cases, such as those involving Khaitan Electrical Ltd., Sri Lakshmi Industries Ltd., and Prism Airtech, were cited to demonstrate inconsistencies and insufficiencies in the evidence presented by the department. The Tribunal emphasized the importance of corroborative evidence and the need to establish a clear link between allegations and concrete proof. In the absence of such substantiation, the Tribunal found the department's case lacking and ruled in favor of the appellants.Conclusion:The Tribunal's analysis of the evidence, previous judgments, and the department's arguments led to the dismissal of the appeal filed by the department and the setting aside of the impugned orders against KMC and AAL. The decision highlighted the importance of concrete evidence, lack of which resulted in the failure to establish the fraudulent activities alleged by the department. The Tribunal's detailed scrutiny of the evidence and legal precedents underscored the necessity of robust proof in cases involving allegations of fraudulent credit availing and clandestine activities.