2018 (7) TMI 759 - AT - Central Excise

Director penalized for fraudulent activities including clandestine removal of goods and fraudulent invoicing.

The Tribunal upheld the penalty imposed on the Director of M/s NSP Forgings Pvt Ltd for his involvement in fraudulent transactions, including clandestine ... Clandestine removal - SS Flats, MS & AS Ingots/Billets - fake invoices - penalty u/r 26 (2) of CER on Director - Held that:- It is not dispute that M/s.HSAL had issued cenvatable invoices to M/s.NSPF without the corresponding goods. Also, it is fairly admitted by the appellant that the main assessee M/s.NSPF has paid duty and penalty when the supplier admitted that they had supplied the goods after procuring the same from open market. Shri Dinesh Goel was looking after day to day affairs of M/s.NSPF and all business transactions and accounts was done directly by him. It is inconceivable that with such a crucial role in the running of the company, Shri Dinesh Goel had no knowledge about fraudulent invoices without supply of the goods mentioned therein - Besides, the clear-cut admission by M/s.HSAL leaves no doubt that M/s.NSPF had engaged in commission of fraudulent availment of Cenvat credit. Penalty u/s 26(2) of CER on Director - Held that:- The issue of imposition of penalty under Rule 26 (2) prior to 1.3.2007 was examined by Hon’ble Punjab and High Court in the case of V.K.Enterprises [2011 (3) TMI 133 - PUNJAB AND HARYANA HIGH COURT] and ratio of the said judgment is applicable to the present case - In the said case, while upholding penalty on dealer for issuing invoices while not delivering the goods for the period prior to 1.3.2007, the Hon’ble High Court held that the person who receives the invoices without the receipt of goods mentioned in those invoices and avails Cenvat credit of the duty paid on goods mentioned in the purported invoices, without receiving the duty paid goods, is liable to pay penalty as he has taken credit in respect of goods which have been rendered liable to confiscation by their clandestine diversion - the penalty under Rule 26 is imposable on the Director for his role - however, the quantum of penalty is reduced. Appeal allowed in part. Issues:1. Clandestine removal of goods with fraudulent invoices.2. Availment of cenvat credit without receipt of corresponding goods.3. Imposition of penalty under Rule 26.4. Role and liability of the Director in fraudulent transactions.Issue 1: Clandestine removal of goods with fraudulent invoicesThe case involved M/s Haryana Steel & Alloys Ltd. (M/s.HSAL) engaging in the clandestine removal of goods to certain manufacturers without accompanying the specified goods, issuing cenvatable invoices to other manufacturers. One such firm, M/s NSP Forgings Pvt Ltd, received invoices without corresponding goods, availing credit without actual receipt, leading to a show cause notice.Issue 2: Availment of cenvat credit without receipt of corresponding goodsM/s NSP Forgings Pvt Ltd admitted to paying duty and penalty after the supplier confirmed supplying goods from the open market. The Director was found actively involved in transactions, with the company receiving invoices without actual goods, leading to fraudulent availment of cenvat credit.Issue 3: Imposition of penalty under Rule 26The Tribunal examined the imposition of penalty under Rule 26, citing precedents and legal provisions. The judgment referred to the applicability of Rule 26(2) and upheld the penalty on the Director for dealing with goods liable for confiscation due to fraudulent transactions, even before the amendment in 2007.Issue 4: Role and liability of the Director in fraudulent transactionsThe Tribunal analyzed the Director's role, noting his active involvement in company affairs and transactions with suppliers. Despite arguments against penalty imposition, the Tribunal found the Director's awareness of the fraudulent invoices and goods' confiscation liability justified the penalty. However, considering the circumstances, the penalty was reduced in the interest of justice.In conclusion, the judgment addressed issues related to clandestine removal of goods, fraudulent invoicing, cenvat credit availment without goods receipt, penalty imposition under Rule 26, and the Director's liability in fraudulent transactions. The Tribunal upheld the penalty on the Director but reduced it in consideration of the case's specifics and legal precedents cited during the proceedings.