2019 (6) TMI 1066 - AT - Central Excise

Tribunal Upholds Penalties for Fraudulent CENVAT Credit Scheme

Reliance Cellulose Products Ltd., S.S. Jhunjhunwala, Pavan Drugs & Chemicals Pvt. Ltd. and Y.V. Ramana Versus Commissioner of Central Excise Customs and Service Tax, Hyderabad-I

The Tribunal confirmed the penalties and recovery of wrongly availed credit in a case involving irregular CENVAT credit availment through fictitious ... CENVAT Credit - fake invoices - fraudulent availment of CENVAT Credit based on CENVAT invoices issued by certain registered Central Excise Dealers without actual supply of material - HELD THAT:- It is an undisputed fact that the appellants have availed credit on fictitious invoices. There was no movement of goods at all. As per Rule 3 of CCR 2004, credit can be availed on invoices issued by the manufacturer/dealers. The credit is eligible on the duty paid goods/inputs received in the factory and used in manufacture of finished products. In the present case, there was no receipt of goods into the factory. The book adjustments with regard to CENVAT duty has to be as per the provisions of CENVAT Credit Rules 2004. The provision clearly states that credit is available when the goods are received in the factory. The law does not allow to issue invoices without receipt of goods. It is conceded by the appellants that fictitious invoices were generated and passed on. Irregular availment of CENVAT Credit is very much clear from the narration of the facts itself and the said fraud would not have come to light but for the investigations conducted by the Officers of DGCEI. It is sufficiently established that the appellants had deliberately suppressed and misstated facts with intent to avail wrong CENVAT Credit which they are not otherwise eligible - the impugned orders do not call for any interference with regard to confirmation of demand or penalties on the appellants. Demand of penalty - HELD THAT:- When equal penalty has been imposed on the assessee M/s Reliance Cellulose Products Limited, the penalty of ₹ 22.00 lakhs on the Managing Director, in our view, is on higher side. We, therefore, reduce this penalty to ₹ 10.00 lakhs. Only. But for this interference, the confirmation of demand, interest or the penalties imposed on other assessees as well as Managing Director of M/s Pavan Drugs & Chemicals Pvt. Ltd. does not call for any interference. Appeal allowed in part. Issues involved:1. Irregular availment of CENVAT credit based on fraudulent transactions.2. Admissibility of CENVAT credit when goods were not received or used in manufacturing.3. Liability of the appellants for penalties and recovery of wrongly availed credit.4. Role and liability of the Managing Director in fraudulent credit availment.Analysis:Issue 1: Irregular availment of CENVAT credit based on fraudulent transactionsThe case involved manufacturers/dealers availing CENVAT credit on goods under CCR 2004. The appellants were found to have issued fictitious invoices without actual supply of goods, leading to irregular availment of credit. The investigation revealed a complex chain of transactions involving multiple entities issuing invoices without movement of goods. The appellants argued that these transactions were merely book entries to show higher turnover for obtaining loans, without causing revenue loss. However, the authorities deemed this as fraudulent credit availment, attracting penalties and recovery of wrongly availed credit.Issue 2: Admissibility of CENVAT credit when goods were not received or used in manufacturingThe Tribunal emphasized that under Rule 3 of CCR 2004, credit can only be availed on duty-paid goods received in the factory and used in manufacturing. In this case, there was no actual receipt of goods into the factory, rendering the credit availed on fictitious invoices in violation of the rules. The law prohibits issuing invoices without actual receipt of goods, and the appellants' contention of generating invoices for showing higher turnover was dismissed as baseless. Rule 14 of CCR 2004 mandates recovery of wrongly availed credit with interest and penalties.Issue 3: Liability of the appellants for penalties and recovery of wrongly availed creditThe Tribunal upheld the orders confirming the demand for recovery of irregularly availed CENVAT credit along with interest and penalties imposed on the appellants. It was established that the appellants deliberately suppressed facts to avail wrongful credit, not entitled to them otherwise. The investigations conducted by DGCEI revealed the irregularities, leading to the conclusion that the penalties and recovery of credit were justified.Issue 4: Role and liability of the Managing Director in fraudulent credit availmentThe Managing Director was held liable for his involvement in issuing fictitious invoices and fraudulent credit availment. The penalty imposed on the Managing Director was considered reasonable given his knowledge and role in the offense. However, the Tribunal reduced the penalty on the Managing Director of one of the appellants, considering the equal penalty already imposed on the respective entity.In conclusion, the Tribunal dismissed the appeals related to irregular CENVAT credit availment and confirmed the penalties and recovery of wrongly availed credit. The penalty on the Managing Director was reduced in one instance, while other penalties and demands were upheld.