2022 (2) TMI 614 - AT - Central Excise

Tribunal overturns Commissioner's decision disallowing CENVAT credit & imposing penalties

The Tribunal set aside the Commissioner (Appeals) order, reinstating the Additional Commissioner's decision to disallow the CENVAT credit and impose ... CENVAT Credit - credit availed by the respondent denied for the reason that the declared registered factory premises of the so called manufactures were non-existent and these manufacturers were either not working or working on papers only - burden to prove - HELD THAT:- The Commissioner (Appeals), as can be seen from the order, even after accepting that the invoices had been issued fraudulently still proceeded to grant relief to the respondent by holding that they were not bogus or fake and, therefore, CENVAT credit taken on the basis of such invoices are admissible. This finding is contrary to the factual position emerging from the records. M/s Aditya Enterprises was not in existence; M/s Shree Ram Engineering & Casting was not a manufacturing unit and in fact was engaged in construction of residential apartments; and M/s Ganesh Udyog and M/s L.S. Construction were not found on the mentioned address. It is clearly established that neither these firms were engaged in the manufacture of goods nor they had sold or cleared the goods but had generated invoices only for the purpose of passing CENVAT credit - It is also difficult to accept the finding of the Commissioner (Appeals) that the respondent was not a party to the fake transactions. It is only the respondent who was to gain by adoption of such a mode and, therefore, the conclusion that even though only invoices were received by the respondent without the goods, the respondent had no role to play is perverse. The two decisions in GIAN CASTINGS PVT. LTD. VERSUS COMMISSIONER OF C. EX., CHANDIGARH [2015 (11) TMI 1096 - CESTAT NEW DELHI] and DUTT MULTIMETALS PVT. LTD. VERSUS C.C.E., CHANDIGARH-I [2016 (11) TMI 1329 - CESTAT CHANDIGARH] rendered by learned single members do not help the respondent. In these cases there was no evidence, whereas in the present case there is enough evidence on the record to establish that fake invoices were issued only to benefit the respondent. Appeal allowed - decided in favor of appellant. Issues Involved:1. Entitlement to CENVAT credit based on invoices.2. Allegations of fraudulent availing of CENVAT credit.3. Examination of the genuineness of invoices.4. Compliance with CENVAT Credit Rules.5. Role of the respondent in the purported fraud.6. Validity of the Commissioner (Appeals) order.Detailed Analysis:1. Entitlement to CENVAT Credit Based on Invoices:The respondent, engaged in manufacturing M.S. Ingot and Bars, availed CENVAT credit claiming inputs were used for final products. A show cause notice alleged fraudulent availing of CENVAT credit amounting to Rs. 86,38,805/- based on fake invoices without actual receipt of goods from certain manufacturers and dealers. The Additional Commissioner disallowed the credit and imposed penalties, citing non-existent manufacturing units and fake invoices.2. Allegations of Fraudulent Availing of CENVAT Credit:The show cause notice accused the respondent of availing CENVAT credit on fake invoices issued by non-existent or paper-based manufacturers and dealers. The Additional Commissioner’s investigation revealed that the premises of the alleged manufacturers were either non-existent or not engaged in manufacturing activities. Statements from involved parties confirmed the issuance of invoices without actual goods to pass on CENVAT credit.3. Examination of the Genuineness of Invoices:The Commissioner (Appeals) allowed the respondent's appeal, distinguishing between forged documents and documents issued fraudulently. The Commissioner (Appeals) held that the invoices, though issued fraudulently, were not bogus or fake, and thus CENVAT credit was admissible. The Commissioner (Appeals) noted that the transactions were recorded in the books of accounts and inventory records, and the goods were received and used in manufacturing final products.4. Compliance with CENVAT Credit Rules:The Department argued that under Rule 4(1) of the CENVAT Credit Rules, CENVAT credit is allowable only on receipt of goods along with invoices in the manufacturer’s factory. Rule 4(5) places the burden of proof on the manufacturer. The respondent failed to comply with these provisions, as the goods were not received as per the invoices, making the credit inadmissible.5. Role of the Respondent in the Purported Fraud:The Department contended that the respondent conspired with various manufacturers and dealers to avail undue CENVAT credit. The investigation revealed that the respondent received invoices without goods and reversed a significant amount of CENVAT credit upon realization. Transporters also confirmed issuing bilties without transporting goods, indicating fraudulent transactions.6. Validity of the Commissioner (Appeals) Order:The Tribunal found the Commissioner (Appeals) order unsustainable, noting that the factual position clearly established that the invoices were issued without actual goods. The Tribunal held that the respondent was a party to the fraudulent transactions, benefiting from the fake invoices. The Tribunal concluded that the respondent failed to link the purchase of raw materials with the invoices against which CENVAT credit was taken.Conclusion:The Tribunal set aside the Commissioner (Appeals) order, reinstating the Additional Commissioner’s decision to disallow the CENVAT credit and impose penalties. The appeal by the Commissioner, Central Excise & CGST, Udaipur, was allowed, emphasizing compliance with the CENVAT Credit Rules and the inadmissibility of credit based on fraudulent invoices.