Dealers and transporters penalized for fraudulent Cenvat credit scheme through fake invoices under Rule 25

CESTAT Chandigarh allowed revenue's appeal against dealers and transporters who facilitated fraudulent Cenvat credit by issuing invoices without actual goods dispatch. The tribunal held that penalty under Rule 25 of Central Excise Rules, 2004 was imposable even before Rule 26(2) amendment in 2007, as dealers violated Rule 9 by improper accounting and issuing Cenvatable invoices with intent to evade duty. Transporters were liable under Rule 26 for confirming non-existent transportation. The original order dropping penalties was modified, directing penalty imposition commensurate with offences committed.

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Issues Involved:
1. Fraudulent availing of Cenvat credit by M/s AIPL.
2. Imposition of penalty on dealers and transporters for issuing Cenvatable invoices without actual dispatch of goods.

Summary:

Issue 1: Fraudulent Availing of Cenvat Credit by M/s AIPL
M/s Annapurna Impex Pvt Ltd. (AIPL) was found to have availed Cenvat credit of Rs. 28,01,76,009/- fraudulently without procuring the goods, engaging only in paper transactions. A show cause notice dated 23.04.2007 was issued to M/s AIPL and its directors, seeking to confirm the demand of fraudulently availed Cenvat credit along with interest, and to impose penalties u/s 11AC, Rule 14, and Rule 15 of Cenvat Credit Rules, 2004. The proposals against M/s AIPL and their directors were confirmed in the order dated 30.12.2008.

Issue 2: Imposition of Penalty on Dealers and Transporters
Revenue filed appeals against the dropping of penalties on various dealers and transporters who were implicated in issuing Cenvatable invoices without actual dispatch of goods. The adjudicating authority had discharged these noticees, stating that specific penal provisions under Rule 26(2) of Central Excise Rules, 2002, introduced w.e.f. 01.03.2007, were not applicable retroactively.

Legal Analysis and Judgment:
The Tribunal found that Rule 25 of the Central Excise Rules, 2002, provided for imposition of penalty on any registered dealer for not accounting for excisable goods or contravening any provisions with intent to evade duty. The adjudicating authority had erred in not imposing penalties under Rule 25, as the dealers had issued Cenvatable invoices without actual dispatch of goods, thereby committing fraud. The Tribunal also noted that Rule 26(1) provided for imposition of penalty on any person involved in dealing with excisable goods liable to confiscation.

Conclusion:
The Tribunal concluded that even before the introduction of Rule 26(2), penalties could be imposed under Rule 25 and Rule 26(1) for issuing Cenvatable invoices without actual dispatch of goods. The impugned order was modified to impose penalties on the respondent dealers and transporters. The penalties imposed are as follows:

1. M/s Classic Alloys: Rs. 25,00,000/-
2. M/s ATCO Products: Rs. 7,00,000/-
3. M/s Himani Traders: Rs. 10,00,000/-
4. M/s Vimla Metal: Rs. 4,00,000/-
5. M/s Ashoka Metal Industries: Rs. 50,000/-
6. M/s KMG International Ltd.: Rs. 10,000/-
7. M/s Dinesh International Limited: Rs. 5,00,000/-
8. M/s Vipin Enterprises: Rs. 2,00,000/-
9. M/s Dev Sons: Rs. 80,000/-
10. M/s Emm Kay Electricals: Rs. 2,00,000/-
11. M/s Millennium Wires (P) Ltd.: Rs. 1,00,000/-
12. M/s Easy Link Trading: Rs. 1,00,000/-
13. M/s Simran Engg. Works: Rs. 50,000/-
14. M/s A.K Industries: Rs. 1,00,000/-
15. M/s Jindal Impex: Rs. 25,000/-
16. M/s Garg Industries Ltd.: Rs. 8,00,000/-
17. M/s N.D. Matel Industries Ltd.: Rs. 3,00,000/-
18. M/s Amarjit & Sons: Rs. 5,000/-
19. M/s Delhi Baroda Road Carrier (P) Ltd.: Rs. 10,000/-
20. M/s Raj Road Carrier: Rs. 10,000/-
21. M/s DMR Cargo Movers (regd): Rs. 10,000/-
22. M/s Super Goods Transport Company: Rs. 10,000/-
23. M/s Nitin Cargo Carriers: Rs. 10,000/-
24. M/s Rama Road Carriers: Rs. 10,000/-
25. M/s Shree Balaji Express Cargo Services: Rs. 10,000/-

(Order pronounced in the open court on 22.03.2024)

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