2024 (8) TMI 153 - HC - Central Excise

Gujarat HC rejects export rebate claim after investigation reveals fake invoices and fraudulent CENVAT credit transactions

Gujarat HC dismissed petition seeking recovery of rebate on exported goods where claims were pending disposal. Investigation revealed fake invoices and ... Recovery of rebate already sanctioned on exported goods - rejection of claims of rebate which were pending for disposal - improper availment of CENVAT Credit - fake invoices - grey fabrics were never supplied by the dealers / manufacturers and only central excise invoices indicating duty payment were sent to the processors without supply of the goods - HELD THAT:- It would be germane to refer to the findings arrived at by the Revisional Authority on the basis of the records pertaining to the role of the petitioners which in no uncertain terms implicates the petitioners for the fraud which was detected during the course of the investigation for supply of the grey fabrics without there being any existent manufacturers and only paper invoices were issued without payment of excise duty. It is also revealed during the findings recorded by the Revisional Authority to the effect that the goods which were even provided to the processors by the petitioners which was purchased from the suppliers of the grey fabrics were not the same goods on which the CENVAT Credit was reversed later on by the processors. In case of Diwan Brothers [2014 (9) TMI 147 - GUJARAT HIGH COURT], this Court did not grant the benefit of rebate on export on the ground that it was not proved that the supplier of the goods paid the duty on the very goods which came to be supplied and accordingly, held 'Under the circumstances, unless and until the same is established the case of the petitioner cannot be considered. In the present case as such it is found that the transactions between the petitioner and its supplier (M/s. Universal Textiles) were found to be fake. Even otherwise it is required to be noted that as such it is pointed out that M/s. Mamta Silk Mills Pvt. Ltd. has demanded the refund of the said duty in view of the subsequent proceedings initiated by it. Under the circumstances, on the aforesaid ground, the petitioner shall not be entitled to the rebate claim.' Thus, no interference is called for in the impugned order passed by the Revisional Authority - petition dismissed. Issues Involved:1. Validity of the recovery of rebate already sanctioned.2. Legitimacy of the rejection of pending rebate claims.3. Imposition of penalties on the petitioners.4. Allegations of fraudulent transactions and issuance of fake invoices.5. Applicability of Cenvat credit rules and the reversal of Cenvat credit.Detailed Analysis:1. Validity of the Recovery of Rebate Already Sanctioned:The petitioners, merchant exporters, had their rebate claims initially sanctioned but later challenged by the Department based on an investigation by the Directorate General of Central Excise Intelligence (DGCEI). The investigation revealed that the petitioners were part of a syndicate issuing fake central excise invoices without actual sale or purchase of goods. The Revisional Authority reinstated the original order, which held that the rebate already sanctioned was recoverable due to the fraudulent nature of the transactions. The Appellate Authority's decision, which favored the petitioners, was overturned, emphasizing that the rebate was based on improper Cenvat credit.2. Legitimacy of the Rejection of Pending Rebate Claims:The pending rebate claims of the petitioners were rejected on the grounds that the Cenvat credit availed by the processors was improper. The Revisional Authority found that the grey fabrics used for processing the exported fabrics were never physically supplied, and only invoices were issued. The fabricated transactions aimed to fraudulently avail Cenvat credit, which was then used to claim rebates. The Appellate Authority's decision to allow the pending rebate claims was set aside, reinforcing that the claims were based on non-existent transactions.3. Imposition of Penalties on the Petitioners:Penalties were imposed on the petitioners for their involvement in the fraudulent scheme. The Revisional Authority upheld these penalties, noting that the petitioners played a critical role in the conspiracy to defraud the exchequer. The Appellate Authority's decision to drop the penalties was overturned, and the original penalties were restored, reflecting the gravity of the fraudulent activities.4. Allegations of Fraudulent Transactions and Issuance of Fake Invoices:The investigation revealed that the petitioners, along with other entities, created a network of bogus firms to issue fake invoices and claim Cenvat credit fraudulently. The grey fabric suppliers were found to be non-existent, and the transactions were merely on paper. The Revisional Authority emphasized that the petitioners were integral to this fraudulent scheme, which involved creating fake documents and misrepresenting the payment of excise duty.5. Applicability of Cenvat Credit Rules and the Reversal of Cenvat Credit:The Appellate Authority had initially ruled that the petitioners were entitled to the rebate since the Cenvat credit was reversed by the processors. However, the Revisional Authority found that the reversal of Cenvat credit did not legitimize the fraudulent transactions. The duty paid nature of the processed fabrics was questioned, and it was concluded that the processors availed Cenvat credit without actual receipt of goods. The Revisional Authority held that the fraudulent availing of Cenvat credit and subsequent rebate claims were not sustainable under the Cenvat Credit Rules.Conclusion:The High Court dismissed the petition, upholding the Revisional Authority's findings that the petitioners were involved in a fraudulent scheme to claim rebates based on non-existent transactions. The recovery of the already sanctioned rebate, rejection of pending claims, and imposition of penalties were deemed valid. The court emphasized that the fraudulent nature of the transactions and the improper availing of Cenvat credit justified the actions taken by the Department.