1997 (5) TMI 236 - AT - Central Excise

Appeal outcome: Mixed decision on Modvat credit and penalties for multiple companies.

The appeal by M/s. R.K. Induction Industries P. Ltd. was rejected, upholding the denial of Modvat credit and the penalty. However, the appeals by M/s. ... Modvat - Demand - Limitation - Penalty Issues Involved:1. Denial of Modvat credit based on incorrect vehicle registration numbers.2. Non-payment of freight charges.3. Limitation period for issuing the show cause notice.4. Imposition of penalties on the appellants.Detailed Analysis:1. Denial of Modvat Credit Based on Incorrect Vehicle Registration Numbers:The appellants were denied Modvat credit amounting to Rs. 1,89,722.16 based on the Department's findings that the vehicle registration numbers mentioned in the invoices-cum-challans were incorrect. The Department's enquiry revealed that the registration numbers were of vehicles incapable of carrying the scrap, such as two-wheelers and other non-truck vehicles. The appellants contended that the enquiry report from the RTO was not contemporaneous and that there was a possibility of registration number changes over time. However, the Tribunal found that the appellants failed to rebut the evidence or produce any truck for verification. The Tribunal concluded that the Department had sufficient material to show that the vehicles mentioned were not capable of transporting the scrap, thus justifying the denial of Modvat credit.2. Non-Payment of Freight Charges:The Department also based its case on the fact that neither the manufacturers nor the suppliers paid freight charges to the transporters, which was confirmed by both parties' statements. The Tribunal noted that no transporter would operate without payment, which strengthened the Department's case. The appellants admitted the non-payment of freight charges but argued that the transactions were genuine, supported by cheque payments and sales tax declarations. The Tribunal found this argument insufficient to counter the Department's evidence.3. Limitation Period for Issuing the Show Cause Notice:The appellants argued that the demand was barred by limitation, as the show cause notice was issued after six months from the relevant date. They claimed that RT 12 returns and the invoices were regularly filed with the excise authorities, who raised no objections initially. The Tribunal, however, held that the extended period of limitation was justified due to the fraudulent nature of the transactions, which were discovered through subsequent enquiries. Thus, the demands were not barred by limitation.4. Imposition of Penalties on the Appellants:The Tribunal sustained the penalty of Rs. 50,000/- on M/s. R.K. Induction Industries P. Ltd. but found the penalties of Rs. 10,000/- each on the four scrap dealers unsustainable. The penalties were imposed under Rule 173Q(1)(bbb), which was not applicable to the scrap dealers as they were neither manufacturers nor producers. The show cause notice did not invoke Rule 209A, nor were its ingredients mentioned. The Tribunal concluded that the penalties on the four scrap dealers were not justified and allowed their appeals.Conclusion:The appeal by M/s. R.K. Induction Industries P. Ltd. was rejected, upholding the denial of Modvat credit and the penalty. However, the appeals by M/s. Delux Steel Products (P) Ltd., M/s. Ramesh Trading Co., M/s. Shivam Steels, and M/s. Soham Steels were allowed, and the penalties imposed on them were set aside.