TaxTMI 
TaxTMI 
2009 (9) TMI 362
X X X X Extracts X X X X
X X X X Extracts X X X X
.... , M/s. Pasondia Steel Profiles, M/s. Vee Aar Steels, M/s. Bhagwati Trading Company, M/s. Om Iron & Steel, M/s. Ayushi Steels Co. Pvt. Ltd. 1.3 There is penalty imposed under Rule 25(1)(b) and (d) on a manufacturer namely M/s. Bhupendra Steels Pvt. Ltd., who has supplied invoices. 1.4 Penalties have been imposed on other appellants namely, S/Shri Praveen Chandra, Director in M/s. Kay Iron Works (Jorian) Pvt. Ltd., Rupesh Bansal, Proprietor in M/s. Bhagwati Trading Company, Vishal Arora, Proprietor in M/s. Vee Aar Steels, Vinod Goel, Proprietor of M/s. Vee Kay Enterprises, Vijay Goel, Satpal Singh (broker and commission agent), Yash Pal Sharma, DGM in M/s. Pasondia Steel Profiles and Aran Ghai, Director of M/s. Bhupendra Steels (P) Ltd. under Rule 26 of the Central Excise Rules. 1.5 All the above appeals arise out of a common order in original passed in pursuance of common investigations relying on common evidences and therefore, are being dealt with by this common order. 2. Heard both side extensively on 15-7-09 and 17-7-09 and perused the records. As the basic facts are not in dispute and the appellants heard extensively, we waive pre-deposit of the dues as per the imp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the above two parties, the dealers who issued invoices to these two parties. Show cause notices were also issued in respect of some brokers who facilitated transaction between the dealers and the manufacturers and the manufacturers and the ultimate users proposing penalties. The notices were also issued to concerned Directors of some companies, partners and proprietors of some firms proposing imposition of the penalties. (e) Commissioner vide impugned order has demanded duty, imposed penalties on various persons and the details are as follows: (1) Against, M/s. Kay Iron Works (Jorian) Pvt. Ltd., Yamunanagar, he confirmed the demand of CENVAT credit of Rs.1,95,98,046/- relating to the period 2000-2001 to 2005-2006 under Rule 12 of the Cenvat Credit Rules 2001/2002 read with Rule 14 of Cenvat Credit Rules 2004 read with Section 11A of the Central Excise Act, 1944 along with interest; imposed a penalty of Rs.1,95,98,046/-; adjusted an amount of Rs. 58,04,836/- (rupees fifty eight lakhs four thousand eight hundred thirty six only) already deposited by them is appropriated against this demand. (2) Against, M/s. United Chain Industries, Yamunanagar, he confirmed the demand of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4.1 Learned Advocate Shri Prabhat Kumar appearing for the manufacturers namely, United Chain Industries, Kay Iron Works and their Director Shri Praveen Chandra submits the following. (a) The appellant's companies have received only invoices without receiving the inputs as held by the Commissioner; they have not manufactured any goods using those inputs; they have only prepared accounts as if finished goods were manufactured and issued invoices to the ultimate users who have taken Cenvat credit based on the invoices issued by them; some of the ultimate users having been in the exempted sector have not utilised the credit by the time the investigations were commenced. The ultimate users who have utilised the Cenvat Credit have gone to the Settlement Commission and settled their cases. The appellant-companies namely M/s. United Chain Industries and M/s. Kay Iron Works have also been penalised by the Settlement Commission as a co-noticees. (b) There is no manufacture involved on the part of M/s. United Chain Industries and M/s. Kay Iron Works; as no manufacture is involved the question of levy of any excise duty in terms of Section 3 of the Central Excise Act does not arise; whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mits that Rule 26 was amended by issue of Notification 8/2007-C.E. (N.T.), dated 1-3-07 by inserting Rule 26(2) which is as follows: "(b) After sub-rule (1) as so re-numbered, the following sub-rule shall be inserted, namely:- (2) Any person, who issues- (i) An excise duty invoices without delivery of the goods specified therein or abets in making such invoices or (ii) Any other document or abets in making such document on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater." 4.3 Learned Advocate Ms. Seema Jain appearing for Shri Rupesh Bansal, Vee Aar Steels, Bhagawati Trading Co., Shri Vishal Arora, Om Iron & Steel and Ayushi Steel Co. P. Ltd. made the following additional submissions: (a) The erstwhile Rule 173Q (i) (bbb) provided for penalty if any manufacturer, producer, registered person of a warehouse or a registered dealer "enters wilfully any wrong or incorrect part....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Central Excise Rules is fully justified. (b) M/s. United Chain Industries and Kay Iron Works have irregularly taken credit based on only invoices received from the registered dealers and a manufacturer and without receiving goods mentioned in the said invoices. The credit so taken has been utilised by them towards payment of duty on the capital goods cleared by them. Since they have taken credit on the inputs and utilised the same irregularly, the order for recovery of the said amount of credit is fully justified. Whether the person who has received the invoices and taken credit has utilised or the same is lying in balance is altogether a different matter and has no relevance to their liability to pay back the credit taken and availed by them. The penalty imposed is also justified. (c) The possession is not a necessary ingredient to come to a conclusion that a person has dealt with the goods. He relies on the decision of the Hon'ble Supreme Court in the case of Sachidananda Banerjee, ACC, Calcutta v. Sitaram Agarwal reported in 1999 (110) E.L.T. 292 (S.C.) in which the expression "in any way concerned in any manner dealing with prohibited goods". (d) Learned DR also r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....redit was liable to pay back the credit so taken and utilised? (f) Whether invoices issued without supply of goods valid documents for taking and passing on Cenvat credit of duty? If the invoices are invalid what are the consequences in respect of credit taken, passed on and utilised by different persons in the chain till the ultimate user of the credit? (g) What is the impact on earlier transactions, when the ultimate user of Cenvat credit has admitted irregular taking of credit and settled their cases before the Settlement Commission? Whether, because of payment of duty by the ultimate users, the duty payable by manufacturers at earlier stages could be held as not payable or waived? (h) Whether penalties can be imposed on Directors, partners, proprietors under Rule 26 in respect of their role prior to amendment carried out in Rule 26 vide Notification 8/2007-C.E. (N.T.) with effect from 1-3-2007. 8. A submission has been made that once central excise duty has been paid the goods can not considered as excisable goods and the obligation in respect of excisable goods can not be applied. This overlooks the definition of excisable goods which reads as follows: "excisabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such credit towards duty payable on the final products cleared by them, he is required to pay a lesser amount in cash and utilise the credit taken by him of duty paid by the supplier on. the inputs. The duty payable by the manufacturer of final products will be generally more than the credit taken by him. There are provisions when the credit lying in the cenvat account is permitted as cash refund in a situation when the manufacturer is not able to utilise the credit due to exports under bond by him. 8.2 Every manufacturer, especially the small scale units may not be able to procure the inputs directly from the manufacturer of the inputs and avail the cenvat benefit. The dealers, who were in the chain of distribution, were permitted to register themselves with excise authorities and issue cenvatable invoices while selling duty paid goods. For the purpose of distributing credit, the first stage dealers and second stage dealers have been introduced and they were permitted to register and pass on the credit while selling the goods to the actual manufacturer who will be using duty paid inputs. These dealers are permitted to pass on credit, to the buyer of goods, proportionate to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall get himself registered with the proper officer in such manner as prescribed." 8.4.4 Rule 9 of the Central Excise Rules inter alia provides for the registration of persons engaged in trade subject to such conditions safeguards and procedure as may be specified by notification by the Board. 8.4.5 In the context of Cenvat Credit scheme, the terms "the first stage dealer" and "second stage dealer" have been defined as follows: "First stage dealer" means a dealer, who purchases the goods directly from, (i) the manufacturer under cover of invoice issued in terms of an invoice issued in terms of the provisions of Central Excise Rules or from the depot of the said manufacturer, or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or (ii) An importer or from the depot of an importer or from the premises of the consignment of the importer, under cover of an invoice. ''Second stage dealer" means a dealer who purchases the goods from a first stage dealer. 9.1 The registered dealers, thus, have specific roles and obligations ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accounts as receipt but to account for its disposal. The person to whom they invoiced having not received the goods, the persons who have issued cenvatable invoices have concealed the direction and destination and actual disposal of the goods on which they took cenvat credit and passed it on further. 10.2 If as a first stage dealer, he received the invoices only from the manufacturer or the godown/branch office of the manufacturer and he did not receive the goods, he was not entitled to take the credit. The important conditions which have to be fulfilled for taking the credit are that the duty paid goods should be received and the duty paying documents should also be received and both the conditions should be fulfilled before taking the credit. It should be remembered that inputs may emanate from exempted sector, in which case mere receipt of the goods will not entitle the recipient to credit. If any one of these conditions is not fulfilled, the dealer is not entitled to take the credit. 10.3 Once he is not entitled to take the credit, he is not entitled to pass on the credit. The role of the dealer issuing invoices without supplying the goods, receiving money in cheque and r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diverted goods are liable for confiscation as credit has been taken by them with out using the goods for the intended purpose; they have rendered themselves liable for penal action. 10.6 The first stage dealers have made entries in the stock registers, took credit; prepared invoices in relation to goods which have already been diverted; prepared or got prepared transport documents; received payments in respect of the said diverted goods; in the process they passed on the credit of duty paid by SAIL in respect of goods for which they prepared the invoices; they received commission as a percentage of value of the goods. No doubt that it may be true that they have not carried the goods as head loads, over the shoulders. Whatever they have done was in relation to duty paid goods on which credits have been taken and in respect of which they have a clear obligation to account for its disposal in the manner prescribed in the statutory Rules. It was not a child's play that they were carrying on. The position of the second stage dealers are not significantly different as they have also dealt with the goods and taken their commission and based on the credit to ultimate customers who have ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e noticed; they contained registration numbers of auto rickshaw and jeep which were not capable of carrying the quantity of materials shown in the invoices. The recipients as per documents denied having received the materials. The transporters have also denied transporting the goods from M/s. Bhupendra Steels Pvt. Ltd. Therefore, the finding of the Commissioner that the said M/s. Bhupendra Steels Pvt. Ltd. has also not supplied the goods mentioned in the invoices and supplied only the invoices has to be upheld. The documents issued by these dealers/manufacturers without supply of goods are clearly invalid documents and no credit could have been passed through such documents and no such credit should have been taken by M/s. United Chain Industries and Kay Iron Works. 12.2 Rule 25 of the Central Excise Rules, is attracted in respect of wide range of activities as it provides for penal action on "any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner deals with, any excisable goods which he knows or reason to believe are liable for confiscation." For selling or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iciaries who have availed the credit, no recovery to that extent should be ordered from them. The offence at each stage has to be considered separately. The offences by the ultimate users are arising out of irregular credit of duty paid by these two manufacturers. Separate show cause notices were issued to such ultimate buyers of M/s. United Chain Industries and M/s. Kay Iron Works. These ultimate buyers have approached the Hon'ble Settlement Commission with respect to such separate show cause notices issued to them and not in pursuance to the instant show cause notice. The penalty on M/s. United Chain Industries and M/s. Kay Iron Works as supplier of invoices to the ultimate users is in relation to abetment of offences committed by the ultimate users. The show cause notices issued to other parties pertain to violations committed by them and are not subject matter of the present proceedings. One fraud cannot rectify the other and each needs to be visited separately by the legal consequences. The consequences of offences arising out of actions/omissions by M/s. United Chain Industries and M/s. Kay Iron Works cannot be mitigated by subsequent offences by others and the decision in re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lves with Excise authorities and no violation of any obligation on their part has been cited. Therefore, we are of the view that role of the brokers may not attract the provisions Rule 26, before the amendment. 14.4 Penalties have been imposed on other appellants namely, S/Shri Praveen Chandra, Director in M/s. Kay Iron Works (Jorian) Pvt. Ltd., Yash Pal Sharma, DGM in M/s. Pasondia Steel Profiles and Arun Ghai, Director of M/s. Bhupendra Steels (P) Ltd. under Rule 26 of the Central Excise Rules. Prior to amendment Rule 26 provided for imposition of penalty on "any person" who acquires possession of, or in any way concerned in transporting, removing, depositing, keeping, concealing, "selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe or liable to confiscation under the Act or these rules". The roles of these persons are in relation to the dealing in the goods as discussed earlier. The submission that there was no provision similar to 173Q (bbb) in the Central Excise Rules, 2002 till the amendment by Notification 8/2007-C.E. (N.T.), dated 1-3-2007 is true. Provisions enabling imposition of penalty on any person....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication as to whether there were any goods at all involved, whether there was payment of sale consideration or there was any commission involved. The findings of the Tribunal in the said case that a person can not transport without taking possession are unexceptionable. But the taking over of physical possession in respect of other activities like purchase or sale is not always necessary. Let us consider a case of an import by an India based importer who sells the goods imported by him on high sea sale basis; the orders for import could be placed with out even seeing the goods; the goods could be transported by ships and sale takes place on high sea sale basis. In such cases, the party who sells on high sea sale basis has purchased and sold but he has not taken possession or transported. It is a common knowledge that there are similar situations in domestic transactions of selling or purchasing. A Delhi based trader may order a consignment in Mumbai, but may transfer the consignment by sale to a party in Chennai and he may not take physical possession or be concerned about transporting. 16.2 The reliance has been placed on the extract from principles of statutory interpretation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed, from SAIL stock yard, the duty paid goods and sold the said goods with out raising invoices, in the grey market on cash basis; they have shown the goods as if received in their registered premises; made entries in the stock registers; took credit; prepared invoices in relation to goods which have already been diverted; prepared or got prepared transport documents; received payments in respect of the said diverted goods; in the process they passed on the credit of duty paid by SAIL. In respect of the second stage dealers, situation is identical as in the case of the first stage dealers except that they have shown purchase from first stage dealers the duty paid goods. Possession of the goods is no doubt a must for the purpose of transporting. However, possession is not a must for dealing otherwise in the goods like purchase or sales. (c) There is also a clear obligation on the part of any registered dealers who have purchased the excisable goods and taken credit and passed on the credit to the manufacturer of final products not to act in any way which is prejudicial to utilisation of the input for the intended purpose. There is also a continuing obligation to account for t....