TaxTMI 
TaxTMI 
2014 (6) TMI 454
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....ts, (which is essential condition to avail the credit). The allegation of diversion of Naphtha is based upon non-production of final product viz. solvents, which in turn is based upon three main evidences. The first evidence is that 22 out of 45, purported purchasers of solvent were found to be non-existent or if in existence they in their statements have said that they never purchased solvent from the appellant. Only in one case, purchaser has stated that he bought one consignment (against many consignments shown in the records). The second evidence is that number of bank accounts were opened in Mumbai/Navi Mumbai on behalf of purported existent and non-existent purchasers (who were located in different parts of the country) and large amounts of cash were deposited which in turn were transferred to appellants account as if receipt of sale amount of solvents. Third evidence is relating to transportation of solvents. Revenue has demanded an amount equivalent to the credit of duty taken on Naphtha for the entire period namely September 1998 to May 2001. 2. The case was adjudicated by the Commissioner who confirmed the entire demand of Rs. 12,38,49,639/- alongwith interes....
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....ioner of Central Excise, Rajkot 2003 (156) ELT 602; (x) Systematic steel Inds Ltd vs. CCE 2005 (191) ELT 663; (xi) Parakh Food Ltd vs CCE - Final Order No. A-1589-1591/WZB/05/EB/C-II dated 10.11.2005; (xii) CCE vs Narayan Polyplast 2005 (179) ELT 20 (SC); (xiii) CCE vs Narmada Chematur Pharmaceuticals Ltd 2005 (179) ELT 276 (SC); (xiv) Stumpp Scehule and Somappa Ltd vs CCE 2005 (69) RLT 786 (T); (xv) Regal Crimptex Pvt LTd vs CCE 2004 (167) ELT 324 (T); (xvi) CCE vs M.P. Telelinks Ltd 2004 (178) ELT 167 (T); (xvii) Silvassa Wooden Drums vs CCE 2005 (184) ELT 392 (T); (xviii) Shivali Udyog (I) Ltd vs CCE 2006 (204) ELT 94 (T); (xix) Creative Enterprises vs CCE 2004 (60) RLT 342 (CESTAT-Mum); (xx) Ajay Metachem Pvt Ltd vs CCE 2006-TIOL-667-CESTAT-MUM; (xxi) Orion Ropes Pvt Ltd. vs CCE 2006-TIOL-391-CESTAT-MUM; (xxii) Orbit Bearing (I) PVt Ltd vs CCE 2006-TIOL-1637-CESTAT-MUM (xxiii....
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....al Industries vs Commissioner - 2007 (217) ELT 306 (T); (v) Hindustan Petroleum Corporation vs CCE - 209 (243) ELT 104 (T); (vi) Ispat Profiles India Ltd vs CCE - 2007 (215) ELT 255 (T); (vii) CCE vs National Leather Cloth Mfg Co- 2009 (246) ELT 336 (T) (viii) Wipro Ltd vs CCE - 2001 (135) ELT 1337 (T); (ix) Dow Chemical International Pvt Ltd vs Commissioner - 2008 (226) ELT 146 (T) (x) Birla Corporation Ltd vs CCE - 2008 (224) ELT 567 (T) (xi) BASF India Ltd vs CCE - 2010 (261) ELT 368 (T) (xii) Tata Motors Ltd vs CCE 2007-TIOL-46-CESTAT-MUM; (xiii) Surindra Engg Co Ltd. vs Commissioner 2007 (210) ELT 287 (T) 6. The learned counsel also relied upon the Board's Circular dated 18.10.2000 reported in 2000 (41) RLT M-129. 7. As far as the various factual points made in the Show Cause Notice and the impugned order are concerned, there were not much of a refutal for the same. It was stated that the allegation that some of the buyers were not inexistence or fictitious cannot automatical....
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....inate and Stop (Acquisition, Sale, Storage & Prevention of use in Automobiles) Order, 2000 is required to be followed. It is in this background this case has to be seen. 9. In the present case, the appellants have fabricated a large number of documents so as to indicate that Naphtha procured was purportedly used in the manufacture of solvents and thereafter solvents have been sold. The learned Commissioner (AR) stated that in the present case the appellant did purchase Naphtha from the refinery, and it was purported to have been used in the manufacturing activity in their factory but in reality the same was diverted into the illegal market. This is evident from the fact that the invoices of the final product were in the name of non existent customers purported to be located all through out the country or to certain persons without their knowledge or purchase order. Appellants after showing the sale of solvent to these non-existent customers themselves opened certain bank accounts in different branches in Mumbai/New Mumbai and operated those bank accounts in the name of such non existent firms. Purported customers located in Chennai, Bangalore etc were shown to have bank accounts....
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....p; xiv) M/s Goa Polychem, Goa - Unit was located but was non-functional. xv) M/s Asha Chemine Oil, Pondicherry- Unit was not found in existence. xvi) M/s Balaji Paints & Chemicals, A P- No such unit existed at the given address. xvii) M/s Sarathy Industries, Tamil Nadu- Unit not located xviii) M/s Agra Petro Chern, Tamil Nadu - Unit not located xix) M/s Deepak Chemicals, Madras - Unit not located xx) M/s Gem Petrochemicals, Karnataka- No such unit existed. xxi) M/s Arasan Petrochemicals, Vallenkumara, Tamil Nadu- No such unit existed at the given address. xxii) Kothari Chemcials & Solents, Shindkedy -Unit was found in existence. No transaction was acknowledged by them. 10. The learned Commissioner (AR) further stated that investigations also revealed that appellant had received payments from the following firms/companies which were floated on paper by one Mr. Arvind Hukkery at the instance of the appellant:- i) Asha Chemine Oil, Pondicherry ii) Abindo....
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.... purchased the solvent from appellant. In view of this position, there can be no doubt that the whole of Naphtha purchased on which input Cenvat Credit was taken was diverted. Appellant have not produced the ledger account of all the buyers and the details so as to enable the department to come to a conclusion that certain quantity of Naphtha was used in the manufacture of Beesol, the solvent. The credit of inputs is allowed under the Central Excise Rules, on trust and suo motto basis on the assumption that manufacturer will receive the inputs, use in the manufacturing process and pay duty on the final product. In the present case, Naphtha, the input has not been received in the factory, or after receiving the same in the factory was diverted for illegal purposes and not used for the manufacturing process and therefore the credit availed by them is incurred and fraudulent. Transport document available only proves that Naphtha was lifted from Refinery and nothing beyond that. As far as the appellant's plea that the credit availed has been utilized for the clearance of the final product and thus in a way credit has been reversed, the learned Commissioner (AR) argued that this is ....
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....nical or legal in nature (which will be discussed in subsequent paras). Learned advocate, however, produced large number of documents to indicate that the appellant had factory and solvents were being manufactured and the central excise department recognized this fact, for example, during the relevant period, Central Excise officials have drawn samples of Beesol and sent to the Chemical Laboratory as there was classification dispute. Appellants have also produced correspondence from various Technical authorities and other Government organization, which only prove that there was factory and solvent could be produced therein. From the various documents produced by the appellant it cannot be said that there was no manufacturing facility in the appellant's factory. Revenue has not claimed that appellant did not have a factory. From the documents produced, it appears that some manufacturing activity relating to production of Beesol might have taken place during the relevant period. However, on the other hand, the evidence gathered by the Revenue clearly indicates that the records maintained by the appellants were not truthful and were fabricated on large scale, sales shown to 22 par....
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....e, then it was case of inputs cleared as such, and duty paid on such processed inputs was deemed to be reversal of credit. It is under such circumstances that this Tribunal have been taking a view that payment of duty on the final product amounts to reversal of credit taken. For example, if a unit was cutting and slitting HR coils etc and was selling the same to certain customers it was assumed by the unit that this activity (cutting and slitting) amounts to manufacture but either this Tribunal or the Hon'ble Courts have later on held that such activity does not amount to manufacture. In such situation Revenue was demanding amount equal to the credit taken. Since the coils after cutting and slitting were being supplied to specific customers, the same would have been supplied by the manufacturer as input cleared as such on reversal of credit and in view of this position, this Tribunal has been taking the said view. The present case is not of this type. Here customers are non-existent, unknown and so called manufacturing is bogus, and transaction are fraudulent. 19. In the case of Ajinkya Enterprise (supra) which was upheld by the Hon'ble Bombay High Court this Tribunal ha....
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....cise laws, credit on goods can be taken based upon invoices issued by manufacturer or trader or importer. Thus whatever duty is indicated in the invoice (whether or not paid or payable by the person issuing the invoice) is available as credit to other person (of course, it is assumed that goods have also been received by that person). For example, based upon the invoices issued by the appellant credit of tax can be passed on other manufacturer (directly or through a dealer). Thus duty paid at the time of clearance of Beesols cannot be treated as reversal of credit. The learned counsel for the appellant has quoted four case laws as detailed in para 4. We have gone through the four judgments. We find none of them is of any relevance in the facts and circumstances of the present case. In the present case, the appellant though they have not manufactured Beesol but issued invoices of the Beesol. Such invoices would have gone into the trade and commerce and some other person would have taken the credit of the same, and therefore the four cases mentioned by the learned counsel for the appellant are not applicable in the present case. In the case of Andhra Pradesh Straw Board Mills (supra)....
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.... We also note that the invoices have been issued and these invoices entitled various traders and customers to pass on credit of such tax paid. Under the circumstances the appellant's contention is rejected. Payment of duty on Beesol cannot be considered as reversal of credit on Naphtha. 21. Another contention of the appellant is that the period involved in the present case is September 1998 to May 2000 while the Show Cause Notice was issued in 2003-04 and at the time of issuance of the said Show Cause Notice, the earlier Central Excise Rules were replaced by new Central Excise Rules, 2002 and Cenvat Credit Rules, 2002 and the department cannot issue the Show Cause Notice in 2003-04 invoking earlier rule viz. Rule 57I. 22. The contention of the learned Advocate for the appellant is that in the absence of a saving clause Rule 57I cannot be invoked after the Modvat provisions have been substituted by the Cenvat provisions and in support of the above contention the learned advocate has quoted a lagre number of judgments as detailed in para 5 above. 23. We have considered the submissions. It would be appropriate to see the history of changes in the Modvat/Cenvat Scheme. Mod....
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.... inputs were not to be used in the manufacture of taxable final product and there was no change in the law (except the Rule number or language of the Rule) for the recovery of credit on inputs which were not used in the manufacturing process was concerned. 25. Upto 1977 there used to be Rules 10 and 10A for recovery of short levy or refund erroneously paid. These rules were replaced by new Rule 10 and thereafter in 1980 by Section 11A of the Central Excise Act, 1944. A dispute has arisen whether the Government can recover the duty under the old rules which had ceased to exist in view of General Clause Act - Section 6. There were varying decisions of different High Courts and the matter went up to Supreme Court. 26. In 2000. The Hon'ble Supreme Court in the case of Kolhapur Canesugar Works Ltd. vs UOI 2000 (119) ELT 257 (SC) had taken a view that Section 6 of the General Clauses Act is not applicable to the rules framed under any of the Central Act and in absence of any provision either in Act or new rule or notification saving the earlier rules for the pending proceedings it was not possible to continue with the same proceedings. In this context the Hon'ble Supreme Co....
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....here the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceeding shall not continue but a fresh proceeding for the same purpose may be initiated under the new provision. 40. The further question that arises for consideration in this connection is whether the Notification No. 267/77, dated 6-8-1977 by which Rule 10 was deleted contained any provision for continuance of the proceedings already initiated and whether Act 25 of 78 which introduced Section 11A of the Central Excise Act, adopted the legal device of creating a fiction by virtue of which a p....
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.... In the Budget-2000, the duties of excise under the Central Excise Act, 1944 has been amended to read as CENVAT and consequent thereof the rules governing the provisions relating to MODVAT under the Central Excise Rules, 1944 were also amended to read as CENVAT Rules. In the context of the Supreme Court judgement cited above proceedings if any initiated under the old MODVAT rules for recovery and/or for imposition of penalty cannot continue after the amendment. The matter was examined and an opinion was obtained from the Law Ministry as to the feasibility of amending the provisions of Section 6 of the General Clauses Act retrospectively to include the rules also. It has been advised by the Law Ministry that any amendment to General to General Clauses Act shall only be prospective and retrospective amendment is not possible. Further to overcome the difficulty to continue the proceedings initiated under the erstwhile MODVAT rules, it has been advised to validate the action initiated by the Department through a separate legislation. In order to continue the proceedings in such demands / show cause notice pending adjudication the Government is considering to promu....
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.... anything done or omitted to be done or purporting to have been taken or done or omitted to be done under any rule, regulation, notification or order made or issued under the Customs Act, or any notification or order issued under such rule or regulation at any time during the period commencing on and from the 28th day of February, 1944 and ending with the day the Finance Bill, 2001 receives the assent of the President shall be deemed to be, and to always have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made by section 125 of the Finance Act, 2001 had been in force at all material time and accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority,- (a) any action taken or anything done or, omitted to be done, during the said period in respect of any excisable goods under any of such rule, regulation, notification or order, shall be deemed to be and shall be deemed to always have been, as validly taken or done or omitted to be done as if the amendment made by section 125 of the Finance Act, 2001 had been in force at all material times; ....
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....ur Canesugar Works Ltd. There were different judgments of this Tribuanl on this issue and the matter was referred to the Larger Bench in the case of Kisan Sahkari Chini Mills Ltd. The Larger Bench heard the matter. However, by that time newly introduced Section 38A of the Central Excise Act had come into force and thus during the hearing both parties have agreed that in view of the new provisions the issue no more survives. The Tribunal considering the submissions as also examining the provisions of Section 38A answered the question referred to them in the affirmative. The relevant para of the Larger Bench decision in the case of Kisan Sahkari Chini Mills Ltd vs CCE - 2001 (131) ELT 370 (Tri-LB) are as under: "The issue referred to the Larger Bench is as regards the continuation of the Modvat cases after the repeal of Modvat Rules on 1-4-2000 without any saving provision. Para 7 of the Referral Bench Order is mentioned below :- "7. At present, the Central Excise Act under which the erstwhile Modvat Rules had been made does not contain any provision saving any actions initiated under Rule 57U of the said Rules. Thou....
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....h right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed at if the rule, notification or order, as the case may be, had not been amended, repealed, superseded or rescinded." 3. In view of the foregoing the question referred to the Larger Bench has to be answered in the affirmative. The appeals relating to Modvat and pending before the Tribunal are required to be disposed of on merits. Accordingly, we send the matter back to the regular Bench for hearing of the appeal." 32. Thus the issue was put to rest. However, the issue was again raked up in bunch of cases which was heard by Mumbai Bench of this tribunal in the case of Sunrise Structural and Engineering Ltd (supra) and this tribunal did not follow the Larger Bench decision for two reasons. The first reason stated was that the decision is based upon the concession granted by both sides and the second reason quoted was that the Hon'ble Supreme Court's decision in the case of Kolhapur Canesugar Works Ltd was no....
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....e has filed appeal against the decision in the case of Sunrise which is pending in Hon'ble Bombay High Court. 34. In the result, the appellant's contention that the Show Cause Notice has invoked the old rule and therefore demand cannot be sustained is rejected. 35. Under the Central Excise Rules at the relevant time and as per the scheme of the Cenvat/Modvat Credit a manufacturing unit is and was allowed to take credit of duty paid suo motto on the assumption that the appellants have procured those duty paid goods, received the same in his factory and will be using the same for the production of final dutiable products. In the present case, from the investigation it is very clear that the appellants have not used either the whole or part of the Naphtha procured duty free. Naphtha purported to have been used in the manufacture of Beesol and purported to have been sold to 22 customers was definitely not used but diverted. But how much Naphtha has been diverted is not clearly coming out as the appellant did not co-operate in the investigation did not produce ledger account of all the parties so as to enable the Revenue to check up from the banks the money trail. In the c....