TaxTMI 
TaxTMI 
2004 (8) TMI 697
X X X X Extracts X X X X
X X X X Extracts X X X X
....) E/ 3 189/02 Shri K. Ramkumar (Vice President of M/s. KEC Ltd.) E/3190/02 Shri Tushar Deshpande (Manager of M/s. KEC Ltd.) E/3191/02 M/s. Maharashtra Steel Rolling Mills (herein after referred to as M/s. MSRM) E/3188/02 Shri Janki Shah (Director of M/S. Maharashtr a Steel Rolling Mills) E/3183/02 2. Pursuant to a information that M/s. KEC Ltd. and M/s. Sunrise Ltd. were availing 'unlawful' (SIC) deemed export benefits, and had indulged in availment/passing on of irregular MODVAT CREDIT were visited by the officers and enquiries launched which resulted in the notice. The impugned order consequent thereto has found: 42. (ii) I observed that M/s. Maharashtra Steel Rolling Mills Pvt. Ltd. Mumbai were aware that M/s. Sunrise Structural were not a re-roller and despite that they have allegedly entered into MOU with the Notice No. 1 who was a manufacturer of angles for supply of angles to the various parts of M/s. KEC International Ltd. and other TLT manufactures so as to raise invoice in their name so that Central Excise duty @ 16% should be passed on to M/s. KEC International Ltd. M/s. MSRM being the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icee because they did not inform the Department that their unit was not in operative w.e.f. 1.6.1999 and they availed of Modvat credit in a fraudulent manner with intent to evade payment of duty as discussed below: M/s. Sunrise Structural, Notice No. 1 supplied goods against MOU with M/s. MSRM, Notice No. XI and also on the basis of purchase orders. M/s. Sunrise's supply price, as per purchase order, was determined on the basis of market price prevailing at the time of clearance. The prices also varied for different quantities as per the purchase orders. The price varied from Rs. 12,915/- to Rs. 16,300/- pmt. Re-rollers price varied from Rs. 14,300/-to Rs. 14,600/-. The benefits accrued to M/s. Sunrise is illustrated as under: Purchase price of Angles from Re-rollers @ Rs. 15,180/- PMT (Gross) (Price Rs. 14,500 + Sales Tax Rs. 580 + Transport Rs. 100) = Rs. 15,180/- (-) Sales Tax = Rs. 580/- (-) Modvat @ 12% = Rs. 1,822/- Rs. 12, 778/- Sale price of Angles by M/s. Sunrise Structural and Engg. Ltd. Nagpur @ Rs. 12,915/- PMT (Net) (+) Sales Tax Rs. 599/- (+)Duty@16% Rs. 2,066/- Rs. 15,580/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turer of finished goods to get 12% deemed modvat credit. Had M/s. Sunrise Struturals and Engg. Ltd., Nagpur paid duty equivalent to the credit availed of while clearing input, i.e. angles as such under Rule 57F(1)(ii), M/s. KEC would not have been eligible to avail of modvat credit. Therefore M/s. Sunrise Structurals and Engg. Ltd., Nagpur paid standard rate of duty of 16% to make KEC entitled to avail of modvat credit as if the goods are manufactured by M/s. Sunrise Structural and Engg. Ltd., Nagpur. Had M/s. MSRM made contract with the re-rollers for supply of angles to M/s. KEC, in that case, the name of M/s. MSRM on the invoice as buyer would not have made M/s. KEC entitled to 12% deemed modvat credit and in the absence of the name of M/s. MSRM on the invoice would have made them ineligible to receive benefits of invalidation i.e. duty free import. The re-rollers, i.e. Noticee No. Ill to VI were benefited to the extent of transport charges shown in their fake invoices which they never incurred. Accordingly, all the Noticees were benefited. Accordingly, all the Noticees have involved in a conspiracy to defraud revenue and evade duty and to derive undue and unjust benefi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... documents without sending corresponding excisable goods along with such documents. They showed transportation charges in their invoices without incurring the same and thus inflated the price and Noticee No. 1 i.e. M/s. Sunrise Structural and Engg. Ltd. Nagpur, to take excess modvat credit. They have contravened the provisions of Rules 52A of Central Excise Rules, 1944. 42 (viii) M/s. Sanvijay Industries Pvt. Ltd., Nagpur - Noticee No. VI have passed on irregular modvat credit by issue of fake Central Excise invoices during the period 4/99 to 3/2000 in collusion with Noticee Nos. I, II, XI enabling M/s. Sunrise and TLT manufactures like Noticee No. II avail irregular modvat credit. They have issued mere documents without sending corresponding excisable goods along with such documents. They showed transportation charges in their invoices without incurring the same and thus inflated the price and Noticee No. I i.e. M/s. Sunrise Structurals and Engg. Ltd., Nagpur to take excess modvat credit. They have contravened the provisions of Rules 52A of Central Excise Rules, 1944. 42. (ix) Shri Sanjay Agarwal, (Noticee No. VII) Director of M/s. Sunrise Structurals and Engg. L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lready discussed in sub para (iii)(c) above, organised the above modus-operandi for passing irregular modvat credit to Noticee No. I and others. Further according to the statements of Shri Prakash Gajbhiye, authorised signatory of M/s. Sunrise Structurals and Engg. Ltd., Nagpur recorded on 19.6.2000 and Shri Umashankar Mishra, authorised signatory of M/s. Sanvijay recorded on 22.6.2000 the Noticee Nos. VII was the person who directed to prepare take document, fabricate statutory and other records so as to let Noticee No. II to avail of irregular modvat credit as above. Thus Noticee No. VII has concerned himself in transporting, take selling and purchasing the contravening excisable goods which he had reason to believe were liable for confiscation under the Central Excise Act, 1944, or the rules made thereunder and has therefore rendered himself liable for penalty under Rule 209A of the Central Excise Rules, 1944 read with Section 38A of the Central Excise Act, 1944. 42. (x) Shri Puranlal Agarwal, (Noticee No. VIII) Managing Director of M/s. Sunvijay Re-rolling and Engg. Works Ltd., being the Chairman Sunvijay including M/s. Sunrise Structurals and Engg. Ltd., Nagpur, and P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ployee of the company and that he did not play any role in taking strategic decisions relating to procurement of steel. Shri Ram Kumar was Vice President (Manufacturing) of the factory of M/s KEC International Ltd. He was a responsible person having knowledge about M.O.U. M.O.U is between M/s MSRM & M/s. KEC. He also knew that M.S. Angles were being manufactured at Re-rollers' place, that inspection was done at re-rollers' place that before despatch of the goods to them, all operations including Straightening of Angles were done at the Re-rollers' place, and that after receipt of M.S. Angles at M/s. KEC the same were again subjected to straightening. Shri Milind Sardeshpande, Manager (Q.A.) of KEC in his statement dtd. 25.10.2000 has stated that M.S. Angles were directly received from the re-rollers without being routed through/processed at any other factory. Further, they were also receiving M.S. Angles not relating to the MOU in question from these re-rollers. Therefore his version that goods were taken to M/s. Sunrise Structurals for Straightening of Angles, is not at all convincing. Shri K. Ram Kumar further stated that he knew that the angles in their prim....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 42. (xii) Shri Tushar Deshpande, Sr. Manager (Commercial) of Noticee No. II on 21.9.2000 produced sets of Inspection Reports prepared by Noticees Nos. IV to VI for the period 5/1999 to 3/2000. These reports were kept on record. These reports were addressed to Noticee No. II by the re-rollers (i.e. Noticee No. IV and VI) and contained on offer for inspection of the goods against particular D/o or P/o No. date, at the Re-rollers' (i.e. Noticees Nos. IV to VI) premises. It also emerged from the MOU dtd. 28.4.1999 between Noticees Nos. I & II contained in the records seized on 20.6.2000 that the goods M.S. Angles were to be inspected at Re-rollers' premies. Since the goods were offered for inspection at the Re-rollers premises and according to the statements of Shri Narendra P. Manusmare, Engr. (CQA) and Shri Gupta, Engr. (CQA) of M/s. KEC International Ltd. Butibori recorded on 5.5.2000 before the Superintendent (P), Central Excise Hqrs., Nagpur, such M.S. Angles were finally bundled and strapped after inspection, it appears the goods have been directly sent to Noticee No. II especially since there was no movement of goods between Noticees Nos. IV to VI to Noticee No. I. Acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....standing with M/s. Sunrise Structural and Engg. Ltd., Nagpur Structurals for supply of Angles at 16% duty. They also knew that the Angles were manufactured by re-rollers and inspection of the goods by M/s. KEC at re-rollers place before despatch of goods to M/s. KEC took place. However M/s. MSRM entered into MOU with M/s. Sunrise Structurals and Engg. Ltd., Nagpur who would procure Angles only on paper from Re-rollers to avail deemed credit and to clear to them at 16% rate of duty by utilising the deemed credit. Had M/s. MSRM entered into MOU with re-rollers, the invoice would be in the name of M/s. MSRM and accordingly M/s. KEC would not have been eligible for deemed credit as per the conditions of Notification No. 58/97. To avail the benefit of deemed export, they got invoice in their name from M/s. Sunrise Structurals and Engg. Ltd., Nagpur for purchase of Steel angles paying duty @ 16%. Thus making M/s. KEC to avail modvat credit @ 16% who had invalidated their advance licence in favour of M/s. MSRM. In reality steel angles were supplied by the re-rollers to M/s. KEC on the invoice of M/s. Sunrise Structurals and Engg. Ltd. Nagpur. The conspiracy angle has been discussed in sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... KEC has taken credit of goods, of units later working under compound levy scheme under Section 3A when they sold the goods to M/s. MSRM and Revenue has no objection to the same. (b) Denial of MODVAT Credit availed by Sunrise Ltd. and KEC has been arrived at on the grounds: (i) Inputs were never received in the factory by them, from the suppliers thus deemed credit at 12% under notification 58/97 was not entitled. (ii) The factory of Sunrise during the period was not manufacturing any goods, therefore the credits and debits made of duty at 16% on inputs removed from that factory and credit thereafter availed at 16% by KEC as per these duty debits documents of Sunrise were not eligible. (iii) Invoices issued by Sunrise. The deemed credit of 12% on input declared by Sunrise cannot be denied, since they have availed the same on steel angles, a declared input. Even if the factory was closed and no manufacture took place. The credit entry in RG 23A cannot be denied, as in this case, if there is temporary closure of the factory and there is no production. There is no specific rule permitting that. Credit can be availed under Rule 57A and kept in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble inputs and the final products, and the provisions relating to the deemed rate of excise duty could be considered as substantial in nature, the rest of the provisions in the notification are in nature of procedural requirements. It was also observed by the bench, in that case, that prior to the introduction of Section 3A of the Act, the appellants thereunder were availing Modvat benefit and it was held that benefit which was earlier available could not be denied by introduction of payment of duty on inputs under Section 3A and following the Supreme Court decision in the case of M/s. Formica India . No contrary decision, on this very same notification 58/97 applicable as in this case, or otherwise was shown to us. It is well settled that for technical/procedural lapse, benefit of Modvat credits cannot be denied. In the case of M/s. Associated Transmit Structurals Ltd., C-IV/309-11/WZB/2004 it has been held that the decision in the case of M/s. Shivagrico Implements Ltd. 2001 (44) RLT 856 does not apply only to captive consumption as department representative contends. Therefore credits in this case cannot be denied merely for non compliance of procedure prescribed by notification....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to overcome the difficulty to continue the proceedings initiated under the erstwhile MODVAT rules, it has been advised to validate the action initiated at 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 promulgate appropriate legislation for validating the action taken under the erstwhile Modvat rules. It is therefore advised not to finalize any proceedings in matters related to recovery and imposition of penalty under the erstwhile Modvat rules that are pending till such time an appropriate legislation to validate the action is enacted. Section 6 of General Clauses Act, 1897 applicable only to repeal and the Constitution Bench of Supreme Court in Rayala Corporation (P) Ltd. v. Director of Enforcement , in para 15 at page 414, held that Section 6 of the General Clauses Act applies to repeal of a Central Act and will not apply to 'omission'. The relevant portion from the Supreme Court decision is reproduced below: 17. ...In the case before us, Section 6 of the General Clauses Act cannot obviously apply on the omission of Ru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....therein. In other words, Section 38A cannot be invoked when a rule is "substituted" by a new rule, since none of these expressions used in Section 38A cover 'substitution' of the new rules in place of old rules. (iv) Supreme Court has held that 'substitution' is one integrated and indivisible process of 'repeal' and 'enactment'. In State of Maharashtra v. The Central Provinces Manganes Ore Co. Ltd. in para 18 has held as under: 18 ...In other words, there could be no repeal if substitution failed. The two were a part and parcel of a single indivisible process and not bits of a disjointed operation. The Commissioner has relied upon in the impugned order and has referred to plain English dictionary meaning of 'supersession' and has come to the conclusion that substitution is covered by the term 'supersession'. This finding of the Commissioner is contrary to the decision of Supreme Court in Central Provinces Manganese Ore Co. Ltd. (supra), therefore cannot be upheld. (v) Section 38A reads as under: 38A. Effect of amendments, etc., of rules, notifications or orders.-Where any rule, notification or or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anded to judicial custody, say for a period of two years and during the currency of the said period, the rule under which the punishment awarded is repealed. Clause (d) of Section 38A stipulates that person will continue to be in judicial custody and he cannot claim that on repeal of the rule, he should be released. Clause (e) applies to legal proceedings for enforcing the vested right or the liability referred to in Clause (c). It was submitted by the Id. Advocate that Statutory Interpretation, Codified with a critical Commentary by F.A.R. Bennion, at page 438, stated as under: The right etc. must have become vested by the date of repeal, i.e. it must not have been a mere right to take advantage of the enactment now repealed. Abbott v. Minister of Lands [1895] AC 425. Hamilton Gell v. White [1922] 2 KB 422, at p 431. As to when a right 'accrues' for this purpose see Lewis v. Hughes [1916] 1 KB 831; Costello v. Brown (1924) 94 LJKB 220. Cf Director of Public Works v. Ho Po Sang [1961] AC 901. If a right to damages has accrued, it is immaterial that the amount has not been quantified. Free Lanka Insurance Co. v. Ranasinghe (1964) AC 541. Being able to avail....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e omission of Rules 10 and 10A. However, the order for recovery of the refund was passed after the omission of Rule 10 and 10A and after the introduction of Rule 10A. Negativing the contention of the Revenue that a vested right has accrued to the department by issuance of show cause notice, the Supreme Court held in para 35 as under: 35. ...It is relevant to note here that in the present case the question of divesting the Revenue of a vested right does not arise since no order directing refund of the amount had been passed on the date when Rule 10 was omitted. The Supreme Court in the above para evidently refers to the order dated 15.10.1997 passed by the Assistant Collector confirming the demand and directing the recovery of the erroneous refund granted to the assessee, therefore it has to be held, in the present case no vested right accrued to the department on the date of issue of the show cause notice. Even if it is assumed, that a show cause notice had been issued by the department in the present case prior to 31.3.2000, i.e. before the substitution of Cenvat rules in place of Modvat rules, when the Supreme Court in Kolhapur Canesugar has held that show cause notic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Sunrise had ceased their operations during the period in question and the unit was lying closed and no operation was carried out. Rule 571 applies to credit wrongly utilised. Utilization of credit as per Rule 57F(12) covers and permits debits to be made on payment of duty on the inputs or on the final products or on the waste arising in the course of manufacture of final products. There is no bar shown on availing credit even when factory is closed. Consequently, Rule 571 is not applicable to the present case since there is no credit utilised wrongly. (g) Sunrise had purchased the steel angles from various units working under Section 3A of the Act. Notification No. 58/97-CE (NT) allows deemed credit at the rat of 12% of the invoice price to the customer of the units working under 3A, who have purchased the steel angles from such units. Thus, in law, Sunrise are entitled for the credit at the rate of 12% in terms of Notification No. 58/97-CE. In terms of 57F(2), the inputs on which credit is taken can be removed as such for home consumption, on payment of duty. As per Rule 57F(12) the credit availed on the inputs can be utilised for payment of duty on the clearances of inpu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the buyer. This decision of the CEGAT has been approved by Supreme Court in Escorts JCB Ltd. . In these decisions, Section 33 and 39(1) of the Sale of Goods Act, 1930 were referred to by the Ld. Advocate. Therefore entry of credit in the RG23A book and subsequent debits cannot be objected and denied to Sunrise. (h) The entire demand is beyond the normal period of limitation. Proviso to Section 11A(1) has been invoked to demand duty from Sunrise. The entire demand is on account of non-following the procedure of physical receipt on the part of Sunrise. There is no case if the inputs were received by Sunrise and then cleared. In fact, it is the case of the department that the angles have been removed 'as such'. No assessee can suppress against themselves. The question of suppression will arise only when an assessee wants to grab an exemption benefit unavailable to him under the law. On the other hand, when the Modvat credit is otherwise admissible to Sunrise, which is being denied on account of non-following of procedure, failure to follow such a procedure can be attributed as an error or omission on the part of the assessee, that can never be a suppression or int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by limitation. (i) The appellants have pleaded that there is no loss of revenue to the government. The entire modus operandi adopted by the parties was only to minimize business loss. If the re-rollers had sold the goods directly to KEC without routing through Sunrise, then KEC would be entitled for 12% deemed credit without any difficulty. On the other hand, if Sunrise had received the goods into their factory from the re-rollers they also would be entitled to 12% deemed credit and then cleared (or sold) the goods to KEC, then also KEC would be entitled credit of duties debited by Sunrise. The reason, for adopting the modus, was submitted to be due to a bonafide belief entertained by Sunrise and others on the interpretation of Notification No. 58/97-CE. Another reason for adopting this modus was stated to be because KEC was not paid by the state Electricity Boards in time. And in any case, the supplies made to KEC are treated as deemed exports since KEC in turn supplied the goods to projects financed by notified agencies in terms of para 10.2(d) of the import Export Policy. KEC is entitled to benefits specified in para 10.3 of EXIM Policy which are: (a) Special....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... department has not accepted the payment of duty by Sunrise, the only method of denying the credit to the appellants is to refund the duty paid by Sunrise to them and then demand duty from KEC, the appellants. This is what Rule 57E provided. Rule 57E(1) states that if a manufacturer of final products has taken credit on any inputs and subsequently it so happens that any refund of the duty paid by the manufacturer of inputs or importer of inputs, as the case may be, is allowed to him for any reason, then manufacturer of final products shall accordingly adjust the amount of credit in his credit account. Therefore, in order of recover the credit from KEC, the department must first refund the duty paid by Sunrise to them and then only demand duty from KEC. (k) In any case, KEC is entitled to deemed credit in terms of Notification No. 58/97-CE (NT) as it is the case of the department that the steel angles were received by KEC directly from the re-rollers units working under Section 3A of the Central Excise Act, 1944. In terms of Notification No. 58/97-CE(NT), deemed modvat credit at the rate of 12% of the "invoice price" is available under Rule 57A to the inputs purchased from ....