By TIOL News Service

MUMBAI, JULY 17, 2015: THE appellant is engaged in the manufacture of Alloy Steel and Mild Steel (M.S.) Products from the scrap route, which they purportedly procure from various scrap dealers or from manufacturers generating such scrap and avail CENVAT credit facility.

Intelligence was received by Headquarters (Preventive) wing of the Raigad Commissionerate that the appellant is indulging in availment of fraudulent Cenvat credit on invoices issued by certain registered Central Excise dealers/manufacturers without actually receiving the material covered therein.

Inquiry at the factory premises and scrutiny of documents revealed that the appellant inter alia had availed Cenvat Credit on iron and steel ship breaking scrap, purportedly procured by them, from a Central Excise registered dealer namely, M/s. Simandhar Steel Movers (India) Pvt. Ltd. The modus operandi was that various ship breakers of Bhavnagar and Alang, Gujarat issued manufacturer's Central Excise invoices to M/s. SSMIPL in respect of ship breaking scrap and inturn M/s. SSMIPL showed sale and issued registered dealer invoices to the appellant & on such invoices appellant had availed Cenvat Credit.

Furthermore, it was also revealed that M/s. SSMIPL, against ship breakers' duty paid invoices, issued multiple set of parallel Cenvat Invoices bearing same serial number simultaneously to various manufacturer and dealers.

The registration of M/s. SSMIPL was suspended on 25/3/2004 and this order was also upheld by the CESTAT on 18/5/2005.

Further investigations revealed that many of the referred ship breakers were not in existence; that not a single consignment purportedly purchased by M/s. SSMIPL had crossed the border of Gujarat State into state of Maharashtra during period 2001-01, 2001-02, 2002-03, 2003-04; some of the shipbreakers clarified that the plates obtained by ship breaking are not melting scrap and said plates are generally used for structural use and any other application similar to it and that due to its heavy density and cost it would not be used for melting; that a person who is interested in purchase of melting scrap would not purchase plates at the cost at which they sell their products; as per the information of the RTOs, the vehicle mentioned in the ship breaker/manufacturer invoices allegedly issued to M/s. SSMIPL were tanker, motorcycle, tourist car etc. which are not capable of transporting the ship breaking scrap.

Physical stock verification in the godown of M/s. SSMIPL conducted on 11/11/2003 revealed that the book stock was showing 1350 MT as against physical stock of only 9 MT. This showed that there is huge shortage of physical stock and it indicated that M/s. SSMIPL had not been receiving any stock from ship breaker at Alang and Bhavnagar and engaged in the paper transaction only in order to pass fraudulent Cenvat Credit.

It was, therefore, alleged that since purchase of M/s. SSMIPL from the ship break supplier based in Alang/Bhavnagar have been established to be fraudulent and fake, the subsequent sale and passing on Cenvat Credit on the strength of this bogus invoices by M/s. Simandhar Steel to appellant also is consequently fake and fraudulent.

In view of the above investigation it was alleged that the total quantity of 3826.790 MT on which the appellant had availed Cenvat Credit amounting to Rs. 1,29,51,948/- is fraudulent.

In adjudication proceedings, the CCE, Raigad upheld the demand, ordered confiscation and imposed penalties and interest.

The appellant is before the CESTAT and makes voluminous submissions coupled with reference to more than two dozen case laws concluding that the charges levelled by the Revenue are presumptuous and unsubstantiated.

The AR reiterated the detailed findings of the adjudicating authority and also submitted that identical issue had been decided by the Tribunal in the case of Bhagwati Steelcast Ltd. vs. CCE, Nashik 2012-TIOL-1257-CESTAT-MUM where the same first stage dealer i.e M/s. SSMIPL had supplied invoices of ship breaker to M/s. Bhagwati Steel Casting Pvt. Ltd. without supplying any goods and after having considered the various submissions made by the appellant, it was held that the appellant were not eligible to avail cenvat credit and the extended period of time was also upheld.

The Bench after considering the submissions made by both sides, in a 3700 word order running into fifteen(15) pages bereft of any paraphrasing, made the following pertinent observations -

+ In the present case when the details of invoices issued by M/s. SSMIPL to M/s. VCL are not matching with inward invoices and it was found as parallel invoices this itself shows that invoices issued by the M/s. SSMIPL to M/s. VCL are nothing but bogus invoices and these invoices were not issued against duty paid invoices.

+ Further investigation clearly revealed that sales tax authority under their official report informed that not a single transaction of vehicle movement carrying iron and steel scrap consigned to M/s. SSMIPL has been recorded and there is no record of sales tax payment in the check post of the Gujarat state entering into Maharashtra during the entire period from 2000-01, 2001-02, 2002-03 and 2003-04.

+ We also find that the appellant could not give any explanation on the report submitted by Sales tax authority therefore same attained finality and this report clearly shows that no transaction has been taken place from Gujarat to Maharashtra therefore subsequent passing of Cenvat credit of transaction which has never taken place is out of question. In the various statement of the transporters they have denied having transported the goods of the dealer from Bhiwandi to end user i.e. M/s. VCL.

+ In the investigation, it was clearly found that invoices issued by ship breakers in the name of the dealer M/s. SSMIPL the vehicle numbers found to be motor cycle, light delivery vans etc. which are incapable of transporting scrap declared in the Central Excise invoices.

+ In the several cases registration numbers borne by the vehicles in which goods were shown to have been transported were reported to be not in existence by concerned RTO authority. In some of the invoices issued by the said dealer to end users vehicles found to be tanker, which are incapable of transporting iron steel scrap.

+ The investigation at the Gujarat based ship breaker firm clearly revealed that during the period when the manufacturers invoices were issued by the ship breaking firms, either they were not existing or the same were closed down, therefore, there is no question that non-existent ship breakers have cleared the goods on payment of duty.

+ The investigation report on the ship breaker clearly revealed that no duty paid clearances were made by them even partner of the ship breaking firm also categorically stated that during the period they have not made any transactions with M/s. SSMIPL. Since this part of the investigation not under dispute then the subsequent issuance of Cenvatable invoices by M/s. SSMIPL and passing on credit on such invoices is nothing but pre-planned fraud only on paper this clearly shows neither there is movement of goods nor there is payment of excise duty.

+ One of the glaring evidence is that on physical verification of stock at M/s. SSMIPL it was found that as compared to the stock of 1350 MT shown in the RG-23D register only 9 MT stock was found, this is very clear indication that since there was no movement of material and only transaction was on paper obviously paper can be found but material cannot be found.

+ We are of the view that once the concerned Government authority i.e RTO has given report wherein it was found that vehicle number mentioned on the invoices are not capable of transporting the goods in question, purchaser if could not give any contrary evidence or he did not discard the evidence provided by RTO with appropriate counter evidences, the RTO report has to be taken as correct and the lower authority has rightly used as evidence to hold that there was no transportation of the inputs either from Gujarat to dealer M/s. SSMIPL nor from said dealer to the appellant.

+ It is beyond the imagination that plates are used for melting purpose, therefore, it is very clear that appellant, even as per the statement of their director, used melting scrap which cannot be ship breaking scrap which clearly established that the invoices received by the appellant is in respect of ship breaking scrap and the scrap used by the appellant in their manufacturing process is other than ship breaking scrap. Therefore Cenvat Credit of duty shown to have been paid on the ship breaking scrap can not be allowed to the appellant.

+ In this case appellant should have pointed out to the dealer that material shown in the invoices are not the same which was supplied physically. It is not convincing that the documents issued for a particular items and material received is some different item and still appellant maintained that they have taken reasonable steps. The conduct of the appellant clearly shows that they are in collusion with dealer for availment of the fraudulent Cenvat Credit.

+ As per the Cenvat Credit Rules, assessee cannot be permitted to avail the Cenvat Credit of a item covered under duty paying document which he has not received but received some other item. This fact that the scrap received and used by the manufacturer appellant is not the same for which Cenvatable invoices were issued which however appellant could not dispute.

+ The submission of the appellant in this regard is that they have ordered for iron and steel scrap and they received the same alongwith duty paying documents, therefore, there is no wrong doing on their part and if at all any manipulation is done it is by the dealer, therefore, they should not be made suffer for same as they have legitimately purchased the input under cover of invoices and made payment through cheque. We do not agree with this, so long as admittedly material shown in the invoices were not received by the appellant, credit of such invoices cannot be allowed to the appellant.

+ When it became clear that the invoices on which the cenvat credit was passed on is admittedly in respect of ship breaking scrap which is not in the nature of melting scrap and the same is not capable of being used by the melting unit, obviously the scrap which was used by the Appellant would undoubtedly be scavenger scrap.

+ Even if it is presumably not correct, the fact that the goods covered by the cenvatable invoices were neither received nor used by the Appellant, thereafter even it is accepted the goods is received but it is different goods, the cenvat credit cannot be allowed as the very same goods covered by the invoices were not received.

+ RTO's confirmation regarding different nature of vehicle which are not capable of transporting the goods and various statement of transporter and vehicle owners denying the transportation of the inputs to conclusively proved that goods have neither been transported form ship breaking firm to M/s. SSMIPL nor from M/s. SSMIPL to the appellant.

+ In view of these evidences merely because the appellant have maintained GRN, gate register, material inward register this cannot disprove other evidences and charges made thereupon. All these GRNs, gate register, material inward register are the documents of appellant is free to do the same and such documents can be maintained with or without receipt of the material covered under the Cenvatable invoices in question, therefore, on this basis the ratio of the whole judgment cannot be made inapplicable.

+ It is not necessary that investigation should be done in respect of 100% transaction. The Hon'ble Supreme Court in the case of CC, Madras & Others vs. D. Bhoormull 2002-TIOL-253-SC-CUS has categorically held Department is not required to prove its case with mathematical precision but what is required is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue.

+ The appellant, not in single case could demolish the evidence with their counter evidence, therefore, even if inquiry was not conducted for 100% transactions, out of the total transaction, in part of the transaction inquiry was made and it was proved against appellant, it is not necessary that inquiry of 100% transaction should have been made.

+ From entire investigation it has been conclusively proved that M/s. SSMIPL was fraud company and they were exclusively operating only for passing fraudulent Cenvat Credit by issuing fake invoices therefore no doubt can be raised that in some of the cases transaction are genuine and in some of the case it is not.

+ It is also fact that if any genuineness in the whole transaction is there, the Director of M/s. SSMIPL would have presented himself before the investigation agency however right from the initiation of the investigation the person of M/s. SSMIPL got absconded despite court's notices and never made any presence before the investigation agency. This act of absconding of the person further reinforce the charges of fraudulent passing of the Cenvat credit and availment thereof by the appellant.

+ In our above observations the demand for extended period is legally maintainable, penalty under Section 11AC& interest also does not require any interference.

+ However, if the penalty under Section 11AC which is equal to the Cenvat amount has been imposed, separate penalty of similar amount imposed under Rule 13(1) of Cenvat Credit Rules, 2002 was not warranted.

+ Moreover penalty of Rs. 1,29,51,948/- was imposed under Rule 13(1) towards confiscation of the 3826.790 MT on which fraudulent Cenvat credit was availed. First of all, the case of the Revenue is that that Cenvat Credit to the appellant is not admissible on the ground that they have not received the input. Secondly no goods were seized and therefore confiscation of the goods not available for seizure cannot be made, on these observations, we are of the view that penalty of Rs.1,29,51,948/- under Rule 13(1) (correct Rule 15(1)) of Cenvat Credit Rules, 2002 was wrongly imposed.

+ Since it has been conclusively established that appellant have fraudulently availed Cenvat Credit by showing bogus purchase, it is impossible that the Managing Director of the appellant company who looks after overall affairs of the company is not involved in the entire modus operandi. Penalty imposed on the Directoris also maintained.

The appeal of the assessee was partly allowed and that of the Director of the company was dismissed.

(See 2015-TIOL-1454-CESTAT-MUM)