By TIOL News Service

MUMBAI, AUG 04, 2015: M/S Ispat Industries Ltd. is a manufacturer of H.R. coils having manufacturing units at Nagpur and Taloja. M/s. JSW Steel Ltd. is also a manufacturer of similar goods having factory at Vasind and Boisar. During the manufacture of coils, trimmings are obtained which are in the form of coil only but of width of 1" to 3".

Such H.R. trimmings are used in the manufacture of MS wires. Such wires in turn, are used for the manufacture of nails, barbing, fencing, etc. The manufacture of MS wires, nails, barbed fencing wires etc. is carried out by large number of small scale units, who are availing SSI exemption. A large number of such units are located in and around Viramgam in the State of Gujarat.

The HR trimmings are sold by the aforementioned appellants by online auction process. Such H.R. trimmings are bidded &purchased for trading by certain traders based in Viramgam. Such HR trimmings are cleared by appellants Ispat & JSW on payment of appropriate Central Excise duty and by issuing corresponding invoices indicating details of duty payments. Since the material is used by small scale industry who are not required to pay excise duty, CENVAT credit of duty paid on such H.R. trimmings are not available to SSI units. Duty paying invoices are, therefore, not usable by such SSI units.

What was therefore, being done was that the traders after bidding/purchasing the H.R. trimmings from appellant companies were in turn selling the same to hundreds of small scale units in and around Viramgam on cash basis and corresponding duty paying invoices were being sold separately to manufacturing units of MS Ingots located in Maharashtra.

MS Ingots manufacturing units require iron and steel scrap, which in turn is available in the form of bazaar or scavenger scrap which is non-duty paid.

The invoices issued by appellant Ispat & JSW were, therefore, being manipulated by the dealers to indicate the name of certain manufacturers of MS ingots and who availed CENVAT credit without receiving any inputs (in the present case, M/s. Silver Ispat Pvt. Ltd., whose appeal was dismissed u/s 35F of the CEA, 1944).

These dealers were using the services of brokers and transport commission agent to ensure that the goods are transported to Viramgam under the cover of fictitious documents and that the duty paying documents are sent to M/s. Silver Ispat Pvt. Ltd. who were purchasing these documents so as to avail CENVAT credit without receipt of any material.

Benefit of fraudulently availed credit was distributed between various persons including all the appellants. Similar modus operandi was being followed for clearance of H.R. trimmings from Uttam Galva, Khopoli and Zenith Ltd., Khopoli.

A case was booked and the rest, as they say is history.

The appellants are the two manufacturers of the HR trimmings namely Ispat & JSW; the two bidders; brokers; General Manager in M/s. Silver Ispat Pvt. Ltd. and the Managing Director of Silver Ispat (who has since expired and hence appeal abates, held Tribunal).

Against all of them penalties have been imposed by the CCE, Nasik and, therefore, they are before the CESTAT.

The stand taken by the other appellants is -

+ Shri Ajay Kumar G. Baheti was the General Manager of M/s. Silver Ispat Pvt. Ltd. and as a General Manager he was not the person who was checking the incoming scrap and he was concerned with overall supervision of the factory and under these circumstances it cannot be said that Shri Baheti has dealt with the goods which are liable to confiscation. Under the circumstances no penalty can be imposed on Shri Baheti under Rule 26 of the Central Excise Rules, particularly for period prior to 01/07/2007.

+ Shri Manish Agarwal, appellant No. 2 has not dealt with any offending goods in the present case, rather he has not dealt with any goods, at the most, he has dealt with some documents and hence no penalty can be imposed under Rule 26.

+ Appellant No. 3 and 4 are supposed to be the Viramgam based dealers who used to bid for the goods. There are no evidences that they have physically dealt with any of the offending goods which are liable to confiscation or has been ordered to be confiscated. Under the circumstances no penalty can be imposed on them.

+ Appellant no. 5 is only a transport commission agent who arranges transport vehicle for lifting the goods from M/s. IIL. The appellant himself has not carried out any transportation of the goods. The goods which are obtained and transported by the appellant are duty-paid goods and covered under excise invoice and it cannot be said that the goods when dealt by the appellant as transport commission agent are liable for confiscation.

+ That there is no proposal and confiscation order for the HR trimmings which are cleared from the factory from the premises of M/s. IIL and for which the address was shown in the bill. Thus, the HR trimmings which allegedly have been diverted has not been proposed to be confiscated nor has it been confiscated under Rule 25 of the Central Excise Rules and accordingly no penalty under Rule 26 can be imposed on the appellant.

+ Appellants 6 & 7, IIL & JSW had cleared the HR trimmings after bidding as per the directions of the bidder to various buyers. Further before clearance of the goods they have paid the appropriate amount of duty and since they have paid appropriate amount of duty they have not done anything wrong. If the goods have been diverted after clearance they are not responsible for the same and no penalty can be imposed on them.

The AR justified the order of the adjudicating authority.

The Bench observed -

++ Appellant No. 1 was the General Manager of M/s. Silver Ispat Pvt. Ltd. and also the son-in-law of Shri Sampatraj Ladha, Director of M/s. Silver Ispat Pvt. Ltd. Thus, the main beneficiary in availment of the fraudulent CENVAT credit was M/s. Silver Ispat Pvt. Ltd. Therefore, appellant No. 1 was one of the main beneficiary. It was also admitted position that he was looking after the day-to-day working of the factory and it would not have been possible to carry out such a fraud without his active connivance. During investigation he has promised to produce the LRs of the goods received. However, same were not produced inspite of summoning him lateron. Thus, the only conclusion that can be drawn is that no H.R. trimmings were received by M/s. Silver Ispat Pvt. Ltd. and Shri Ajay Kumar Baheti was fully aware of the fact that credit was being taken on the basis of invoices without receiving the goods covered by such invoices. Under the circumstances he is liable to penalty under Rule 26 of the Central Excise (No.2) Rules, 2001/2002. The penalty imposed is not on the higher side. Appeal dismissed

++ Appellant No.2 is a Mumbai based broker and his role was to find suitable customers who are interested in purchasing the invoices without receiving the corresponding goods. Viramgam based traders who were the bidders and actual buyers of the H.R. trimmings have named appellant No. 2 as the person with whom they were in touch for the selling of invoices and also sending the money, etc. Keeping in view the over all facts, including the facts that there is no confessional statement relating to the present transactions, the penalty imposed is reduced from Rs. 5 lakhs to Rs. 1 lakhs. However, we hold that he is liable to penalty under Rule 26 of the Central Excise Rules.

++ Appellants No. 3 and 4 - It is an admitted position that appellant No. 3 and 4 are based in and around Viramgam and are trading in HR trimmings. They have been bidding for the same on the online auction. From the investigation it is very clear that the HR trimmings so bidded were transported to Viramgam. It is obvious that the HR trimmings covered by the invoices was purchased by them and thereafter sold by them. They have definitely involved in the sale, purchase and transportation of HR trimmings there can be no doubt that they actively handled the consignments. Para 19(II) of the SCN proposes confiscation of HR trimmings and, therefore, appellants No. 3 and 4 are liable for penal action under the provisions of Rules 26 of the said Rules. H.R. trimmings so diverted to Viramgam were undoubtedly liable to confiscation and the appellants No. 3 and 4 have dealt with such H.R. trimmings and were concerned with such goods and were in the knowledge that such goods are liable to confiscation. Under the circumstances, the penalty imposed on them is correct. Penalty imposed is also not on the higher side. [Vee Kay Enterprises - 2011-TIOL-174-HC-P&H-CX relied upon] Appeals dismissed.

++ Appellant No. 5 was the transport commission agent and was actively aware that the invoices are for various persons within Maharashtra while the goods have to go to Viramgam. Not only this, he also made fictitious LRs in the name of fictitious transporter based in Raipur and fictitious documents were prepared for safe passage of goods. The original documents, after procuring from M/s. IIL were handed over to the broker/dealer in Mumbai or the M/s. Silver Ispat Pvt. Ltd. Under the facts and circumstances of the case, penalty is correctly imposed and the penalty imposed is also not on the higher side. Appeal dismissed.

++ Appellants No. 6 and 7 were fully aware that the HR trimmings were consigned to Viramgam based bidder and are being used by SSI units there. Under these circumstances, it was incorrect on their part to indicate the name and address of the M/s. Silver Ispat Pvt. Ltd., as consignee who were based in Mumbai. Since they have changed the name of the consignee in spite of the fact that the goods were being transported to Viramgam or nearby area in different State, the HR trimmings cleared have, therefore, become liable for confiscation as discussed earlier and they are liable to penalty. Keeping in mind the overall facts and circumstances of the case, particularly that they paid correct amount of duty, and also some of the judgments quoted by them, we reduce the penalty imposed to Rs. 1 lakh each.

The appeals were disposed of.

(See 2015-TIOL-1609-CESTAT-MUM)