By TIOL News Service

MUMBAI, JUNE 24, 2014: THE appellant, Proprietor, obtained registration as a First stage dealer in January, 2004. He filed Nil return for the quarter ending March, 2004 and June, 2004 and upto 20.7.2004. Thereafter, he surrendered the Registration on 21.7.2004 on the ground that no business has been transacted during the registration period.

Based on intelligence, the Revenue learnt that one M/s Metro Industries had availed CENVAT Credit amounting to Rs.60,12,635/- on the basis of 39 invoices purportedly issued by the appellant. Similarly, it was revealed that one M/s Mansa Traders, Bhiwandi has availed CENVAT Credit to the tune of Rs.3,00,75,719/- and one M/s Accelerated Synthetics Pvt. Ltd. have availed CENVAT Credit to the tune of about Rs.41 lakhs on the strength of 24 invoices purportedly issued by the appellant.

Investigation revealed that the premise for which registration was sought by appellant was wrong and fake. From the scrutiny of Bank account of the appellant firm, it was found that no transactions had taken place. The residential premises of the proprietor/appellant was searched and in the course of search the documents like copy of registration certificate, copy of the return filed, evidence of surrender of the registration certificate and rubber stamp of the firm was found. No other documents like, counterfoil of any invoice book and other documents in support of purchase and sale of any goods etc. was found. However, in the statements recorded, the appellant stated that he had registered as a first stage dealer, the proprietorship firm M/s Shiv Trading Company on the advice of one Shri Chandubhai Patel; that the address in the application form is fictitious and that the signature appearing on the invoices purportedly issued by his firm appear to be forged.

In their statements, the Directors of M/s Accelerated Synthetics Pvt. Ltd. stated that all the transactions with the appellant firm were arranged through Textile Broker, Shri Sudhir Bhimrajka, Surat, having his office at Perfect Textile, New Textile Market, Ring Road, Surat and the transactions are usually done over telephone with him; that he had never personally known the appellant; that the payments were made through cheques in favour of the appellant firm against the purchase of yarn and these cheques where handed over to the said Sudhir Bhimrajaka.

Pursuant to these investigations SCN was issued to the appellant seeking imposition of penalty u/r 27 of the CER, 2002 for obtaining registration and issue of fake/bogus invoices without any movement of goods to facilitate others in availing illegitimate CENVAT Credit.

The Asstt. Commr. imposed a penalty of Rs.4.05 crores on the appellant u/r 26(2) of the CER, 2002 and listed out nearly a dozen reasons for the penalty imposition, one of which reads - Third possibility is that the appellant might be having one or more bank account, which was not disclosed to the Revenue, nor could be traced. Thus, non-appearance of transaction in the declared bank account of the appellant does not vitiate the case of the Revenue.

As the Commissioner(A) upheld this order, the appellant is before the CESTAT and makes a list of submissions inter alia citing the Tribunal decision in M/s Ispat Industries Ltd. - 2009-TIOL-1937-CESTAT-MUM wherein it is held that provisions of Rule 26(2) of Central Excise Rules, 2002 are not applicable to matters prior to 01.03.2007.

The AR relied on the findings of the lower authorities and also took the assistance of the High Court ruling in Vee Kay Enterprises - 2011-TIOL-174-HC-P&H-CX, wherein it was held that although penal provisions u/r 26(2) are not applicable in respect of the transactions prior to 1.3.2007, penalty is imposable under other rules, namely, Rule 25(1)(d) and Rule 26(1).

The Bench observed -

“7. …, we find that there are no categorical findings against the appellant so as to prove the charges as alleged in the show-cause notice inspite of there being names available of the alleged supplier in the invoices from whom the appellant allegedly purchased, no enquiry appears to have been done. Further, it is seen that the appellant is situated in Mumbai, whereas the invoices recovered from M/s Accelerated Synthetics Pvt. Ltd. allegedly issued by the appellant are printed by one Ambaji Stationery, Surat. No enquiry has been made with the printer as to who got the stationery printed. Further, the appellant had stated that he had obtained the registration under Central Excise on being inspired by one Chandubhai Patel of Surat, who has also admitted in his statement before the Revenue authorities that he had also registered one firm at Surat with the Excise Department in similar name of ‘Shiv Trading Company'. The said Chandubhai Patel has been found to be involved in the issue of bogus CENVAT invoices in other names also. It appears that the said Chandubhai Patel has been instrumental in the mischief by using the name of the appellant without his knowledge. Moreover, it is found that the adjudicating authority has imposed penalty without any categorical finding against the appellant. Rather the penalty is imposed on the basis of assumption and presumption which have no legs to stand.”

In fine, the penalty was set aside and the appeal was allowed.

In passing : Incidentally, the matter was heard on 26.11.2013 & the decision is dated 20.05.2014. Perhaps this might not be the end of the story…

(See 2014-TIOL-1103-CESTAT-MUM)