By TIOL News Service

MUMBAI, DEC 08, 2015: M/S Ispat Industries Ltd.(IIL) is a manufacturer of H.R. coils having manufacturing units at Nagpur and Dolvi/Taloja near Mumbai. During the manufacture of such 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 IIL 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 IIL 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 appellants after bidding &purchasing the H.R. trimmings from appellant IIL 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.

This was being done by manipulating the invoices issued by IIL to indicate the name of certain manufacturers of MS ingots or the first stage excise registered dealer.

Thus, the main appellant, in the present case was purchasing the invoices without getting the HR trimmings and such HR trimmings were sold by other appellants to hundreds of small scale units in and around Viramgam. Brokers/dealers & transport commission agents/transporters also participated in this fraudulent exercise. Cash for the HR trimmings was received from the Viramgam based traders many a times, through angadia services, and thereafter the said cash would be sent either to the main appellant so that he can issue the account payee cheque/bank drafts to IIL.

A case of irregular availment of CENVAT credit was registered against the main appellant & against the other appellants the case is of imposition of penalty.

The demand was confirmed and penalties were imposed.

The Bench observed that a somewhat similar issue had come up before the Tribunal in another case of main appellant viz. Bhagwati Steelcast Ltd. vs. CCE, Nashik 2012-TIOL-1257-CESTAT-MUM and wherein by a Majority decision it was held –

CX - evidences unearthed by the department in investigation are several and overwhelming and each piece of evidence corroborated the other - once the department by way of evidence has shown that the transactions are not genuine, the onus of proving that the transactions are genuine lay on the appellants which they had failed to do miserably - credits taken on duplicate/parallel invoices/vehicles shown in invoices as per RTO report were non-transport vehicles viz. scooter, motor cycle etc./invoices issued by dealers based on ship breakers' invoices who had shut shop long ago - Larger period of limitation correctly invoked - Credit rightly denied by adjudicating authority: CESTAT by Majority.

Thereafter the Bench, in an elaborate order, inter alia observed –

Merits & Limitation

++ The main appellant is engaged in the manufacture of MS ingots for which they require iron and steel scrap. The goods involved in the present case are HR trimmings. These are nothing but HR coils having varying width from "1 to 3". These goods are not iron and steel scrap in the conventional sense. These may be waste and scrap as far as manufacturer M/s. Ispat Industries is concerned but can be used for the manufacture of MS wires which has vide variety of applications like in the manufacture of nails, fencing wire, etc. It is also common knowledge that such HR trimmings fetch higher value than the scavenger scrap or bazaar scrap. There is no reason for any prudent MS ingots manufacturer to use such HR trimmings in coil form for melting . In fact, during the only statement that could be recorded of the appellant No.2, who was the Director of the main appellant-company, this point was raised and it was pointed out that if MS ingot is manufactured using HR trimmings then the cost of production of MS ingots would be much higher than the selling price and, therefore, no businessman can afford to use HR trimmings for such purpose.

++ Principles of natural justice is not violated by not summoning co-noticee for cross-examination. [Jagdish Shanker Trivedi 2005-TIOL-851-CESTAT-DEL refers]. We do not consider that in the facts and circumstances of the case denial of cross-examination has prejudicially affected the rights of the main appellant. We also note that even if the statements are ignored and only documents which have been recovered during the searches are analysed the demand in the case will stand on its own feet.

++ Keeping in view the conduct of the main appellant and the appellant No.2 during investigation as also during the adjudication proceedings we are of the considered view that no principles of natural justice has been violated in the facts and circumstances of the case.

++ We find that the main appellant has not produced any independent evidence whatsoever to support that the H.R. trimmings covered by the invoices were received by them except the copy of the invoices.

++ We are not convinced that any manufacturer will receive goods without any transport documents whatsoever. In fact, the appellant has not produced any transportation details to support that he has received the goods. On the contrary, there are enough documentary evidence to support that vehicle number mentioned in the invoices were in fact went to Gujarat – Viramgam area with the HR trimmings.

++ It is undisputed that consignments were transported through the trucks having Gujarat registration Number. For the transportation of the goods within the State of Maharashtra such trucks cannot undertake this activity. None of the appellants have contradicted this allegation or said anything about this allegation. It is also clear that in large number of cases, Shri Chandrakant Nathwani (transport commission agent) was coordinating with M/s. Ispat Industries Ltd.'s office to get the name of the consignee/buyer changed based upon the letter from the original bidder.

++ Similar position has emerged from another transporter i.e. Diamond Roadways who was handling the consignment of Dolvi unit. In view of the above analysis we are convinced that the goods covered by invoices i.e. HR trimmings were never transported to the main appellant's factory and the invoices based on which CENVAT credit has been taken were the invoices which were purchased without goods covered by such invoices.

++ Present case is relating to getting only the invoices without getting the corresponding goods and is a case of fraud which cannot happen without the active connivance of the Director himself. Under the circumstances we hold that the appellant has not only not taken adequate and reasonable care before availing the CENVAT credit but had acted in fraudulent manner to avail the credit. In view of the above position we do not find any strength in the submission of the main appellant.

++ In the facts and circumstances of the case, extended period of 5 years has been correctly invoked and we reject the contention of the main appellant on this ground.Imposition of penalty both under Rule 13(1) and 13(2) is upheld.

Appeals filed by the main appellant and appellant No.2, Director are dismissed.

Other appellants/bidders etc.:

++ We have no doubt that the HR trimmings so diverted to Viramgam were liable to confiscation and the appellants Nos. 3 to 8 (bidders) have dealt with the goods 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 (u/r 25, 26 of CER, 2002) is correct. [Vee Kay Enterprises vs. CCE 2011-TIOL-174-HC-P&H-CX refers]

++ However, keeping in view the overall facts and circumstances of the case, we reduce the penalty on appellant No. 3 to 8 from Rs. 5 lakhs each to Rs.1 lakh each.

++ Appellant No. 9 was the main transporter 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 was 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 main appellant. Under the facts and circumstances of the case, penalty is correctly imposed. However, we reduce the penalty from Rs. 5 lakhs to Rs. 2 lakhs keeping in view the CENVAT credit involved in the present case.

M/s. Ispat Industries Ltd.- Before clearing the goods they have paid the appropriate amount of duty. However, we also note that the goods were being transported in the Gujarat registered vehicle while the consignee name and address is that of Maharashtra, and such vehicles cannot take such freight. We also note that from the documents recovered from their premises, that they are 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 main appellant or first stage dealer as consignee who were based in Mumbai. Since they have changed the name of the consignee inspite 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 over all facts and circumstances of the case, particularly that they paid correct amount of duty, and also some of the judgments quoted, we reduce the penalty imposed to Rs.50,000/-.

The appeals were disposed of.

Revenue appeal:

Since the duty amount is confirmed, it goes without saying that the appellant will be required to pay interest as per the provisions of Section 11AB of the Central Excise Act, 1944. The appeal of the Revenue on the said count is allowed.

(See 2015-TIOL-2614-CESTAT-MUM)