By TIOL News Service

MUMBAI,APR 09, 2016: M/s Jindal Iron & Steel Co. Ltd., Tarapur and M/s. Jindal Steel & Alloys Ltd., Vasind (Jindals) are engaged in the manufacture of HR coils. After the manufacture of the said goods, these are slitted to make them of uniform width. In this process, cuttings in the form of coil of varying width, say from one inch to three inches are left out. These left out trimmings are sold as HR trimmings. Though such HR trimmings are waste and scrap for Jindals, but the same are used in the manufacture of iron and steel wires which in turn are used in the manufacture of nails as also barbered wire/fencing. The conversion of HR trimmings to wires and thereafter to nails/barbered wire fencing etc. is carried out by a large number of small scale units. There is concentration of such units in and around Ahmedabad, particularly in place like Viramgam. Since this conversion is done by small scale units who are exempt from payment of excise duty, they are unable to avail the credit of central excise duty paid on HR trimmings by Jindals.

On the other hand, the main appellant (Amar Ispat) is engaged in the manufacture of MS ingots from iron and steel scrap. There are various sources for getting such scrap. From some of these sources, the scrap is duty paid, for example, shavings left out of mechanical process. In addition to this, scrap is also available from non-duty paid sources such as bazaari or scavenger scrap. Such scrap is non-duty paid. However, the final product of the main appellant, MS ingot, is chargeable to excise duty irrespective of the fact that it is made from duty paid scrap or non-duty paid scrap.

For the Virangam based small scale units, duty paid invoices of the HR trimmings are of no use as far as availment of credit of duty is concerned. However, such invoices can be made use (though illegal and fraud) by the main appellant (or other M.S. ingot manufacturers) by taking credit of duty paid, particularly for the portion of non-duty paid bazaari/scavenger scrap.

Case of the Revenue is that the main appellant has purchased/procured duty paid invoices of Jindals and credit of duty paid indicated in such invoices was taken without receiving the HR trimmings covered by the invoices and the HR trimmings covered by the said invoices were diverted to Viramgam and nearby areas and there HR trimmings were used by hundreds of small scale units manufacturing nails etc.

The main appellant is one of such MS ingot manufacturer. Appellant No.2 is the Director of the appellant. Appellant No.3, 4 & 5 are traders/brokers based in and around Virangam, who would receive the HR trimmings cleared from Jindals and in turn, sell the same to various small scale manufacturers. Appellant No.6 is is a broken/trader of iron and steel based in Mumbai. Appellant No.7 is the transporter who would arrange the transportation of the HR trimmings from Jindals' factory in Vasind/Tarapur to Virangam. Appellant No.6 and 7 together would ensure that the documents from Jindals are procured in the name of the main appellant and physically receive these documents at the time of taking delivery from the Jindals' factory. These documents in turn would be sent to the main appellant. In addition, certain fictitious documents will be created in order to indicate that the goods are being sold from some trader to other persons in Viramgam. These documents will accompany the transport of the goods from Jindals' units to the end user. Further, since the goods have gone to Viramgam, the price or the amount relating to such goods will be received through angadia or other sources in Mumbai and will be finally given to the main appellant who would have given the draft or account payee cheques to Jindals for the purported purchase of such goods. Cash may also be used to purchase bazaar/scavenger scrap.

Detailed investigation of the case was taken up and which also included recovery of incriminating douments and recording of statements of various persons.

A SCN dated 3.7.2007 was issued to the appellants demanding an amount of Rs.72,84,903/- of fraudulently availed cenvat credit and also proposing penalty and interest. In addition, penalty was proposed on other appellants.

The Commissioner confirmed the demand and imposed penalty and interest against the main appellant. A penalty of Rs. 10,00,000/- was imposed on appellant No.2; penalty of Rs.2,00,000 each was imposed on appellant No.3, 4 and 5 and penalty of Rs.7.5 lakhs each was imposed on appellant No.6 and 7.

The appellants are before the Tribunal.

The main plea taken by the appellants was that the impugned order had been passed in gross violation of the principles of natural justice inasmuch as the appellant's request for cross-examination of various persons was not permitted; that the case is hit by limitation because the appellant has received the goods and the appellant had no reasons to doubt that the duty paid nature of the goods received by it and the appellant has paid the amount through account payee cheques; that the evidence brought forth by the department, even if assumed to be true, admittedly covers only 224 invoices and, therefore, the entire demand on 403 invoices cannot be upheld; that no penalty can be imposed under Rule 26 on the said appellants as the goods under question are neither liable to confiscation nor held so;that the appellants have not dealt with the goods and demand etc. is for period prior to 1.3.2007.

The AR reiterated the various points made in the adjudication order and his main submission was that the appellants are just trying to find out some or the other reason to discredit the investigation carried out; that the appellants have not given any explanation whatsoever or any evidence about the transport and receipt of HR trimmings in their factory; that in view of the overwhelming evidences collected during the investigation, the impugned order is correct and the demand and penalty imposed are in order.

The Bench after considering the submissions observed -

"9. In the present case, the Revenue has raised the demand in respect of 403 invoices. Invoices are pertaining to HR trimmings. Revenue's case is that the said HR trimmings were transported from Jindals, Vasind/Tarapur to Viramgam based dealers/SSI units while the corresponding invoices were made in the name of the main appellant and the said invoices did not travel along with the goods, but only the invoices were received by the main appellant and they took credit on the basis of such invoices without receiving the HR trimmings. During the investigation, the main appellant and their officials including appellant No.2 were specifically asked whether they have any evidence whatsoever to prove that the goods viz. HR trimmings covered by the said invoices were transported to their factory and received in their factory. The appellants could not produce copy of the Gate register, goods receipt note or LR or even any document evidencing payment of freight charges to the driver/transporter in respect of each invoice (whether paid in cash or by any other means). The appellant's main contention was that they have paid for the goods through banking channels and if at all the goods were not supplied, it is because of the manipulation by the supplier. We are not convinced with such argument. First of all, payment through banking channel in such manipulated transactions is a part of the manipulation only and it does not prove genuineness of the transaction. We are unable to understand that how the appellant is not able to produce any document relating to transport or receipt of the goods such as goods receipt note, independent weighment slip, gate register lorry receipt, payment receipts (which are normally given by the drivers of such vehicles) or any document of the transporter to prove that the goods covered by the invoices did travel from Jindals' units in Vasind and Tarapur to appellant's factory. We also note that almost in all transactions, the vehicle registration numbers are of Gujarat It is a common knowledge that a vehicle registered in Gujarat cannot undertake the freight movement from one place to the other within the State of Maharashtra. Such vehicle can only take the interstate freight, i.e. Maharashtra to Gujarat in this case. Moreover, HR trimmings in coil form are very different from bazaari/scavenger scrap and can be distinguished by any person in the business."

Adverting to the catena of evidences presented by the Revenue the Bench remarked that the only conclusion to be drawn is that the goods have not been received by the appellant.

The Bench further observed -

++ It also defies any logic that the goods such as HR trimmings in the coil form which can be used for the manufacture of items like nails or wires, would be used for melting in the furnace. Even the prevailing prices of such HR trimmings will be much higher compared to normal iron and steel scrap and it does not make any economic sense for a manufacturer to use HR trimmings in coil form for purpose of melting.

++ We find in the present case that the appellant wanted to cross-examine mainly the co-noticees and as held by this Tribunal in the case of Maya Mahal Industies (supra) as also in the case of Jagdish Shanker Trivedi (supra) read with Article 20(3) of the Constitution of India, we are of the view that no prejudice has been caused to the appellants, particularly keeping in view the fact that they themselves did not produce a single evidence that the HR trimmings were transported to their factory and were received in their factory. They have also not given any explanation with reference to the records recovered from various transporters. Thus, even if the statements of the co-noticees are ignored, the demand will still hold good. If the main appellant would have produced some evidence to contradict Revenue's claim, we would perhaps be inclined to hold that denial of cross-examination has prejudiced their case.

++ Few days back, we have decided a similar case in respect of Bhagwati Steelcast Ltd. wherein also some of the appellants are common and there the statements given by the appellants were more to the point. We have absolutely no hesitation whatsoever in holding that the appellant No. 3, 4 and 5 are Viramgam based brokers/traders who in fact were participating in the auction bidding process either themselves or through brokers based in Mumbai and were purchasing the HR trimmings from manufacturers such as Jindals in this case. Later on. the HR trimmings were going to Viramgam. Since the invoices of such HR trimmings were of no use to them, they were trading the invoices through brokers based in Mumbai who in turn were locating the furnace units who could fraudulently avail the credit based on such invoices. The cash amount of HR trimmings being sent through angadia or other services from Viramgam and nearby area and were being converted into Bank Draft etc. through banking channels either by such. brokers or by manufacturers of ingots or was used in cash to purchase bazaari scrap/scavenger scrap.

++ In view of the above position, we have no hesitation in holding that the demand and penalty imposed on the main appellant is correct and the appeal of the main appellant is, therefore, dismissed.

++ Appellant's contention on limitation is also rejected as this is clear cut case of fraud as credit is availed without receiving the duty paid goods covered by the corresponding invoices.

Penalty on Director of main appellant-company:

+ The Director of the main appellant-company was supervising the day-to-day operation. It is incomprehensible that such a thing could happen without his knowledge. In our view, he would be main beneficiary. HR trimmings in the coil form is very distinct commodity compared to the bazaari/scavenger scrap and if they were receiving invoices for the HR trimmings, there was no reason for them to accept the bazaari scrap. In any case, HR trimmings is more expensive than bazaari/scavenger scrap. We, therefore, hold that the penalty imposed on him under Rule 13 of the Cenvat Credit Rules, 2002 is in order and the quantum of penalty imposed is also not on the higher side. The appeal of appellant No.2 is, therefore, dismissed.

Penalty on appellant No.3, 4 & 5:

+ Their main plea is that they are not registered dealers and the goods have not been confiscated and, therefore, no penalty can be imposed on them.

+ In the present case, goods were not transported to consignee as per duty paying invoice and this was done to evade duty by availing credit fraudulently, thus goods are confiscable under Rule 25.

+ Further, the contention of appellant No.3, 4 & 5 merits outright rejection for the simple reason that all the three persons were concerned in acquiring possession of, and were, concerned in selling and purchasing of HR trimmings and such HR trimmings were confiscable under Rule 25(1)(d) as the name of the purported consignee and the true consignee was different and this manipulation was with a clear cut intention to defraud the Government by availing inadmissible cenvat credit. In view of the said position, the penalty imposed under Rule 26 on the appellants 3, 4 and 5 is in order. We aso note that the penalty imposed is not on the higher side and, therefore, their appeals are dismissed.

Penalty on appellant No. 6 & 7:

+ Both the appellants put together, helped in the manipulation and were concerned with the goods which are confiscable and, therefore, they are liable to penalty under Rule 26, even before the amendment made on 1.3.2007. The penalty imposed on the two appellants is not on the higher side and, therefore, we dismiss the appeals of the appellants 6 and 7.

In the result, all the seven appeals were dismissed.

Viramgam in passing: Also see - 2015-TIOL-1609-CESTAT-MUM & 2015-TIOL-2614-CESTAT-MUM.

(See 2016-TIOL-845-CESTAT-MUM)