By TIOL News Service

MUMBAI, JULY 06, 2016 : ON the basis of intelligence, it came to notice that one M/s. Singh Inc. was registered as merchant manufacturer & used to take CENVAT credit on bogus invoices without receipt of the inputs and show themselves as manufacturer supplier of goods and issue invoices.

The appellant merchant exporters filed rebate claim towards duty shown to have been paid in the invoices of M/s. Singh Inc.

As regard the offence alleged against M/s. Singh Inc., by an adjudication order the demand of fraudulently availed Cenvat credit of Rs.1,08,27,461/- was confirmed. Against the appellants, penalties equal to the amount of rebate claimed were imposed u/r 26 & 27 of CER, 2002.

The merchant exporters have filed appeals before the CESTAT against imposition of penalties.

As per the Commissioner's findings the appellants being merchant exporters have colluded with M/s. Singh Inc. inasmuch as they were aware about the fraudulent availment of cenvat credit by M/s. Singh Inc. and by utilizing the same, passing the said amount in the form of payment of duty to the merchant exporters, who further claimed rebate.

Before the CESTAT, the appellants submitted that they have bonafidely purchased the goods from M/s. Singh Inc. and paid against the said purchases the value along with excise duty; that in such situation there is no additional gain to the appellant, rather in the present case though the excise duty amount was recovered by M/s. Singh Inc. but due to this case they lost the amount of rebate; that in the entire investigation no evidence was produced that there is any cash transaction between appellant and M/s. Singh Inc. which can establish the fake nature of transaction;that the investigation did not dispute about the receipt of the goods at port of exports and payment thereof; that the case pertains to the period 2003-04, therefore, amended provision of Rule 26 which came into effect from 1/3/2007 is not applicable in the present case; that composite penalty under Rule 26 and 27 cannot be imposed. [Case laws cited are - 2015-TIOL-1025-CESTAT-DEL, 2015-TIOL-1189-CESTAT-DEL, 2013-TIOL-464-HC-DEL-CUS, Solid Containers Ltd - 2011-TIOL-1779-CESTAT-MUM, Kamlesh Kumar Goel - 2007-TIOL-1708-CESTAT-MUM.]

While reiterating the findings of the adjudicating authority, the AR emphasized that even prior to amendment in Rule 26 w.e.f. 1/3/2007, penalty can be imposed under un-amended Rule 26. Case laws cited are - 2014-TIOL-1469-HC-AHM-CX & J. K. Steel Ltd. - 2002-TIOL-332-SC-CX.

After considering the submissions, the Bench inter alia observed -

++ As regard the issue that M/s. Singh Inc. availed Cenvat credit fraudulently and utilization thereof, has attained finality as per the adjudication order dated 21/9/2010 as no appeal was filed by the party against the said order.

++ It is found that the appellants have placed order for the goods they require for further exports, the goods were supplied under cover of excise invoice and ARE-1 issued by M/s. Singh Inc. and the very same goods have been exported by the appellant, the payment against purchases made by the appellant to the M/s. Singh Inc. including duty charged in the invoices. This shows that even if M/s. Singh Inc. has availed the wrong credit without of receipt of inputs and without manufacture of final product but if the goods were supplied, even though, some different goods the present appellants cannot know fraud committed by the M/s. Singh Inc.

++ If the buyer is receiving the goods alongwith invoices thereafter it is not obligatory on the buyer to find out whether goods actually manufactured by the supplier or whether duty was paid genuinely or otherwise, therefore, in my view when the appellants have purchased the goods bonafidely and paid therefor, no doubt can arise at the end of the appellants as buyers.

++ It is only on investigation, the appellant came to know that their supplier M/s. Singh Inc. has committed fraud in availing Cenvat credit and utilising the same. The appellants have forgone their rebate claim thereafter.

++ The person can be penalised only when either he colluded with fraudulent person or atleast he knows about the fraud in the transaction made with him.

++ In the present case it was established that the supply of goods under the cover of invoice and ARE-1 made to the appellant by manipulating the same was not known to the appellants therefore without the knowledge of the appellants if any fraud has been committed the appellants cannot be held responsible and consequently penalty cannot be imposed.

++ From the entire findings, I observed little substance in the evidence such as statement of CHA that the goods received in the port were transported from different place. In this regard it could not establish that the goods were not supplied by M/s. Singh Inc. as the invoicing by M/s. Singh Inc. and payment there for by the appellant have not been disputed by the investigation, therefore the evidences is not conclusive to allege the involvement of the appellants in fraudulent activity of M/s. Singh Inc.

Holding that the appellants were not liable for penalty under Rule 26/27, without going into the other legal issues raised by the appellant, the impugned order was set aside and the appeals were allowed.

(See 2016-TIOL-1643-CESTAT-MUM )