K.V. Shah vs Commissioner of Central Excise Ahmedabad 1

Honourable Ms. Justice S.G. Gokani

In this Tax Appeal preferred u/s 356 of the Central Excise Act, 1944 ("Central Excise Act" for short), original appellant has approached this Court being aggrieved by the decision of Customs, Excise & Service Tax Appellate Tribunal (CESTAT, Ahmedabad) dated 27.8.2008. It appears that the show cause notice dated 21.3.2006 came to be issued by the respondent on the appellant after search operation was carried out at the premises of M/s. Itisha Aluchem Ind at Rakhiyal Bapunagar, Ahmedabad by the officers of Central Excise on 28.3.2005.

The said unit was alleged to have been engaged in evasion of Central Excise Duty by taking Cenvat credit raising concocted invoices in respect of the aluminum ingot and, therefore, the said show cause notice. The appellant procured aluminum from M/s. Itisha Aluchem Ind and aluminum chloride from M/s. Parshwanath Dye Chem Ind P. Ltd. He is alleged to have played a role in this entire transaction and, therefore, the show cause notice in this respect of the penalty u/s 11AC read with Rule 25 of the Central Excise Rules was proposed. It is noted by the appellant that he is neither a partner nor a Director in Sun Chloride P. Ltd. He has also noted that there is no role played in concocting the invoices. However, on due adjudication the Commissioner passed order dated 30.5.2007 imposing penalty of Rs. 1 lakh under Rule 26 of the Central Excise Rules, 2002.

When challenged before the CESTAT there was a difference of opinion between two Members and this matter was relegated to third Member. The final order came to be passed on 22.8.2008, which is challenged before this Court raising following substantial question of law for our consideration.

(i) Whether the order of the tribunal is not perverse as the same is based on incorrect facts and without considering the submission of the appellant?

(ii) Whether the order of the tribunal is not a non-speaking one with regard to the appellant?

(iii) Whether proceedings initiated against the appellant were not barred by limitation?

(iv) Whether tribunal has not erred in holding that appellant working for though job worker is liable to pay penalty which is more than the penalty imposed on company itself?

(v) Whether the tribunal has erred in not considering that the proceedings is vitiated by violation of principles of natural justice?

On having considered the material placed before us and on closely examining the issues raised before us, we find no reason to entertain this appeal on the following grounds. From the elaborate discussion of different Members of the Tribunal, as can be noted, the appellant manufacturers had availed Cenvat Credit on invoices raised by M/s. Itisha Aluchem Ind. They purchased aluminum ingot from various manufacturers and dealers, which included M/s. Itisha Aluchem Ind as well. These ingots were directly delivered to the job workers and the credit on the duty paid on such aluminum ingots was availed by the manufacturers. It is the case of the appellant manufactures that all reasonable steps were taken in terms of Rule 7 of the Cenvat Credit Rules, 2004 and, therefore, in view of the non-receipt of inputs, no penalty can be imposed. It was also the case of the appellant that the inputs were consumed after manufacturing of the products and those products were already cleared. All procedural formalities were duly completed by M/s. Itisha Aluchem Ind. It was also the case on behalf of M/s. Sun Chloride that they are the job workers of M/s. Parshwanath Dye Chem, which had not availed any Cenvat Credit on capital goods. Therefore, Rule 7(2) of the Cenvat Credit Rules has to be followed and as all requisite steps were taken in respect of job workers, no penalty could be levied upon M/s. Sun Chloride Pvt. Ltd. The third Member of the Tribunal, after duly considering these submissions, answered these issues as follows:-

It can be seen from the findings of both the Members that manufacturer/manufacturing unit have availed the CENVAT Credit only on the basis of invoices issued by M/s. Itisha. It is also an admitted fact by both the Members that no duty was actually paid by M/s Itisha and no credit was available to such manufactures/manufacturing units. On concurrence of such views with both the Members, it is accepted by both the Members that reversal of CENVAT Credit by the manufacturing unit in balance was not seriously challenged and was correctly upheld. It is to be noted that though the provisions of Rule 7 of CENVAT Credit Rules, 2004 cannot be stretched too far, at the same time, it was the preliminary duty of the manufacturing unit to at least verify the fact of the manufacturing unit who has supplied the goods to them. Be that as it may, since it has been proved beyond doubt that the manufacturer as well as the manufacturing unit have availed CENVAT Credit based on only documents and reversal thereof is not seriously challenged, it would amount to availment of CENVAT Credit wrongly in contravention of provision of CENVAT Credit Rules. It is also not disputed that the extended period of limitation will apply in this case as the entire modus operandi of passing on the credit by M/s. Itisha, without having manufacturing unit, only on documentary evidence and even without paying the same to Government of India, has been un-earthed after detailed investigation, a fraud committed by M/s. Itisha. It is well settled that fraud vitiates everything and disadvantage of such fraud cannot be taken by anyone.

In my considered view, once there is no dispute as regards ineligible CENVAT Credit availed by the manufacturers and manufacturing units and the same being reversed on being pointed out, the penalties on the manufacturing unit and the manufacturer under the provisions of Rule 15 of CENVAT Credit Rules, 2004 are correctly fastened on them.

The manufacturers/manufacturing units cannot shirk away from the responsibility of availing the ineligible CENVAT Credit on the face of it. All the defences raised by the ld. Counsel for appellants are very weak on the face of it.

On the basis of the documentary evidence, it was noted that without having manufacturing unit only on the basis of the documentary evidence, a fraud was committed upon the Government also by M/s. Itisha Aluchem Ind. and such fraud would vitiate everything and it was impermissible to take disadvantage of such fraudulent transactions by any party. We are of the considered opinion that the Tribunal has appropriately dissected the facts put forth before it in the form of various documents and material and entire case is based on facts and no question of law appears to be arising in this Tax Appeal. Tax Appeals are, therefore, dismissed.

Civil Application NO. 411 of 2012 in Tax Appeal No. 854 of 2012 with Civil Application No. 412 of 2012 in Tax Appeal No. 855 of 2012

In view of the order passed in Tax Appeals, no order is required to be passed in Civil Applications. Civil Applications are accordingly disposed of.