Credit availment on paper transactions.

PJ/Case Law /2016-17/3282

Case:- KRISHANAKUMAR KACHURULAL GUPTA VERSUS COMMR. OF C. EX., SURAT

Citation:- 2016 (338) E.L.T. 442 (Tri. - Ahmd.)

Brief Facts:-This is an appeal filed by Shri Krishanakumar Kachurulal Gupta, Prabhadevi, Mumbai against the order of the Commissioner, Surat-I dated 30-4-2010. The facts in brief of the case are that the appellant is the proprietor of M/s. Apex Corporation, Globe Traders, Muni Traders, etc. engaged in textile business and also doing cheques discounting. The case of Revenue is that M/s. Maruti Enterprises, Surat whose proprietor was Shri K.K. Gupta had taken Cenvat credit amounting to Rs. 1,38,56,462/- during the period from February, 2004 to June, 2004 and had shown utilization of an amount of Rs. 1,19,95,747/- towards payment of Central Excise duty. The Revenue alleged that the transactions of purchase and sales shown by the unit where paper transactions and the unit had illegally availed Cenvat credit. On adjudication, the original adjudicating authority disallowed the Cenvat credit availed by them and ordered recovery from M/s. Maruti Enterprises and its proprietor Shri Krishanakumar Kachurulal Gupta. An equivalent amount of penalty was also imposed on them. However, no personal penalty was imposed on Shri Krishanakumar Kachurulal Gupta.

The main issue to be decided is whether the appellant is the proprietor of M/s. Maruti Enterprises or not. It was submitted that Shri K.K. Gupta was not the proprietor of M/s. Maruti Enterprises and that the persons named as Shri Kishan Kachurulal Gupta and the name appearing in show cause notice as Shri Krishanakumar Gupta or same and one, a finding arrived at by the adjudicating authority was without any basis. They also contested the finding of the adjudicating authority that disowning proprietorship of M/s. Maruti Enterprises by Shri Gupta is nothing but an afterthought is not sustainable. Inasmuch as the fact he was not the proprietor of M/s. Maruti Enterprises was disclosed by the appellant in his deposition during recording the statement on 25-11-2008. They also stated the bank account opening form wherein the name of proprietor was given and the signature was affixed that of one Shri Sunilkumar Satynarayana Sharma. The application for registration under Central Excise was also signed by him.

Appellant’s Contentions:-While hearing the case Shri S.P. Mathew, learned advocate appearing on behalf of Shri K.K. Gupta urged that his client’s correct name is Shri Kishankumar Kachurulal Gupta and not Shri Kishan Kachurulal Gupta and that his client is not the proprietor of M/s. Maruti Enterprises.

Respondent’s Contentions:-Shri S.K. Mall, learned SDR appearing on behalf of theRevenue submitted that it was an admitted fact that the amount of Rs. 37 lakhs has been transferred from the bank account of M/s. Maruti Enterprises to the bank account of Shri K.K. Gupta’s other firm namely M/s. Apex Corporation, Bhiwandi. He argued that Shri K.K. Gupta is the proprietor of M/s. Maruti Enterprises and is the sole beneficiary of the credit availed of and disowning the proprietorship by Shri Gupta is only an afterthought just to absolve from the liability of payment of wrongly availed Cenvat credit. Transfer of such a large amount from the bank account of M/s. Maruti Enterprises to M/s. Apex Corporation is to the benefit of Shri K.K. Gupta and it clearly establishes the relationship of Shri K.K. Gupta with M/s. Maruti Enterprises. Otherwise why such an amount is to be transferred to the account of M/s. Apex Corporation which is in Shri K.K. Gupta’s name. This clearly establishes the relationship of Shri K.K. Gupta with M/s. Maruti Enterprises. It is rather clear that disowning the proprietorship and contesting the name is only to get himself observed of the liabilities from the case. We therefore have no hesitation in rejecting the contention of the appellant on this point. It is clearly established therefore that Shri Kishan Kachurulal Gupta and Shri Krishanakumar Kachurulal Gupta are the same person and also is the proprietor of M/s. Maruti Enterprises. Any denial of such a fact is only a traditional ally of aggrieved.

Reasoning Of Judgement:- On the question of penal action under Rule 13(2) of Cenvat Credit Rules, 2004 read with Section 11AC, the adjudicating authority found that the appellant had mis-declared the facts to the department and fraudulently obtained Central Excise registration and facilitated the fraud to succeed for some time indicating the intention to evade payment of duty. In fact an obligation is cast upon the appellant under explanation to Rule 7(2) of Cenvat Credit Rules to personally satisfy themselves about the genuineness of the documents on the basis of which they intend to take credit. It is also a matter of common sense that a genuine manufacturer while taking credit will ensure that the documents or supplier of inputs are genuine. In this case it can be found that no such verification or any precaution to ensure genuineness was taken by the appellant which shows that they were willingly committing a fraud with an intention to evade payment of duty. CESTAT in the case of M/s. Sheela Dyeing & Printing Mills Pvt. Ltd. - 2007 (219)E.L.T.348 (Tri. - Mumbai) wherein analogy of illegitimate credit was drawn with stolen property to hold that a genuine purchaser of stolen property cannot claim ownership even if he purchased the same without the knowledge of same being a stolen one. The said order of the Tribunal was upheld by the Hon’ble High Court of Gujarat, vide order dated 23-7-2008 (Tax Appeal No. 197/2008) [2008 (232)E.L.T.408 (Guj.)].

Now coming to the question of paper transactions and invoices issued by non-existent firms without the movement of the goods, it has been clearly established by Revenue during investigation that the firms/persons are non-existent at the declared premises and the processing house had taken Cenvat credit on the basis of invoices issued by non-existent firms. The entries regarding receipt and procurement of inputs in the statutory registers were also found to be bogus. The investigation also revealed that the unit had not carried out any process or value addition on the inputs stated to have been received by them. It is also significant that the appellant has not come out with any argument, on the basis of any evidences or document to contradict the findings of the Revenue which again prove that such paper transactions are admitted by the appellant.

On the basis of discussions and findings above, along with the legal pronouncements we do not have a scintilla of doubt that the appellant had fraudulently availed Cenvat credit amounting to Rs. 1,38,56,462/- and utilized an amount of Rs. 1,19,95,747/- and the balance amount requires to be disallowed. Shri Krishanakumar Kachurulal Gupta, Proprietor of M/s. Maruti Enterprises is therefore liable to pay interest and penalty. Accordingly, appeal filed by Shri Krishanakumar Kachurulal Gupta (Shri Kishan Kachurulal Gupta) is rejected and the Order-in-Original is upheld.

Decision:-Appeal rejected.

Comment:- The essence of the case is that since purchases were made from non-existent firms, the fact of non-receipt of goods and fraudulent availment of credit was proved. Therefore, the credit was disallowed and ordered to be recovered along with interest and penalty.

Prepared By-Tushar Gupta

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PJ/Case Law /2016-17/3282

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