Whether the noticees are responsible for facilitating and abetting M/s Punjab Stainless Steel Industries, Delhi (M/s PSSI) to avail the fraudulent rebate of Excise duty as they issued bogus documents, on the basis of which M/s PSSI has fraudulently taken

CASE STUDY

Introduction:-

The Noticees received SCN alleging that they are facilitating and abetting M/s Punjab Stainless Steels Industries (PSSI) to avail the fraudulent rebate of Central Excise duty and they issued bogus documents, on the basis of which M/s PSSI has fraudulently taken ineligible rebate under the Central Excise Act, 1944 and Rules made there under. Further it was alleged that these acts of commission and omission on their part as supplier of raw materials constitute an offence of the nature described in Rule 26 of the Central Excise Rules, 2002 and thus they appear to be liable for imposition of penalty under the provisions of Rule 26 of the Central Excise Rules, 2002. It was concluded that no invoice or transport documents pertaining to the noticee, M/s Mohnot Stainless Steel Industries Pvt. Ltd. is having any infirmity. As such they are not liable for penalty under the provisions of Rules 26 of the Central Excise Rules, 2002.

M/s Mohnot Stainless Steel Industries Pvt. Ltd.
[Order-In-Original no. 06/D-1/2012 dated: 24.09.2012]

Relevant Legal Provisions:

Central Excise Act, 1944:-

Section 11 B.Claim for refund of duty - (1) any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of (one year) (from the relevant date) (in such form and manner) as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the document referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty had not been passed, on by him to any other person.

Explanation: for the purpose of this section:
(A) "refund" includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India.
Central Excise Rules, 2002:-

Rule 18Rebate of duty– Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such condition of limitations, if any, and fulfillment of such procedure, as may be specified in the notification.

Rule 26 Penalty for certain offences– (1) person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or *[two thousand rupees], whichever is greater.
(2) Any person, who issues-
(i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or
(ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like claiming of CENVAT credit under the Cenvat Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.

Notification No. 21/2004-CE(NT):-
(1) Filing of declaration. - The manufacturer or processor shall file a declaration with the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise having jurisdiction over the factory of manufacture describing the finished goods proposed to be manufactured or processed along with the rate of duty leviable and manufacturing/processing formula with particular reference to quantity or proportion in which the materials are actually used as well as the quality. The declaration shall also contain the tariff classification, rate of duty paid or payable on the materials so used, both in words and figures, in relation to the finished goods to be exported.

(2)………
(3) Procurement of material - The manufacturer or processor shall obtain the materials to be utilized in the manufacture of the finished goods intended for export directly from the registered factory in which such goods are produced, accompanied by an invoice under rule 11 of the Central Excise Rules, 2002:
Provided that the manufacturer or processor may procure materials from dealers registered for the purposes of the CENVAT Credit Rules, 2002 under invoices issued by such dealers
(4) Removal of materials or partially processed material for processing. - The Assistant Commissioner of Central Excise or the Deputy Commissioner -of Central Excise may permit a manufacturer to remove the materials as such or after the said- materials have been partially processed during the course of manufacture or processing of finished goods to a place outside the factory —
(a) for the purposes of test, repairs, refining, reconditioning or carrying out any other operation necessary for the manufacture of the finished goods and return the same to his factory without payment of duty for further use in -the manufacture of finished goods or remove the same without payment of duty in bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory of the manufacture or process; or
(b) for the purpose of manufacture of intermediate products necessary for the manufacture or processing of finished goods and return the said intermediate products to his factory for further use in the manufacture or process of finished goods without payment of duty or remove the same, without payment of duty for export, provided that the waste, if any, arising in the course of such operation is also returned to the factory of manufacturer or processor;
(c) any waste arising from the processing of materials may be removed on payment of duty as if such waste is manufactured or processed in the factory of the manufacturer or processor.
(5)Procedure for export — The goods shall be exported on the application in From A.R.E. 2 specified in the Annexure to this notification and the procedures specified in Ministry of Finance (Department of Revenue) notification No. 19/ 2004-Central Excise (N.T), dated the 6th September, 2004 or in notification No. 42/2001-Central Excise (N.T), dated the 26th June, 2001 shall be followed.
(6) Presentation of claim of rebate. - The claim for rebate of duty paid on materials used in the manufacture or processing of goods shall be lodged only with the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction of the place approved for manufacture or processing of such export goods.

Brief Facts:-

The present case arises out of the SCN issued by the Additional Director General, DGCEI to M/s Punjab Stainless Steal Industries (PSSI) and 16 other co-Noticees in common.
The noticees are manufacturer of stainless steel coils registered with the Central Excise department. They are duly filing return in ER-1 with the department and audit of their unit was conducted by the department on regular basis.
The facts of the case are that PSSI has purchased goods from the 16 other noticees and have taken rebate of duty paid by PSSI on inputs purchased from the above 16 noticees and used by them in the manufacture of their final products which is exported under Rebate claim under Notification 21/2004 CE (NT). But, the DGCEI has alleged that PSSI has wrongly availed rebate of duty paid in respect of the said inputs as the said inputs were not received by PSSI and were not used in the manufacture of exported goods because the Vehicle no. mentioned in the invoices issued by the above 16 noticees were either false or were such vehicles as were not eligible to transport the said quantity of goods to the factory of PSSI. Further, some of the vehicle nos. were not found registered with the transport authorities, while some did not crossed commercial tax barrier at Shahjahanpur as documents did not contain stamp of the authorities. Therefore, all the 16 noticees along with PSSI were issued Show Cause Notice imposing Penalty under Rule 26 of the Central Excise Rules, 2002.
Further, one of the noticees were M/s Mohnot Stainless Steel Industries Pvt. Ltd. that were regularly supplying the material to M/S Punjab Stainless steel Industries (mentioned as “PSSI” in the show cause notice) during the period 2004-05 and 2005-06. The detail of material supplied to PSSI by them is as under:-

Sale Invoice Number	Date	Quantity supplied in kg	Amount	Duty Paid
2004-2005
2	1.3.2005	4344.70	347576	56724
4	8.3.2005	6259.80	500784	81728
2005-2006
3	9.4.2005	7741.70	619336	101076
145	20.03.2006	6.0	360	56

The ledger accounts clearly show that they have supplied the material to PSSI vide various invoices and duty is paid on all the invoices. The question has been raised in impugned show cause notice on invoice no. 14 dated 27.4.2006 and 5 dated 4.11.2006. But they have supplied the material under various invoices to said party. All invoices mention vehicle number as well as the name of transporter on the face of invoices. These all invoices have been taken by the DGCEI during the visit to their factory.

The Central Excise officers visited their factory on 20.02.2007. Mr. Mohan das, inspector and Mr. C.B. Singh, Senior Intelligence office/ Superintendent of C.Ex., DGCEI Hdqrs camp Jodhpur visited their factory along with witnesses Mr. Chetan Giri and Mr. Ashwin. The panchnama was drawn at the spot. They have told to the noticees that they have search warrant from the office of DGCEI, New Delhi. They have resumed various documents from their factory. These included the various invoice copies as well as ledger account and GRs. The production, clearance chart was also given to the officers of visiting team.

The resumption memo was also drawn. They have given a copy of the panchnama and resumption memo to the noticees. As the same was last copy, hence the same is very light and not readable.
The Summon was issued for statement of Director Mr. Sunil Mohnot by aforesaid officer Mr. C.B. Singh. The statement was also recorded at the spot. But the copy of the statement was not given to them.
Also, the copy of bank statement as well as GR relating to invoice no. 5, 14, 15 and 22 was also demanded by the said officers. It was tendered by the noticees in the office of DGCEI at Jodhpur on 21.2.2007. This was acknowledged by Mr. C.B. Singh. These details were also sent to New Delhi office of DGCEI by Speed post on 24.2.2007.

Thereafter, again summon was issued to them by DGCEI Delhi office vide file number 7/INT/DGCEI/HQ/07 dated 3.5.07. This summon clearly mentioned that the inquiry was related to Punjab Stainless Steel Industries. This summon asked the noticees to appear on 22.5.2007 and also to give the party wise ledger of raw material supplier for year 2005-06 and 2006-07, purchase bills of raw material during year 2005-06 and 2006-07 or year wise detail of purchase of raw material in the following Performa for year 2005-06 and 2006-07. Their director Mr. Sunil Mohonot authorised Mr. Arun Singhi and Mr. Suresh Jain to tender the documents as well as statement before the officers. Both these officers of the company visited the Delhi office of DGCEI but no statement was recorded at New Delhi. But the document required by them in the Summon was physically submitted in the office and it was accepted by the investigating officer Mr. Sandeep Jain on 22.5.2007. During the discussion, the officer demanded the copy of bank statement for year 2005-06 and 2006-07.

Another summon was issued by DGCEI vide letter number 07/INT/DGCEI/HQ/2010/7756 dated 28.10.2010 to appear on 4.11.2010. This summon was signed by Mr. B.D. Shah, senior Intelligence office, DGCEI, New Delhi. This summon was issued almost after 3 and half year. The noticees replied the same vide our letter dated 2.11.2010 that they have already submitted all the details. These details have already been taken by the officers on visit of the factory or submitted the representatives of the noticees when they personally appeared before the office. Thereafter, the show cause notice has been issued to the noticees.

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner:

They submit that in the impugned show cause notice it is alleged that they have only sent the bogus invoices showing supply of finished goods but no finished goods have accompanied with the said bogus invoices. In this regard, they submit that they have not sent only bogus invoices and consignment notes without the supply of finished goods but they have sent the finished goods along with the invoices. They submit that they have purchased the raw material from all the big suppliers. It is submitted that they have taken credit of excise duty paid on the said raw material in RG 23 A Part-II and made entries of receipt of raw material in RG 23 A Part-I. When all the raw material has been purchased after payment of duty and credit of the same is taken, then it is obvious that the finished goods will be produced from them and they have cleared the same after payment of duty only. Hence the allegation of bogus invoice is not sustainable. If they have to supply the finished goods on bogus invoice then the bogus purchase should be there. But the department has failed to establish the same. Hence the charge of bogus invoice is not sustainable at all.

They submitted the invoices as well as consignment notes to show that the finished goods were cleared from their factory premises to M/s PSSI. They also furnished the RG-1 of the relevant time period showing the clearance of finished goods as well as the duty levied on the clearances of the same. This all shows that goods have been supplied under proper invoice and material has been dispatched vide these invoices. The detail of transporter is clearly written on face of invoice itself. Further the payment of the same is received through cheque only.

They submit that they have supplied their finished goods to M/s PSSI but the show cause notice is alleging that they have only issued bogus invoices and the goods were not sent along with the invoices. In this regard, it is submitted that the burden to prove that no goods had accompanied the invoices issued by them is on the Department and unless it is established that the goods were not transported under the impugned invoices and bilties, no penal action can be taken against them.

It is submitted that it has not been proved in their case that the registration numbers of the vehicles/trucks through which the goods were sent by them to M/s PSSI were fake or that the vehicles were not capable of transporting the goods mentioned in the invoices. Until and unless these facts are proved no penalty under Rule 26 of the Central Excise Rules, 2002 can be imposed on them. The detail of transporter as well as vehicle number was clearly mentioned on the face of invoice itself. When the inquiry was made for other parties, no such allegation comes in the show cause notice against them. Even their invoice clearly show the vehicle number and transporter name, the DGCEI officer has not tried to establish that vehicle number is fake or the transporter does not exist as done in case of other parties. This is due to the fact that they have supplied the material actually through these vehicles. Hence, their transporter was not interrogated at all. This clearly shows that DGECI was knowing that their transactions have actually taken place and if they investigate further then it will weaken their case. This is the sole reason that the inquiry at the end of their transporter has not taken place. Hence, the penal provision cannot be invoked against them as the DGCEI has failed to prove the case against them.

It was further submitted that from the impugned show cause notice it is clear that the Department has called upon the directors or person in-charge of other suppliers of goods and taken their statement regarding the issuance of bogus invoices without the transfer of goods. The show cause notice alleges that director of M/s Mohnot stainless steel also neither appeared before the investigation officer nor produced such documents in support of their claim that the goods were sold by them and transported through the relevant vehicles. It is clear that the officer visiting their factory has taken the statement of their director. All the relevant documents were resumed. Thereafter also, they have submitted all the relevant documents as demanded by the department on two occasions. Their authorised signatory has also visited the Delhi office of DGCEI for tendering the statement when Summon was given to them. They have also submitted the document by hand on that day in the office of the DGCEI which clearly show that they were present for tendering the statement. Thus, the allegation in the show cause notice that they did not appear or did not provide the detail is not tenable at all. The fact is that the DGCEI is not able to make out a case against them and hence they have tried to cover the same by saying that they did not appear or did not submit the document. Furthermore, when the vehicle number and name of transporter is written on the face of the invoice and the main case of the department against other parties is based on the transportation details are not correct then there was no need for other details or statement. If they intend to prove the case against them then they must have proceeded in the same manner as was done for other parties and tried to prove their case. But this is not being done in their case. Hence the allegation against them is not tenable at all.

It is submitted that merely because some of the other suppliers were not able to prove that they has in actuality supplied the goods with the invoices/sales bill, it has been assumed that they have also not supplied the finished goods but have only issued bogus invoices. This is an erroneous assumption made against them. It is settled law that the show cause notice is not based on assumption and presumption. It is submitted that there is no evidence that they have been involved in abetting the main accused M/s PSSI in claiming inadmissible rebate on fraudulent basis. Therefore, until and unless it is proved that they were involved in fraudulent scheme alleged to be undertaken by the main accused M/s PSSI, no penal action under Rule 26 of the Central Excise Rules, 2002 can be taken against them. They further submit that their transporter details which were available on the face of invoices itself, the DGCEI should have proceeded against them as done in other parties and tried to prove that the truck details and transporter name is not correct. But this has not been done. This is due to the fact that their details were correct and material was actually supplied by them. Thus, the penal action cannot be invoked against them and the show cause notice against them should be set aside.

They further submit that the show cause notice alleged that they did not produce the documents in support of their claim to show that the goods were actually transported through relevant vehicle. This is totally wrong analogy of the DGCEI. The onus is on the DGCEI to prove that the goods were not actually transported through these vehicles. This was investigation and the department has to collect evidence in support of their allegation. Asking the appellant to prove that they have not transported the goods or collect the evidence is totally erroneous, illogical and illegal. They have written the vehicle number and transporter name on the face of invoice, this itself clear their stand that they have transported the goods through this vehicles. If the department is of the view that they have not transported the goods then they should prove the same with corroborative and cogent evidence which has been done in case of other parties. No such evidence has been produced or alleged in show cause notice. Hence the penal action proposed against them is liable to be quashed.

Further they submit that the impugned notice alleges that they have never appeared before the authorities. But this is totally wrong. They have given statement to authority visiting their factory. They also went to Delhi to tender the statement. Hence the allegation in show cause notice is totally baseless. Furthermore, the show cause notice says that the director of M/s Pererhat steels Limited did not appear before the authorities although many Summons were issued to him. Even the show cause notice says that non compliance for such non appearance is being filed in appropriate court. But no such action has been proposed against them. This is due to the fact that the department is aware of the fact that they have appeared before them and produced the documents as desired by them from time to time. If they move to the court for non appearance then it will go against them. This also proves that the DGCEI is aware of the fact that they cannot prove the case against them but to issue the show cause notice, they have simply written such statement in show cause notice which is totally against the factual position. The impugned show cause notice based on such false allegation deserves to be set aside and penal action proposed against the appellant should be dropped.

They further submit that they have regularly supplied the material to this party M/s Punjab stainless steel Industries. These all supplies are made in year 2004-05 and 2005-06 after payment of duty. The party has not filed the claim for some invoices on supplies made by them. This is proved from the fact that no notice has been issued to them for those invoices. No bogus invoice will be issued after payment of duty for the supplies on which no benefit accrues to the party. No prudent man will accept the bogus bill on payment of duty if no benefit is arising to him.
In this regard, they relied upon the judgment of the Hon’ble Madras High Court in the case of CC Chennai v/s M/s Flemingo (DFS) Pvt Ltd [2010-TIOL-60-HC-MAD-CUS] and upon the judgment of M/s Monarch Metals Pvt Ltd v/s CCE, Ahmedabad/Bhavnagar [2009-TIOL-1936-CESTAT-AHM].

further it was submitted that the department’s whole allegation in the impugned show cause notice is based on this allegation that goods were not actually transported as the vehicle number mentioned in the invoices were not proper. The registration numbers mentioned in the invoices were not trucks or they were registered in the name of Municipal Corporation or other public authorities. Hence the goods in question cannot be transported through these vehicles.

However, in their case the goods dispatched through invoice number 14 dated 27.4.2006 were transported through truck number RJ27G5471. This is Tata LPT truck and owned by Mr. Sayeed Aslam. They enclosed the copy of RC and insurance cover to prove that the vehicle is truck only. This truck is mortgaged with finance company.

Further the material mentioned in invoice number 5 dated 11.4.2006 was transported through truck number RJ 19G-8925 which is written on face of invoice. RC of this truck shows that it is Eicher Canter truck only. Even this truck is of M/s Vikas Road carrier through which the material was transported and this fact is also written on the invoice itself. This proves that all number mentioned by them are trucks only.

Further they submit that when the department is alleging that the goods are not transported and only fake invoice is issued then onus to prove the same lies on the department. It has to be proved in each and every case. The allegation based on the investigation in case of other parties cannot be made applicable on them. The onus lies on the department which is not discharged by them.

They further submit that the whole show cause notice against all the parties revolves on the allegation that the vehicle number does not exist but the same has been rebutted by them. The second main allegation is that the vehicle has not crossed the border. They submit that there are number of case laws on this score which says the demand cannot be sustained on these grounds only. Reliance is placed on following case laws:-

AJAY INDUSTRIAL CORPORATION v/s CCE, DELHI-III [2009 (237) E.L.T. 175 (Tri. - Del.)]

COMMR. OF C. EX., MUMBAI v/s PRAKASH INDUSTRIAL CORPORATION [2009 (248) E.L.T. 536 (Tri. - Mumbai)]

Aarti Steels Ltd. v/s CCE, Chandigarh [2010(249)E.L.T. 319 (Tri-Delhi)

Regarding crossing of borders, they further submit that the goods are normally supplied through trucks from the factory. If the same is not full truck load then the transporter takes it to his godown and shifts the material in other trucks and then supply the material. This is normal practice and no prudent transporter will take the half truck load material as it is not economically feasible. As it can be seen in their case also, there is no full truck load. The full truck load is of 16 MT but it is much less in their case. Hence the transhipment of material is normal trade practice by the transporter. Hence the complete allegation in show cause based on such allegation is not sustainable. They submit that no allegation has been levied against them in the show cause notice that their trucks have not crossed the border as has been done in case of other parties. Hence, this allegation cannot be levied against them.
Further it was submitted that the party has also exported the goods to claim the rebate. If the goods are not received by the party then from where they have purchased the goods and manufactured them and exported the same. The export takes place through custom authorities. No such allegation is there that the export was fake. Hence, when the export has taken place in actual terms, then from where the said party has purchased the material. Hence the complete investigation is poor and the department is not able to prove their case. Hence the complete case is going against the department. Hence the penal action proposed against the appellant is also not sustainable. Further they submit that the case against them is not proved at all. The department has to prove against the each party of show cause notice. The statement taken against other party cannot be generalised and applied on them and penalty cannot be imposed on them. Hence the penal action against them should be dropped.

Reasoning of the Commissioner:-

As, the common show cause notice was issued to PSSI along with 16 other noticees, the order of PSSI, the main noticee is also been discussed.

The Commissioner held that the allegation against M/s Punjab Stainless Steel Industries (Noticee No. 1–), is that they have resorted to procuring the Cenvat credit documents without actually receiving the inputs and that on the basis of these duty paying documents they claimed rebate from the jurisdictional central excise authorities on the duty paid on raw materials/inputs used in the manufacture of exported goods. The allegation of the DGCEI against PSSI is backed by the evidence in the form of letters of various agencies (MCD, Regional Transport Authorities etc), statements of transporters etc highlighting that the vehicles through which the raw material/inputs are said to have been carried from suppliers to PSSI either did not exist or belonged to agencies that have claimed that either these vehicles were not designed/meant for carrying such goods or that these never carried the said goods to PSSI. In many cases the GRs were either not available or if available were not duly stamped at the commercial tax barrier that falls on the way. As the transport documents were not in order, it has been alleged that the duty paid inputs were not received and consequently were never used by PSSI in or in relation to the final products and as such they are not entitled to rebate of raw material said to have been used in the manufacture of export goods.
Further, PSSI has argued that the inputs / raw materials were not only received but were also used in the manufacture of finished goods which were subsequently exported.

Going by the number of transport documents which were found to be suspect, the noticee's plea that it is attributed to the clerical error on the part of commercial tax check post does not hold good. While it is true that to err is human, the number of defective transport documents in the present case points to strong preponderance of probability that the duty paid goods was not received by PSSI.

After considering the arguments of the noticee they hold that in respect of some invoices which suffer from one or the other infirmity relating to transport documents, the raw material are held to have not been transported to the premises of the PSSI and consequently were not used in the exported goods on account of fraud and suppression of facts on the part of PSSI. As such, it was held that PSSI had got the rebate claims sanctioned from the jurisdictional AC/DC by misrepresenting and suppressing the vital fact of non-receipt of raw material in respect of the invoices.

Further, it was held that, from the findings as stated above, no invoice/transport documents pertaining to M/s Mohnot Stainless Steel Industries Pvt.Ltd. has discrepancies as alleged in the notice. Therefore, M/s Mohnot Stainless Steel Industries Pvt. Ltd. were not liable for penalty under the provisions of Rule 26 of the Central Excise Rules, 2002.

Decision:-

Penalty detached.

Conclusion:- From the above case study, it is clear that penalty cannot be imposed on the co-noticee merely on the grounds that the main noticee, who indulged in suppression of facts and fraud, had transacted with the co-noticee. When the co-noticee has duly complied with the provisions of the Act on his part, he cannot be held party to the fraud committed by the principal noticee.

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PJ/CASE STUDY/ 2012-13/28
20 October 2012

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PJ/CASE STUDY/ 2012-13/28
20 October 2012