1. In this case, the information on the basis of which the investigations were carried out by the department was that M/s. Shri Govardhan Metals & Chemicals Pvt. Ltd. (M/s. SGMCPL) and M/s. Jay Agro Chem Ltd., (M/s. JACL), both manufacturer units manufacturing copper ingots, copper alloys, copper sulphate and Nickel Sulphate and M/s.
Ekta Enterprises, a registered dealer had indulged in fraudulant misuse of Modvat Credit.
2. During investigations, all the above firms were visited and searched including their officers Shri Ashish V. Trivedi, Director of M/s.
SGMCPL, Shri Jitendra D. Bhatt, CMD of JACL and Smt. Ekta V. Trivedi (C/o Shri Ashish V. Trivedi) Proprietor of M/s. Ekta Enterprises. The concerned persons were interrogated and their statements were recorded, Besides, there were several others firms and persons who were searched /interrogated during the investigations, amongst them were the following: (v) Shri Mahesh K. Valia, Director of M/s. Ekta Metals and Chemicals Pvt. Ltd. 4. Except M/s. JACL, M/s. SGMCPL and M/s. Sarika Paints, all other firms were purely trading firms engaged in the trading of copper alloys, chemicals etc. M/s. Sarika Paints had Central Excise registration for manufacturer of paints, varnishes, but had also obtained dealers registration for trading purposes. M/s. SGMCPL, were claiming to be manufacturing unit but investigations revealed that they did not have even electricity connection and had not installed any machinery for manufacturing activity. They never received inputs physically, did not undertake any manufacturing activity and did not clear any finished goods. Still, they were found to have taken modvat credit amounting to Rs. 1,33,66,487.52 on the basis of certain inputs invoices received by them without physically receiving the goods and also issued invoices for clearance of excisable goods without actually manufacturing and clearing any goods and thus passed on the modvat credit worth Rs. 1,27,10,724/- to their buyers. In other words, they were all paper transactions. All other firms and persons, as mentioned hereinabove, were also found to be involved in similar paper transactions i.e. taking modvat credit in their records on the basis of invoices without receiving any goods and then issuing their own modvatable invoices to pass on the said credit to their buyers. All these persons confessed having indulged in these types of activities and admitted having carried out such transactions only on paper.
Interestingly, however each one of them stated that they were doing this as per the directions of Shri Jitendra D. Bhatt, CMD of M/s. JACL, which position Shri Bhatt also admitted in his statements.
5. To understand that nature of these transactions and as to how they were being carried out, suffice it would be to mention the following: (i) M/s. JACL issued Central Excise duty paid invoices without of any goods accompanying them to M/s. Bleach chem., a registered dealer for copper ingots and copper sulphate involving Central Excise duty of Rs. 28,89,243/-. Bleach Chem entered this credit in their records and issued their own invoices (again without goods) to another registered dealer M/s. Ekta Metals and Chemicals, who also took credit in their records and further issued their own modvatable invoices to JACL to pass on the modvat credit to JACL, M/s. JACL took credit of the said amount in their records.
(ii) M/s. JACL had issued Central Excise duty paid invoices to M/s.
Shree Govardhan Metals & Chemicals Pvt. Ltd. for duty amounting to Rs 13,04,783.75 without any goods. Being a registered dealer M/s.
Shree Govardhan Metals & Chemicals Pvt. Ltd. took this credit in their records and passed on this credit by issue of their own invoices in favour of another dealer M/s. Ekta Enterprises, who further issued their own invoices in favour of M/s. JACL again without goods. M/s. JACL took the credit of this amount in their records.
(iii) M/s. SGMCPL also took credit amounting to Rs. 82,76,488.52 during the year 1994-95 and Rs. 50,89,999/- during the year 1995-96 totally amounting to Rs. 1,33,66,487.52 on the basis of such invoices without actually receiving any goods and without undertaking any manufacturing activity, issued their own invoices for finished goods as if they were clearing the finished goods on payment of Central Excise duty. They utilized Rs. 1,27,10,724/- of the modvat credit and passed it on to their buyers namely (i) M/s.
Ekta Enterprises, (ii) M/s. Ekta Metals and Chemicals Pvt. Ltd. (iii) M/s. Sarika Paints. All these three firms, being registered dealers took credit of the said amount in their records and issued their own invoices in favour of M/s. JACL of varying amounts. On the basis of these invoices M/s. JACL took the modvat credit.
(iv) M/s. JACL issued Central Excise duty paid invoices to the dealer M/s. Ekta Enterprises, who took modvat credit of the duty paid amount in their records. Then passed on the said credit to M/s.
Sarika Paints, M/s. SGMCPL and also to M/s. JACL by issue of their own invoices. In some cases M/s. SGMCPL also issued modvatable invoices to M/s. Sarika Paints. Based on all such modvatable invoices of M/s. Ekta Enterprises and M/s. SGMCPL, M/s. Sarik Paints took modvat credit and passed it on to M/s. JACL by issue of their own invoices.
6. Investigations, therefore, appeared to reveal that firstly the modvat credit was being taken on the basis of certain invoices without any goods and then the said modvat credit either directly or after passing through various registered dealers was used/utilized to pay Central Excise duty on the non-existing goods and invoices were accordingly being issued. No case prejudicial to revenue or involving revenue loss appears to have been made out by the department. There were no inputs and no finished goods in the transactions. No one was eligible to take modvat credit of inputs nor was any one required to pay Central Excise duty on non-existent finished goods. Therefore, the department did not refute the contention being made by the notices that the impugned transactions were merely paper transactions and were carried out for showing higher turnover of M/s. JACL at the instance of Shri Jitendra D. Bhatt of M/s. JACL for getting benefits from Banks and other financial Institutions. Shri Rameshbhjai M. Patel Director of M/s. Sarika Paints, too admitted that they had made the paper transactions of purchase from M/s. SGMCPL and sale to M/s. JACL for showing increased turnover of M/s. Sarika Paints for getting benefits from Banks and other financial Institutions. Curiously, however, the impugned order is client about any proceeding having been initiated against M/s. JACL and M/s. Sarika Paints and their Directors. Vide the impugned order, the Ld. Commissioner has (i) disallowed modvat credit of Rs. 1,33,66,487.52 to M/s. SGMCPL and demanded duty amounting to Rs. 1,27,10,724/- from there under the provisions of Section 11A(1) of Central Excise Act, 1944 read with Rule 57I (i) (ii) of Central Excise Rules.
(ii) Imposed penalty of Rs. 1,27,10,724/- under Section 11AC of the Act read with Rule 57I (4) and Rule 173Q(1) of the rules and Rs. 5,00,000/- under Rule 226 of the rules on M/s. SGMCPL.
(iii) Ordered recovery of interest under Section 11AB of the Act read with Rule 57I (5) of the Rules from SGMCPL.
(iv) Imposed penalty of valuing amounts under Rule 173Q(1) and Rule 226 of the Rules as follows:(a) M/s. Ekta Metals Chemicals 10,00,000/-(b) M/s. Bleach Chem 10,00,000/-(c) M/s. Ekta Enterprises 10,00,000/-(d) M/s. Govardhan Metals & Chemicals 10,00,000/-(e) Shri Ashish V. Trivedi 10,00,000/-(f) Shri Kayurbhai S. Shah 10,00,000/-(g) Smt. Ekta A. Trivedi 5,00,000/-(h) Shri Mahesh K. Valia 5,00,000/- 7. In the present proceedings the appeals of the following appellants are taken :- 8. We have heard all the appellants and the Ld. SDR for the Revenue and find that the impugned order is not sustainable. We find that the demand of duty amounting to Rs. 1,27,10,724/- admittedly relates to duty on non-existent goods, which were never manufactured and never cleared. Interestingly, modvat credit on the inputs is inte ralia being denied on the ground that M/s. SGMCPL did not have manufacturing facility and did not manufacture and clear any goods and in the same breath, the Central Excise duty is being demanded from them on the goods manufactured and cleared by them. Admittedly when there was no manufacturing facility available with M/s. SGMCPL and no manufacturing activity was carried out by them there was no question of manufacturing and clearing any excisable goods by them. They were therefore neither eligible to take any credit on the inputs nor were obliged to pay any Central Excise duty on the non-existent finished goods. Whatever amount of modvat credit they have taken in records was used to pay Central Excise duty for clearance of these non-existent goods. Therefore, the appellants are only challenging the duty demand and not the denial of modvat credit. Since the demand of duty relates to the excisable goods, which were never in existence and were neither manufactured nor cleared, the demand cannot sustain. It therefore has to be set aside.
Accordingly the demand of duty along with interest leviable thereon is set aside. We however uphold the denial of modvat credit amounting to Rs. 1,33,66,487.52. Further, it is observed that whatever act has been done/committed by the appellants resulting into the contravention of any of the provisions of the Central Excise Act or the Rules made there under if any, admittedly was no done/committed with an intent to evade payment of duty, no penalty can be imposed on any one of the appellants. Accordingly, penalty on all the appellants before us is set aside.
9. Accordingly the impugned order in so far as it relates to the present appellants is set aside and the appeals are allowed.