[Order per : M. Veeraiyan, Member (T) (for the Bench) (Oral)]. - The appellants, M/s. United Chain Industries and M/s. Kay Iron Works (herein after referred to as manufacturers) are registered as manufacturers of excisable goods. There are demands of duty along with interest besides penalties imposed on both of them.

1.2 There are penalties under Rule 25(1)(b) and (d) imposed on the dealers - appellants namely, M/s. V.K. Enterprises, M/s. Vijay Enterprises, M/s. Anuj Enterprises, M/s. Pawan Steels, M/s. Rajat Enterprises, M/s. J.V. Steel Traders , M/s. Pasondia Steel Profiles, M/s. Vee Aar Steels, M/s. Bhagwati Trading Company, M/s. Om Iron & Steel, M/s. Ayushi Steels Co. Pvt. Ltd.

1.3 There is penalty imposed under Rule 25(1)(b) and (d) on a manufacturer namely M/s. Bhupendra Steels Pvt. Ltd., who has supplied invoices.

1.4 Penalties have been imposed on other appellants namely, S/Shri Praveen Chandra, Director in M/s. Kay Iron Works (Jorian) Pvt. Ltd., Rupesh Bansal, Proprietor in M/s. Bhagwati Trading Company, Vishal Arora, Proprietor in M/s. Vee Aar Steels, Vinod Goel, Proprietor of M/s. Vee Kay Enterprises, Vijay Goel, Satpal Singh (broker and commission agent), Yash Pal Sharma, DGM in M/s. Pasondia Steel Profiles and Aran Ghai, Director of M/s. Bhupendra Steels (P) Ltd. under Rule 26 of the Central Excise Rules.

1.5 All the above appeals arise out of a common order in original passed in pursuance of common investigations relying on common evidences and therefore, are being dealt with by this common order.

2. Heard both side extensively on 15-7-09 and 17-7-09 and perused the records. As the basic facts are not in dispute and the appellants heard extensively, we waive pre-deposit of the dues as per the impugned order and proceed to finally dispose of the appeals.

3. The relevant facts, in brief, are as follows :

(a)     M/s. United Chain Industries has received invoices from 11 registered dealers and one registered manufacturer of inputs, namely, CR coils and HR coils without actually receiving the inputs mentioned in those invoices, they have taken credit of duty mentioned in the said invoices, they have manufactured/shown to have been manufactured using the said inputs mentioned in the invoices and issued invoices of final products to 8 parties (hereinafter referred as ultimate users) indicating the duty paid using the Cenvat credit taken by them. In pursuance of the invoices so issued by them, the said 8 parties have taken Cenvat credit and used them for payment of excise duty on goods/manufactured by them.

(b)     M/s. Kay Iron Industries has received invoices from 8 registered dealers and one registered manufacturer of inputs, namely, CR coils and HR coils without actually receiving the inputs mentioned in those invoices; they have taken credit of duty mentioned in the said invoices; they have manufactured/shown to have been manufactured using the inputs mentioned in the invoices and issued invoices of their final products to 9 parties (hereinafter referred as ultimate users) indicating the duty paid using the Cenvat credit taken by them. In pursuance of the invoices so issued by them, the said 9 parties have taken Cenvat credit and used them for payment of excise duty on goods manufactured by them.

(c)     The goods procured by the first stage dealers from SAIL have been sold in cash in grey market; no goods were sent by them to the manufacturer /second stage dealers. The second stage dealers have also not sent the goods to the manufacturers. Some of the transport companies which are shown to have transported are found to be not existing. In some cases, the transport documents prepared in the name of existing companies are found to be fake. The manufacturers have admitted not receiving the goods as per invoices but taking credit and utilizing such credit for the purpose of paying duty on goods manufactured/or shown to have been manufactured. The documentation relating to sales and purchases have been completed and including settlement of amount mentioned in the invoices by cheques.

(d)    On the basis of investigation show cause notices have been issued to the above two parties, the dealers who issued invoices to these two parties. Show cause notices were also issued in respect of some brokers who facilitated transaction between the dealers and the manufacturers and the manufacturers and the ultimate users proposing penalties. The notices were also issued to concerned Directors of some companies, partners and proprietors of some firms proposing imposition of the penalties.

(e)     Commissioner vide impugned order has demanded duty, imposed penalties on various persons and the details are as follows :

(1)     Against, M/s. Kay Iron Works (Jorian) Pvt. Ltd., Yamunanagar, he confirmed the demand of CENVAT credit of Rs. 1,95,98,046/- relating to the period 2000-2001 to 2005-2006 under Rule 12 of the Cenvat Credit Rules 2001/2002 read with Rule 14 of Cenvat Credit Rules 2004 read with Section 11A of the Central Excise Act, 1944 along with interest; imposed a penalty of Rs. 1,95,98,046/-; adjusted an amount of Rs. 58,04,836/- (rupees fifty eight lakhs four thousand eight hundred thirty six only) already deposited by them is appropriated against this demand.

(2)     Against, M/s. United Chain Industries, Yamunanagar, he confirmed the demand of CENVAT credit of Rs. 1,32,04,657/- relating to the period 2000-2001 to 2005-2006 under Rule 12 of the Cenvat Credit Rules 2001/2002 read with Rule 14 of Cenvat Credit Rules 2004 read with Section 11A of the Central Excise Act, 1944 along with interest; imposed a penalty of Rs. 1,32,04,657/- adjusted an amount of Rs. 8,28,586/- already deposited by them is appropriated against this demand.

(3)     Penalties under clause (b) read with clause (d) of sub-rule (1) of rule 25 of the Central Excise Rules, 2001/2002 have been imposed on the registered dealers as detailed below :

Note : M/s. Royal Industries India, M/s. Radhika Enterprises, M/s. Royal Enterprises and M/s. Mahavir Enterprises are not in appeal before us. (4) Penalties under Rule 26 of the Central Excise Rules, 2001/2002 have been imposed on the persons as detailed below :

Note: M/s. Shyam Roadlines is not in appeal before us.

4.1 Learned Advocate Shri Prabhat Kumar appearing for the manufacturers namely, United Chain Industries, Kay Iron Works and their Director Shri Praveen Chandra submits the following.

(a)     The appellant’s companies have received only invoices without receiving the inputs as held by the Commissioner; they have not manufactured any goods using those inputs; they have only prepared accounts as if finished goods were manufactured and issued invoices to the ultimate users who have taken Cenvat credit based on the invoices issued by them; some of the ultimate users having been in the exempted sector have not utilised the credit by the time the investigations were commenced. The ultimate users who have utilised the Cenvat Credit have gone to the Settlement Commission and settled their cases. The appellant-companies namely M/s. United Chain Industries and M/s. Kay Iron Works have also been penalised by the Settlement Commission as a co-noticees.

(b)     There is no manufacture involved on the part of M/s. United Chain Industries and M/s. Kay Iron Works; as no manufacture is involved the question of levy of any excise duty in terms of Section 3 of the Central Excise Act does not arise; when there is no duty involved the question of recovery of interest and imposition of any penalty under 11 AC does not arise.

(c)     The entire scheme involving the dealers, manufacturers and the ultimate users was to enable availment of credit wrongly by the ultimate users. Since duty stands demanded from the ultimate users which stands settled by them before the Settlement Commission, the order of demand from the manufacturers will amount to recovery of duty for the second time which is not permissible.

(d)    In the case of Kay Iron Works they received invoices and took credit of Rs. 1.96 crores and passed on credit of about Rs. 83 lakhs to exempted units which were not utilised and in respect of the balance amount the recipient of the invoices, namely, ultimate users have paid a sum of Rs. 97.53 lakhs.

(e)     In respect of United Chain Industries the eight parties (except Bhupender Steel Pvt. Ltd.) have settled the dues. The appellants have deposited a sum of Rs. 58 lakhs during the course of investigation.

(f)      In support of his submissions, he relies on the following decisions :

(i)      Steel Tubes of India Ltd. v. C.C.E. - (Tri.-L.B.)

(ii)     C.C.E., Indore v. Avanti LPG India Ltd. - (Tri.-Del.)

(iii)    Mohindra Enterprises v. C.C.E., Jalandhar - (Tri.-Del.)

(iv)    Saboo Berlac Ltd. v. C.C.E., Chandigarh - (Tri.-Del.)

(v)     Kallatra Abbas Haji v. Government of India - (Ker).

(vi)    Bhagwati Trading Company v. C.C.E., Delhi-IV - (Tri.-Del.)

(vii)   S.K. Colombowala v. C.C.E. (Import), Mumbai - (Tri.-Mumbai)

4.2 Learned Advocate Shri Rajesh Kumar appearing for M/s. Vijay Enterprises, M/s. Anuj Enterprises, M/s. Pawan Steel and M/s. Rajat Enterprises made the following submissions :

(a)     The appellants are registered dealers; they have merely issued invoices; they have not dealt with the inputs mentioned in the invoices; therefore, penal action under Rule 26 cannot be taken against the appellants.

(b)     He relies on the decision of the Larger Bench in the case of Steel Tubes of India Ltd. reported in (Tri.-LB) where it has been held where an assessee is only issuing invoices wherein there is no moment of goods, they cannot be visited with penalty under Rule 209A.

(c)     He also submits that Rule 26 was amended by issue of Notification 8/2007-C.E. (N.T.), dated 1-3-07 by inserting Rule 26(2) which is as follows :

“(b)   After sub-rule (1) as so re-numbered, the following sub-rule shall be inserted, namely :-

(2)      Any person, who issues-

(i)         An excise duty invoices without delivery of the goods specified therein or abets in making such invoices 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.”

4.3 Learned Advocate Ms. Seema Jain appearing for Shri Rupesh Bansal, Vee Aar Steels, Bhagawati Trading Co., Shri Vishal Arora, Om Iron & Steel and Ayushi Steel Co. P. Ltd. made the following additional submissions :

(a)     The erstwhile Rule 173Q (i) (bbb) provided for penalty if any manufacturer, producer, registered person of a warehouse or a registered dealer “enters wilfully any wrong or incorrect particulars in the invoice issued for the excisable goods dealt by him with intent to facilitate the buyer to avail of credit of the duty of excise in respect of such goods which is not permissible under these rules”.

(b)     Central Excise Rules, 2002 did not have similar provisions till Rule 26 was amended by Notification No. 8/2007-C.E. (N.T.), dated 1-3-2007 by inserting similar provision under Rule 26.

4.4 Shri Suresh Agarwal appearing for M/s. V.K. Enterprises and Shri Vinod Goel submitted that Shri Vinod Goel is proprietor of M/s. V.K. Enterprises. A penalty of 38,85,471/- has been imposed on M/s. V.K. Enterprises and separate penalty of Rs. 5 lakhs has been imposed on the proprietor. He submits that the proprietary concern and the proprietor have not dealt with the goods and therefore, no penalty is imposable. At any rate, no separate penalty is warranted on the firm as well as the proprietor. He seeks setting aside the penalty imposed on the firm.

4.5 Shri Kamaljeet Singh, Advocate for appellants Pasondia Steel Profiles and Shri Yashpal Sharma submits that Rule 209A or Rule 26 is not attracted on brokers and manufacturers.

4.6 Shri Alok Arora appearing for appellants Shri Vijay Goel submits that Rule 26 is not attracted on the brokers who have not physically dealt with the goods.

4.7 Advocate appearing for appellants M/s. J.V. Steel Traders, Shri Arun Ghai, Director and Bhupendra Steel P. Ltd. adopts the submissions made on behalf of the dealers by other Advocates.

5. On behalf of the appellants referred in para 4.2 to 4.7, the Advocates submitted the following decisions :

(i)      Rashtriya Ispat Nigam Ltd. v. C.C.E., Visakhapatnam - (Tri.-Bang.)

(ii)    Arora Products v. Addl. Commr. of C. Ex. - (Raj.)

(iii)   Pearl Polymers Ltd. v. C.C.E., Raigad - (Tri.-Mumbai)

6. Learned Jt. CDR Shri B.K. Singh and learned SDRs Shri P.K. Singh and Shri K.P. Singh took us through the relevant portions of the order of the Commissioner and made the following submissions :

(a)     The registered dealers have dealt with the excisable goods on which credit has been taken. The action of these dealers in diverting the goods to grey market and still passing on credit by issue of cenvatable invoices have rendered the said diverted goods liable for confiscation. The penalty on them under rule 25 of the Central Excise Rules is fully justified.

(b)     M/s. United Chain Industries and Kay Iron Works have irregularly taken credit based on only invoices received from the registered dealers and a manufacturer and without receiving goods mentioned in the said invoices. The credit so taken has been utilised by them towards payment of duty on the capital goods cleared by them. Since they have taken credit on the inputs and utilised the same irregularly, the order for recovery of the said amount of credit is fully justified. Whether the person who has received the invoices and taken credit has utilised or the same is lying in balance is altogether a different matter and has no relevance to their liability to pay back the credit taken and availed by them. The penalty imposed is also justified.

(c)     The possession is not a necessary ingredient to come to a conclusion that a person has dealt with the goods. He relies on the decision of the Hon’ble Supreme Court in the case of Sachidananda Banerjee, ACC, Calcutta v. Sitaram Agarwal reported in (S.C.) in which the expression “in any way concerned in any manner dealing with prohibited goods”.

(d)    Learned DR also relies on the decision of the Tribunal in the case of Dr. Writers Food Product - Order No. A/200-201/WZB/09/EB/CI dated 4-6-09 [ (Tribunal - Mumbai)] which after relying on the judgment in the case of Sachidananda Banerjee cited supra and distinguishing the decision in the case of Steel Tubes India Ltd. cited supra held that a person cannot be given relief from penalty merely because he did not physicaly) deal with goods removed clandestinely, without payment of duties.

(e)     He submits that the decision in S.K. Colombowala v. C.C.E. (Import), Mumbai - (Tri.-Mumbai) related to different parties to the same show cause notice and therefore concerned in the same case. The settlement of cases by the ultimate users relate to different cases arising out of different show cause notices and there fore the said decision can not be applied to the facts of this case.

7. We have carefully considered the submissions from both sides.

Following issues arise for consideration :

(a)     Whether the duty paid goods procured by the dealers can be treated as excisable goods?

(b)     What is the meaning of dealing in goods? What is the scope of the expression dealing in the goods “in any other manner”? For holding that a person has dealt with the goods, whether possession by him is a must? Whether the dealers who, after diverting the goods on which credit was taken, have issued the invoices without supplying the goods mentioned in the invoices can be held to have dealt with the goods? Whether issue of invoices for the purpose of passing on Cenvat credit can be treated as dealing with the goods “in any other manner”?

(c)     When the duty paid goods are disposed of in the grey market and invoices are raised enabling the manufacturers to take credit, whether provisions of Rule 25 can be invoked and penalty imposed against the persons (i.e. the dealers and manufacturer) who issued such invoices?

(d)    Whether persons who are registered as manufacturers and who are receiving Cenvatable invoices and showing production and clearances using such Cenvat credit can be treated as manufacturer and the duty of Central Excise on the goods said to have been cleared can be demanded from them?

(e)     Whether persons who are registered as manufacturers and who are receiving Cenvatable invoices and showing production and clearances using such Cenvat credit was liable to pay back the credit so taken and utilised?

(f)      Whether invoices issued without supply of goods valid documents for taking and passing on Cenvat credit of duty? If the invoices are invalid what are the consequences in respect of credit taken, passed on and utilised by different persons in the chain till the ultimate user of the credit?

(g)     What is the impact on earlier transactions, when the ultimate user of Cenvat credit has admitted irregular taking of credit and settled their cases before the Settlement Commission? Whether, because of payment of duty by the ultimate users, the duty payable by manufacturers at earlier stages could be held as not payable or waived?

(h)    Whether penalties can be imposed on Directors, partners, proprietors under Rule 26 in respect of their role prior to amendment carried out in Rule 26 vide Notification 8/2007-C.E. (N.T.) with effect from 1-3-2007.

8. A submission has been made that once central excise duty has been paid the goods can not considered as excisable goods and the obligation in respect of excisable goods can not be applied. This overlooks the definition of excisable goods which reads as follows :

“excisable goods” means goods specified in the First Schedule and the Second Schedule to the Central Excise Act, 1985 as subject to a duty of excise and includes salt.

It also overlooks the fact that the validity of credit taken depends upon use of the inputs in the manufacture of final product; after credit is taken on the duty paid excisable goods, the law creates additional obligation of accounting of the goods in respect of on which credit has been taken. The goods on which credit was taken but not accounted is liable for confiscation in terms of Rule 15 of Cenvat Credit Rules.

8. The decision of this Single Member Bench of the Tribunal in the case of C.C.E., Indore v. Avanti LPG India Ltd. has been relied upon to claim that raw materials received after due discharge of duty cannot come under the category of excisable goods and provision of Rule 209(1)(b) cannot be invoked on the goods confiscated. The said decision has been given in the absence of evidence demonstrating the capacity of the party that they failed in their obligation under Rule 209(1)(b). Similarly the decision in the case of Mahindra Enterprises cited supra was rendered after taking note of the fact that the party was not working under Modvat scheme and no credit was not availed and therefore, the goods found excess should not be treated as excisable goods liable for confiscation.

8.1 To appreciate the legal issues raised in proper perspective, it would be appropriate to recollect certain salient features of the cenvat scheme. The scheme is aimed at avoiding cascading effect of taxes by allowing credit of duty paid at input stage; the credit scheme which was available in respect of duty paid inputs has been extended to duty paid capital goods and latter to service tax paid on input services. (9.3) The cenvat credit is credit given of duty paid by the manufacturer at earlier stages. In other words, this represents the actual duty paid by the manufacturer of excisable goods which has already reached the government accounts. When credit is allowed, it is a kind of return/release of amount already paid at the earlier stages usable only in the manner specified. When a cenvatable invoice is received along with goods, and the credit taken, the credit becomes available as if cash drawn from the money already deposited into the account of the government. When the manufacturer is permitted to use such credit towards duty payable on the final products cleared by them, he is required to pay a lesser amount in cash and utilise the credit taken by him of duty paid by the supplier on. the inputs. The duty payable by the manufacturer of final products will be generally more than the credit taken by him. There are provisions when the credit lying in the cenvat account is permitted as cash refund in a situation when the manufacturer is not able to utilise the credit due to exports under bond by him.

8.2 Every manufacturer, especially the small scale units may not be able to procure the inputs directly from the manufacturer of the inputs and avail the cenvat benefit. The dealers, who were in the chain of distribution, were permitted to register themselves with excise authorities and issue cenvatable invoices while selling duty paid goods. For the purpose of distributing credit, the first stage dealers and second stage dealers have been introduced and they were permitted to register and pass on the credit while selling the goods to the actual manufacturer who will be using duty paid inputs. These dealers are permitted to pass on credit, to the buyer of goods, proportionate to the duty paid on goods supplied by them. (9.1)The role of the registered dealer, in the context of Cenvat Scheme, can also be to be analysed at this stage. The dealer need not be the manufacturer or the consumer. The first stage dealer receives the goods from the manufacturer or from other approved persons/premises under cover of invoice; he pays the price and the excise duty involved to the manufacturer in addition to other levies like sales tax, octroi; he takes the cenvat credit of duty paid by the manufacturer. Once the credit of duty paid by the manufacturer of excisable goods was taken by the dealer he is under the obligation to account the goods on which cenvat credit has been taken by him and which credit he intends to pass on to the second stage dealer or to the manufacturer.

8.3 The role of the dealer, as is commonly understood is that he is the link between the manufacturer/producer and the consumer. The dealer buys the goods from the manufacturer or producer; he pays the price and the excise duty, if any, on the goods involved in addition to other levies like sales tax, octroi and also bears other charges like freight. When he sells the goods he is expected to issue invoices for amounts which include the price/ paid by him, taxes borne by him, the expenses incurred by him and his margin and to recover all these amounts from the buyers.

8.4.1 The dealers in the context of Central Excise Law have some additional role to play and are required to fulfil certain obligations. Under the Central Excise Act, and the Central Excise Rules, the terms “wholesale dealer”, “first stage dealer” and “ second stage dealer” have been defined which may be reproduced. As per Section 2(k) of Central Excise Act, the term “wholesale dealer” is defined as follows:

“Wholesale dealer” means “a person who buys or sells excisable goods whole sale for the purpose of trade or manufacture, and includes a broker or commission agent who in addition to making contracts for sale or purchase of excisable goods for others, stocks such goods belonging to others as an agent for the purpose of sale.”

8.4.2 It should be noted that broker and commission agent have also been included under the category of wholesale dealers.

8.4.3 As per Section 6 of the Central Excise Act

“ any prescribed person who is engaged in-

(a) ............

(b) the wholesale purchase or sale......

shall get himself registered with the proper officer in such manner as prescribed.”

8.4.4 Rule 9 of the Central Excise Rules inter alia provides for the registration of persons engaged in trade subject to such conditions safeguards and procedure as may be specified by notification by the Board.

8.4.5 In the context of Cenvat Credit scheme, the terms “the first stage dealer” and “second stage dealer” have been defined as follows :

“First stage dealer” means a dealer, who purchases the goods directly from,

(i)      the manufacturer under cover of invoice issued in terms of an invoice issued in terms of the provisions of Central Excise Rules or from the depot of the said manufacturer, or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or

(ii)     An importer or from the depot of an importer or from the premises of the consignment of the importer, under cover of an invoice. ‘‘Second stage dealer” means a dealer who purchases the goods from a first stage dealer.

9.1 The registered dealers, thus, have specific roles and obligations in the context of Cenvat Scheme. The role of the dealers, thus, include procurement of duty paid inputs along with duty paying documents; maintaining accounts of receipt and storage and disposal of the inputs; while selling the goods to second stage dealers/or manufacturers issue cenvat invoices to pass on proportionate credit to the buyers relating to the goods sold to them. The role of the second stage dealers is similar; while selling the goods by the second stage dealers to manufacturers, they are required to issue cenvat invoices to pass on proportionate credit to the buyers relating to the goods sold to them.

9.2 As per Rule 11(7) of Central Excise Rules, the provisions relating to removal of excisable goods under invoice shall apply mutatutis mutantis to the goods supplied by a first stage dealer or a second stage dealer. Rule 9(8) of Cenvat Credit Rules envisage that -

“a first stage dealer or a second stage dealer, as the case may be, shall submit within fifteen days from the close of the quarter of a year to the Superintendent of Central Excise, a return in the form specified, by notification, by the Board.”

9.3 The dealers were not registered with excise authorities to deal in cenvatable invoices but to deal in duty paid excisable goods and, in the process, to issue cenvatable invoices while selling the said duty paid goods. The dealers are required to buy duty paid goods from the manufacturer along with duty paying documents and take credit. When the registered dealer issues invoices enabling the buyer to take credit, it goes without saying that the goods have to be supplied.

10.1 The role of the dealers in not supplying the goods and, at the same time, issuing of cenvatable invoices is a fraud committed on the Revenue. It is not the case of the dealers who have taken credit, that there was no purchase of duty paid goods by them. The duty paid goods, in this has admittedly, originated from SAIL. If the duty paid inputs were purchased and no credit was taken, then the obligation for accounting receipt and disposal for central excise purposes may not be strict. Having purchased the inputs (whether by the manufacturer or by dealer) and having taken credit in their cenvat accounts, they cannot escape from their statutory obligation “to account for the goods”. “To account for the goods” does not merely mean making entries in their book of accounts as receipt but to account for its disposal. The person to whom they invoiced having not received the goods, the persons who have issued cenvatable invoices have concealed the direction and destination and actual disposal of the goods on which they took cenvat credit and passed it on further.

10.2 If as a first stage dealer, he received the invoices only from the manufacturer or the godown/branch office of the manufacturer and he did not receive the goods, he was not entitled to take the credit. The important conditions which have to be fulfilled for taking the credit are that the duty paid goods should be received and the duty paying documents should also be received and both the conditions should be fulfilled before taking the credit. It should be remembered that inputs may emanate from exempted sector, in which case mere receipt of the goods will not entitle the recipient to credit. If any one of these conditions is not fulfilled, the dealer is not entitled to take the credit.

10.3 Once he is not entitled to take the credit, he is not entitled to pass on the credit. The role of the dealer issuing invoices without supplying the goods, receiving money in cheque and returning the same to the receiver of the invoices after retaining dealer’s commission is a fraud played on the exchequer. The issue of invoice by the dealer and passing on the credit to the manufacturer/second stage dealer is the “invisible foundation” for the edifice of evasion. The dealer who has taken the registration solely for the purpose of dealing in with excisable goods and passing on credit is having the knowledge of the implication of issuing cenvatable invoices. When such a dealer has issued invoices without actually supplying the goods, the intention to evade duty by the buyer of the invoices from him is evident. Without actually supplying the goods and by merely supplying the invoice, when the dealer has received the commission of 3% it is out of cenvat credit which is sought to be availed by the recipient of the invoices. It is a case of looting the treasury and sharing the booty by the dealers, the brokers and the procurers of invoices who actually utilised the credit. They have worked at tandem and in unison knowingly and with intention to evade the duty.

10.4 The submission that the supplier of goods is not concerned as to what the manufacturer does with the goods supplied by the dealer is a proposition which cannot be doubted. This applies to a bona fide supplier of goods. However, when the registered dealers have merely supplied the invoices enabling the recipient of said invoices to take the benefit of cenvat credit, the same have been undertaken with a view to unlawfully avail and utilise cenvat credit by the recipient of the invoices.

10.5 The first stage dealers have admittedly received from SAIL stock yards CR coils/HR coils along with invoices indicating duty payments on the said goods. The goods are excisable and the duty has been paid on the goods at the hands of SAIL are not in dispute. Shri Mugesh Garg of M/s. J V Steel Traders has clearly admitted the materials were sold in cash to various parties from SAIL stock yard itself. Similarly, Shri Yashpal Sharme DGM of M/s. Pasnodia Steel Profiles has also clearly admitted that the materials purchased and lifted from SAIL stock yard were sent to cutters where the same was sold in cash to different parties. Thus they have purchased and sold the excisable goods and hence dealt with the goods. There is a continuing obligation to account for the goods on which the credit taken. The diverted goods are liable for confiscation as credit has been taken by them with out using the goods for the intended purpose; they have rendered themselves liable for penal action.

10.6 The first stage dealers have made entries in the stock registers, took credit; prepared invoices in relation to goods which have already been diverted; prepared or got prepared transport documents; received payments in respect of the said diverted goods; in the process they passed on the credit of duty paid by SAIL in respect of goods for which they prepared the invoices; they received commission as a percentage of value of the goods. No doubt that it may be true that they have not carried the goods as head loads, over the shoulders. Whatever they have done was in relation to duty paid goods on which credits have been taken and in respect of which they have a clear obligation to account for its disposal in the manner prescribed in the statutory Rules. It was not a child’s play that they were carrying on. The position of the second stage dealers are not significantly different as they have also dealt with the goods and taken their commission and based on the credit to ultimate customers who have availed the credit of duty paid by SAIL.

11. A submission has been made that the parties to whom M/s. United Chain Industries and Kay Iron Works have supplied invoices have admitted their availing the Cenvat credit irregularly and got their cases settled before the Settlement Commission and these two parties were also penalised as co-noticees. As the said ultimate users have paid duty, the demand of duty from them will amount to duplication of demand from both parties. This submission is not acceptable. M/s. United Chain Industries and Kay Iron Works have admittedly received invoices for inputs from registered dealers/registered manufacturers and taken Cenvat credit irregularly and utilised the said credit towards payment of duty on their final products which are capital goods. The ultimate users have been demanded duty on account of irregular availment of credit on the said capital goods. The demand from these two appellants are towards the irregular credit availed on the inputs received by them. It is not a case that M/s. United Chain Industries and Kay Iron Works supplied invoices for the very same inputs which they have received from others. The demand from ultimate users being relatable to totally different products the question adjustment of their payment towards payment due from these two parties does not arise. Further, the cause of action in respect of these two parties is prior in point of time and even if duty is demanded on account of fraud committed by these two parties, the credit of duty so demanded cannot be passed on to the buyers of the inputs from them. One irregularity cannot be allowed to be regularised by a subsequent irregularity.

12.1 The registered dealers have issued invoices for inputs namely HR coils and CR coils based on which M/s. United Chain Industries and Kay Iron Works have taken credit. The goods have admittedly not been supplied by the said dealers to M/s. United Chain Industries and Kay Iron Works. This is confirmed by the dealers who supplied the invoices, the evidence from the transporters, the admission by representatives of M/s. United Chain Industries and Kay Iron Works. Only on behalf of the registered-manufacturer, M/s. Bhupendra Steels Pvt. Ltd., it was submitted that they supplied not only invoices but also the goods mentioned in the said invoices. However, major discrepancies in the transport documents were noticed; they contained registration numbers of auto rickshaw and jeep which were not capable of carrying the quantity of materials shown in the invoices. The recipients as per documents denied having received the materials. The transporters have also denied transporting the goods from M/s. Bhupendra Steels Pvt. Ltd. Therefore, the finding of the Commissioner that the said M/s. Bhupendra Steels Pvt. Ltd. has also not supplied the goods mentioned in the invoices and supplied only the invoices has to be upheld. The documents issued by these dealers/manufacturers without supply of goods are clearly invalid documents and no credit could have been passed through such documents and no such credit should have been taken by M/s. United Chain Industries and Kay Iron Works.

12.2 rule 25 of the Central Excise Rules, is attracted in respect of wide range of activities as it provides for penal action on

“any 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 reason to believe are liable for confiscation.”

For selling or purchasing of any goods, the physical possession or transport is not a must. The registered dealers have clearly dealt with the duty paid goods procured from SAIL on which credit has been taken by M/s. United Chain Industries and Kay Iron Works. The action of the registered dealers in having diverted the said goods, have rendered the said goods liable for confiscation. The role of M/s. Bhupendra Steels (P) Ltd. is identical to that of the dealers. They are, therefore, liable for penalty under rule 25 of the Central Excise Rules, 2002.

13.1 The registered dealers have acted as intermediary in transfer of credit of duty paid on the inputs sold by the SAIL. However, the role of M/s. United Chain Industries and M/s. Kay Iron Works are entirely different from that of the registered dealers. Like the dealers, they have also played a role in diversion of the duty paid goods on which credit was passed by the dealers by accepting invoices without the goods and taking credit. Thus they have availed the credit of duty paid on HR coils/CR coils on the basis of ineligible documents; they have also utilised the credit for payment of duty towards capital goods which have been shown as sold by them. The credit utilised for a product which was different from the input, looses the identity as credit as duty paid in the inputs as such payments are in the nature of duty paid by them. Their claim that there was no manufacturing activity by them and therefore, they are not manufacturers; that they are only dealers in respect of the impugned invoices is not acceptable. When a manufacturer issues invoices of his final product to the buyer of the said final product, he passes on the duty paid on the final product and not the CENVAT credit that he had taken on the inputs (raw materials) which were earlier received in this factory.

13.2 The credit taken by the ultimate users are, thus, the credit of duty paid by these two manufacturers. It is also claimed that in some cases, the invoices were given to units availing small scale exemption and they have not utilised the credit and therefore no revenue loss to that extent. The entire benefit of irregular Cenvat credit has gone only to the ultimate users. The Revenue loss was equivalent to the credit taken and utilised by the ultimate users.

13.3 It was also submitted that substantial recovery has already been made from the beneficiaries who have availed the credit, no recovery to that extent should be ordered from them. The offence at each stage has to be considered separately. The offences by the ultimate users are arising out of irregular credit of duty paid by these two manufacturers. Separate show cause notices were issued to such ultimate buyers of M/s. United Chain Industries and M/s. Kay Iron Works. These ultimate buyers have approached the Hon’ble Settlement Commission with respect to such separate show cause notices issued to them and not in pursuance to the instant show cause notice. The penalty on M/s. United Chain Industries and M/s. Kay Iron Works as supplier of invoices to the ultimate users is in relation to abetment of offences committed by the ultimate users. The show cause notices issued to other parties pertain to violations committed by them and are not subject matter of the present proceedings. One fraud cannot rectify the other and each needs to be visited separately by the legal consequences. The consequences of offences arising out of actions/omissions by M/s. United Chain Industries and M/s. Kay Iron Works cannot be mitigated by subsequent offences by others and the decision in respect of such offences.

13.4 In respect of M/s. United Chain Industries and M/s. Kay Iron Works, the credit taken by them is irregular; the utilisation is irregular and the consequences as per Rule 14 and 15 of Cenvat Credit Rules to follow. The credit taken and availed has been rightly demanded from them; and penalties have been rightly imposed on them.

13.5 There is a grievance expressed on behalf of M/s. United Chain Industries and M/s. Kay Iron Works that when there is demand of duty from M/s. United Chain Industries and M/s. Kay Iron Works and imposition of penalties, the other persons in the links, dealers, have only been imposed penalties. The dealers have merely passed on the credit but they have not utilised the credit and hence they were held liable for penalty and the question of demand of duty from them did not arise. However, as already held, M/s. United Chain Industries and M/s. Kay Iron Works, who also utilised the credit for payment of duty on their final products, stand on a different footing from the dealers.

14.1 Several registered dealers, registered manufacturers, were issued show cause notices; however, only in respect of some cases the persons such as Director, partner or proprietor or an employee have been issued with the show cause notices and separate penalties have been imposed in addition to penalties imposed on the company, partnership firm and proprietary concern.

14.2 Separate penalties have been imposed on the appellants namely, Shri Rupesh Bansal, proprietor in M/s. Bhagwati Trading Company. Vishal Arora, Proprietor in M/s. Vee Aar Steels, Vinod Goel, Proprietor of M/s. Vee Kay Enterprises, under Rule 26 of the Central Excise Rules. It is settled law that any proprietary concern is not different from the proprietor. Since penalties have been imposed on the proprietary concerns namely, M/s. Bhagwati Trading Company, M/s. Vee Aar Steels, and M/s. Vee Kay Enterprises, under Rule 25, the question of separate penalties on the proprietors under Rule 26 of the Central Excise Rules does not arise.

14.3 Penalties have been imposed on the appellants Shri Satpal Singh, the broker and commission agent, and Shri Vijay Goel under Rule 26 of the Central Excise Rules. Unlike the dealers, the brokers have dealt with the goods only as a link between the buyer and the seller of the goods. They were not required to Register themselves with Excise authorities and no violation of any obligation on their part has been cited. Therefore, we are of the view that role of the brokers may not attract the provisions Rule 26, before the amendment.

14.4 Penalties have been imposed on other appellants namely, S/Shri Praveen Chandra, Director in M/s. Kay Iron Works (Jorian) Pvt. Ltd., Yash Pal Sharma, DGM in M/s. Pasondia Steel Profiles and Arun Ghai, Director of M/s. Bhupendra Steels (P) Ltd. under Rule 26 of the Central Excise Rules.

Prior to amendment Rule 26 provided for imposition of penalty on “any person” who acquires possession of, or 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 or liable to confiscation under the Act or these rules”. The roles of these persons are in relation to the dealing in the goods as discussed earlier. The submission that there was no provision similar to 173Q (bbb) in the Central Excise Rules, 2002 till the amendment by Notification 8/2007-C.E. (N.T.), dated 1-3-2007 is true. Provisions enabling imposition of penalty on any person issuing invoice/document without of delivery of goods or abetting in making such documents has been specifically inserted in Rule 26 with effect from 1-3-2007 as Rule 26(2). With this amendment issue of invoices, without any goods being involved, to enable taking credit by the recipient of such invoices are also covered. When the goods are dealt with, as in the present case, then the provision under unamended Rule 26 (i.e. Rule 26(1) in the present form) shall have application even before amendment with effect from 1-3-2007. Penalty on these persons under Rule 26 before amendment is sustainable. As we have already held that these persons were concerned in dealing with the goods with the knowledge that the diverted goods were liable for confiscation, they are liable for penalty. However, considering the entire facts and circumstances into account and also taking in to account that penalties have been imposed on the companies and firms, we are of the opinion that there is scope for reducing the penalties imposed on these persons.

15. There could be no dispute on the proposition that the penal statute cannot be applied retrospectively. In respect of persons whose activities are clearly covered by the provisions of Rule 25, the penalties are imposable under the said Section. As regards penalty imposed on the persons under Rule 26, as their role is covered under unamended Rule 26 (i.e. 26(1) in the present form), even before the amendment, the penalties on these persons are sustainable. Therefore, it is not a case of retrospective application of penal provision.

16.1 The reliance is being placed on the decision of the Larger Bench in the case of Steel Tubes of India Ltd. reported in (Tri.-L.B.). In the said decision it has been held that the assessee was only issuing invoices and there was no moment of goods, and therefore they cannot be visited with penalty under Rule 209A. The said decision of the Tribunal relies on the Judgment of the Hon’ble High Court of Bombay in the case of Jayanthilal Thakkar and Company reported at (Bom.) = (Bom.) in which it was held that the Chartreded Accountant and the Law firm could not be held to have dealt with the goods “in any other manner” attracting the provisions of Rule 209A of the Central Excise Rules. From the facts disclosed in the order, there is no indication as to whether there were any goods at all involved, whether there was payment of sale consideration or there was any commission involved. The findings of the Tribunal in the said case that a person can not transport without taking possession are unexceptionable. But the taking over of physical possession in respect of other activities like purchase or sale is not always necessary. Let us consider a case of an import by an India based importer who sells the goods imported by him on high sea sale basis; the orders for import could be placed with out even seeing the goods; the goods could be transported by ships and sale takes place on high sea sale basis. In such cases, the party who sells on high sea sale basis has purchased and sold but he has not taken possession or transported. It is a common knowledge that there are similar situations in domestic transactions of selling or purchasing. A Delhi based trader may order a consignment in Mumbai, but may transfer the consignment by sale to a party in Chennai and he may not take physical possession or be concerned about transporting.

16.2 The reliance has been placed on the extract from principles of statutory interpretation by Justice G.P. Singh, regarding retrospective operation of penal statutes and a submission was made that Rule of construction against retro activity of penal loss is not restricted to acts providing for criminal offences but applies also to laws which provides for other penal consequences of a severe nature. As we have held that the action of these two manufacturers appellants attract the provisions of Rule 14 and 15 of Cenvat Credit Rules read with Section 11AC, there is no retrospective application of penal provisions in their case. Similarly, as we have held that in respect of registered dealers, the rule 25 of the Central Excise Rules is applicable there is no retrospective application of penal provision in respect of such dealers.

16.3 The reliance placed on the decision of the Hon’ble High Court of Kerala in Kallatra Abbas Haji cited supra relating to non-reliability of retracted confession of co-accused is not relevant as in the facts of the present cases the registered dealers , the transporters, the two manufacturers and the ultimate users have corroborated version of each other. The other evidence like banking transaction also corroborated the submissions of these parties.

17. In respect of some of the appellants submissions have been made that principles of natural justice have not been complied with as cross-examination of certain persons have not been granted. In the totality of facts and circumstances of the case, where all the concerned parties like registered dealers, brokers, transporters, manufacturers and ultimate users admitting their role in the fraudulent activities which are corroborated by documents and other circumstances including payment of substantial amounts of money during investigation by different parties, these submissions are devoid of merits.

18. From the above, the following emerges :

(a)     The term excisable goods has been defined as goods mentioned in the Schedules to the Central Excise Act, 1985 as subject to excise duty. The inputs involved in the present cases are clearly excisable goods and there is obligation of accounting the receipt, storage and disposal goods in the manner prescribed is cast on the persons who have taken Cenvat credit. In view of this the term should include excisable goods on which the registered dealers/manufacturers have taken Cenvat credit.

(b)     The first stage dealers have purchased, from SAIL stock yard, the duty paid goods and sold the said goods with out raising invoices, in the grey market on cash basis; they have shown the goods as if received in their registered premises; made entries in the stock registers; took credit; prepared invoices in relation to goods which have already been diverted; prepared or got prepared transport documents; received payments in respect of the said diverted goods; in the process they passed on the credit of duty paid by SAIL. In respect of the second stage dealers, situation is identical as in the case of the first stage dealers except that they have shown purchase from first stage dealers the duty paid goods. Possession of the goods is no doubt a must for the purpose of transporting. However, possession is not a must for dealing otherwise in the goods like purchase or sales.

(c)     There is also a clear obligation on the part of any registered dealers who have purchased the excisable goods and taken credit and passed on the credit to the manufacturer of final products not to act in any way which is prejudicial to utilisation of the input for the intended purpose.

There is also a continuing obligation to account for the goods on which the credit was taken and passed on. The goods have moved in an undisclosed direction and financial transactions have been fraudulently made to avail and utilise ineligible credit. There is a clear obligation on the part of any manufacturer who has received the excisable goods and taken credit to utilise the same for the intended purpose. Thus, the obligation is on the manufacturer/registered dealer to account for the goods on which the credit has been taken and that the said obligation is a continuing obligation even when the credit is transferred through the dealers.

(d)    The registered dealers have clearly dealt with the duty paid goods on which credit has been taken by the ultimate users. The action of the registered dealers in having diverted the said goods, have rendered the said goods liable for confiscation. Having diverted the goods and having taken credit and having passed on the credit, the registered dealers have by their action rendered the goods so diverted liable for confiscation; they have also rendered themselves liable for penal action.

(e)     The documents issued by these dealers/manufacturers without supply of goods are clearly invalid documents and no credit can be passed through such documents and no such credit can be taken by the recipients.

(f)      United Chain Industries and Kay Iron Works, having availed the credit in respect of inputs namely, HR coils and CR coils and having utilised the same towards payment of duty on capital goods, the credit so taken being irregular the same is recoverable from them along with interest. They are also liable for penalty under sub-rule (2) of Rule 13 of the Cenvat Credit Rules, 2001/2002, under sub-rule (2) of Rule 15 of the Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. Their liability to duty and penalty is unaffected by the subsequent events relating to the “ultimate users” including their settling the cases before the Settlement Commission, as the offences by the ultimate users are separate from the offences of these parties.

19. In the light of the above, the appeals are disposed of as follows :

(a)     The appeals by M/s. United Chain Industries and M/s. Kay Iron Works are rejected.

(b)     The appeals by M/s. V.K. Enterprises, M/s. Vijay Enterprises, M/s. Anuj Enterprises, M/s. Pavvan Steels. M/s. Rajat Enterprises. M/s. J.V. Steel Traders, M/s. Pasondia Steel Profiles, M/s. Vee Aar Steels, M/s. Bhagwati Trading Company, M/s. Om Iron & Steel, M/s. Ayushi Steels Co. Pvt. Ltd. and M/s. Bhupendra Steels (P) Ltd. are rejected.

(c)     The appeals by Shri Rupesh Bansal, Proprietor in M/s. Bhagwati Trading Company, Vishal Arora, Proprietor in M/s. Vee Aar Steels, Vinod Goel, Proprietor of M/s. Vee Kay Enterprises, Vijay Goel, (broker) Satpal Singh (broker and commission agent) are allowed.

(d)    The appeals of, S/Shri Praveen Chandra, Director in M/s. Kay Iron Works (Jorian) Pvt. Ltd., Yash Pal Sharma, DGM in M/s. Pasondia Steel Profiles and Arun Ghai, Director of M/s. Bhupendra Steels (P) Ltd. are partly allowed. The penalty imposed on Shri Praveen Chandra is reduced from Rs. 50 lakhs to Rs. 5,00,000/- (Rupees Five lakh only), the penalty imposed on Yash Pal Sharma is reduced from Rs. One lakh to Rs. 50,000/- (Rupees Fifty thousand only); the penalty imposed on Shri Arun Ghai is reduced from Rs. 5 lakhs to Rs. 1,50,000/- (Rupees One lakh fifty thousand only).

20. Stay petitions are also disposed of.