[Order per : Archana Wadhwa, Member (J), (for the Bench)]. - All the appeals are being disposed of by a common order as they arise out of same impugned order passed by the Commissioner, Central Excise, Noida. The challenge in the present appeals is to penalties imposed upon the various applicants in terms of provisions of Rule 26 of Central Excise Rules, 2001/2002 and Rule 13/15 of Cenvat Credit Rules, 2002/2004 as detailed below :-
| 1. | Shri Mukesh Garg | Rs.66,55,075/- | |
| 2. | Ms. Mamta Garg | Rs.47,80,983/- | |
| 3. | Shri Naveen Agarwal | Rs.13,33,321/- | |
| 4. | Ms. Aruna Agarwal | Rs.2,09,760/- |
2. Briefly discussed the facts of the case are that one M/s. Minda HUF Ltd. (herein referred to as HUF) was engaged in the manufacture of automobile locksets and was availing the benefit of Cenvat credit of duty paid on various inputs and capital goods. Inquiries were conducted and it was found that some of the firms, including the present applicants, were not having the facility to manufacture the inputs and were neither registered with Central Excise Department. They were only issuing invoices, without supply of goods or inputs, on the basis of which M/s. HUF was availing the credit. It is seen that M/s. HUF along with other three co-noticees approached the Settlement Commission who vide their order FO No. 555/CE/07(PB), dated 5-7-2007 appropriated the entire amount of Rs. 2,20,00,975/- paid by M/s. HUF along with payment of interest at the rate of 10%. Further, the said M/s. HUF along with the other co-appellants were granted full immunity from fine, penalty and prosecution.
3. The present appellants during the course of adjudication, pleaded before the Commissioner that inasmuch main appellant has not been imposed with any penalty and the other co-noticee placed upon the same platform, have also been granted immunity from fine and prosecution, the imposition of penalty upon them would be neither justified nor warranted. For the above proposition, they relied upon the Tribunal’s decision in the case of S.K. Colombowala v. CCE [ (Tri.)]. They also referred to various decision of the Tribunal wherein penalties imposed upon the co-noticee were set aside, where the dispute in respect of main noticee was settled by the Settlement Commission. However, Commissioner did not accept the above contention of the appellant and imposed penalties, as detailed above.
4. After hearing both the sides, duly represented by Shri Mayank Garg, learned advocate for the appellants and Ms. Shweta Bector, learned DR for the Revenue, we find that the short issue required to be decided is as to whether when the main noticee M/s. HUF have been granted immunity from imposition of penalty by the Settlement Commission, whether penalty can be imposed upon the present appellants, who are charged with colluding and abbeting M/s. HUF. The issue was considered in detail by the Tribunal in the case of S.K. Colombowala referred supra. It is seen that originally there was difference of opinion between two Members. Whereas Member Judicial by following the Hon’ble Supreme Court decision in the case of Union of India v. Onkar S. Kanwar [ (S.C.)] held that settlement of dispute by the main declarant under Kar Vivad Samadhan Scheme to operate full and final settlement in respect of all other persons. As it was held by the Hon’ble Supreme Court that abettor cannot be penalized more than the original importer, penalties on the co-noticee was set aside. The said order was differed by learned Member Technical who was of the view that since the Supreme Court decision in the case of Onkar S. Kanwar was in respect of Kar Vivad Samadhan Scheme, the same would not be applicable to settlement of dispute before the Settlement Commission. The third Member, resolved the said difference of opinion by observing as under :-
26. The points of difference are therefore, are answered as under : -
(a) While the provisions of KVS Scheme and those relating to settlement of cases under the Customs Act are not completely identical, the underlying objective in both the scheme is similar and it is for this reason that the case laws in respect of cases under KVSS including in the case of Onkar S. Kanwar do not become entirely irrelevant.
(b) The question as to who played the main role is irrelevant for the reason that once the case is settled by the Settlement Commission, it is settled in its entirety and such a case then cannot be adjudicated qua other co-noticees.
(c) The case against all co-noticees comes to an end. once the order of settlement is passed in respect of the person entitled to file an application before the Settlement Commission and therefore, penalty imposed upon the appellants cannot be sustained and is set aside.
(d) The order proposed by the Id. Member (Judicial) is endorsed. “
5. It is seen that the said orders were subsequently followed by the Tribunal, in the case of Pearl Polymers Ltd. v. CCE, Raigad [ (Tri-Mum)]. It was held that when the case is settled by the Settlement Commission in respect of main appellants, case against co-noticee also comes to an end. Penalty cannot be imposed upon the co-noticee for availment of ineligible credit especially when entire duty liability was deposited by the appellant. Similarly in the case of Vijay R Bohra v. CCE, Daman [ (Tri.-Ahmd.)], it was held that when the dispute is settled by Settlement Commission by reducing penalty on the manufacturing main unit, cases against all co-noticee regarding penalty would come to an end irrespective of the fact that Settlement Commission observed that its order was only in respect of main noticee. Further, in the case of Windoors (India) v. CCE, Mumbai [ (Tri- Mum)], it was held that order of settlement when passed in respect of main noticee, case against all co-noticee comes to an end. It was further observed that when the main noticee is granted immunity from fine, penalty and prosecution, imposition of penalty on the co-noticee cannot be sustained. In the case of Shitala Prasad Sharma v. CCE, Mumbai [ (Tri.-Mum.)], it was held that co-accused cannot be vested with any higher penal consequences when the main accused stands absolved of penal consequences, no question of imposition of penalty on the appellants co-accused can arise.
6. In the case of Radiant Silk Mills v. CCE, Jaipur [ (Tri.-Del.)], the entire case law on the subject was taken into consideration and it was held that in view of the majority order in the case of S.K. Colombowala, the penalties on the co-noticee have to be set aside.
7. Inasmuch as the main appellants had admittedly settled the dispute before the Settlement Commission and has not been vested with any penal liability, imposition of penalties on the present appellants, who are only charged with colliding and abeting the main appellant, is neither justified nor warranted and would be against the settled proposition of law in the above referred matters.
8. We find no fairness in the argument of learned DR that S.K. Colombowala decision could not be followed and the appellants’ appeal should be decided on merits, after considering their role in the entire bogus transaction. When the legal issues stand decided by the precedent decision of the Tribunal, and their being no contra decision, the same are required to be followed. Hon’ble Bombay High Court in the case of Tejus Proprietary Concern of Tejus Rohitkumar Kapadia v. Union of India reported at (Bom.) has observed that Tribunal is duty bound to follow the binding precedent and further observed that the CESTAT as a judicial body, must realize the importance of doctrine of precedent as in our legal system. Deference to judgements of the Supreme Court is a matter of constitutional principle. Equally unless Coordinate Benches of the Tribunal have due deference and regard for decisions rendered by the Tribunal, the elements of certainty and consistency in the judicial process which lie at the heart of judicial functioning would be seriously disrupted.
9. Before we part with the matter, we would like to observe that the stay order passed by the Tribunal directing the appellant to deposit 25% of the penalty was challenged before Delhi High Court and as reported in (Del.) by Mukesh Garg wherein the Hon’ble High Court has taken a serious note of the said directions and further taken into account the Tribunal’s decision in the case of S.K. Colombowala, Shitala Prasad Sharma and Pearl Polymers and prima facie held that appellants have a case in their favour and they were entitled to waiver of pre-deposit. Though we are aware that observations made at the time of interim stage cannot be held to be binding but admittedly the observations made by Hon’ble Delhi High Court, while setting aside the stay order, are carrying persuasive value. In any case, having discussed entire case law on the subject, we are of the view that penalties imposed upon all the appellants are required to be set aside. We order accordingly and allow all the appeals with consequential relief to the appellants.
(Pronounced in the open Court on.)
| Sd./- Archana Wadhwa Member (Judicial) |
[Order per : Manmohan Singh, Member (T)]. - I have gone through the draft order recorded by Hon’ble Member (Judicial) granting immunity from imposition of penalty to Ms. Mamta Garg, Shri Mukesh Garg, Ms. Aruna Aggarwal and Shri Naveen Agarwal following Tribunal’s order in the case of S.K. Colombowala v. CCE [ (Tri.)]. wherein it was held that where the dispute in respect of main noticee was settled by Settlement Commission, penalties on co-noticee were also to be set aside.
11. Facts involved in the case are described in Member (Judicial)’s draft order which are considered by me. Issue involved relates to availment of Cenvat credit on the strength of paper transactions without accompaniment of the goods resulting in credit being availed fraudulently in which main party M/s. Minda and other co-noticees have actively participated in completing the fraud.
12. I have further examined the facts and modus operandi followed and subsequent proceeding before Settlement Commission vis-a-vis legal provision of Settlement Commission and prevailing legal precedents etc. Para 2 and Para 3 of Member (Judicial) draft order are reproduced for easy reference
“Para 2. Briefly discussed the facts of the case are that one M/s. Minda HUF Ltd. (herein referred to as HUF) was engaged in the manufacture of automobile locksets and was availing the benefit of Cenvat credit of duty paid on various inputs and capital goods. Inquiries were conducted and it was found that the some of the firms, including the present applicants, were not having the facility to manufacture the inputs and were neither registered with Central Excise department. They were only issuing invoices, without supply of goods or inputs, on the basis of which M/s. HUF was availing the credit. It is seen that M/s. HUF along with other three co-noticee approached the Settlement Commission who vide their order FO No. 555/C.E./07/(PB), dated 5-7-2007 appropriated the entire amount of Rs. 2,20,00,975/- paid by M/s. HUF along with payment of interest at the rate of 10%. Further, the said M/s. HUF along with the other co-appellants were granted full immunity from fine, penalty and prosecution.
Para 3. The present appellants during the course of adjudication, pleaded before the Commissioner that inasmuch main appellant has not been imposed with any penalty and the other co-noticee placed upon the same platform, have also been granted immunity from fine and prosecution, the imposition of penalty upon them would be neither justified nor warranted. For the above proposition, they relied upon the Tribunal’s decisions in the case of S.K. Colombowala v. CCE [ (Tri.)]. They also referred to various decision of the Tribunal wherein penalties imposed upon the co-noticee were set aside, where the dispute in respect of main noticee was settled by the Settlement Commission. However, Commissioner did not accept the above contention of the appellant and imposed penalties, as detailed above.”
13. Four appellants namely Ms. Mamta Garg, (Proprietor of M/s. SRG Machines) w/o Shri Mukesh Garg, Nataji Subhas Nagar, Delhi Road, Modi Nagar, Ghaziabad, M/s. Mukesh Garg (Proprietor of M/s. Ajanta Enterprises and controlling affairs of M/s. Ratan Jyoti Enterprises and M/s. Meerut Steels), S/o Shri Sewa Ram Garg, Netaji Subhas Nagar, Delhi Road, Modi Nagar, Ghaziabad, Shri Naveen Agarwal (Proprietor of M/s. HSN Engineering and M/s. NPS Products), Ram Nagar, Modinagar, Ghaziabad, (U.P.), Ms. Aruna Agarwal w/o Shri Naveen Agarwal (Proprietor of M/s. Techno Engineers), Ram Nagar, Modinagar, Ghaziabad have come before Tribunal against Order-in-Original No. 34/AAYUKT/NOIDA/2008, dated 27-8-2008.
14. To appreciate the reason for differences being recorded, it is necessary to understand role of the parties in adjudication. It comes out from the fact that the so called suppliers of paper invoices did not consign goods but merely passed on papers to enable the user thereof to claim Cenvat credit at the cost of Revenue for their unjust enrichment, indulging in the fraudulent activity to deceive revenue. Actually all these co-noticees were independent perpetuators of fraud. Invoices were issued without existence of unit (in case of M/s. M.K, Tools, Ghaziabad), or unit said to have been located on invoice but not found and units held out to be engaged in manufacture of other items than described in paper invoices i.e. M/s. SRG Machines, Modinagar). In other case, supplier (M/s. Aianta Enterprises) was found to be manufacturer of wire but actually it issued invoices of automobiles locks which could not be produced. In case of a unit called M/s. Glass Plastics. Ghaziabad. no machine were found to have been installed. A Company in the name and style of M/s. Ashish alloys casting was found without electric connection. In HSN Engineering, though unit was found to have been engaged in the manufacture, it had no facility to manufacture specified parts of automobile lock/sets was not found. Same is the case with M/s. Meerut Steels, Modinagar and M/s. Vas Techno Engineers, Ghaziabad. M/s. Saoar Welding Electrodes, Modinagar’s partner Shri N.P. Gupta admitted that he never supplied any goods of MHL with the invoices.
15. Transport enquiry showed that there was no transportation of goods in vehicles shown to be used for the same. The vehicles were either non-existent or not capable of transporting the goods shown to have been dispatched by the supplier. That leads to the conclusion that the Noticee no. 5 to Noticee no. 20 were indulging in passing of the Cenvat credit issuing fake and bogus invoices enabling MHL to illegally enrich themselves at the cost of the exchequer by the extent of Cenvat credit taken on the strength of such bogus/fake invoices. They colluded and abetted with MHL to evade payment of Central Excise duty deliberately and defrauded Government passing on illegal Cenvat credit without manufacturing and supplying any goods mentioned in the fake invoices.
16. On the above factual background and on perusal of draft order and interpretation adopted by learned Judicial Member following Tribunal’s judgement in the case of S.K. Colombowala v. CCE (supra), to grant immunity to the racketeers of fraud, I am not in agreement with such proposal. Reliance was also placed by the learned Judicial Member on Supreme Court Judgment in the case of Onkar S. Kanwar [ (S.C.)]. Tribunal has no advantage reading the ratio laid down by Apex Court in the case of Natarajan v. State by Inspector of Poilce, SPE, CBI, ACB, Chennai - (S.C.) where it was held that immunity granted by the Court is confined to the party who carried the matter in controversy to that Court. Para 25 of the said judgment is reproduced for appreciation of the law as under :
“25. In the above case, the question was whether the immunity granted under the KVSS 1998 could also cover proceedings under the Kerala Sales Tax Act in respect of the same assessee. The learned Judges again referred in paragraph 15 to Sushila Rani’s case as also to Hiralal’s case and more particularly to the observations made in paragraphs 18 and 27, which we have already quoted above. The learned Judges then proceeded to hold that Hiralal’s case was distinguished in Sashi Balasubramanian’s case (cited supra) and held that the transfer of application of Salex Tax Act would not be covered by the immunity under KVSS, 1998. This Court in paragraph 33 observed as under :
“33....an immunity is granted only in respect of offences purported to have been committed under direct tax enactment or indirect tax enactment, but by no stretch of imagination, the same would be granted in respect of offences under the Prevention of Corruption Act. A person may commit several offences under different Acts; immunity granted in relation to one Act would not mean that immunity granted would automatically extend to others. By way of example, we may notice that a person may be prosecuted for commission of an offence in relation to property under the Penal Code as also under another Act, say for example, the Prevention of Corruption Act, Whereas charges under the Prevention of Corruption Act may fail, no sanction having been accorded therefore, the charges under the Penal Code would not.”
Thus this Court accepted the principle that the Immunity could not cover certain other offences than those covered in direct and indirect tax enactments. The Court also accepted that the immunity could not be granted to any other person automatically merely it was granted to a tax-payer who had made declaration under Section 88 of the Finance Act.
17. Reliance was placed on Supreme Court judgment in the case of Onkar S. Kanwar [ (S.C.)] by Hon’ble Tribunal without appreciation of the principle laid down in that judgment. Hon’ble Court repelling the arguments of the assessee that once immunity is granted to the company under Kar Vivad Scheme, that immunity is extended to its Directors, held in Para 12 of the judgment as under :-
11. Mr. Vellapally, on the other hand, submitted that only one show cause notice had been issued. He submitted that in the same show cause notice the Company was called upon to show cause why excise duty and penalty be not levied and the Directors/Officers were also called upon to show cause why penalty be not levied on them. He submitted that Section 91 of the Kar Vivad Samadhan Scheme makes it clear that on payment being made and a certificate being granted, immunity is granted against prosecution for any offence and from imposition of penalty. He submitted that once the Company settled under the said scheme, there was immunity in respect of the matter for which the show cause notice was issued. He submitted that penalty was sought to be imposed on the Director/Officers for the same matter in respect of which the show cause noticee had been issued on the Company. He submitted that once the Company got immunity in respect of that matter, nothing survived even against the Director/Officers.
12. We are unable to accept this submission. Under the Kar Vivad Samadhan Scheme there is no adjudication on the subject-matter of the demand notice or show cause notice. There is a settlement of the “tax arrears”. Even though the same show cause notice may call upon the Company and its Directors/Officers to show cause, there is a separate demand for “tax arrears” against the Company and a separate demand for “tax arrears” against the Director/Officers. Thus each entity/person would have to file a declaration separately. The settlement is in respect of each declaration. Section 91 only gives immunity in respect of matters covered in the declaration. The matter covered in the declaration by the company is the “tax arrears” of the Company. The declaration by the Company admittedly does not cover the tax arrears of the Directors/Officers. Thus they get no immunity under Section 91 on a settlement by the Company.
18. Thus law is well-settled to limit the relief granted to a party only who was before the Court but to no one else as has been reiterated by Constitution Bench in Mafatlal Industries Ltd. v. UOI - (S.C.) Para 99 (iv) of the said judgment laying down the principle reads as under :
“(iv) It is not open to any person to make a refund claim on the basis of a decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/Tribunal in another person’s case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment of levy has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such assessment/order on the ground of a decision in another person’s case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation Act, 1962, has no application to such a claim for refund”. [Emphasis supplied]
19. Hon’ble High Court of Punjab & Haryana too in the case of M/s. Vee Kay Enterprises v. C.C.E. reported in (P & H) held that penalty under Rule 26 ibid is imposable on Dealers of Cenvatable goods when only invoices are raised to pass on Cenvat Credit while no raw materials are supplied by the Dealers. The relevant para 10 of the judgment is reproduced for appreciation :
10. In spite of non-applicability of Rule 26(2), penalty could be levied as the appellant was concerned in selling or dealing with the goods which were liable to confiscation inasmuch as the appellant claimed to have sold the goods in respect of which the cenvat credit was taken. In such a case, Rule 25(l)(d) and 26(1) are also applicable. The person who purports to sell goods cannot say that he was not a person concerned with the selling of goods and merely issued invoice or that he did not contravene a provision relating to evasion of duty. The appellant issued invoices without delivery of goods with intent to enable evasion of duty to which effect a finding has been recorded and which finding has not been challenged. We are, thus, unable to hold that appellant was not liable to pay any penalty.
20. It is observed that in the present case relating to M/s. Minda and other co-noticees (other than employees of M/s. Minda as co-noticees before Settlement Commission) all manufacturers who issued paper invoices indulged in fraudulent preparations of invoices without actual manufacturers and subsequent passing on the credit. All these suppliers incurred distinct liability by each of them having indulged in fraudulent activities and were required to be before Settlement Commission separately. Following aforesaid principles of law relied upon by me, I am of considered view that decision of Tribunal in S.K. Colombowala was misplaced and per incurium. It may be said that Tribunal in the case of K.I. International v. Commissioner of Customs, Chennai, reported in (Tri.-Chennai), has rightly held that immunity granted to some specific noticees by the Settlement Commission cannot operate as an immunity to other co-noticees and that order of Settlement Commission were not binding on Tribunal to grant relief to persons who were not before the Settlement Commission. To reach to such conclusion, the Tribunal relied upon the decision of the Apex Court in Chengal Varayanaidu v. Jagannath as reported in AIR-1994-S.C.-853. Thus the decision in S.K. Colombowala v. Commissioner of Customs (Import), Mumbai 2007(220) E.L.T. 492 (Tri. Mum) does not hold the filed of law when considering various decisions, Hon’ble Supreme Court in the case of M. Natarajan v. State by Inspector of Police, SPE, CBI, ACB, Chennai (S.C.)
21. When a Single Member Bench of Tribunal at Chennai (noting the two conflicting decisions of S.K. Colombowala - (Tri. Mum) and K.I. International (Tri.-Chennai), referred the matter to Larger Bench as reported in Rajesh v. C.C. Tuticorin as reported in (T-Ch), the Larger Bench declined to answer stating that the decision in K.I. International is pending before Hon’ble High Court of Madras and returned the reference with an advice to the Single Bench to decide the issue on merits as reported in (Tri.- LB).
22. In view of above, I differ with findings and decision recorded by Hon’ble Member (Judicial) and hold that immunity cannot be extended to appellants who were not before Settlement Commission.
23. Once I have arrived at the findings that immunity cannot be extended to the four appellants namely Ms. Mamta Garg, M/s. Mukesh Garg, Shri Naveen Agarwal and Ms. Aruna Agarwal. It is also necessary to crystalise their role in perpetuating fraud of fraudulent passing of illegal credit on the strength of fake invoices. In this regard I have perused detailed and in depth findings recorded by adjudicating authority. Role of all these appellants is highlighted in para 15, para 16, para 17 and para 18. For easy reference, paras 16.1, 16.2 17.4, 17.5 17.6, 17.10, para 18 (relating to M/s. Techno Engineers, M/s. SRG Machines, M/s. Ajanata Enterprises, M/s. HSN, Engineering) are reproduced.
Para 16.1 It is to mention that M/s. Minda HUF Limited, Noida engaged in the manufacture of automobile lockers, falling under chapter 87 of CETA, 1985, were availing facility of Cenvat Credit of duty paid on various inputs and capital goods. They were obtaining these inputs and capital goods on regular basis from various suppliers as per their need and were availing Cenvat credit of duty amount involved on such items.
Para 16.2 During the course of inquiry, it came to notice that some firms are issuing Cenvatable invoices for various inputs needed by MHL but these firms are not having any facility to manufacture the products mentioned therein and are not registered with the Cenvat credit on the strength of invoices issued by these non-existent, fake suppliers without receiving any goods or inputs said to be covered under these documents, Accordingly, an enquiry was initiated to ascertain factual position by way of scrutiny of various documents resumed from their premises and statements of key functionaries of MHL were also recorded.
Para 17.4 In the case of M/s. S.R.G. Machines, Modinagar, the firm was found engaged in the production of steel wire and mails by using wire rod [purchased from SAIL] as raw material whereas on concerned invoices specification of the goods was found shown as automobile lock parts, which can not be manufactured by using raw material being purchased and used by them. Further, in the case of M/s. N P S Products, Modinagar the firm was found not having any production activity or any electric connection, M/s. Ajanta Enterprises was found engaged in the manufacture of wire by using wire rod mostly received from SAIL. No facility to manufacture goods covered under invoices issued by them was found M/s. Glass Plastic and Chem Industries was found running under two sheds were no machine was found installed. In the case of M/s. Ashish Alloy and Castings Pvt. Ltd., Ghaziabad, the unit was found manufacturing FRP sheets. As per manufacturing process of FRP it came to notice that facility of manufacture of goods namely automobile lock parts was not available there. M/s. FISN Engg., Ghaziabad was found engaged in the production of ‘wire’ by wire extrusion of M.S. Wire. Thus, the facility to manufacture the goods having specification shown to consigned to MFIL was not available with them. No manufacturing facility was noticed at M/s. Meerut Steels, Ghaziabad and at M/s. Vas Techno Engineers, Ghaziabad. Further, M/s. Sagar Welding Electrode, Modinagar were found engaged in the manufacture of wire drawn out of wire rod. In this context, I would like to mention statement of Shri Deeraj Singh dated 27-10-2006 and of Shri Madhav Srivatava dated 9-11-2006 and statement of Anil Kumar Maheshwari dated 15-11-2006 vide which Shri Maheshwari has provided details of items purchased from above said suppliers, but the said suppliers were not having such facility to manufacture said specific items. Thus, I am inclined to conclude that these firms were not having any facility to manufacture goods shown as supplied to MHIL, of which they have availed Cenvat credit.
Para 17.5 Some suppliers were not registered with the department. I find that the most of the above said firms were issuing central excise invoices without obtaining proper registration from the central Excise department as mentioned in first part of notice. Instead, they used fake registration number in the Cenvatable invoices.
Para 17.6 Non-receipt of the goods at the premises of MHL I find that as these suppliers were not having needed manufacturing facility and in most of the cases they were not registered with the department, it was concluded that MHL was using invoices issued by these non existent/fake firms to avail irregular Cenvat credit, I find that non-receipt of goods at MHL has been admitted by various key persons of MHL who were incharge for receipt of the goods, making entry thereof in the gate record, generation of internal record, payment, transportation of the goods, etc. I find that this observation made because of various statements of key functionaries is correct and forcefully depicts the modus operandi adopted in this case. I find that the above said suppliers were not a part of approved vendor list [Statement of Shri Hamendra Srivastava of MHL].
Para 17.10 Bank enquiries prove flow back of money. In this case it is noticed that the said Noticee(s) [S.No. 5 to S.No. 20] were engaged in returning the sale proceeds received from MHL through cheque in the account of their firms back to MHL after retaining meagre amount as commission, as they are not supplying any goods against their invoices, In the SCN it has been shown in detail that the said suppliers were instrumental in the withdrawal of sale proceeds in cash and return of the same to MHL after retaining their commission amount. The above said fact has been admitted by Shri Y.K. Parasher of M/s. G.S. Machines and Engg, Shri Suneel Kumar Gupta of M/s. A.S. Steels/M/s. S.S. Enterprises, Shri Dinesh Sharma of M/s. Krishana Machine Tools and Shri N.P Gupta of M/s. Sagar Welding Electric Stores. Similar transactions are also noticed in respect of such firms which failed to appear in compliance to summons issued in this regard. In most of the cases the same person was found withdrawing the amount on behalf of different suppliers. Thus, I observe that this well planned modus operandi was adopted only to avail fraudulent and wrong Cenvat credit in which these suppliers have placed a vital role.
Para 18.1 I further observe that statement of the persons related to these supplier firms were also recorded from time to time to ascertain factual position. In most of the cases, the concerned person already admitted non-dispatch of goods. Role of four appellants in compliance is depicted below :
(i) M/s. SRG Machines, Near Vishal Dharamkanta, Modinagar : (Owner - Ms. Mamta Garg)
The unit was found located in the given address but engaged in the manufacture of steel wire raw and iron recovered from MHL revealed that automobile lock parts having different specifications etc. Non-receipt of goods under the cover of the invoices issued by M/s. SRG Machines at MHL, is clear from the statement of various key officials of MHL, bank enquiries, transport enquiries.
(ii) M/s. Ajanta Enterprises, Near Vishal Dharmkanta Modinagar : (Owner - Shri Mukesh Garg )
The units found located in the given address was engaged in the manufacture of steel wire [by using wire rod mostly received from SAIL]. Shri Mukesh Garg, proprietor of the unit stated that this firm is engaged in manufacture of steel wire, wire products and fabrication of steel parts. He stated that the items shown consigned to MHL were made as per drawing supplied by MHL but he failed to produce any such drawing. However, when the facts stated by him thereof could not be manufactured through fabrication being specialized parts of automobile locks.
(iii) M/s. Techno Engineers, Netaji Subahash Nagar, Near Vishal Dharamkanta, Modinagar (Distt. Ghaziabad). (Owner Mrs. Aruna Aggarwal)
On verification, no unit in the name and style was found in existence of the given address. This unit, which was engaged in passing of fraudulent cenvat credit was owned by one Smt. Aruna Agarwal resident of Netaji Subhash Nagar, Near Vishal Dharamkanta, Modinagar. No specific address of Mrs. Aruna Agarwal was found. As per details of bank account of M/s. Techno Engineers, it was observed that Smt. Aruna Agarwal is wife of Shri Naveen Agarwal, who owns two other units namely M/s. HSN Engineering and M/s. NPS Products [also found engaged in issuance of fake invoices]. Further, non-receipt of goods under the cover of invoices at MHL issued by this firms, is also clear from statement of various key officials of MHL, bank enquiries, transport enquiries. Thus, it is clear that M/s. Techno Engineers aided and abetted MHL to avail Cenvat credit fraudulently, which comes to Rs. 2,09,760.00. [TABLE-V of show cause notice].
(iv) M/s. HSN Engineering, Ram Nagar, Suman Cinema, Sikri Kalan, Modinagar, Ghaziabad : (Owner - Shri Naveen Aggarwal)
The unit was found engaged in the manufacture of wire by way of extrusion of M.S. Wire rods. A machine used for wire drawing was also found installed in the factory. The unit has procured wire rod mostly from SAIL. However, facility to manufacture specified parts of automobile locksets as shown in their invoices consigned to MHL was not found there.
24. From the above whole scam of fraudulent activities is manifested causing subterfuge to the revenue resulting in royal thievery. It would be proper to cite the judgment of Hon’ble High Court of Rajasthan in the case of Rajesh Goyal v. Union of India - (Raj.) expressing anxiety over consequences of tax fraud in the following language.
Para 7 Albeit, leaned counsel for both the parties have argues ad longtum on mixed questions of law and fact, but here, we are confined merely to the adjudication of the instant bail petition. It is true that the alleged offence is non-cognizable and also compoundable as envisaged by Section 9A of the Act of 1944. It is also true that the offence is punishable with imprisonment for a term which may extend to seven years and with fine, but the amount of excise duty, the petitioner is found to have evaded, is undoubtedly large and shocking. It amounts to Rs. 338.25 lac. To my firm view, the act of the petitioner may be termed as ‘Royal Thievery’ which is opposed to both democracy and society order. Evading excise duty or tax which is required to be paid by the industrialists or businessmen, if not paid honestly by them is also an indirect from of corruption in this civilized society of democratic State. Such act of evasion of excise duty not only affects the economy of the State but destroy the cultural heritage also. Unless nipped in the bud at the earliest, it is likely to cause turbulence shaking of the socio-economic-political system in an otherwise healthy, wealthy, effective and vibrant society and ultimately, such excise duty or the tax evaders can create a parallel economy in the State which may pose a serious threat to the nation. In the present state of affairs, the economic offences are undoubtedly more grave in nature than those offences which are otherwise said to be grave.
25. As regards to imposition of penalty which is quasi criminal in nature considering the tax fraud engineered by the appellants they are no less than evaders causing serious threat to economy and also enriched at the cost of revenue, no imposition of penalty shall send a message to the society that evasion is rewarded with incentive. Judgment of Hon’ble High Court of Punjab & Haryana in the case of V.K. Enterprises as referred in previous paras is also relevant. Therefore, it is justified to uphold the penalties imposed by adjudicating authority in his adjudication order 34/Aayukt/Noida/2008, dated 27-8-2008.
25. Order accordingly.
| Sd./- Manmohan Singh Member (Technical) |
In view of our difference in decision as above, following question arise for reference to the Hon’ble President for appropriate order for which Registry is directed to place the records before him.
DIFFERENCE OF OPINION
Whether appeals of appellant shall be allowed as held by learned Member (Judicial)
OR
Whether appeals of appellant shall be dismissed as held by learned Member (Technical)
(Pronounced in the open Court on 24-2-2014)
| Sd./- Manmohan Singh Member (Technical) | Sd./- Archana Wadhwa Member (Judicial) |
26. [Order per : B. Ravichandran, Member (T)]. - These are four appeals arising out of order dated 27-8-2008 of Commissioner of Central Excise, Noida. The appeals were heard by Division Bench and on conclusion, a difference of opinion arose between the members. The said difference of opinion was referred to me for a resolution, as a third member.
27. The brief facts of the case are that the Central Excise officers conducted a certain investigation regarding loss of revenue due to misuse of Cenvat credit facilities. After a detailed investigation, proceedings were initiated against one, M/s. Minda HUF Ltd. engaged in the manufacture of automobile locksets and availing benefit of Cenvat credit duty paid on inputs. It was alleged that the said company has shown records for receipt of various duty paid inputs and availed credit without actually receiving the said inputs and using the same in the manufacture of final products. In other words, based on only invoices issued by the suppliers, the company availed credit, resulting in loss of revenue to the Government. Accordingly, show cause notice dated 12-2-2007 was issued to large number of persons including the four, who are in appeals now. M/s. Minda HUF Ltd. along with three other noticees approached the Settlement Commission. The Settlement Commission vide Final order dated 5-7-2007 appropriated duty of Rs. 2,20,00,975/- paid by the main applicant along with interest of 10%. Immunity was granted from fine, penalty and prosecution to the applicants, who approached the Settlement Commission.
28. The Original Authority proceeded to adjudicate the case in respect of 16 other noticees, who are not party to the settlement. He imposed penalties on each one of them in terms of Rule 26 of Central Excise Rules 2001/2002 read with Rule 13/Rule 15 of Cenvat Credit Rules 2002/2004. The four appellants involved in the present appeals were imposed with penalties as above on the ground that the evidences brought out during the investigation had established that the appellants either did not have any manufacturing facility for manufacture of the alleged inputs shown to have been sold to M/s. Minda HUF Ltd. or they do not exist in the given address. All the appellants found to have been issued invoices without supplying the goods. This enabled M/s. Minda HUF Ltd. to avail improper Cenvat credit.
29. On appeal, the Member (J) held that since the main noticee, M/s. Minda HUF have approached and have been granted immunity from penalty by the Settlement Commission, the penalties imposed on the appellants, as co-noticees, cannot be sustained. Reliance was placed on the decision of the Tribunal in S.K. Colombowala - (Tribunal-Mumbai). Accordingly, Member (J) held that the appeals are to be allowed. Member (T) recorded that the appellants issued only paper invoices without actual manufacture and clearance of goods. All these appellants, who are involved in such activities incurred distinct liabilities by their fraudulent act. The settlement and immunity granted to the person, who availed Cenvat credit fraudulently, cannot be automatically extended to the present appellants, though co-noticees in the same proceedings, as they are liable for penal action independently. He relies on the decision of the Tribunal in K.I. International - (T-Chennai). He accordingly held that the appellants are liable to penalty and the appeals are to be dismissed.
30. Before proceeding with the resolution of the difference of opinion, it has to be noted that the Member (J) found that the appeals are to be allowed only on the ground that the main notice obtained immunity from Settlement Commission. There is no decision or findings on the merit regarding correctness of the penalties imposed on the appellants. As such, I am presently dealing with only legal issue of availability of immunity from penalty for the co-noticees when the main noticee has settled the issue before the Settlement Commission. The merit or correctness and the penalty imposed on the appellant is not being examined now.
31. I have heard ld. Counsel for the appellant and ld. AR for the Revenue elaborately. I have also perused the appeal records including the written submissions and various case laws relied upon by both the sides.
32. To begin with, I note that the Member (J) as well as ld. Counsel for the appellants heavily relied on the decision of the Tribunal in S.K. Colombowala (supra). In the said case, the Tribunal was examining the liability to penalty of co- noticees when the main notice settled the case before the Settlement Commission. The issue involved was that the main notice was in possession of advance licence for duty free import of goods. The broker dealing with advance licence misrepresented to D.G.F.T. and thereafter huge duty free imports were made resulting in loss of revenue. When the proceedings were initiated, the main party along with Director approached the Settlement Commission and got immunity from penalty and prosecution. The Original Authority imposed penalties on the other noticees. It is to be noted that the case dealt with was one composite fraudulent act of misusing advance licence with fraudulent intent, in which certain individuals and CHA and its Director were also imposed with penalty. The Tribunal in S.K. Colombowala (supra) relied on the decision of the Hon’ble Supreme Court in Union of India v. Onkar S. Kanwar - (S.C.).
33. I have perused the said decision of the Hon’ble Supreme Court, para-14 of which clearly shows that the Hon’ble Supreme Court was specifically dealing with KVSS Scheme read with 8-12-1998 order of the Government and clarificatory note dated 16-12-1998 :-
“14. We have heard the parties. In our view, a reading of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order shows that where a declaration had been made in respect of a tax arrear and where in respect of the same matter a show cause notice had also been issued to any other person, then the settlement in favour of the declarant has to be deemed to be full and final in respect of other persons on whom show cause notices had been issued. It is settled law that when an appeal is pending there is no finality to the proceedings. The proceedings are then deemed to be continuing. Undoubtedly, at one place the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order seems does state that the show cause notice should be pending adjudication. However, the same order also talks of the show cause notice being in respect of same matter on which the show cause notice has been issued to the main declarant. Then the order provides that a settlement in favour of the declarant will be deemed to be full and final in respect of other persons also. This order has to be read as a whole. If read as a whole, it is clear that a settlement by the main declarant is to operate as full and final settlement in respect of all other persons on whom show cause notice was issued in respect of the same matter. Thus read as a whole the words “pending adjudication” cannot be read to exclude cases where the proceedings are still pending in appeal. Even otherwise the order has to be read along with the Kar Vivad Samadhan Scheme. Under the Kar Vivad Samadhan Scheme a party can file a declaration so long as the proceedings are pending. Thus, even though the show cause notice may have been adjudicated upon and an appeal is pending a party could still take the benefit of the Kar Vivad Samadhan Scheme and file a declaration. The object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order is to give benefit of a settlement by the main party (i.e. the Company in this case) to all other co-noticees. This being the object a classification, restricting the benefit only to cases where the show cause notice is pending adjudication, would be unreasonable. If read in this manner the order would be discriminatory. An interpretation which leads to discrimination must be avoided. An interpretation, as suggested by Mr. Ganesh, would also be against the object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order. It is therefore not possible to accept the submissions of Mr. Ganesh. In our view the reasoning given by the High Court of Kerala is correct and needs to be upheld.”
It is apparent that the KVSS scheme and the order issued by the Government clearly provided for settlement by the main declarant to operate as full and final settlement in respect of all other persons, on whom show cause notice was issued in respect of the same matter. Reliance on the said decision of the Hon’ble Supreme Court to hold that the settlement of case by the main noticee before the Settlement Commission in terms of Section 127 (J) of Customs Act, 1962 will conclude that the proceeding against all co-noticees is not legally sustainable. The Tribunal emphasised that the expression “case” refers to any proceedings under Customs Act or any other Act for assessment and collection of customs duty.
34. First of all, the reliance placed by the Tribunal in S.K. Colombowala (supra) on the decision of the Hon’ble Supreme Court in Onkar S. Kanwar (supra) is not appropriate as the issue dealt with is different in scope and application. The same is very clear from the findings of the Hon’ble Supreme Court reproduced above. Even otherwise, the term “co-noticee” cannot be interpreted in such a manner that all the persons, who received same show cause notice in a combined investigation, will automatically deemed to have been involved in one single case only. Such inference will be factually incorrect in many cases. It is not in-frequent that the investigations are conducted against many assessees and other parties in a combined operation involving same or different modus operandi. For convenience, a single show cause notice is issued to various assessees and other connected parties. If one such assessee approached Settlement Commission and settled the case, it does not mean that simply because of that various other assessees involved in the same investigation proceedings and issued with said notices will automatically get immunity. In this context, the term “co-noticee” has to be examined for the legal implications - are they party to the same single offending act or they are party to distinct offending acts, which can be penalized independently without even reference to the other person’s role. Examined in this angle, it is apparent that no summary conclusion that all co-noticees of a show cause-cum-demand notices will get immunity from penalty, if one of them gets the matter settled before the Settlement Commission. No such legal provisions are available in the Central Excise Act, 1944 or the rules made thereunder. In other words, no blanket immunity to all the noticees will automatically come into operation when one of the noticees, even if he is the main noticee, approaches and gets the matter settled before the Settlement Commission. It is necessary to examine the role of each of the noticees to appreciate whether they had committed an act, which, independently, is liable for penal action. If their act is directly linked to the main offence as part and parcel of the same offence or they are involved only in abetting the main offence, then they may be covered for immunity based on the ratio followed in S.K. Colombowala (supra). However, on examination, if it is found that any of the co-noticees, who did not approach the Settlement Commission, has committed an offence distinct and is liable for penalty to that offence, then automatic immunity cannot be extended to such co-noticee. Here, it may not be out of place to mention that the appellants in the present case were charged with offence of non-registration with the department, issuing documents showing duty payment without actual manufacture and clearance of goods, etc. Prima facie, these acts were separate and distinct liable for penal consequences. Accordingly, irrespective of the main noticee, who availed irregular Cenvat credit, getting immunity from Settlement Commission, the appellants herein cannot automatically get their penalty set aside on that ground alone. The merits of the case against the appellants are to be examined separately.
35. Section 32E of the Central Excise Act, 1944 deals with application for settlement of cases before the Settlement Commission. Section 31(c) defines the scope of term “case” which means any proceedings under this Act or any other Act for the levy, assessment and collection of excise duty pending before an Adjudicating Authority on the date, on which application under sub-Section (1) of Section 32E is made. As already noted, that the proceedings against the appellants are for imposing penalties for various contraventions of the provisions of Central Excise Law. It is not for assessment of duty payable by them. In other words, without there being a case of any short payment or non-payment by the main noticee in the present case, a case against the appellant will stand on its own, based on the allegations made. The merit of the allegations are to be decided in these appeals. To say that all the allegations against various parties in a single notice will abate once the main party gets matter settled, is not applicable in cases where there are distinct violations alleged for different noticees, though the investigation may be common. A reference can be made to the decision of the Hon’ble Supreme Court in the case of S.P. Chengalvaraya Naidu v. Jagannath and Others reported as (1994) 1 Supreme Court Cases 1 :-
“The principle of “finality of litigation” cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for importing justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal gains indefinitely. We have no hesitation to say that a person, whose case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation.”
36. The Hon’ble Bombay High Court in Yogesh Korani - (Bombay), as affirmed by the Hon’ble Supreme Court reported in (S.C.), held that when the penalty was levied on the petitioner based on the independent and distinct causes of action then they cannot be considered on par with the main noticee. The reliance placed by the ld. Counsel on S.K. Colombowala (supra) and various other decisions, which followed the same, can be distinguished by examining the allegations in notice and role of each person, who was served with the notice. If the cause of action and the offence involved is distinct and can be treated for penal action independently, then no immunity will be extended automatically to such co-noticee even if the main assessee gets the matter settled before the Settlement Commission.
37. Ld. Counsel also submits, briefly, regarding non-liability of the appellant for penalty on merits as already noted earlier in this order. Only the legal issue regarding immunity available to the co-noticee (here, “the four appellants”) has been examined in the present reference as there is no decision on merit recorded by the Division Bench.
38. In view of the above discussions and analysis, I hold that the appeals by the appellants cannot be allowed automatically on the ground that the main noticee got immunity from the Settlement Commission. The reference is answered accordingly.
[Order pronounced on 2-2-2017]
| Sd./- B. Ravichandran Member (Technical) |
INTERIM ORDER
39. As per the majority order, the present appeals are not to be allowed on the basis of immunity available to them on account of main noticee having settled the issue before the Settlement Commission and their liability to penal action is to be examined on the basis of merits of each case. As the same have not been discussed, the appeals may be listed for disposal on merits.
(Pronounced in the open Court on 15-2-2017)
| Sd./- B. Ravichandran Member (Technical) | Sd./- Archana Wadhwa Member (Judicial) |
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