Madras High Court
The Commissioner Of Central Gst & ... vs M/S.Sujana Metal Products Ltd on 18 February, 2021
CMA.Nos.588 to 592 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 18.02.2021
CORAM :
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Ms.Justice R.N.MANJULA
Civil Miscellaneous Appeal Nos.588 to 592 of 2018
The Commissioner of Central GST & Central Excise,
Chennai Outer, Newry Towers,
No.2054, I Block, II Avenue,
Anna Nagar, Chennai – 600 040. ...Appellant in all appeals
Vs
M/s.Sujana Metal Products Ltd.,
No.204/3-B, Manjakaranai Village,
Periapalayam Road,
Thiruvallur – 601201. ...Respondent in
C.M.A.No.588/2018
M/s.Endeavour Industries Ltd.,
505A NT Road, Balakrishnapuram,
Gummidipoondi,
Thiruvallur – 601201. ...Respondent in
C.M.A.No.589/2018
M/s.Victoria Steel Enterprises Ltd.,
Room No.6, Aishwarya Complex,
GNT Road, Tathchoor Road,
Ponneri, Thiruvallur – 601201. ...Respondent in
C.M.A.No.590/2018
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CMA.Nos.588 to 592 of 2018
M/s.Futuretech Industries Ltd.,
Sathyasai Complex,
3/185, Kavaraipetti,
Thiruvallur – 601201. ...Respondent in
C.M.A.No.591/2018
Sujana Metal Products Ltd.,
No.204/3-B, Manjakaranai Village,
Periapalayam Road,
Thiruvallur – 601201. ...Respondent in
C.M.A.No.592/2018
Civil Miscellaneous Appeals filed under Section 35G of Central Excise
Act, 1944 against the impugned order of the Hon'ble Tribunal in Final Order
Nos.40015 to 40020 of 2016 dated 05.01.2016 on the file of the Customs,
Excise & Service Tax Appellate Tribunal, Chennai.
For Appellant Mr.A.P.Srinivas
in all appeals : Senior Standing Counsel
For Respondent
in all appeals : Mr.G.Natarajan
COMMON JUDGMENT
(Delivered by T.S.Sivagnanam,J)
These appeals filed by the revenue under Section 35G of the Central
Excise Tax, 1944 [hereinafter referred to as “CST Act”] are directed against
the common order dated 05.01.2016 made in Final Order Nos.40015-
40020/2016 passed by the Customs, Excise & Service Tax Appellate
Tribunal, South Zonal Bench, Chennai ['the Tribunal' for brevity].
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CMA.Nos.588 to 592 of 2018
2.The appeals have been admitted on 12.04.2018 on the following
substantial questions of law:
“1.Whether the CESTAT is correct in reducing the
penalty levied under Rule 15(1) of the CENVAT Credit
Rules, 2004?
2.Whether the CESTAT is correct in reducing the
penalty imposed under Rule 26(2) (i) & (ii) of the Central
Excise Rules, 2002, when no discretion is provided in the
said Rule?
3.Whether the CESTAT is correct in upholding the
order of Adjudicating Authority and thereby holding that
the ineligible CENVAT Credit taken by the assessee is not
required to be reversed, when Rule 14 of the CENVAT
Credit Rules, 2004 mandates the same?”
3.We have elaborately heard Mr.A.P.Srinivas, learned Senior Standing
Counsel appearing for the appellant/revenue and Mr.G.Natarajan, learned
counsel appearing for the respondent/assessee.
4.Substantial Questions of Law Nos.1 and 2 are interconnected and
interlaced. The issue is whether the Tribunal was justified in interfering
with the order-in-original and reducing the penalty levied by the
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CMA.Nos.588 to 592 of 2018
adjudicating authority. The following table will show the details of the
penalty imposed and the reduced penalty as ordered by the Tribunal in the
impugned order:
S.No. Appeal No. Appellants Penalty Imposed Penalty Reduced to
(Rs.) (Rs.)
1. E/102/2010 Sujana Metal Products 1,00,00,000/- 25,00,000/-
Ltd. under Rule 15(i) of (Rupees Twenty
CCR 2004 Five Lakhs only)
2. E/105/2010 M/s.Victoria Steel 80,00,000/- 20,00,000/-
Enterprises Ltd. Rule 26(2)(i)(ii) of (Rupees Twenty
CER 2002 Lakhs only)
3. E/106/2010 M/s.Future Tech 50,00,000/- 12,50,000/-
Industries Ltd. Rule 26(2)(i)(ii) of (Rupees Twelve
CER 2002 Lakhs Fifty
thousand only)
4. E/103/2010 M/s.Endeavour 50,00,000/- 12,50,000/-
Industries Ltd. Rule 26(2)(i)(ii) of (Rupees Twelve
CER 2002 Lakhs Fifty
thousand only)
5.The question would be whether the Tribunal was justified in
reducing the penalty. We have carefully examined the factual position and
we are of the clear view that the transaction is a 'circular transaction'. It
may be a fact that the four entities, namely, M/s.Endeavour Industries
Limited, M/s.Future Tech Industries Limited, M/s.Victoria Steel Enterprises
Limited and M/s.Sujana Metal Products Limited though have availed credit,
did not utilize the credit to discharge any of their liability. There is another
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CMA.Nos.588 to 592 of 2018
entity, namely, M/s.Omnicron Bio-Genesis Industries Ltd., on which penalty
of Rs.2 lakhs was imposed by the original authority, but the Tribunal did not
interfere with the said amount and no reduction was made. Therefore, the
revenue has not preferred any appeal against the said assessee. It is no
doubt true that the Tribunal has got discretionary power to interfere with the
order of the adjudicating authority in the matter of reduction of the quantum
of penalty which has been imposed by the adjudicating authority. But,
however the exercise of discretion should be with sound reasons and cannot
be arbitrary or whimsical. On perusal of paragraph 9 of the impugned order
passed by the Tribunal, we find that the Tribunal has not assigned any
acceptable reasons as to why the penalty imposed on M/s.Endeavour
Industries Limited should be reduced from Rs.50 lakhs to Rs.12.50 lakhs,
on M/s.Future Tech Industries Limited should be reduced from
Rs.50,00,000/- to Rs.12,50,000/-, on M/s.Victoria Steel Enterprises Limited
should be reduced from Rs.80,00,000/- to Rs.20,00,000/- and on M/s.Sujana
Steel Products Ltd., should be reduced from Rs.1 Crore to Rs.25,00,000/-.
The only finding that the Tribunal has recorded in paragraph 9 of the
impugned order is that apparently there is no revenue loss to the
Department.
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CMA.Nos.588 to 592 of 2018
6.We do not agree with the said submission for more than one reason.
Firstly, the availment of credit by the five entities, namely, M/s.Endeavour
Industries Limited, M/s.Future Tech Industries Limited, M/s.Victoria Steel
Enterprises Limited, M/s.Omnicron Bio-Genesis Industries Ltd. and
M/s.Sujana Metal Products Limited was not authorized and illegal because
this credit was based on invoices without actual movement of goods. It may
be a fact that those five entities have not utilized the credit to discharge their
duty burden in respect of other transaction. But that cannot be the reason
for reduction of the penalty, especially when the amount which was availed
as credit remained with the five entities over a period of time until it was
reversed. Apart from that, the Tribunal would say that there is no revenue
loss because M/s.Sujana Metal Products Limited have reversed the credit,
that can hardly be a mitigating factor for reduction of penalty on the five
entities because those entities were well aware that the transaction was a
'circular transaction' and credit was availed on invoices without movement
of goods. Therefore, the exercise of discretion by the Tribunal for reduction
of penalty is perverse and unsustainable and accordingly, the same is set
aside. Consequently, Substantial Questions of law Nos.1 and 2 are
answered in favour of the revenue.
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CMA.Nos.588 to 592 of 2018
7.With regard to the Substantial Question of law No.3 is concerned,
the adjudicating authority has gone into the facts and has dropped the
proposal for recovery of CENVAT credit from M/s.Sujana Metal Products
Limited. The correctness of this decision was tested by the Tribunal and the
finding is in paragraph 11 which we quote herein below:
“11.As far as the Revenue's appeal, pleading for
demanding cenvat credit taken by the main appellant, we
find that issue is well dealt by the adjudicating authority
in his findings this circular chain of bill trading
transaction initiated by SMPL by using/adopting actual
credit balance of Rs.8,21,75,995/- available in their RS-
23A and RG-23D account and created cenvatable
invoices to three dealers mentioned above. The initial
credit debited by SMPL is not under dispute and the
department had admitted that appellant had sufficient
balance of credit in their accounts which is clearly
confirmed by the Superintendent's letter dated 17.11.2009
and 22.11.2009. Though the appellants have created the
documents by way of issuing documents and
subsequently taking the credit without receipt of the
goods, the appellants at the first instance have paid the
duty by debiting the cenvat account which was again
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CMA.Nos.588 to 592 of 2018
taken back by above paper transaction. Therefore, we do
not find any infirmity in the order of adjudicating
authority in so far as regularizing the credit and dropping
of recovery of credit. Accordingly, the Revenue's appeal
is rejected.”
8.Thus the factual position being that M/s.Sujana Metal Products
Limited having already reversed the credit of Rs.8,21,75,955/-, once more to
call upon them to reverse an equivalent amount would not be permissible in
law. Thus, we confirm the finding rendered by the Tribunal in paragraph 11
of the impugned order. Consequently, Substantial Question of law No.3 is
answered against the revenue.
9.In the result, the appeals are partly allowed, substantial questions of
law Nos.1 and 2 are answered in favour of the revenue and substantial
question of law No.3 is answered against the revenue. No costs.
(T.S.S.,J.) (R.N.M.,J.)
18.02.2021
Index: Yes/No
Internet:Yes/No
Speaking Judgment/Non speaking Judgment
cse
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CMA.Nos.588 to 592 of 2018
To
1.Customs, Excise & Service Tax
Appellate Tribunal,
South Zonal Bench, Chennai
2.The Commissioner of Central GST & Central Excise,
Chennai Outer, Newry Towers,
No.2054, I Block, II Avenue,
Anna Nagar, Chennai – 600 040.
https://www.mhc.tn.gov.in/judis/
CMA.Nos.588 to 592 of 2018
T.S.SIVAGNANAM,J
AND
R.N.MANJULA,J
cse
C.M.A.Nos.588 to 592 of 2018
18.02.2021
https://www.mhc.tn.gov.in/judis/
