Penalty under Rule 26 of the Central Excise Rules, 2002, is attracted when a person knowingly facilitates the availment of fraudulent CENVAT credit by issuing excise invoices without the physical delivery of goods, especially where lack of infrastructure renders the purported manufacturing activity commercially non-viable.

ORDER: [PER SHRI K. ANPAZHAKAN]

The present appeal has been filed by Shri Krishna Gopal Rathi, Director of M/s. Rathi Steel Industries Pvt. Ltd., 27, Brabourne Road, 7th Floor, 704, Kolkata – 700 001, against the imposition of penalty of Rs.10,00,000/- under Rule 26 of the Central Excise Rules, 2002 vide the Order-in-Original No. 80/JC/CE/DGP/2016-17 dated 30.12.2016, which has been upheld by the Ld. Commissioner (Appeals), Goods & Service Tax, Siliguri in the Order-in-Appeal No. 198-200/DGP-CEX/2018 dated 15.03.2018.

2. The facts of the case are that M/s. Rathi Steels Industries Pvt. Ltd., Godown No. 4, P.T.R. Siding, Coal Depot, Shalimar, Shibpur, Howrah-711 102 having Central Excise Registration No. AABCR2848HXD001 is a registered Dealer under the jurisdiction of Range-II, Howrah South-1 Division, Kolkata-II Commissionerate. They are engaged in supplying of "TMT Bar Cutting/MS Round Cutting" purchased from various manufacturers and passing on CENVAT Credit involved therein.

3. During investigation of the documents of M/s Rathi Steel Industries Pvt. Ltd., it has been noticed that the said supplier has been issuing Excise invoices describing the goods as "TMT Bar Cutting/MS Round cutting" whereas they have shown to have purchased "TMT Bars/MS Round" from various manufacturers. It was alleged that they were receiving "TMT Bar/MS Round" and after cutting the same were sold to different buyers mentioning it in invoices as "TMT Bar Cutting/MS Round Cutting" but the Central Excise Tariff Sub-Heading 72141090 of "TMT Bar" and "TMT Bar cutting" was deliberately mentioned/retained in the invoices issued by M/s Rathi Steel Industries Ltd. so as to camouflage and to pass on CENVAT Credit fraudulently. It was also alleged that by cutting 'TMT Bars' into pieces, M/s Rathi Steel Industries Pvt. Ltd. have condemned a prime quality finished goods into waste and scrap which falls under different tariff sub heading under Central Excise Tariff Act, 1985; that in open market price of waste and scrap is always far less than the price of good quality 'TMT Bar' but surprisingly in this case of 'TMT Bar cutting' i.e. waste & scrap is higher than the price of 'TMT Bar'. As that time price of waste & scrap in open market was Rs. 8,000/- to Rs. 10,000/- per MT whereas M/s Shyam Sel& Power Ltd. have purchased 'TMT Bar Cutting' from M/s Rathi Steel Industries Pvt. Ltd. at Rs. 27,700/MT as evident from Invoice No. 941 Dated 16.01.2011 of M/s Rathi Steel Industries Pvt. Ltd. Further, it was also found that they have used the same as raw material to manufacture their finished goods i.e. MS Billet which they have sold at Rs. 22,935/MT. The investigating officers were of the view that a high value material like "TMT Bar Cutting" cannot be used as scrap/raw material by any prudent manufacturer for manufacturing a low value finished goods. Therefore, the above-mentioned transaction appeared to be fictitious and mere paper transaction as the same was commercially non-viable. An allegation was also levelled that this modus-operandi has been adopted only to facilitate the buyer/manufacturer to avail fake/paper credit. It was also noticed that the goods i.e. "TMT Bar/MS Round" are delivered to different buyers on the same day or after a day on receiving of "TMT Bar/MS Round" to the dealer’s i.e., M/s Rathi Steels Industries Pvt. Ltd. premises; that the dealer does not have adequate space or infrastructure and electric connection at their premises to cut such a huge quantum of TMT Bars in their premises within a very short time.

4. As per the statement of Shri Krishna Gopal Rathi,