CESTAT Upholds Rs. 9.56 Crore Excise Demand due to Fraudulent Refund Claims and Cenvat Credit Misuse [Read Order]

The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has upheld an excise duty demand of Rs. 9.56 crore against M/s. Koolmint Manufacturing Company and M/s. Kaizen Organics Pvt. Ltd., along with penalties, due to fraudulent refund claims and misuse of Cenvat credit.

The department received an intelligence report that M/s. Koolmint Manufacturing Company, a manufacturer of methanol oil, methanol flakes, and demethanolised oil (DMO), was misusing the benefits of Notification No. 32/99-CE, which provided exemptions for manufacturers in the Northeast.

The department noted that Koolmint was not manufacturing the goods but was instead over-invoicing and paying excise duty to claim cash refunds. The company was accused of passing on irregular Cenvat credit to its customer, M/s. Kaizen Organics Pvt. Ltd., a Jaipur-based firm that used the goods as inputs for its own production.

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Investigations revealed that Koolmint had cleared nearly 99% of its goods to Kaizen, but there was no evidence of actual transportation of raw materials or finished goods. The department found that Koolmint had inflated the assessable value of its products by including transportation costs, which were later reimbursed by the Assam government under its industrial policy.

It is to be noted that Koolmint had issued credit notes for quantity discounts to Kaizen, which were not declared to the authorities, further inflating the duty refund claims. The department also discovered that Koolmint had limited infrastructure and resources to manufacture the claimed quantities of goods, and the electricity consumption records did not support the alleged production levels.

The adjudicating authority imposed a duty liability of Rs. 9.56 crore on Koolmint under Section 11D of the Central Excise Act, along with an equal penalty under Section 11AC. Kaizen Organics was also held liable for recovering Cenvat credit of Rs. 95.57 lakh, along with interest and penalties. The authority found that the entire scheme was orchestrated by the proprietors of Koolmint and Kaizen, who were father and son, to defraud the government by claiming undue refunds and passing on ineligible Cenvat credit.

It was contended by the appellants that they had filed regular returns and received refunds and that the department could not raise demands for recovery of duty or erroneous refunds without reviewing the refund orders under Section 35E of the Central Excise Act.

CESTAT noted that the appellants had manipulated records, forged documents, and suppressed facts to claim refunds and Cenvat credit. The tribunal found that Koolmint did not have the necessary infrastructure or manpower to manufacture the claimed quantities of goods, and the electricity consumption data did not support the alleged production levels.

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CESTAT held that the appellants had deliberately defrauded the government by misusing the exemption notification and passing on ineligible Cenvat credit.

The bench upheld the duty demand of Rs. 9.56 crore and the penalties imposed by the adjudicating authority, stating that the appellants' actions were a clear case of fraud, suppression, and misdeclaration.

The CESTAT, comprising R. Muralidhar (Judicial Member) and Rajeev Tandon (Technical Member), dismissed the appeal filed by the appellants.

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M/s. Kaizen Organics Pvt. Ltd vs M/s. Commissioner of Central Excise & Service Tax , 2025 TAXSCAN (CESTAT) 220 , Excise Appeal No.70828 of 2013 , 11/12/2024 , Shri Pulak Saha & Shri Joydeb Bhattachariya , Shri B. K. Singh