Excise Duty Evasion and Fraudulent Cenvat Credit Availment: CESTAT upholds Penalty [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) upheld the penalty imposed against Excise Duty Evasion findings of a manufacturing company.

The appeals arose from an order by the Commissioner of Central Excise and Service Tax, Guwahati dated March 15, 2013, which found the appellants guilty of misusing excise exemption notifications meant for promoting industry in the North-East.

The core allegation was that Koolmint Manufacturing Company and Kaizen Organics Pvt. Ltd., companies owned and run by the appellants, created a façade of large-scale production and fictitious movement of goods to unjustly claim Cenvat credits and refunds totaling several crores of rupees.

M/s Koolmint Manufacturing Company, a producer of menthol oil/flakes and demethylated oil (DMO), claimed excise duty exemption under Notification No. 32/99-CE dated 8 July 1999. The department, acting on intelligence, suspected that Koolmint was misusing this exemption scheme by not actually manufacturing the goods in its factory and instead fabricating records.

Almost 99% of its clearances went to M/s Kaizen Organics Pvt. Ltd., Jaipur, which used Koolmint’s invoices to avail Cenvat credit on inputs.

Authorities found irregularities with the transportation of raw materials and finished goods, noting that the invoices did not show transport costs separately despite claims that the sale was on FOB/FOR basis. Instead, Koolmint had included transportation charges in the assessable value, which inflated the duty paid and the corresponding refund claim. Its proprietor, Suresh Bajoria, admitted that transport costs were built into invoice values and treated as expenses in the books.

Further, from April 2003 to October 2004, Koolmint issued credit notes as “quantity discounts” amounting to over ₹2.18 crore. These were not disclosed to the department, leading to inflated assessable values and excess duty payments that were later claimed back as refunds. The limited resources and infrastructure at Koolmint’s factory were also inconsistent with the large-scale production shown in records, suggesting fabrication of stock and clearance data.

The department concluded that Koolmint had manipulated valuation, transport, and production records to fraudulently claim duty refunds amounting to about ₹40.99 lakh. It was also alleged that by this method, ineligible Cenvat credit was passed to Kaizen Organics. As a result, Koolmint was charged with deliberate misdeclaration, suppression of facts, and fraud with intent to evade duty, and a show cause notice was issued under the extended limitation period of Section 11A(1) proviso of the Central Excise Act, 1944.

The order also imposes penalties of varying amounts under the provisions of the statute, both on M/s Kaizen Organics Private Limited, as well as the third appellant, Shri Vikas Bajoria, the proprietor of the said firm.

The bench of R. Muralidhar, Member (Judicial) and Rajeev Tandon, Member (Technical) noted that, “From the aforesaid, the plethora of evidence gathered and the diversity and variety thereof, it is clear that the revenue has gathered enough circumstantial evidence as discussed in forgoing paras to assert that the appellant Koolmint Manufacturing Company, did not actually involve itself at the given premises into any manufacturing activity for the production of finished goods. It is settled law that the department is not required to prove its case of non production and fudging of records to claim undue fiscal benefits, by way of mathematical precision and mere preponderance of probability in such circumstances would suffice to nail the dot. The balance of convenience clearly flows in favour of the assertions made by the department.”

It was thus noted that, “In view of what has been stated in forgoing paras it automatically flows that the goods said to be manufactured were not manufactured, there being no requisite infrastructure to undertake said manufacture, the appellant could not have collected any duty in terms of section 3 of the Central Excise Act and the amount so collected is clearly recoverable from the appellant.”

The Tribunal delivered a scathing assessment, stating the case rested on “manipulated and forged records...suppression, misstatement and deceit of gigantic proportions.” It rejected all defenses about limitation, regular return submission, and unawareness, reminding that fraud “vitiates everything,” and neither procedural technicalities nor regular filings could shield the perpetrators.

Thus, the Tribunal confirmed demands of ₹95.6 lakh in duty recovery plus equal penalty under Section 11D and 11AC of the Central Excise Act, dismissed all appeals, and upheld penalties on the appellants.

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