CENVAT Credit was Denied as the Respondent was Beneficiary of Fake Invoices

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that the department was correct in disallowing the CENVAT credit to the company because it was a recipient of forged invoices.

The respondent was a manufacturer of M.S. ingots and bars who took advantage of CENVAT credit by alleging that the inputs were utilized in the final product. The department denied the claim, claiming that the credit had been utilized fraudulently on bogus invoices obtained before the items were received from the alleged producers and dealers.

Despite the fact that the invoices were issued fraudulently, the Commissioner (Appeals) granted relief to the respondent by ruling that they were not spurious or phoney, and that CENVAT credit received on the basis of such invoices is admissible.

“M/s Aditya Enterprises was not in existence; M/s Shree Ram Engineering & Casting was not a manufacturing unit and was engaged in the construction of residential apartments; and M/s Ganesh Udyog and M/s L.S. Construction were not found on the mentioned address,” CESTAT President Justice Dilip Gupta and Technical Member Mr. P V Subba Rao overruled the order of the first appellate authority. It has been proved that neither of these companies were engaged in the fabrication of goods, nor had they sold or cleared them, but rather had created invoices solely to pass CENVAT credit. It’s also difficult to believe the Commissioner (Appeals conclusion )’s that the respondent was not a party to the fictitious transactions. Because the respondent stood to benefit solely from the adoption of such a manner, the conclusion that the respondent had no role to play even though only invoices were received without the items is absurd. The respondent may have acquired raw materials for manufacturing purposes, but there is no evidence that the raw materials were purchased in conjunction with the invoices for which CENVAT credit was claimed. It was critical for the respondent to prove the procurement of such raw materials using invoices from the aforementioned firms.”

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