2006 (12) TMI 328 - AT - Central Excise

Summary

Issues:
1. Denial of credit and imposition of penalty based on alleged non-receipt and disposal of inputs.
2. Duty of the appellant to demonstrate the use of inputs in manufacturing the final product.
3. Validity of the Commissioner (Appeals) decision regarding the non-receipt and disposal of inputs.

Analysis:
1. The appellant appealed against an order denying credit of Rs. 1,10,104/- and imposing a penalty of Rs. 25,000/- based on the allegation that inputs for which credit was claimed were not received. The Revenue contended that the inputs, MS ingots, were not useful for the appellant's manufacturing activities. However, the appellant argued that the impugned order exceeded the scope of the show cause notice as it did not specifically allege that the inputs were sold to other parties without duty payment or credit reversal, thus rendering the demand unsustainable.

2. The Revenue asserted that since the appellant was manufacturing wire drawing and rolling machine equipment, the MS ingots, for which credit was availed, were irrelevant. The appellant was required to demonstrate the utilization of these inputs in the production of the final goods. However, the appellant's defense focused on the lack of specific allegations in the show cause notice regarding the disposal of inputs to third parties without duty payment or credit reversal.

3. The show cause notice accused the appellant of availing credit for inputs not received in the factory, supported by a report from the RTO indicating discrepancies in vehicle numbers on invoices. The Commissioner (Appeals) acknowledged that the RTO report alone was insufficient to prove non-receipt of goods and that the quantity of inputs claimed did not align with the appellant's manufacturing requirements. The Commissioner (Appeals) concluded that the inputs might have been sold to other parties, a point not raised in the show cause notice. Consequently, the Tribunal found the impugned order to be beyond the notice's scope, leading to the reversal of the credit denial and penalty imposition.

In conclusion, the Tribunal allowed the appeal, setting aside the denial of credit and penalty imposition, emphasizing the importance of aligning the allegations in the show cause notice with the grounds for decision to ensure procedural fairness and legal validity in tax disputes.