2013 (1) TMI 412 - AT - Central Excise

Cenvat credit of duty paid on the inputs - said inputs were received from two registered dealers who inturn received the inputs from M/s Haryana Steel & Alloys Ltd(HSAL) - investigations conducted at HSAL - issuance of invoices without actual supply of the goods as per statement of Executive Director of HSAL - Held that - The said statement of Executive Director of HSAL does not stand agreed upon by the two dealers who have clearly deposed that they were receiving the goods from HSAL along with the invoices. It is not the Revenue s case that HSAL was not manufacturing the raw material or were clearing/diverting their final product to other persons. It is also seen that all the payments were made to the dealers by cheque and there is no allegation much less any proof of flow back of the money from dealers to the appellant. Revenue has also not made any enquiries from the transporters as regards the transportation of the goods in question. As such the denial of Cenvat credit on the sole statement of manufacturer of the inputs, without taking into consideration the statement of the first stage dealer as also the statement of the manufacturing unit is not justified. It is further seen that manufacturing unit has entered all the inputs in their records which stands shown to have been used in the manufacture of their final product and cleared on payment of duty. If the Revenue s case as regards non-receipt of inputs is accepted, a vacuum remains to be answered as to how the final product stands manufactured by M/s J.L.Autoparts as revenue has not shown any alternate procurement of the raw material. As decided in PRACHI POLY PRODUCTS LTD. case (2005 (3) TMI 249 - CESTAT, MUMBAI) where the appellants have taken all reasonable steps to ensure that duty has been paid on inputs received by them and on which they took credit - Credit cannot disallowed on account of denial by manufacturer as regards payment of duty. Also VARANASI DOMESTIC APPLIANCES (P) LTD.case 2007 (2) TMI 484 - CESTAT, NEW DELHI stated that manufacturer were party to fraud or misrepresentation by supplier of inputs, denial of credit not justified - no reasons to deny the credit, confirmation of demand against them along with penalty also upon the two dealers imposed is set aside.

Summary

Issues:
Denial of Cenvat credit based on alleged irregularities in the issuance of invoices by suppliers.

Analysis:
The case involved three appeals arising from an order passed by the Commissioner (Appeals) regarding the denial of Cenvat credit to a manufacturing unit due to irregularities in the issuance of invoices by their suppliers. The manufacturing unit, engaged in producing auto parts, had been availing Cenvat credit on duty paid inputs received from two registered dealers. These dealers, in turn, were receiving inputs from another entity, HSAL. Investigations revealed that HSAL had been issuing invoices for goods without actually supplying them, as admitted by their Executive Director. However, the dealers claimed to have received the material and passed it on to the manufacturing unit, maintaining proper records of the transactions.

The proceedings initiated against the manufacturing unit resulted in a demand for duty repayment and imposition of penalties, which were challenged before the Tribunal. The Tribunal noted that the Revenue's case heavily relied on the statement of HSAL's Executive Director, while the dealers and the manufacturing unit disputed the allegations. The Tribunal highlighted that there was no evidence of the manufacturing unit's involvement in any fraudulent activities or knowledge of irregularities by the suppliers. The Tribunal emphasized the importance of considering all relevant statements and records before denying Cenvat credit to the manufacturing unit.

Referring to precedent decisions, the Tribunal emphasized that denial of credit should not be based solely on the denial by the manufacturer of inputs regarding duty payment. In the absence of concrete evidence implicating the manufacturing unit in any wrongdoing or failure to pay duty on inputs, the Tribunal found no justification for denying Cenvat credit. Therefore, the demand for duty repayment and penalties imposed on the manufacturing unit were set aside.

Regarding the penalties imposed on the dealers, the Tribunal held that since there was no substantial evidence supporting the allegations of non-receipt of raw materials, the penalties were also revoked. Ultimately, all three appeals were allowed, providing relief to the appellants and overturning the penalties imposed on them. The judgment highlighted the importance of thorough investigation and consideration of all relevant evidence before penalizing entities for alleged irregularities in the supply chain.