2014 (6) TMI 787 - AT - Central Excise

Denial of CENVAT Credit - Issue of debit notes - Non receipt of inputs - Held that - Lower authorities have mainly relied on statement of Shri Vijay Sehgal made at the time of personal hearing before the adjudicating authority wherein he has stated that he is not aware of the goods having been received back after repairs. Though the appellants grievance is that no statement under Section 108 of the Customs Act was made by the appellants and it was only his submission made before the authorities at the time of personal hearing. In any case, the said statement is only to the effect that he is not aware of the receipt back of the inputs after repair. The said Shri Vijay Sehgal has nowhere stated that the goods were not received back by the appellants. Otherwise also Shri Vijay Sehgal was not in the appellants service during the relevant period and as such was not in a position to make any submission. Apart from the above statement of Shri Vijay Sehgal which cannot be relied upon for the purpose enumerated above, there is no other evidence to show that the goods were not received back by the assessee. Admittedly, the appellants raised debit notes at the time of clearance of the inputs while sending them to the input manufacturer for rectification. The said debit notes were subsequently cancelled. In fact I find that demand stand raised against the appellant on the basis of debit note itself which stand raised by the appellant. If the said debit notes raised at the time of clearance of the inputs are accepted to be true reflection of the correct facts, cancellation of the same after the goods were received back by the appellant is also required to be accepted as the correct reflection of the correct position. There are no inquiries by the Revenue from the inputs manufacturer reflecting upon the fact that inputs sent to them for rectification were never sent back to the appellant. Further, I note that the appellants having entered the inputs in their RG 23A Part I was duty bound to show the consumption of the same. If the appellants have returned the goods to the inputs manufacturer after making entry of the same in RG 23A Part I, it is not possible for them to show utilization of the same in the manufacture of their final product, which stand cleared on payment of duty. No justification for denial of credit to the appellant. However, learned advocate has fairly agreed that inputs involving credit of Rs. 3731/- were not received by them after rectification and the said debit notes raised by them was not cancelled. In view of the above, I confirm the demand of Rs. 3731. Appellant is entitled to the said Cenvat credit, the proper course was to reverse the Cenvat credit at the time of clearance of inputs and to avail the same again at the time of receipt of rectified inputs. As such, the appellants are liable to pay the interest on the said Cenvat credit retained by them during the period of sending the inputs out and receiving the same back. The lower authorities would calculate the interest accordingly - Decided partly in favour of assessee.

Issues:
1. Availing Cenvat credit for defective inputs.
2. Demand of duty raised by Revenue.
3. Verification of receipt of rectified inputs.
4. Acceptance of evidence by lower authorities.
5. Reliability of statements made during the proceedings.
6. Justification for denial of credit.
7. Confirmation of demand for specific amount.
8. Liability to pay interest on retained Cenvat credit.

Analysis:

1. The appellants, engaged in manufacturing telecommunication equipment, availed Cenvat credit for inputs received during 1999-2004. Some inputs were found defective, leading to the issuance of debit notes to manufacturers for rectification. However, the appellants did not reverse the credit or show sending of inputs for rectification in their records.

2. Revenue demanded duty of Rs. 3,39,854 due to failure in establishing receipt of rectified inputs, culminating in an order upheld by the Commissioner. The Tribunal remanded the matter for verification of returned inputs, leading to de novo proceedings.

3. During the fresh proceedings, the appellants presented a chart showing sending and receiving of inputs after rectification, along with canceled debit notes. Despite this evidence, lower authorities confirmed the demand, prompting a review of the evidence's acceptance.

4. Lower authorities rejected the evidence presented, leading to a dispute over the reliability and acceptance of the appellants' documentation and explanations regarding the rectified inputs.

5. The reliance on a statement made by an individual during a personal hearing was a key point of contention, with the Tribunal scrutinizing the statement's content and the individual's authority to speak on the matter.

6. The Tribunal found insufficient evidence to support the denial of credit, emphasizing the lack of inquiry into the inputs' return by the Revenue and the appellants' duty to show consumption of entered inputs.

7. Despite confirming a demand of Rs. 3731 for unreceived inputs, the Tribunal acknowledged the appellants' entitlement to the Cenvat credit, emphasizing the need for proper credit reversal and re-availment procedures.

8. The Tribunal held the appellants liable to pay interest on retained Cenvat credit during the period of sending and receiving rectified inputs, directing the lower authorities to calculate the interest accordingly, ultimately disposing of the appeal in the appellants' favor.

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