2015 (10) TMI 1567 - AT - Central Excise

Denial of CENVAT Credit - Bogus invoices - Issue of invoices without actual receipt of goods - Violation of principle of natural justice - Opportunity of cross examination not granted - Held that - there are direct allegations against the appellants and therefore, their involvement cannot be ruled out. In the circumstances the benefit of the aforesaid decision of the Hon ble High Court 2013 (5) TMI 705 - GUJARAT HIGH COURT cannot be extended to the appellants. - The appellants had given detailed reasons for seeking cross-examination of witnesses. It is seen that the cross-examination has been denied solely on the grounds that there is hard evidence which is corroborated by the statements and therefore no cross-examination is necessary. It is observed that this is not sufficient ground for denying cross-examination of witnesses whose statements have been relied upon. If cross-examination is to be denied then cogent reasons for denying in each case need to be given. - Impugned order is set aside - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Allegations of taking credit on fake/bogus invoices.
2. Allegations of taking credit without receipt of goods.
3. Failure to verify the genuineness of suppliers.
4. Issuance of fictitious invoices to justify credit.
5. Filing incorrect returns.
6. Denial of cross-examination and natural justice.
7. Time-barred notice.
8. Penalty on M/s Asha Traders.

Detailed Analysis:

1. Allegations of Taking Credit on Fake/Bogus Invoices:
The appellants, registered as manufacturers of grey fabrics, were accused of availing CENVAT credit based on bogus invoices for polyester yarn. Investigations revealed that certain dealers issued fake invoices, and buyers, including the appellants, claimed credit without receiving the goods. Evidence such as money trails and fictitious transportation records supported these allegations. The Tribunal referenced a previous case involving M/s Shiv Trading Company, where similar issues of fake invoicing were noted, but found no categorical findings against the appellant, suggesting a lack of thorough investigation.

2. Allegations of Taking Credit Without Receipt of Goods:
The Department alleged that the appellants did not receive the yarn but only the invoices. Statements from the appellants' manager indicated involvement in paper transactions without actual receipt of goods. The Tribunal noted that the appellants' manager admitted to receiving money back in cash against cheques issued to brokers, reinforcing the allegation of non-receipt of goods.

3. Failure to Verify the Genuineness of Suppliers:
The appellants were accused of not verifying the genuineness of their suppliers as required under the Cenvat Credit Rules. The Tribunal highlighted the importance of taking reasonable steps to ensure the authenticity of the suppliers, as stipulated in Rule 7(2) of the Cenvat Credit Rules, referencing the Hon'ble High Court of Gujarat's decision in Prayagraj Dying and Printing Mills, which emphasized the duty of appellants to ensure the inputs had appropriate duty paid.

4. Issuance of Fictitious Invoices to Justify Credit:
It was alleged that the appellants issued fictitious invoices for final products to justify the credit taken. The Department claimed that no grey fabric was sold, and only invoices were issued. The Tribunal found that there were direct allegations against the appellants, suggesting their active involvement in the fraudulent activities.

5. Filing Incorrect Returns:
The appellants were accused of filing incorrect returns, wrongfully depicting the receipt of inputs. The Tribunal noted the Department's allegations that the appellants filed returns based on bogus invoices, further supporting the case of fraudulent credit claims.

6. Denial of Cross-Examination and Natural Justice:
The appellants argued that they were denied cross-examination of witnesses and not heard on merits, violating principles of natural justice. The Tribunal acknowledged this denial and emphasized that sufficient grounds must be provided for denying cross-examination. The Tribunal decided to remand the matter for fresh adjudication, allowing cross-examination and the introduction of additional documents.

7. Time-Barred Notice:
The appellants contended that the show cause notice was time-barred, referencing the Hon'ble High Court of Gujarat's decision in Prayagraj Dying and Printing Mills, which held that in the absence of fraud or misdeclaration by the appellants, the extended period of limitation could not be invoked. The Tribunal distinguished the present case, noting direct allegations of fraud against the appellants, thus justifying the extended period of limitation.

8. Penalty on M/s Asha Traders:
Penalties were imposed on M/s Asha Traders for supplying bogus invoices. The counsel for Asha Traders argued that the invoices in question were already adjudicated in a different proceeding by the Surat Commissionerate. The Tribunal remanded the matter for fresh consideration, instructing the adjudicating authority to compare the invoices and vacate the notice if they were the same as those in the Surat Commissionerate proceedings.

Conclusion:
The Tribunal set aside the order and remanded the matter for fresh adjudication, ensuring the principles of natural justice were followed. The appellants were allowed to introduce additional documents, and cross-examination of witnesses was to be considered on merit. The appeal of M/s Asha Traders was also remanded for fresh consideration in light of the facts presented.

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