2016 (6) TMI 762 - AT - Central Excise

Fraudulent availment of Cenvat Credit without receipt of raw material in the factory - as per department the appellants though imported goods vide Bill Entry , diverted the same without bringing the goods into the factory or use in their manufacture - Held that - Mere statements recorded would not be sufficient to establish the charges alleged in the show cause notice. The statements should be supported by corroborative evidence. In the case on hand, if the department alleges that the raw materials were diverted without reaching the factory, then there should surely be evidence let in to show how the appellants have substituted the raw material since the statutory records show production and clearance of finished goods on payment of duty. There is absolutely no evidence to show the substitution of raw material which in my view would cut the root of the allegation as the statutory records show that goods were manufactured. No shortage of raw material was detected during enquiry. Apart from the above, the statement of the transporter Shri Satish Agarwal has been retracted before a Magistrate and Sri Janakiram in cross examination retracted his statement and also deposed that his statement was recorded under duress. The case of the department is built-up mainly on these statements. As the statements have been retracted, there has to be some other evidence to conclude that the goods were not actually received. Whereas, the statutory records, weighment slips, job work challans, production register all stand in favour of the appellants. These documentary evidence do prevail over the retracted confessional statements Though the department alleges that there was cash flow in return for the fraudulent activity, which was unaccounted, there is no evidence in this regard. When the statutory records are proper and appellant has manufactured the final products and cleared them by paying duty, then the burden rests heavily upon the Revenue to establish with cogent evidence that the goods were not actually received in the factory. In the totality of facts and evidence, paced it is find that revenue has miserably failed to establish the allegations raised in the show cause notice. Thus disallowance of credit availed is not sustainable. - Decided in favour of assessee

Summary

Issues:
Fraudulent availment of Cenvat Credit without receipt of raw material in the factory.

Detailed Analysis:

1. Allegation of Fraudulent Availment of Cenvat Credit:
The case involved appeals filed against the demand of duty, interest, and penalty for fraudulent availment of Cenvat Credit on imported goods without actual receipt into the factory. The investigation revealed a suspected scheme where goods were imported but diverted elsewhere without reaching the factory, while Cenvat Credit was wrongly claimed based on false documentation.

2. Investigation and Show Cause Notices:
The appellants, manufacturers of excisable goods, were investigated by DGCEI leading to show cause notices for alleged irregular Cenvat Credit availment. The original authority confirmed the demand, interest, and penalty, which were upheld by the Commissioner (Appeals), prompting the appellants to file appeals challenging the orders.

3. Contentions and Evidence:
The department contended that the appellants diverted imported goods without actual receipt in the factory, supported by statements and investigation findings. However, the appellants presented detailed contentions, including documentary evidence of proper import procedures, statutory records maintenance, and production processes, disputing the allegations of diversion and fraudulent credit availment.

4. Judicial Analysis and Decision:
The judicial analysis scrutinized the evidence presented by both sides. The tribunal noted the absence of material evidence supporting the department's allegations of diverted goods and emphasized the importance of corroborative evidence to establish charges in clandestine cases. Retracted statements and lack of substantive evidence undermined the department's case, while documentary evidence favored the appellants, leading to the conclusion that the revenue failed to prove the allegations conclusively.

5. Legal Precedents and Burden of Proof:
The tribunal referenced legal precedents emphasizing the need for corroborative evidence in denying credit based on confessional statements. It highlighted the burden on the revenue to substantiate claims with cogent evidence, especially in cases where statutory records and proper documentation support the appellants' position. The lack of conclusive evidence led to the tribunal setting aside the impugned orders and allowing the appeals with consequential relief.

In conclusion, the judgment analyzed the complex case of fraudulent Cenvat Credit availment, highlighting the importance of evidence, statutory records, and legal precedents in determining the validity of allegations and upholding the rule of law in tax matters.