2017 (4) TMI 838 - AT - Central Excise

CENVAT credit - fraudulent cenvatable invoices - Held that - Unless there is independent corroborative evidence to establish fraudulent availment of credit and thereby clandestine removal of goods, the demand cannot be sustained. In the present case, the department has failed to put forward sufficient evidence to establish the allegations in the SCN. In view thereof, the demand is unsustainable - appeal allowed.

Summary

Issues: Alleged fraudulent availment of CENVAT Credit based on third-party documents and statements.

Analysis:
1. The case involved manufacturers of Aluminium Chloride availing CENVAT Credit on inputs like Aluminium Bars/Rods/Plates/Sheets and Chlorine from different suppliers, including M/s Karnataka Metal Company (KMC) and M/s Bharat Aluminium Company Ltd. (BALCO).

2. The Directorate General of Central Excise Intelligence (DGCEI) conducted a search at KMC's premises and recovered documents suggesting fraudulent issuance of cenvatable invoices without actual supply of raw materials. A show cause notice was issued to the appellants for alleged fraudulent availment of CENVAT Credit, demanding recovery with interest and imposing penalties. The original authority confirmed the demand, interest, and penalty, which was upheld by the Commissioner (Appeals) except for the penalty on the Managing Director.

3. The appellant's counsel argued that the evidence relied upon, such as diary entries from a third party, was insufficient to prove fraudulent activities. The appellant maintained proper records, including invoices and statutory registers, and cooperated with authorities by voluntarily providing documents. The counsel cited previous Tribunal judgments to support their argument that evidence from a third party without corroboration cannot be relied upon.

4. The department contended that entries in the diary of a KMC employee indicated the appellant received invoices without actual goods supply. They argued that the lack of evidence like gate registers, weighment slips, or payment vouchers to prove receipt of goods supported the fraudulent credit availment allegations. The department emphasized that the appellant's payment method did not prove actual receipt of goods and defended the penalties imposed.

5. The Tribunal noted previous cases where evidence from the same investigation was analyzed, highlighting discrepancies in relying solely on third-party documents without corroboration. The Tribunal found the department's evidence insufficient to establish fraudulent credit availment, especially since the appellant had provided documents related to goods receipt. The Tribunal concluded that without independent corroborative evidence, the demand for recovery was unsustainable, setting aside the impugned order and allowing the appeal with any consequential reliefs.

This detailed analysis of the judgment highlights the key arguments, evidence, and conclusions regarding the alleged fraudulent availment of CENVAT Credit based on third-party documents and statements, providing a comprehensive overview of the case.