2017 (5) TMI 1452 - AT - Central Excise

CENVAT credit - improper and irregular availment of credit of duty without actually receiving the inputs - correctness of SCN - Held that - the entire basis of the SCN is in question and the department has not proved the basis for the Annexures and the allegations raised in the show cause notice. The entire proceedings are obviously hobbled ab initio incoherence and errors. The appellant then is being asked to defend the indefensible and to show cause to allegations which are shredded is unintelligibility. In the case of Ispat Industries Ltd. Vs. CCE Nagpur 2012 (11) TMI 147 - CESTAT MUMBAI the Tribunal held that for every case SCN is the foundation and the assessees are required to defend the allegation made in the show cause notice. The flaws in the SCN are fatal to the proceedings and hence the impugned order will require to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged improper and irregular availment of CENVAT credit.
2. Discrepancies between input invoices and physical stock.
3. Faulty preparation and explanation of annexures in the show cause notice.
4. Onus of proof regarding the correctness of annexures and credit claims.
5. Adjudication process and reliance on investigating officer’s findings.
6. Validity and sufficiency of the show cause notice (SCN).

Issue-Wise Detailed Analysis:

1. Alleged Improper and Irregular Availment of CENVAT Credit:
The appellant, a manufacturer of DG sets, was accused of availing CENVAT credit improperly without receiving the inputs (engines and alternators) in their factory. The show cause notice demanded ?61,00,978/- as irregularly availed credit, along with interest and penalty. The Commissioner of Central Excise later reduced the duty liability to ?41,72,987/- but upheld the imposition of penalty equivalent to the reduced liability.

2. Discrepancies Between Input Invoices and Physical Stock:
During a departmental visit on 5.12.2000, discrepancies were found between the number of engines for which CENVAT credit was claimed and the actual physical stock in the factory. This led to the issuance of the show cause notice alleging non-receipt of inputs and improper credit claims.

3. Faulty Preparation and Explanation of Annexures in the Show Cause Notice:
The appellant argued that the annexures (A to E) attached to the show cause notice contained incorrect figures and were indecipherable. They repeatedly sought clarifications from the department, which were not adequately provided. The appellant submitted reconciliation statements and other annexures (F, G, K) to highlight errors and duplications in the department’s annexures.

4. Onus of Proof Regarding the Correctness of Annexures and Credit Claims:
The appellant contended that the department failed to explain the basis of the annexures and the allegations. The adjudicating authority, however, placed the onus on the appellant to prove the incorrectness of the annexures. The tribunal found this approach unjustified, emphasizing that the investigation was based on the appellant’s own records, and no additional evidence was provided by the department to support their allegations.

5. Adjudication Process and Reliance on Investigating Officer’s Findings:
The tribunal noted that the adjudicating authority relied heavily on the investigating officer’s findings without independent verification. This amounted to an improper delegation of quasi-judicial powers. The investigating officer’s note and preventive unit’s report were not made available to the appellant, further undermining the fairness of the adjudication process.

6. Validity and Sufficiency of the Show Cause Notice (SCN):
The tribunal highlighted that the show cause notice lacked a clear basis for the allegations, rendering it fundamentally flawed. Citing various judicial precedents, the tribunal emphasized that a SCN must disclose specific grounds and reasons for the allegations to satisfy principles of natural justice. The flawed SCN in this case was deemed fatal to the proceedings, leading to the setting aside of the impugned order.

Conclusion:
The tribunal concluded that the entire basis of the show cause notice was in question due to incoherence and errors in the annexures. The appellant was unjustly burdened with defending allegations that were inadequately substantiated by the department. The flaws in the SCN were fatal to the proceedings, necessitating the setting aside of the impugned order. Consequently, the appeal was allowed with consequential relief as per law.