2017 (7) TMI 473 - AT - Central Excise

CENVAT credit - M/s Motherson Sumi Systems Ltd.(MSSL), was engaged in the manufacture of Wiring Harness falling under Chapter 85.44 of the Central Excise Tariff Act, 1985. PVC Tape is one of the inputs of M/s MSSL, and is an output product of the other appellant M/s NPIL. Further M/s NPIL is one of the suppliers of PVC Tape to M/s MSSL - Revenue is of the view that M/s NPIL was engaged in illegal availment of Cenvat Credit on CP 172 Resin which is one of their major inputs and have diverted their input and/or major part of the input - whether the appellant- M/s Motherson Sumi Systems Ltd. have received the inputs namely; PVC Filler/Tape, from their supplier, Nataraj Plast industries Ltd. and accordingly, whether the Authorities below are justified in denying the CENVAT credit of ₹ 37,26,151.68/- along with equal amount of penalty imposed on MSSL with further penalty on Shri Rakesh Kumar Sharma & Nataraj Plast Industries Ltd., for the period September, 2004 to October, 2005? Held that - Revenue have not found any error in the records of M/s MSSL regarding receipt of the goods from M/s NPIL, the proper account and payment for the same and utilization of the PVC Tapes in the production of wiring harness which have been cleared on payment of duty - Revenue have drawn adverse inference based on some minor variation and or clerical error, in about 8 invoices out of total of 91 invoices, in the disputed period, which is also in respect, only vehicle nos. as mentioned in the invoices and as compared with the manual register of vehicles entering the factory maintained at the gate by the security staff. Such gate register is not by the management of M/s MSSL, and as such no reliance can be placed on the same for drawing adverse inferences - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Denial of Cenvat credit to M/s Motherson Sumi Systems Ltd. (MSSL).
2. Imposition of penalties on MSSL, Mr. Rakesh Kumar Sharma, and Nataraj Plast Industries Ltd. (NPIL).
3. Validity of allegations of fraudulent Cenvat credit availed by MSSL.
4. Admissibility of evidence and statements from transporters.
5. Applicability of the extended period of limitation.

Detailed Analysis:

1. Denial of Cenvat Credit to MSSL:

The primary issue was whether MSSL received inputs (PVC Filler/Tape) from NPIL and if the authorities were justified in denying Cenvat credit of ?37,26,151.68 along with an equal amount of penalty. The authorities based their denial on the investigation into NPIL, which suggested illegal availment of Cenvat credit on CP 172 Resin and possible diversion of inputs. However, MSSL maintained proper records, generated Goods Receipt Notes (GRNs), and conducted quality checks before using the inputs in production. The Tribunal found no error in MSSL’s records regarding the receipt, payment, and utilization of the PVC Tapes, thereby allowing the Cenvat credit.

2. Imposition of Penalties:

Penalties were imposed on MSSL, Mr. Rakesh Kumar Sharma, and NPIL. The Tribunal noted that the penalties were based on minor discrepancies in vehicle numbers on some invoices, which were deemed clerical errors. The Tribunal held that such minor discrepancies do not justify the imposition of penalties, especially when proper records were maintained. Consequently, the penalties were set aside.

3. Allegations of Fraudulent Cenvat Credit:

The Revenue alleged that MSSL willfully and intentionally colluded with NPIL to fraudulently avail Cenvat credit. This allegation was based on statements from transporters and discrepancies in vehicle numbers. However, the Tribunal found that the evidence provided by the transporters was based on memory, recorded 2-3 years after the transactions, and lacked reference to any maintained records. The Tribunal concluded that the allegations of fraudulent Cenvat credit were not substantiated.

4. Admissibility of Evidence and Statements from Transporters:

The statements from vehicle owners/transporters were crucial to the Revenue’s case. These statements claimed that their vehicles were not used for transporting goods from NPIL to MSSL. However, the Tribunal found these statements unreliable as they were based on memory without any supporting records. The Tribunal emphasized that adverse inferences cannot be drawn based on such unreliable statements.

5. Applicability of Extended Period of Limitation:

MSSL argued that the extended period of limitation was not applicable as all transactions were properly recorded in the books of accounts. The Tribunal agreed, noting that the transactions were documented in the ordinary course of business and that the discrepancies were minor and clerical. Therefore, the extended period of limitation was not justified.

Conclusion:

The Tribunal allowed the appeals, set aside the impugned order, and ruled that MSSL was entitled to Cenvat credit. The penalties imposed on MSSL, Mr. Rakesh Kumar Sharma, and NPIL were also set aside. The Tribunal emphasized the importance of reliable evidence and proper record-keeping in such cases.