2017 (11) TMI 81 - AT - Central Excise

Clandestine removal - goods fount short - non-receipt of inputs - Held that - the learned Commissioner have accepted the genuineness of the transaction, but have erred in observing that such transactions cannot be considered as certificate of genuineness. We also find that the duty paid by the appellants on the clearance of the finished goods, particularly thinner, have been accepted by the Revenue. We also find that in addition to paying duty through Cenvat account, appellant have also paid part of the duty payable through PLA. The learned Commissioner have erred in observing that such payment through PLA is about only 1% of the sales value or turnover. We also find that there is no allegation in the show cause notice that the input OCS have been procured by the appellant from elsewhere. It has also been brought to our notice in the course of argument that the storage tank of OCS in the factory of the appellant also has a beater for processing in order to manufacture thinner. We further find that there is evidence on record that the appellant have deputed manpower for production and there has also been electricity consumption regularly. The SCN is not sustainable, save and except the demand of ₹ 8,984/-, towards the shortage of inputs found at the time of inspection - appeal allowed in part.

Summary

Issues Involved:
1. Non-receipt of raw material (OCS) and wrongful availing of Cenvat Credit.
2. Alleged clandestine removal of goods and shortage of formaldehyde.
3. Imposition of penalties on the appellant and its director.
4. Admissibility and evaluation of evidence, including banking transactions and statements of witnesses.

Detailed Analysis:

1. Non-receipt of raw material (OCS) and wrongful availing of Cenvat Credit:
The Department alleged that the appellant did not receive the raw material, Organic Composite Solvent (OCS), from suppliers RVS Petrochemicals and Amkap Marketing, and thus, wrongly availed Cenvat Credit amounting to ?4,25,90,804/-. The investigation found parallel invoices on four occasions out of 824 transactions with RVS, leading to the denial of credit for all transactions. The appellant argued that they genuinely purchased the inputs, paid through banking channels, and manufactured final products on which duty was paid. The Tribunal noted that the Commissioner failed to properly consider the evidence, including bank statements showing payments for inputs and receipts for sales. The Tribunal held that the transactions through banking channels were genuine and that the appellant paid duty on the final products, thus the denial of Cenvat Credit was unjustified.

2. Alleged clandestine removal of goods and shortage of formaldehyde:
The Department also demanded ?8,954/- for the alleged clandestine removal of 93.58 kg of formaldehyde found short during physical verification. The Tribunal upheld this demand and the corresponding penalty, as the shortage was evident and not contested effectively by the appellant.

3. Imposition of penalties on the appellant and its director:
Penalties were imposed on the appellant and its director under the Cenvat Credit Rules and Rule 26 of CER, 2001. The Tribunal found that the penalties were based on the erroneous denial of Cenvat Credit and the flawed investigation. Consequently, the penalties were set aside, except for the penalty related to the shortage of formaldehyde.

4. Admissibility and evaluation of evidence:
The Tribunal criticized the Commissioner for not following its earlier directions to consider the evidentiary value of banking transactions. The Commissioner selectively relied on statements from menial staff and ignored crucial evidence from responsible persons like the plant in-charge of RVS. The Tribunal emphasized that the statements of witnesses should be re-examined or offered for cross-examination as per Section 9D of the Central Excise Act. The Tribunal also noted that the appellant's manufacturing process, storage facilities, and regular electricity consumption supported their claim of genuine manufacturing activities.

Conclusion:
The Tribunal set aside the impugned order, except for the demand of ?8,954/- and the corresponding penalty for the shortage of formaldehyde. The appeal was allowed in part, recognizing the genuine transactions and manufacturing activities of the appellant. The penalties based on the wrongful denial of Cenvat Credit were revoked, and the Tribunal highlighted the need for proper evaluation of evidence and adherence to legal procedures.