2018 (11) TMI 961 - AT - Central Excise

CENVAT Credit - fake invoices - non-receipt of inputs - the entire case of the Revenue rests upon the missing quality control reports - Held that - Undisputedly the statements of the Quality Control Engineer, appellants director as also of various dealers recorded during the course of investigations are exculpatory statements and there is no admission of non receipt of raw material by any of the deponents. Merely because some of the inspection reports are missing from the records, does not lead to inevitable conclusion that the raw materials were not received by the appellants. The appellants have also given explanation to the missing freight documents by contending that in some cases the raw material was received on FOR basis and the freight payments were made by the dealers, whereas in some cases the freight may be paid by the director himself from his own pocket. The onus to establish the allegation is upon the Revenue and is required to be discharged by production of positive and tangible evidences. The missing quality control reports may lead to some doubt requiring further verification and investigation, which the Revenue has indeed done - The result of the investigations conducted by the Revenue does not advance their case inasmuch as all the deponents have repeatedly contended that the raw materials were received by them and were put to use. The entire case of the Revenue is based upon assumption and presumption and there is no evidence to substantiate their allegation that the raw materials were not received by the assessee - The said issue stands considered by the Tribunal in the number of cases and it stands held that the Revenue is required to prove beyond doubt non receipt of the inputs - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Allegation of inadmissible Cenvat credit availed by the appellants without receiving raw materials, denial of Cenvat credit, imposition of penalty, limitation, missing quality control reports, missing freight payment records, exculpatory statements of witnesses, burden of proof on Revenue, manufacturing of final product, diversion of raw materials, lack of evidence, case law precedents.

Analysis:

1. The case revolved around the allegation that the appellants availed inadmissible Cenvat credit without receiving raw materials. The Revenue claimed that the appellants did not receive the inputs, leading to the demand for denial of Cenvat credit and imposition of penalties. The appellants contested the show cause notice, citing various grounds including the limitation issue. They argued that they had received the raw materials, which were reflected in their records before other Tax Authorities, and were used in manufacturing the final product cleared on payment of duty.

2. The Adjudicating Authority upheld the demand and penalties, including a significant penalty on the director of the company. The appellants challenged this decision before the Tribunal, where the case primarily rested on missing quality control reports and freight payment records. The Authority concluded that these documents were crucial to establish whether the raw materials were received by the appellants.

3. The Tribunal noted that the statements of witnesses, including the Quality Control Engineer, appellants' director, and various dealers, did not admit to non-receipt of raw materials. The missing inspection reports and freight documents did not conclusively prove non-receipt. The onus to prove the allegation was on the Revenue, requiring tangible evidence. The investigation revealed that all dealers confirmed supplying materials to the appellants, undermining the Revenue's case.

4. The appellants emphasized that they used the raw materials in manufacturing the final product cleared with duty payment. They argued that without receiving the raw materials, as alleged by the Revenue, they could not have produced the final product. The lack of evidence regarding alternative procurement sources or diversion of raw materials weakened the Revenue's case.

5. The Tribunal, citing legal precedents, emphasized that the Revenue must prove beyond doubt the non-receipt of inputs. The decision highlighted cases where the utilization of inputs in manufacturing final products, reflected in records and cleared on duty payment, undermined allegations of non-receipt. The Tribunal found the Revenue's case based on assumption and presumption without substantial evidence.

6. Ultimately, the Tribunal set aside the impugned orders, allowing both appeals in favor of the appellants due to the lack of justifiable reasons to uphold the Revenue's claims. The decision was pronounced in court on a specific date, providing consequential relief to the appellants.