2019 (2) TMI 556 - AT - Central Excise

CENVAT Credit - capital goods - various iron and steel items used in the fabrication of parts of capital goods and structural support for capital goods - Held that - Both the authorities have relied upon the verification report dated 25.08.2008 prepared by the Asst. Commissioner, Dharwad which is one sided and copy of the same has not been given to the appellant. Therefore, the same cannot be relied upon for denying the CENVAT credit. The impugned items have been used in fabrication of capital goods such as cane unloader, bagasse carrier, crystallizer, hot & cold water tank, molasses tanks on which credit has been allowed - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Denial of CENVAT credit on iron and steel items used in fabrication of capital goods
- Reliance on verification report without providing a copy to the appellant
- Violation of principles of natural justice in passing the impugned order

Analysis:

Issue 1: Denial of CENVAT credit on iron and steel items
The appellant, engaged in sugar and molasses manufacturing, availed CENVAT credit on iron and steel items for fabrication of capital goods. The Department alleged irregular credit availing, issuing a show cause notice (SCN) to deny credit on these items. The Original Authority upheld the denial, leading to the appeal before the Commissioner (A). The appellant contended that the impugned order exceeded the SCN's scope and relied on a verification report beyond the allegations. The appellant cited various decisions supporting their claim that the denial was unjustified. The Tribunal noted that the impugned items were used in fabricating capital goods, making them eligible for credit as per precedents, and set aside the order to allow the appeal.

Issue 2: Reliance on verification report without providing a copy
The appellant argued that the impugned order relied on a verification report dated 25.08.2008 without furnishing a copy to them, violating principles of natural justice. They emphasized that the report was not presented before the Appellate Commissioner, and the reliance on it was unjust. The Tribunal agreed that the one-sided report could not be the basis for denying CENVAT credit, especially when the appellant was not provided with a copy. This lack of transparency was deemed a violation of procedural fairness.

Issue 3: Violation of principles of natural justice
The appellant raised concerns about the Asst. Commissioner's decision-making authority in issuing the verification report and the subsequent reliance on it by both the adjudicating authority and the first appellate authority. They argued that this approach disregarded the appellant's right to be heard and presented with all relevant evidence. The Tribunal concurred, emphasizing the importance of following due process and ensuring that all parties have an opportunity to respond to the evidence against them. The failure to provide the verification report to the appellant was deemed a serious breach of natural justice principles.

In conclusion, the Tribunal found in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential relief. The judgment highlighted the importance of procedural fairness, proper appreciation of facts, and adherence to legal principles in adjudicating matters related to CENVAT credit entitlement.