2019 (10) TMI 578 - AT - Central Excise

CENVAT Credit - imposition of penalties - diversion of goods - non-receipt of inputs - scope of SCN - HELD THAT - There is no allegation in the SCN that the goods in question have not been received by appellant No.1 from appellant No.2. In the SCN the only issue is that the goods in question cannot be the inputs to manufacture final products by the appellant No.1. To ascertain such fact, no visit was made by the Revenue in the factory premises of the appellant No.1. No process of manufacturing has been brought on record. Moreover, no evidence has been produced by the Revenue that the said goods have not been diverted to be used by the appellant-manufacturer to manufacture final products, therefore, the allegation made against the appellant is only on the basis of assumptions and presumptions. The Revenue has not come with any evidence to show that the said inputs cannot be used by the appellant-manufacturer to manufacture their final products. No expert opinion has been obtained by the Revenue. No statement of transporter has been recorded to allege diversion of the goods. Therefore, the credit cannot be denied. In the impugned order, the adjudicating authority has alleged that there is diversion of goods and non receipt of goods by the appellant- manufacturer. As there is no such allegation in the show cause notice to allege that the goods were never received by the appellant-manufacturer and supplied by the dealer, in that circumstance, the adjudicating authority has gone beyond the scope of show cause notice. Such findings of the adjudicating authority are not sustainable in the eye of law. Credit cannot be denied - penalty also not imposable - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Allegation of diversion of goods and non-receipt of inputs by Appellant No.1
- Denial of Cenvat credit and imposition of penalties on both appellants

Analysis:
1. The appellants, M/s D C Steel Ltd. and M/s. J.S.Steel Traders, were involved in the manufacture and supply of excisable goods. A show cause notice was issued alleging that certain goods purchased by M/s. J.S.Steel Traders and supplied to M/s D C Steel Ltd. were not suitable inputs for manufacturing steel ingots. The Revenue claimed that the goods were not waste and scrap of Chapter heading 7204 and were capable of use in other industries, casting doubt on their use in steel ingot production.

2. The counsel for the appellants argued that there were no allegations of diversion of goods or non-receipt of inputs by M/s D C Steel Ltd. The adjudicating authority was criticized for exceeding the scope of the show cause notice by alleging diversion of goods not received by the appellant. The counsel relied on legal precedents to support the argument that the findings were based on assumptions and presumptions.

3. The appellants contended that there was no evidence to support the claim that the impugned goods could not be melted or used in manufacturing. They highlighted that all goods were recorded in statutory records, physically received, and used in the manufacturing process. The absence of expert opinions and lack of verification of the manufacturing process were raised as key points in the defense.

4. The dealer/supplier stated that they attempted to sell the goods for various uses before supplying them to the appellants. The manager of M/s D C Steel Ltd. explained the consumption of goods in their factory, emphasizing that the goods were used in manufacturing dutiable products. The argument was supported by citing relevant tribunal decisions.

5. The Revenue argued that the goods supplied by M/s. J.S.Steel Traders were not suitable inputs for M/s D C Steel Ltd. to manufacture final products, as the quality of the inputs was such that they could be sold as-is in the market. The denial of Cenvat credit was supported on the basis that the goods were not appropriate inputs for the manufacturing process.

6. After considering the submissions from both sides, the Tribunal found that there was no evidence to support the allegations of diversion of goods or non-receipt of inputs by M/s D C Steel Ltd. The adjudicating authority's findings were deemed to be based on assumptions and presumptions. The Tribunal referenced a similar case to support the decision to set aside the impugned order and allow the appeals with consequential relief.