2023 (10) TMI 424 - AT - Central Excise

Denial of CENVAT Credit - procurement/import of capital goods between 2005-06 and 2007-08 - denial on the ground of lack of evidence of having been received at the designated factory of the appellant - HELD THAT - The physical verification of imported machinery was undertaken after closure of the factory. There is no reference in the orders of the lower authorities to audit having included physical verification of these; in any case, their existence at the sister units could well have been ascertained and failure to do so is dereliction on the part of the adjudicating authority as central excise authority having jurisdiction over the factory of the appellant. Choosing to style alleged non-intimation of transfer as sufficing to deny credit also demonstrates failure to cite the authority under which the appellant was required to intimate such transfer. Under the scheme of CENVAT Credit Rules, 2004, taking of credit is permitted on receipt of goods in factory, subject to such variations as permitted therein, and not to be denied if availed against proper documentations. Any allegation of non-receipt of such capital goods at factory, in contradistinction with non-availability that may be justified with explanations subject to ascertainment, would, therefore, have to be based on, and also sustained on, clear evidence of diversion. There are no compelling motive for diversion of imported and locally procured goods save that two establishments set to take credit one on document and the other on availability of capital goods which, in the absence of supporting evidences, defies logic as having occured. It would appear that the entire exercise was half-hearted and relying entirely on presumptions which is a characteristic that is anathema to adjudicatory proceedings. The impugned order is set aside - Appeal allowed.

Summary

Issues:
The denial of CENVAT credit of duty on procurement/import of 'capital goods' between 2005-06 and 2007-08 due to lack of evidence of receipt at the designated factory.

Details of the Judgment:

1. The appeal concerned the denial of CENVAT credit of duty on 'capital goods' procured/imported between 2005-06 and 2007-08, amounting to Rs. 20,94,889 remaining in dispute after an appeal was disposed of by the Commissioner of Central Excise (Appeals), Mumbai-I.

2. The adjudicating authority confirmed a demand of Rs. 21,31,950, which was reduced by Rs. 37,061 by the first appellate authority after considering the appellant's plea that 'welding machines' had been disposed of. Various explanations were offered by the appellant, but they were rejected as unreliable, including the certificate of a chartered engineer and the lack of physical verification of the capital goods.

3. The appellant's pleas were made in the context of the factory ceasing to function by the time of the audit visit in 2008, with explanations provided for the absence of goods, such as transfer to sister units and deployment of spares and consumables.

4. It was acknowledged by all parties that the 'capital goods' were either machinery and equipment imported or consumed in usage. The closure of the factory at the time of the audit visit and the delay in issuing notices were not disputed by the lower authorities.

5. The recovery was initiated due to lack of ascertainment during the audit visit, non-inclusion in income tax returns, and delayed explanations provided during adjudication. The first appellate authority accepted the claim regarding 'welding machines' based on documents produced, but the overall order did not thoroughly examine statutory compliances.

6. Physical verification of imported machinery was conducted after the factory closure, with no mention of verification at sister units. The failure to ascertain the existence of goods at sister units was criticized as a dereliction of duty by the adjudicating authority.

7. The lower authorities did not contest that other 'capital goods' were spares or consumables incorporated in machinery. No specific authority was cited placing the onus on the manufacturer to produce capital goods for verification under the CENVAT Credit Rules, 2004.

8. Under the CENVAT Credit Rules, 2004, credit is permitted upon receipt of goods in the factory, and denial of credit should be based on clear evidence of diversion, not just non-receipt. Proper documentation is crucial for availing CENVAT credit.

9. There was no apparent motive for diversion of goods, and the reliance on presumptions without supporting evidence was deemed inadequate for adjudicatory proceedings. The lack of compelling evidence led to the setting aside of the impugned order and allowing the appeal.

10. The impugned order was overturned, and the appeal was allowed based on the lack of clear evidence supporting the denial of CENVAT credit for the 'capital goods' in question.