2023 (10) TMI 1301 - AT - Central Excise

Recovery of CENVAT Credit alongwith interest and penalty - second stage dealers were issuing invoices without actually supplying goods - opportunity of cross-examination not provided - principles of natural justice - HELD THAT - The show cause notice is based on 9 relied upon documents of which one is a set of the invoices in dispute (RUD-9). These are alleged to be ineligible for CENVAT credit based on five statements of Sudarshan Singh of Aditya Enterprises (RUD-2), Ajay Sharma of Hari Om Steel (RUD-5), Vakil Luhar of M/s Mahalaxmi Scrap (RUD-6), Manoj Vijay authorized signatory of M/s Mahalaxmi Scrap (RUD-7) and Dharamveer Singh, Director of the assessee (RUD-8) - all the statements become irrelevant and, therefore, also inadmissible to the present proceedings. The cross-examination of one of the persons Manoj Vijay was allowed in which he asserted that the goods were transported not to his premises but were transported directly to premises of the respondent. Once we ignore all these statements, the only evidence left are the letter of the Additional Director, DGCEI indicating that intelligence was received, the letter of the Additional Commissioner, Dhanbad, which is an alert notice indicating that Ganpati Enterprises was found to be non-existent and the letter of superintendent of Central Excise, Burdwan indicating that M/s Vedic Chemicals Pvt Ltd is also closed - It is true that if the manufacturer had not manufactured the goods they could not have been supplied by the manufacturer to the first stage dealer and further to the second stage dealer and to the respondent. It certainly creates enough reasons to doubt but the issue can only be decided through a thorough investigation. If the assessee says that it had received the goods, the question is, if the second stage dealer had supplied the goods. In this case, he says he had supplied the goods. The next question is to enquire if the first stage dealer had sold the goods to the second stage dealer. The third stage of investigation is ascertaining if the manufacturer had supplied to the goods to the first stage dealer. Examining the records of each of this individual companies/ firms and recording their statements can only reveal the complete truth. If such an investigation requires statements to be recorded and if revenue proposes to use such statements in the proceedings against the assessee the procedure prescribed under the section 9D has to be followed. Otherwise, such statements are not only NOT admissible but are not even relevant to the proceedings. In this case, all the statements are rendered irrelevant as the Adjudicating Authority had not followed the procedure prescribed under section 9D. There are no reason to interfere with the impugned order. The impugned order is upheld and the appeal filed by the Revenue is dismissed.

Issues Involved:
1. Validity of CENVAT credit availed based on invoices issued by second stage dealers.
2. Admissibility of statements recorded under Section 14 of the Central Excise Act.
3. Compliance with Section 9D of the Central Excise Act regarding the relevancy of statements.
4. Evidence of actual receipt of goods by the respondent.

Summary of Judgment:

1. Validity of CENVAT Credit:
The Revenue contended that the respondent availed ineligible CENVAT credit based on invoices issued by second stage dealers without actual receipt of goods. The investigation revealed that the second stage dealer, M/s Mahalaxmi Scrap Trading Company, issued invoices without receiving goods and the manufacturers cited in the invoices did not exist or did not produce any goods during the relevant period.

2. Admissibility of Statements:
The Revenue relied on statements recorded under Section 14 of the Central Excise Act from various individuals, including the second stage dealer's authorized signatory, who admitted that goods were not physically received. However, the respondent argued that these statements were inadmissible as the procedure under Section 9D was not followed.

3. Compliance with Section 9D:
The Tribunal emphasized that for statements to be relevant and admissible, the procedure under Section 9D must be followed. This includes examining the person who made the statement before the adjudicating authority. The Tribunal cited the Jindal Drugs Pvt Ltd vs. Union of India case, which held that the procedure under Section 9D is mandatory. Since the procedure was not followed, the statements were deemed irrelevant and inadmissible.

4. Evidence of Actual Receipt of Goods:
The Tribunal noted that the respondent had provided evidence of receiving goods directly from the second stage dealer, bypassing the dealer's premises. The Tribunal found that the respondent was not required to investigate the entire supply chain but only needed to ensure that goods were received under proper invoices. The letters from the jurisdictional officers indicating non-existence of manufacturers were insufficient to prove that no goods were supplied to the respondent.

Conclusion:
The Tribunal upheld the Commissioner (Appeals) order, concluding that the Revenue failed to establish that the respondent did not receive the goods. The appeal filed by the Revenue was dismissed, and the Cross Objection filed by the respondent was disposed of.

Order Pronounced on 30.10.2023.

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