2023 (11) TMI 10 - AT - Central Excise

Recovery of CENVAT Credit alongwith interest and penalty - availing credit without actually supplying the goods - proper procedure under Section 9D of CEA followed or not while recording statements of various persons - HELD THAT - Evidently the statements will be relevant under certain circumstances and these are given in clauses (a) and (b) of sub-section (1). There is no assertion by either side that the circumstances indicated in (a) existed in the case. It leaves us with (b) which requires the court or the adjudicating authority to first examine the person who made the statement and form an opinion that having regard to the circumstances of the case the statement should be admitted in evidence - all the statements are not relevant to the proceedings. It has been held in a catena of judgments including M/S JINDAL DRUGS PVT. LTD. AND ANOTHER VERSUS UNION OF INDIA AND ANOTHER 2016 (6) TMI 956 - PUNJAB HARYANA HIGH COURT that section 9D is a mandatory provision and if the procedure prescribed therein is not followed statements cannot be used as evidence in the proceedings under Central Excise Act. Therefore the 35 statements relied upon in the SCN are not relevant and hence also not admissible. Once the registration is issued by the department the buyer of goods can procure goods from such a registered trader and take credit on the strength of such invoices. The case of the Revenue is that the traders and the manufacturers never existed but they issued Cenvatable invoices only on paper and had not supplied duty paid scrap at all and they could have supplied bazar scrap (post consumer scrap) against such invoices - As per the SCN the manufacturers and traders did not exist and for that reason Cenvat credit taken by the assessee needed to be reversed but the manufacturers and traders also existed at the addresses indicated therein and they were asked as to why penalties should not be imposed on them - according to the impugned order while these entities did not exist at all and for that reason Cenvat credit is inadmissible on the basis of the second stage dealer s invoices issued on the basis of the invoices issued by these manufacturers and first stage dealers on the one hand they did exist and had been served the SCN and notices of personal hearing but such opportunities were not availed. The appellant as the buyer cannot be expected to investigate if the departmental officers had issued the registrations correctly or not and take business decisions accordingly. The appellant is also neither required nor is competent to launch an investigation to see if the registered dealer who was issuing to him an invoice had in fact maintained the records properly and that he had procured the goods from a first stage dealer who existed at his address and further that first stage dealer had in fact procured the goods from a manufacturer and that such manufacturer (who is registered with the department) existed manufactured the goods accounted for them properly and issued a correct CENVATABLE invoice to the first stage dealer. The reasonable precautions which the appellant or any other assessee is expected to take is placing orders on a registered manufacturer or dealer and receiving goods along with a Cenvatable invoice indicating all required details. The assessee is not required to launch an investigation. At any rate as discussed above Revenue itself was ambiguous about the existence of these units from the time they were registered until and including when the impugned order was issued - there are no grounds to deny Cenvat credit to the assessee. Consequently the penalties imposed on Drolia and Choudhary also cannot be sustained. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Denial of Cenvat credit to the assessee.
2. Imposition of penalties on the assessee and individuals.

Summary of Judgment:

1. Denial of Cenvat Credit:
The assessee, a manufacturer of sponge iron and mild steel billets, availed Cenvat credit on inputs purchased from certain dealers. The Directorate General of Central Excise Intelligence (DGCEI) investigated and found that the manufacturers and traders did not exist at the addresses provided in the invoices, leading to the conclusion that only documents were supplied to enable Cenvat credit without actual supply of goods. The Show Cause Notice (SCN) issued relied on statements and documents which were not admissible as evidence due to non-compliance with Section 9D of the Central Excise Act, 1944. The Tribunal noted that the department's own registration of the dealers and subsequent cancellation indicated either fraudulent registration or a later realization of non-existence. The appellant had taken reasonable precautions by placing orders on registered dealers and receiving goods with proper invoices. Therefore, the denial of Cenvat credit was unjustified.

2. Imposition of Penalties:
The penalties imposed on the assessee and individuals were based on the same inadmissible evidence. The Tribunal highlighted the ambiguity in the department's stance on the existence of the manufacturers and traders, which affected the validity of the penalties. Consequently, the penalties on the assessee and the individuals (Drolia and Choudhary) were not sustainable.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals of the assessee and the individuals, thereby reversing the denial of Cenvat credit and quashing the penalties imposed. The order was pronounced in open court on 30/10/2023.