2024 (4) TMI 1037 - AT - Central Excise

Denial of irregularly availed CENVAT Credit - allegation on the ground that there was no manufacturing facility in factory premises and appellant was engaged only in paper transactions - cross-examination of statement of witnesses not allowed - HELD THAT - In this case the appellant has intimated suspension of their manufacturing activities vide letter dated 10.07.2008 and thereafter surrendered their registration on 01.08.2008 and whole of the investigation have been started thereafter. Moreover the appellant has procured inputs from various dealers manufacturers and suppliers and made payments through account payee cheques and investigation was conducted at their end and no inculpatory statement has been made by the supplier of the goods. Further the appellant has supplied to various recipients of the goods whose investigation was also conducted at their end - It is also evident on record that whatever Cenvat credit has been taken by the appellant the appellant has utilized the same for payment of duty on the clearance of the goods and also paid sufficient amount of duty through PLA. The case of the Revenue is based only on the statements of certain transporters and on assumption and presumption that as no machinery was found at the time of investigation the appellant was involved only on paper transactions and certain transporters have made inculpatory statements against the appellant - It is found that the transporters were not allowed to be crossexamined by the appellant in terms of section 9D of the Central Excise Act 1944 which prescribes that to rely on the statement of a witness the witness has to be tested by recording their statement at the time of adjudication in chief and thereafter to offer for cross-examination which has not been done in this case therefore the statement of the transporters which are inculpatory cannot be relied upon in terms of Section 9D of the Act. The appellant is entitled to take Cenvat credit which has been utilized for payment of duty and the appellant has paid duty through PLA also. In that circumstances the impugned proceedings are not sustainable - the demand on account of denial of Cenvat Credit is set aside as the demand against the appellant is not sustainable therefore penalty on the appellants are not imposable. Moreover the appellant No.1 is the proprietor of the appellant No.2 therefore penalty on both the appellant is also not sustainable in the facts and circumstances of the case. The impugned demand confirmed and penalty imposed on the appellant are set aside - Appeal allowed.

Issues Involved:
1. Denial of Cenvat Credit.
2. Imposition of Penalties on the appellants.
3. Allegations of paper transactions without actual manufacturing.
4. Procedural lapses and non-joinder of essential parties.
5. Invocation of extended period for demand.
6. Legality of penalties imposed on both the proprietorship firm and the proprietor.

Summary:

Denial of Cenvat Credit:
The appellants were alleged to have availed Cenvat Credit irregularly by engaging in paper transactions without actual receipt of inputs or manufacturing operations. The investigation revealed that the appellants had procured raw materials and issued invoices but were not found to have sufficient manufacturing facilities. Statements from transporters and other parties were used to support the allegations.

Imposition of Penalties:
The adjudicating authority imposed penalties on both the proprietorship firm and the proprietor. The appellants argued that since the proprietor and the firm are one and the same, separate penalties should not be imposed. The Tribunal found this argument valid and set aside the penalties on the proprietor.

Allegations of Paper Transactions:
The investigation was initiated after the appellants had surrendered their central excise registration. Statements from various parties, including transporters, were used to allege that the appellants were involved in paper transactions. However, the Tribunal found that the appellants had made payments through account payee cheques and had also paid duty through PLA, indicating genuine transactions.

Procedural Lapses and Non-Joinder of Essential Parties:
The appellants contended that the show cause notice (SCN) was prejudged and suffered from non-joinder of essential parties like the suppliers and purchasers of the goods. The Tribunal noted that the suppliers and purchasers confirmed the transactions, and the transporters' statements were not cross-examined as required u/s 9D of the Central Excise Act, 1944.

Invocation of Extended Period for Demand:
The demand covered the period from June 2007 to July 2008, with the SCN issued on 24.08.2009. The appellants argued that the extended period could not be invoked. The Tribunal found that the investigation started after the surrender of registration, and there was no cogent evidence to support the allegations of paper transactions.

Legality of Penalties Imposed:
The Tribunal observed that the penalties imposed on both the proprietorship firm and the proprietor were not sustainable. Since the demand on account of denial of Cenvat Credit was set aside, the penalties were also not imposable.

Conclusion:
The Tribunal set aside the impugned demand and penalties, allowing both appeals with consequential relief. The order was pronounced in the open court on 25.04.2024.

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