2024 (10) TMI 809 - AT - Central Excise

CENVAT Credit - Crude Mentha Oil - denial of request for cross examination - SCN adjudicated only on the basis of assumptions and presumptions or not - extended period of limitation - HELD THAT - Since the departmental officers had verified the facts which had been declared by the appellant in the statutory records and the test reports also indicated that the goods would be Crude Mint Oils, the genuineness of test report conducted after receipt of the goods from Amarnath Industries, cannot be doubted and so the request for cross examination of departmental officers and other persons should not be granted. The Commissioner also observed that the case against the appellant is not only on the basis of statements of employees of Amarnath Industries, but also on circumstantial test reports and, therefore, denying the right of cross examination would not be violative of principle of natural justice. In the first instance, under section 9D of the Central Excise Act it is clear that a statement made during investigation/enquiry before a central excise officer cannot be relied upon unless it is first admitted and for this the person who made the statement has to be summoned and examined as a witness in adjudication proceedings. Failure to do so would mean that the adjudicating authority has relied upon an irrelevant material and, therefore, the order would be vitiated. The question of cross examination would arise only after examination of the person who makes statement before the central excise officer. The Commissioner has placed reliance upon the statements without following the procedure prescribed under section 9D of the Central Excise Act. The order passed by the Commissioner deserves to be set aside for this reason also - The penalties imposed upon the Managing Director of the appellant cannot also, for the same reasons, be sustained. The impugned order dated 17.05.2010 passed by the Commissioner so far as it concerns the appellant deserves to be set aside and is set aside - Appeal allowed.

Summary

Issues Involved:

1. Denial of CENVAT credit availed by the appellant on Crude Mentha Oil.
2. Invocation of the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act.
3. Imposition of penalty and interest under rule 15(2) of the 2004 Credit Rules and section 11AC of the Central Excise Act.
4. Admissibility of statements and denial of cross-examination under section 9D of the Central Excise Act.

Detailed Analysis:

1. Denial of CENVAT Credit:

The appellant, a manufacturer of Mentha products, availed CENVAT credit on Crude Mentha Oil purchased from Amarnath Industries. The Commissioner disallowed this credit, asserting that the goods received were not processed Menthol but Crude Mentha Oil. The appellant argued that Amarnath Industries was a registered manufacturer and had paid duty on the goods, thus entitling the appellant to CENVAT credit. The Tribunal accepted the appellant's contention, noting that once duty paid by Amarnath Industries was accepted by the department, the CENVAT credit could not be denied to the appellant. This position was supported by precedents, including decisions from the Gauhati and Bombay High Courts, which held that once duty is accepted at the supplier's end, credit cannot be denied to the recipient.

2. Invocation of the Extended Period of Limitation:

The department invoked the extended period of limitation, alleging that the appellant intended to evade duty by availing CENVAT credit on Crude Mentha Oil. The appellant contended that this invocation was unjustified as there was no deliberate intention to evade duty. The Tribunal found merit in the appellant's argument, noting that the duty payment at Amarnath Industries was accepted, and there was no evidence of willful misstatement or suppression of facts by the appellant.

3. Imposition of Penalty and Interest:

The Commissioner imposed penalties and interest on the appellant under rule 15(2) of the 2004 Credit Rules and section 11AC of the Central Excise Act. The appellant challenged this imposition, arguing that penalties could not be justified in the absence of any fraudulent intent or suppression of facts. The Tribunal agreed with the appellant, referencing legal precedents that penalties and interest are not warranted when the duty payment is accepted at the supplier's end and there is no evidence of intent to evade duty.

4. Admissibility of Statements and Denial of Cross-Examination:

The appellant argued that the statements relied upon by the Commissioner were inadmissible as they did not comply with section 9D of the Central Excise Act, and the denial of cross-examination violated principles of natural justice. The Tribunal supported this view, citing the Allahabad and Punjab and Haryana High Courts' rulings that statements made during investigations cannot be relied upon unless admitted in evidence, which requires the person making the statement to be examined as a witness. The Tribunal found that the Commissioner failed to follow this procedure, rendering the reliance on such statements improper and the order vitiated.

Conclusion:

The Tribunal set aside the impugned order dated 17.05.2010 by the Commissioner, allowing the appeal with consequential relief to the appellant. The decision emphasized the importance of adhering to procedural requirements under section 9D and upheld the appellant's entitlement to CENVAT credit, rejecting the imposition of penalties and interest.