2025 (1) TMI 139 - HC - Central Excise

Tribunal can ignore inquiry/investigations conducted and statements recorded under Section 14 of the Central Excise Act, 1944 read with Section 193 and Section 228 of the Indian Penal Code or not - supplier of crude Menthol oil were found non-existence/fake during investigation - demand on account of assumption and presumption - fraud, wilful suppression/mis-declaration of the material facts - Benefit of N/N. 56/2002-CE dated 14.11.2002. HELD THAT - The appellant was required to demonstrate and prove that during the relevant period, when the refund was claimed by the respondent, it had not procured any raw material, nor had it undertaken any manufacturing process. This could have been determined by the appellant by conducting an inquiry/investigation specifically focused on these aspects of the matter. Indisputably, in the inquiry conducted by the Commissionerate, the respondent was not associated. The clear case of the respondent is that it procured raw material for its unit i.e, crude menthe oil, from various suppliers in Lukcnow and, therefore, it was not for the respondent to further find out and inquire as to how and from whom the suppliers had procured the raw material. The Commissionerate has undoubtedly conducted an elaborate inquiry, but could only conclude that the farmers, whose names were appearing on the vouchers seized from the possession of M/s Sachin and Nitin Enterprises were non-existent. The Commissionerate has, thus, seriously doubted the procurement of raw material by the suppliers of the respondent - The Adjudicating Authority has also ignored the fact that the respondent had installed two DG sets of 125 KVA to supplement the power. The case was clearly set up by the respondent before the Adjudicating Authority, but the same was not enquired into or investigated and the Adjudicating Authority rather placed sole reliance upon the investigation conducted by the Commissionerate. The CESTAT has rightly not approved the manner in which the proceedings were conducted by the Adjudicating Authority. In reply to the show cause notice issued by the jurisdictional Authority, the respondent had brought on record some evidences clearly demonstrating that not only the raw material stood procured, but the goods were also manufactured in the unit of the respondent from the procured raw material. The raw material was transported in trucks from outside the State of Jammu and Kashmir into the State. The jurisdictional officers of the Central Excise, the State Industries Department, and other statutory authorities had inspected the premises of the respondent from time to time and had never reported that the respondent s unit was defunct and was not engaged in the permitted manufacturing activity - All these evidences could not have been ignored by the jurisdictional Authority only on the ground that there was investigation report from the Commissionerate belying the claim of suppliers of the respondent that they had procured the crude mentha oil from different farmers in Barabanki District of U.P. Conclusion - The Tribunal has rightly not approved the manner in which the proceedings were conducted by the Adjudicating Authority. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The High Court of Jammu and Kashmir and Ladakh considered the following core legal questions in this judgment:

(i) Whether the Tribunal can ignore inquiry/investigations conducted and statements recorded under Section 14 of the Central Excise Act, 1944 read with Sections 193 and 228 of the Indian Penal Code?

(ii) Whether the Tribunal is correct in allowing the appeal of the respondent with consequential relief where the so-called supplier of crude Menthol oil was found non-existent/fake during investigation?

(iii) Whether the Tribunal is correct in allowing the appeal of the respondent with consequential relief by holding the demand on account of assumption and presumption is not sustainable, without going into the facts of the case, emerged during investigation, searches of premises of concerned, and follow-up investigation of the case?

(iv) Whether the Tribunal is correct in allowing the relief when the party had indulged in fraud, willfully suppressed/mis-declared the material facts, and also resorted to issuing invoices without manufacturing and passing the CENVAT Credit to downstream?

(v) Whether the impugned order passed by the Tribunal is justified in accordance with the provisions of Notification No. 56/2002-CE dated 14.11.2002?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Tribunal's Consideration of Inquiry/Investigations

- Relevant Legal Framework and Precedents: The issue revolves around the admissibility and weight of investigations conducted under Section 14 of the Central Excise Act, 1944, and related sections of the Indian Penal Code.

- Court's Interpretation and Reasoning: The court found that the Tribunal was correct in its approach. The Tribunal cannot rely solely on investigations conducted without the respondent's participation.

- Key Evidence and Findings: The investigations by the Commissionerate were conducted without involving the respondent, and the findings were based on the non-existence of suppliers.

- Application of Law to Facts: The court emphasized the necessity of involving the respondent in investigations to ensure compliance with principles of natural justice.

- Treatment of Competing Arguments: The court weighed the appellant's reliance on the investigation against the respondent's argument of procedural fairness and lack of direct evidence.

- Conclusions: The Tribunal rightly disregarded the investigation findings that were conducted without involving the respondent.

Issue (ii): Existence of Suppliers and Consequential Relief

- Relevant Legal Framework and Precedents: The issue pertains to the validity of claims based on the existence of suppliers under the Central Excise framework.

- Court's Interpretation and Reasoning: The court held that the Tribunal correctly allowed the appeal, as the existence of suppliers was not conclusively disproven in a manner that involved the respondent.

- Key Evidence and Findings: The investigation concluded that suppliers were non-existent, but the respondent was not involved in this inquiry.

- Application of Law to Facts: The court applied principles of natural justice, requiring a fair opportunity for the respondent to contest the findings.

- Treatment of Competing Arguments: The court considered the appellant's findings against the respondent's procedural defense.

- Conclusions: The Tribunal's decision to grant relief was upheld due to the lack of conclusive evidence against the respondent.

Issue (iii): Assumptions and Presumptions in Demand

- Relevant Legal Framework and Precedents: The issue involves the legal standards for sustaining demands based on assumptions and presumptions.

- Court's Interpretation and Reasoning: The court found that demands based on assumptions without factual investigation are unsustainable.

- Key Evidence and Findings: The investigation lacked direct evidence of the respondent's non-compliance.

- Application of Law to Facts: The court emphasized the need for concrete evidence rather than presumptive conclusions.

- Treatment of Competing Arguments: The court evaluated the appellant's presumptive claims against the respondent's factual rebuttals.

- Conclusions: The Tribunal's decision to reject demands based on assumptions was correct.

Issue (iv): Allegations of Fraud and Mis-declaration

- Relevant Legal Framework and Precedents: The issue concerns the legal implications of fraud and mis-declaration under the Central Excise Act.

- Court's Interpretation and Reasoning: The court held that allegations of fraud require substantial evidence and due process.

- Key Evidence and Findings: The appellant's case lacked direct evidence of fraudulent activities by the respondent.

- Application of Law to Facts: The court required a thorough investigation involving the respondent to substantiate fraud claims.

- Treatment of Competing Arguments: The court balanced the appellant's fraud allegations against the respondent's defense of procedural fairness.

- Conclusions: The Tribunal's decision to dismiss fraud allegations was upheld due to insufficient evidence.

Issue (v): Compliance with Notification No. 56/2002-CE

- Relevant Legal Framework and Precedents: The issue involves the interpretation and application of Notification No. 56/2002-CE.

- Court's Interpretation and Reasoning: The court found that the respondent complied with the notification, as the appellant's claims were not substantiated.

- Key Evidence and Findings: The respondent provided documentation supporting compliance with the notification.

- Application of Law to Facts: The court applied the notification's provisions to the respondent's documented compliance.

- Treatment of Competing Arguments: The court considered the appellant's non-compliance claims against the respondent's evidence of adherence.

- Conclusions: The Tribunal's decision to uphold compliance with the notification was affirmed.

3. SIGNIFICANT HOLDINGS

- Preserve verbatim quotes of crucial legal reasoning: "The Tribunal has rightly not approved the manner in which the proceedings were conducted by the Adjudicating Authority."

- Core principles established: The necessity of involving respondents in investigations to uphold principles of natural justice; demands based on assumptions require concrete evidence; fraud allegations necessitate substantial proof.

- Final determinations on each issue: The appeal was dismissed, affirming the Tribunal's decision to grant relief to the respondent and rejecting the appellant's claims based on insufficient evidence.