2025 (4) TMI 362 - AT - Central Excise

Recovery of self-credit availed by the appellants in terms of the Notification No.56/2002-CE dated 14.11.2002 in terms of Section 11A of the Central Excise Act 1944 - erroneous refund in the absence of any order in review of the original orders passed ratifying the self-credit taken by the appellants - overstating of production in order to avail excess credit in cash - availment of CENVAT credit only on the strength of invoices wherein no goods have been physically received by the appellants - imposition of penalty on Senior Manager of the appellant No.1 - levy of penalty on juridical persons under Rule 26 of Central Excise Rules 2002. Whether the self-credit availed by the appellants in terms of the N/N. 56/2002-CE dated 14.11.2002 can be recovered in terms of Section 11A of the Central Excise Act 1944? - HELD THAT - In the facts and circumstances of the case where refund has been availed as self-credit and when proper officer has ratified such refunds after due examination this Bench and the Jurisdictional Hon ble High Court J K held relying on the decision of Hon ble High Court of Guwahati in the case of Jellapore Tea Estate 2011 (3) TMI 11 - GAUHATI HIGH COURT held that when refunds are issued in such circumstances provisions of Section 11A cannot be invoked without reviewing the original order as dealt in the forthcoming Paras. Moreover the appellant argues that what is involved in the impugned case is not duty but an amount and therefore provisions of section 11 A can not be invoked. Learned Counsel for the appellants relies on the ratio of some cases. This Bench in the case of Vee Ei Cee Industries 2018 (9) TMI 21 - CESTAT CHANDIGARH held that the amount already refunded to the appellant is not recoverable under Section 11A. Can such credit be termed as erroneous refund in the absence of any order in review of the original orders passed ratifying the self-credit taken by the appellants? - HELD THAT - In the instant case the appellant availed self-credit by way of refund in terms of the N/N. 56/2002; the jurisdictional Deputy/ Assistant Commissioner after examining the records to his satisfaction has permitted/ratified the refunds; the appellants were not informed of any deficiency as contemplated under Para 2C(e) of the Notification. Thus the order passed by the Deputy/ Assistant Commissioner assumes the character of an assessment order. The said order has not been reviewed and no appeal has been filed. Consequently no competent authority has held that the refund impugned were erroneous so as to initiate recovery proceedings as per the provisions of Para 2C(g) of the Notification and/or section 11A of the Central Excise Act, 1944. In view of the above discussion ratio of the cases discussed and the other cases relied upon by the appellant it is opined that the issue is resolved in favour of the appellants. Whether in the facts and circumstances of the case Revenue has established a case of overstating of production in order to avail excess credit in cash? - Whether in the facts and circumstances of the case the allegation of availment of CENVAT credit only on the strength of invoices wherein no goods have been physically received by the appellants is sustained? - HELD THAT - It is found that a minimum level of investigation is not carried out by the department. Surprisingly investigating a case of alleged excess show of production and clearance wrongful availment of Cenvat Credit no stock taking actual or estimated of raw materials and the final products was undertaken. Shortage/excess of raw material could have established the revenue s case at least to some extent. In respect of the alleged excess production no investigation at the buyers end to establish that they are non-existent or did not receive any material was conducted. It was not enquired as to how the financial transactions took place and if records were manipulated - there is force in the appellant s argument that if the appellant has taken excess self-credit it is only after excess payment; the situation is revenue neutral at least in the facts of the impugned case. As regards the allegation of wrongful credit availment is concerned we find that the statements of dealers who have been alleged to have issued invoices without actually supplying goods were not recorded. Transporters were not questioned; financial transactions have not been gone in to. The only evidence that revenue relied is the inconclusive findings on the basis of check-post records at interstate borders. The culpability of the dealers is also sought to be established on the basis of the reports that goods in respect of 32 Bills of Entry/ Invoice were not received by M/s CCPPL Ludhiana as the details supplied by them were not reflected at the appropriate ICC as per data supplied by the Punjab Sales Tax Department. The dealers were not even questioned on the same. It has been held in a catena of judgments that the onus to prove with the evidence is on the department who are making allegations rather than the on the appellant who is defending. As long as the department does not establish with a reasonable degree of evidence that the raw material/input was not duty paid the same was not received under the cover of documents prescribed thereof the same was not received in the factory of the manufacturer and that the same is not used in the manufacture of final products cleared on payment of duty or exported without payment of duty or under bond credit availed cannot be denied. The department cannot allege wrongful availment of Cenvat credit on the basis of half-baked investigation and half-hearted approach and ask the appellant to defend himself by establishing that credit was correctly availed. Conclusion - Revenue has not established wrongful availment of self-credit or wrongful availment of Cenvat credit by the appellants. The entire allegation and consequential quantification being based on assumptions presumptions and conjectures cannot be sustained as held in a number of judgments. Thus the appeals succeed on the merits of the case and the legal provisions. Therefore it is found that the other submissions on limitation imposition of penalty on different appellants etc. need no discussion as the demand itself is not sustainable. Appeal allowed.

Summary

The judgment from the Appellate Tribunal CESTAT Chandigarh addresses multiple appeals concerning the recovery of self-credit availed under Notification No. 56/2002-CE, alleged overstating of production to avail excess credit, and the imposition of penalties. The core issues examined include the applicability of Section 11A of the Central Excise Act for recovery of self-credit, the characterization of such credit as "erroneous refund," the substantiation of overstated production claims, the legitimacy of CENVAT credit availed without physical receipt of goods, and the justification of penalties imposed on the appellants.

The Tribunal first considers whether the self-credit availed can be recovered under Section 11A of the Central Excise Act. The appellants argue that the notification applies only to goods manufactured and cleared, not to alleged bogus clearances, and that the enabling provision for recovery is limited to irregular credit. The Tribunal acknowledges that Section 11A provides for recovery of "erroneous refund," but emphasizes that the procedure prescribed under the notification must be followed. The Tribunal notes that the Assistant Commissioner must inform the assessee of any irregular credit, which was not done in this case. Consequently, the Tribunal concludes that while Section 11A can be invoked in principle, the specific circumstances of this case, where refunds were ratified without review, preclude its application.

On the second issue, the Tribunal examines whether the credit can be termed "erroneous refund" without reviewing the original orders ratifying the self-credit. The appellants contend that the Assistant Commissioner had examined and ratified the self-credit, and without reviewing these orders, the demand for recovery is unsustainable. The Tribunal agrees, citing precedents that emphasize the necessity of reviewing original orders before invoking Section 11A. The Tribunal concludes that the absence of such a review renders the recovery proceedings invalid.

Regarding the alleged overstating of production, the Tribunal finds that the Revenue's case is based on inadequate investigation and lacks corroborative evidence. The Tribunal criticizes the absence of stock-taking and buyer-end investigations, noting that the allegations rely heavily on uncorroborated statements and electronic data not recovered per procedure. The Tribunal emphasizes that the Revenue failed to establish a case of overstated production or wrongful credit availment with a reasonable degree of evidence.

The Tribunal also addresses the issue of CENVAT credit availed without physical receipt of goods. It finds that the Revenue did not conduct a thorough investigation, such as questioning dealers or transporters, and relied on inconclusive check-post records. The Tribunal emphasizes that the onus to prove wrongful availment lies with the Revenue, not the appellants. The Tribunal concludes that the Revenue's allegations are based on assumptions and lack substantial evidence, rendering them unsustainable.

Finally, the Tribunal considers the imposition of penalties on the appellants. Given that the demand itself is not sustainable, the Tribunal finds no basis for imposing penalties. The Tribunal allows the appeals, granting consequential relief as per law.

Significant holdings from this judgment include the affirmation that Section 11A cannot be invoked without reviewing original orders ratifying refunds, the necessity of substantial evidence to support allegations of overstated production and wrongful credit availment, and the principle that the onus of proof lies with the Revenue in such cases. The Tribunal's decision underscores the importance of adhering to procedural requirements and evidentiary standards in recovery proceedings.