2016 (2) TMI 534 - AT - Central Excise

Cenvat Credit - clandestine clearance of Inputs - It has been alleged in the show cause notice that the imported inputs so diverted to local markets appears to have been sold in cash to the persons, who did not need Central Excise invoices and no record has been kept by the assessee regarding such transactions. The buyers of such unaccounted raw materials appear to have used it for unaccounted production and clearance of articles of non-ferrous metal. And the input shown have been receipt in the factory at Silvasa by the assessee appears to have been substituted by bazaar (local) non-duty paid scraps. Held that - the non-receipt of inputs and non-use of the same in final product are based upon the statements and the records of transporter. But, the assessee during investigation categorically stated that they paid charges to the transporter, inputs were used in the manufacture of final product, duly recorded in their statutory records. The investigating officers had not verified the records of the assessee and merely proceeded on the basis of statement of third party. The inference of non-receipt of inputs and denial of Cenvat Credit on the basis of the statements of third party, who had failed to disclose the details of supply of inputs in mid-way, cannot lead any conclusion, the assessee in their statements stated the receipt of the inputs and used in the manufacture of final product and duly recorded in the statutory records, which cannot be discarded by mere assumption and presumption. Search was conducted at the premises of appellants, but, not a single evidence was found of purchase of bazaar scrap by the appellant as alleged in the show cause notice. - the said allegation is totally on the basis of assumption and presumption. - Demand set aside - Decided in favor of assessee.

Issues Involved:
1. Wrongful availing of Cenvat Credit.
2. Alleged diversion of imported inputs to the local market.
3. Reliance on third-party statements and documents.
4. Denial of cross-examination.
5. Comparison with a similar case involving a sister concern.

Detailed Analysis:

1. Wrongful Availing of Cenvat Credit:
The core issue revolves around the allegation that the assessee wrongly availed Cenvat Credit on imported inputs during the period from September 2004 to March 2006. The Adjudicating Authority confirmed the demand of Cenvat Credit of Rs. 61,32,005/- along with interest and imposed penalties on the assessee and its partner. The assessee contended that they received duty-paid inputs in their factory, used them in manufacturing final products, and recorded these transactions in statutory records. They argued that some documents were seized by the Directorate of Revenue Intelligence (DRI), which hindered their ability to produce all necessary documents during the investigation.

2. Alleged Diversion of Imported Inputs to the Local Market:
The Revenue alleged that the assessee diverted imported inputs to the local market, sold them in cash, and substituted the inputs shown in the factory with non-duty paid local scrap. The show cause notice stated that the imported inputs were sold to different buyers in cash without maintaining any records. The assessee denied these allegations, asserting that the stocks of finished goods and inputs tallied with their records, and there was no evidence of selling duty-paid inputs or purchasing local scrap.

3. Reliance on Third-Party Statements and Documents:
The case was primarily built on the documents and statements obtained from M/s Pankaj Shipping & Transport Company (PSTC), the transporter. The Adjudicating Authority relied on Daily Loading Reports (DLRs) and Monthly Loading Reports (MLRs) recovered from PSTC. However, the statements from PSTC employees were contradictory and lacked corroborative evidence. The Tribunal noted that duty cannot be levied based solely on third-party statements and documents unless corroborated with the assessee's records.

4. Denial of Cross-Examination:
The assessee was not allowed to cross-examine the third-party witnesses whose statements were used against them. The Tribunal emphasized that the right to cross-examination is crucial, especially when the statements are from third parties and form the basis of the allegations. The Tribunal cited various precedents, including the Delhi High Court's judgment in Basudev Garg Vs. CC, which underscored the necessity of cross-examination in quasi-judicial proceedings.

5. Comparison with a Similar Case Involving a Sister Concern:
The Tribunal referenced a similar case involving the assessee's sister concern, M/s Sunland Alloys, where the allegations were based on the same type of evidence from PSTC. In that case, the Tribunal allowed the appeals, finding that the evidence was not sufficient to prove the allegations. The Tribunal reiterated that without direct evidence of diversion or non-receipt of inputs, the allegations could not be sustained.

Conclusion:
The Tribunal concluded that the demand of Cenvat Credit along with interest and penalties on the assessee and its partner could not be sustained due to the lack of corroborative evidence and the denial of cross-examination. The appeals filed by the appellants were allowed with consequential relief. The judgment highlighted the importance of direct evidence and the right to cross-examination in adjudicating such cases.

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