2016 (10) TMI 131 - AT - Central Excise

Cenvat demand - no manufacturing activity was noticed by the officers at the time of visit to the factory - partner admitted in his statement that no manufacturing activity took place - no material was purchased by him but cenvat credit was taken on the basis of bills mostly issued by M/s. Jagriti Plastics without receipt of accompanied material - Held that - from the process of manufacture it is easy to see that the item thinner can easily be made by mixing of various solvents, requiring even no electricity connection. Invoices for purchase of inputs as well as supply of thinners to various buyers were found. As such, it can not be concluded with certainty that no manufacture of thinner has happened in the appellant s factory. To establish that cenvat credit has been taken without the receipt of inputs, Revenue is required to produce positive evidence to the effect. 90% of the inputs are said to have been supplied by M/s. Jagriti Plastics. There is nothing on record to show that investigations having been undertaken against M/s. Jagriti Plastics for supply of material and other suppliers. The financial transactions involved in purchasing inputs from M/s. Jagriti Plastics as well as other suppliers have not been looked into. The most pertinent point to investigate would have been to probe cash flow back from the respondent to the supplier, substantiate the fact of non-receipt of inputs. Revenue s case is totally silent about the sale of finished goods by the respondent. Invoices were found indicating sale of finished goods to various buyers. Therefore, to sustain the allegation of no manufacture, Revenue is expected to undertake verification to establish whether the buyers have received such goods. Likewise financial transaction at the end of the finished products would also be relevant. We find that the investigations are not elaborate and are incomplete and inconclusive. To conclude that the inputs on which cenvat credit has been taken, have not been received in the factory of the assessee, it would be expected from the Revenue to show at least in a few cases, where the inputs have actually been received, if not in the respondent s factory. The respondents have taken the cenvat credit on inputs but have also cleared finished goods on payment of duty. Even though there is no discussion in the orders of the authorities below, we would expect that the cenvat credit availed on the inputs would also have been debited for making payment at the time of supply of finished goods. In such a scenario, the cenvat credit taken would also stand paid back, which could lead to revenue neutral situation. Therefore, we find no reason to interfere with the order of the Commissioner (Appeals) in which demand for recovery of cenvat credit has been set aside. - Decided against the Revenue

Summary

Issues:
1. Disallowance of cenvat credit by the Commissioner (Appeals).
2. Challenge by the Revenue against the order of the Commissioner (Appeals).

Detailed Analysis:
1. The Commissioner (Appeals) set aside the demand for disallowing cenvat credit of approximately ?34 lakhs against the assessee, a manufacturer of thinners and phosphate Chemicals. The original authority disallowed the credit based on the statement of a partner admitting no manufacturing activity took place. However, the Commissioner found the department's case lacking corroboration and evidence from major suppliers. The investigation's incomplete nature and lack of authenticity in financial transactions were highlighted. The department failed to prove the wrongful availing of cenvat credit without receiving inputs physically, leading to the demand being set aside.

2. The Revenue challenged the Commissioner (Appeals) order, arguing that the absence of machinery at the factory supported the partner's statement of no manufacturing activity. They cited evidence from vehicle owners suggesting non-transportation of inputs to the assessee. Additionally, reliance on case laws regarding clandestine activities was mentioned. During the hearing, the Revenue emphasized the lack of manufacturing activity observed during a visit and questioned the authenticity of the process of manufacturing thinners. They pointed out the absence of investigations into major suppliers and financial transactions, crucial for proving non-receipt of inputs. The Revenue's case overlooked discussions on the sale of finished goods, requiring verification of goods received by buyers and relevant financial transactions.

3. The appellate tribunal found the Revenue's investigations incomplete and inconclusive, especially regarding the receipt of inputs by the assessee. They highlighted the lack of elaborate investigations into vehicle numbers and emphasized the importance of establishing actual receipt of inputs. The tribunal noted the absence of discussions on debiting cenvat credit for payment of duty on finished goods, potentially leading to a revenue-neutral situation. Ultimately, the tribunal upheld the Commissioner (Appeals) order, rejecting the Revenue's appeals and maintaining the decision to set aside the demand for cenvat credit recovery.