2017 (3) TMI 1210 - AT - Central Excise

CENVAT credit - Concast blooms - structural cobbles - rail cuttings - The main grounds of denial of credit are that the said inputs are Mild Steel products which can be used directly for re-rolling - whether the denial on credit was justified when the assessee claims that the denial was solely based on presumptions and surmises - The allegations are mainly about the improbability of selling final product at a loss; electricity and gas consumption being not in line with usage of such raw materials in the furnace; low yield of final product and non-availability of details of transport of raw material Held that - the findings in the impugned order regarding non-receipt of materials in the factory of the appellant is not justifiable. The appellants submitted yearwise details of purchase of these inputs consumed by them and quantity sold as such during the material period. Even when the items were sold as such, the buyer has used such material for melting purposes. These assertions by the appellant, some of which are supported by the documentary evidence, have not been subjected to cross verification by the officers before proceeding to deny the credit. Further, the presumption that defective concast bloom is a MS item and can be used for rerolling purpose has been contested as incorrect by the appellant. It is the submission of the appellant that even during the visit by the audit officers, the appellants sought to demonstrate the usage of the duty paid inputs in their furnace. Regarding the yield being on the lower side, we note that a verification has been conducted by the Income Tax Department to find out the burning loss in another similarly situated unit. It was recorded that the yield varies from 82.87% to 85.21% - various inferences made in the impugned order, at best can lead to a suspicion regarding possible improprietary on the part of the appellant. However, the same is not sufficient to deny the credit of inputs received, without any corroborative evidence of non-receipt or diversion of received inputs. We find in the present case no such evidence has been brought forward by the Revenue. The inferences based on possible loss on sale, lesser usage of electricity or gas etc. are not sufficient enough to deny credit on inputs which are otherwise legitimately available to the appellant. Regarding non-maintenance of separate inventory of inputs, we find that the inputs were received and records of their receipt was maintained by the appellant. However, the inventory was not maintained individually on different inputs. In our opinion, this by itself cannot lead to the denial of credit on duty paid inputs. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Wrongful availing of Cenvat credit on inputs not used in the manufacture of final products.
2. Assumptions and presumptions without corroborative evidence for denial of credit.
3. Non-maintenance of separate records for raw materials.
4. Imposition of penalty and demand for an extended period.

Detailed Analysis:

1. Wrongful Availing of Cenvat Credit:
The appellants were accused of wrongfully availing Cenvat credit on Concast blooms, structural cobbles, and rail cuttings, which were allegedly not used in the manufacture of final products. The Original Authority disallowed the Cenvat credit of ?1,15,16,118/- and imposed an equal amount of penalty. The denial was based on the improbability of using such inputs due to their physical dimensions and the lack of business sense in selling MS Ingots at a loss. Additionally, the electricity consumption was deemed inconsistent with the usage of these inputs, and there were no consignment notes to prove the transportation of materials.

2. Assumptions and Presumptions Without Corroborative Evidence:
The appellants contested that the denial of credit was based on assumptions and lacked corroborative evidence. They argued that there was no verification of the process undertaken by them or any evidence of non-receipt or diversion of the raw materials. The statement given by the Director of the appellant company, which explained the queries raised by the officers, was not discussed in the impugned order. The appellants maintained that credit taken on duty-paid raw materials received in their factory could not be disallowed without evidence of diversion or illicit removal.

3. Non-Maintenance of Separate Records:
The appellants admitted to not maintaining separate records for the purchase and use of raw materials, which was considered a procedural lapse. They argued that this lapse should not lead to the denial of substantive benefits. The Revenue's assertion that the denial of credit was sustainable due to the non-maintenance of separate records was contested by the appellants.

4. Imposition of Penalty and Demand for Extended Period:
The appellants contested the imposition of penalties and the demand for an extended period. They argued that there was no suppression of facts as they had regularly submitted ER-1 returns with necessary enclosures. The Revenue's claim of suppression was based on the audit of books and accounts, which the appellants argued was not justifiable.

Findings:
The Tribunal noted that the denial of Cenvat credit was based on inferences rather than recorded evidence. The appellants' submissions, supported by documentary evidence, were not cross-verified by the officers. The Tribunal found that the various assertions made in the impugned order were contested by the appellants and not supported by evidence. The Tribunal also noted that the appellants had paid service tax on the transportation of inputs and filed ST-3 returns, which indicated the receipt of materials in their factory.

Conclusion:
The Tribunal concluded that the denial of credit was not legally sustainable as it was based on assumptions and lacked corroborative evidence. The Tribunal set aside the impugned order and allowed the appeal, noting that the inferences made by the Original Authority were insufficient to deny credit on inputs received by the appellants.

Order:
The appeal was allowed, and the denial of Cenvat credit was set aside. The order was pronounced in open court on 20/02/2017.