2018 (6) TMI 40 - AT - Central Excise

Denial of CENVAT credit - fake invoices without receipt of raw material - diversion of raw material - demand of amount alongwith interest and penalty - Held that - Revenue has come to a finding of non receipt of raw material on the ground that the said two traders who have supplied the raw material to the appellant, under the cover of their invoices, never purchased the rounds of standard specifications from RINL, which was the requirement of the contract. Even if the above allegation of the Revenue are accepted, this will lead to one factor that the appellant did not use the standard specifications material, as specified in the contract. The said fact will not lead to inevitable conclusion that no raw material was ever received by the assessee. The Revenue has not produced any evidence that if the raw material was not received by the present appellant, where was the same diverted - The Revenue has neither alleged nor produced any evidence to show any alternate source of procurement of said raw material. CENVAT credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of credit on the basis of alleged fake invoices.
2. Allegations of non-receipt of raw material.
3. Use of non-standard raw material in manufacturing.

Analysis:
1. The case involved the appellant, engaged in manufacturing Elastic Rail Clips (ERC) for Railways, claiming Central Excise duty credit based on invoices from two dealers providing raw materials. The Revenue alleged these dealers issued invoices without supplying the raw material, leading to a show cause notice proposing denial of credit amounting to around ?12 lakhs. The original adjudicating authority confirmed the demand and imposed penalties, which was upheld by the Commissioner (Appeals), resulting in the present appeal.

2. The Revenue contended non-receipt of raw material as the two dealers did not purchase the specified standard raw material from the manufacturer, as required by the contract. However, the appellant argued that even if the material did not meet standard specifications, it did not imply non-receipt. The appellant's final product, cleared after paying duty, indicated the use of raw material. The absence of evidence regarding diversion of raw material or alternate procurement source raised doubts on the Revenue's claim. The Tribunal noted the lack of proof that the final product supplied to Railways was substandard or rejected, leading to the conclusion that denying credit was unjustified.

3. The Tribunal emphasized that the Revenue failed to establish that the appellant never received the raw material, despite deviations in standard specifications. While acknowledging the use of potentially sub-standard material, the Tribunal highlighted the absence of evidence showing the final product's rejection by Railways or disputes over quality. Consequently, the Tribunal set aside the impugned order, allowing the appeal and granting relief to the appellant.

This judgment highlights the importance of substantiating allegations with concrete evidence in cases involving denial of credit based on invoice discrepancies and non-standard raw material use, emphasizing the need for thorough investigation and proof to support such claims in excise duty matters.