2018 (11) TMI 412 - AT - Central Excise

CENVAT Credit - fake invoices - non-receipt of raw materials like Pig Iron, Iron Scrap and MS Scrap - case of Revenue is that these items were neither received by the appellants nor used in their factory premises for manufacture of their finished goods and only the invoices were received to take ineligible cenvat credit - demand mainly based on statements and opinion of various persons - Held that - The report of the Daily News Paper i.e. Financial Express of 06.02.2004 confirms the version of the appellant that during the impugned period there was a shortage of pig iron and the appellants have to supply goods to their buyers, therefore, the appellants used HR Coils/Sheets to manufacture of iron castings and no contrary evidence has been produced by the revenue to counter the contents of the article published in Financial Express, therefore, it cannot be said that the appellants have never used H.R. Coils/Sheets to manufacture of Iron Castings. Reliability on statements - Held that - During the course of investigation, various statements of Shri Rakesh Gupta, proprietor of M/s Shivam Corporation were relied upon but during the course of cross examination, Shri Rakesh Gupta confirmed that his statements were recorded in threat and coercion and he has supplied goods against all the invoices and received consolidated payments periodically from the buyers in respect of all the raw materials. No counter statements of Shri Rakesh Gupta in cross examination has been produced by the revenue, therefore, the statements given by Shri Rakesh Gupta during the course of investigation cannot be relied upon - Moreover, the other supplier, namely, M/s Ganesh Enterprises and M/s Gautam Steel Traders were not appeared for cross examination, therefore, their statements cannot be relied upon. Also it cannot be said that the use of HR Coils/Sheets is not economically viable when the appellants have earned profit during the impugned period. Another allegation made against the appellant is that they have received the payments made through cheque in cash, therefore, it is only the paper transaction - Held that - The revenue has failed to come up with positive evidence to show that the appellants have received cash against the cheques issued by the appellant for the impugned goods against the invoices. It is also revealed from the records that the appellants are procuring pig iron from the same supplier and mode payment in the same, in that circumstances, how it can be possible with regard to H.R. Coils/Sheets, therefore, the said allegation is not justified by the Revenue. If it is presumed that the impugned goods, namely, H.R. Coils/Sheets were not received by the appellants then from where the appellants received the raw-materials to the manufacture of such huge quantity of goods which have been cleared on payment of duty, no investigation was conducted by the revenue to that effect, in that circumstances, it cannot he held that the appellants have not received H.R. Coils/Sheets to manufacture of iron castings. Revenue has failed to establish with the corroborative evidence that the appellants have not received H.R. Coils/Sheets to manufacture of iron castings in their factory premises, therefore, the demands against the appellants are not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of ineligible Cenvat credit due to non-receipt and non-use of HR Coils/Sheets in the manufacture of grey iron castings.
2. Validity of technical expert opinions and their cross-examinations.
3. Reliability of statements from suppliers, manufacturers, and other witnesses.
4. Alleged flow-back of payments made through cheques and received back in cash.
5. Verification of vehicle numbers and their capability to transport goods.
6. Economic viability of using HR Coils/Sheets as raw materials.
7. Investigation adequacy and procedural compliance by the adjudicating authority.

Detailed Analysis:

1. Allegation of Ineligible Cenvat Credit:
The Revenue alleged that the appellants procured HR Coils/Sheets, which were not used in the manufacture of grey iron castings, and only invoices were received to claim ineligible Cenvat credit. The Tribunal found that the appellants used HR Coils/Sheets due to a shortage of pig iron during the impugned period. The Financial Express article dated 06.02.2004 confirmed the shortage, supporting the appellants' claim.

2. Validity of Technical Expert Opinions:
The technical opinion from experts Shri M.K. Banerjee and Dr. S.K. Goel stated that HR Coils/Sheets cannot be melted in induction furnaces. However, the appellants had both cupola and induction furnaces. The experts' statements were not cross-examined, and therefore, their opinions were not fully reliable. The appellants produced opinions from two Chartered Engineers who confirmed that HR Coils/Sheets could be used in both furnaces, and these opinions were not cross-examined by the Revenue, making them admissible in favor of the appellants.

3. Reliability of Statements from Suppliers and Manufacturers:
Statements from various suppliers and manufacturers were relied upon by the Revenue. However, many witnesses did not appear for cross-examination, and some statements were allegedly taken under coercion. The Tribunal noted that identically worded statements from other manufacturers were not reliable. The Tribunal emphasized that if witnesses do not appear for cross-examination, their statements should be disregarded, as per the decision in Karan Traders vs. JT Commissioner of Central Excise and Commissioner of Central Excise Delhi-I vs. Kuber Tobacco India Ltd.

4. Alleged Flow-Back of Payments:
The Revenue alleged that payments made through cheques were returned in cash, indicating paper transactions. The Tribunal found inconsistencies in the Revenue's claims, noting that payments were made in April 2004 for goods invoiced in May 2004, making the flow-back allegation unsustainable.

5. Verification of Vehicle Numbers:
The Revenue claimed that vehicle numbers used for transporting goods were either incapable of carrying the load or did not go to the appellants' premises. The Tribunal found that the vehicle numbers related to consignments received by M/s Shivam Corporation and not directly to the appellants. There was no investigation into the drivers or the actual transportation of goods, making the allegation unsustainable.

6. Economic Viability:
The Revenue argued that using HR Coils/Sheets was not economically viable. However, the Tribunal noted that the prices of pig iron and HR Coils/Sheets were comparable during the impugned period. The appellants also earned profits, indicating that the use of HR Coils/Sheets was economically viable.

7. Investigation Adequacy and Procedural Compliance:
The Tribunal criticized the Revenue for not conducting a thorough investigation, such as visiting the factory premises or recording statements from employees/workers. The procedural requirements under Section 9(D) of the Central Excise Act, 1944, were not followed, making the statements relied upon by the adjudicating authority inadmissible.

Conclusion:
The Tribunal held that the Revenue failed to establish with corroborative evidence that the appellants did not receive HR Coils/Sheets for manufacturing iron castings. Consequently, the demands and penalties against the appellants were set aside, and the appeals were allowed with consequential relief.