2019 (4) TMI 237 - AT - Central Excise

CENVAT Credit - area based exemption - genuineness of purchase of Menthol Solution & DMO - denial on the grounds that the farmers are non existence ensuring non supply of raw material by commission agents to J&K based units and absence of evidence by the appellant - Held that - The appellant had shown from the records that there was periodical checks conducted by the jurisdictional Central Excise officers, who found that the suppliers are manufacturers of the goods and we also take note of the fact that the suppliers has obtained necessary permission from the Directorate of Industries to manufacture the goods and necessary permission from the Pollution Control Board and moreover during the period, the suppliers are selling the goods and it was found that there was movement of goods inward/outward. The suppliers are manufacture of goods and have cleared the same on payment of duty, in that circumstances, the cenvat credit availed by the appellant cannot be denied - the appellant have correctly availed the cenvat credit on the goods supplied by their suppliers located in the state of Jammu & Kashmir - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Investigation and findings by the Commissioner of Central Excise, Meerut-II.
2. Validity of the show cause notices issued to UP-based manufacturers and J&K-based manufacturers.
3. Allegations of non-existence of farmers and non-supply of raw materials.
4. Examination of the manufacturing activities and the movement of goods.
5. Entitlement to Cenvat credit and area-based exemption under Notification No. 56/2002-CE.

Issue-wise Detailed Analysis:

1. Investigation and Findings by the Commissioner of Central Excise, Meerut-II:
The investigation initiated by the Commissioner of Central Excise, Meerut-II, targeted various units purchasing Menthol Solution and De-mentholised Oil from Jammu & Kashmir-based units. The investigation revealed that commission agents were not maintaining proper records of raw material sales or purchases and issued Kissan Kharid Patra to non-existent farmers. Based on this, the Meerut Commissionerate concluded that J&K-based units were not purchasing raw materials, questioning the manufacture of finished goods by these units. Consequently, show cause notices were issued to UP-based manufacturers to deny Cenvat credit and to J&K-based manufacturers to demand duty refunds.

2. Validity of the Show Cause Notices Issued to UP-based Manufacturers and J&K-based Manufacturers:
The Tribunal noted that similar issues had been addressed in previous cases such as S.B. Aromatics vs. CCE & ST, Jammu & Kashmir and Nanda Mint and Pine Chemicals Ltd. It was observed that the investigations were not conducted at the end of the appellants, and the entire case was based on investigations by the Meerut Commissionerate. The Tribunal highlighted that without proper investigation at the appellants' end, it could not be concluded that they were not manufacturing the goods during the impugned period.

3. Allegations of Non-existence of Farmers and Non-supply of Raw Materials:
The Tribunal found that the sole allegation against the appellants was based on the assumption that farmers from whom inputs were purchased were non-existent. Consequently, it was alleged that commission agents never supplied inputs to the appellants, and the appellants did not manufacture or sell the goods. However, the Tribunal noted that periodic checks by jurisdictional Central Excise officers and other departments confirmed the manufacturing activities and movement of goods, contradicting the allegations.

4. Examination of the Manufacturing Activities and Movement of Goods:
The Tribunal took note of several pieces of evidence indicating the manufacturing activities of the appellants. These included periodical checks by Central Excise officers, permissions from the Directorate of Industries and Pollution Control Board, and entries of vehicles at toll barriers. These evidences demonstrated the movement of raw materials and finished goods, supporting the appellants' claim of manufacturing activities.

5. Entitlement to Cenvat Credit and Area-based Exemption under Notification No. 56/2002-CE:
The Tribunal observed that the appellants were entitled to the benefit of the exemption Notification No. 56/2002-CE dated 14.11.2002, as they were manufacturing units in the state of Jammu & Kashmir. The Tribunal held that the suppliers were manufacturers of goods and had cleared the same on payment of duty. Therefore, the Cenvat credit availed by the appellants could not be denied. The Tribunal set aside the impugned orders and allowed the appeals filed by the appellants with consequential relief.

Conclusion:
The Tribunal concluded that without concrete evidence against the appellants, the proceedings were not sustainable. The show cause notices issued were based on assumptions and presumptions without proper investigation at the appellants' end. Consequently, the Tribunal allowed the appeals, set aside the impugned orders, and granted consequential relief to the appellants.