2019 (5) TMI 1339 - AT - Central Excise

Area Based Exemption - CENVAT credit - benefit under N/N. 56/2002-CE dated 14.11.2002 availed - it was alleged that J K based units are not purchasing raw material, so there is no question of manufacture of finished goods by J K based units, the goods manufactured were sold to UP based manufacturers who in turn partially exported their finished goods and partially sold in domestic market - demand confirmed 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 of manufacture by the Jammu based manufacturer. HELD THAT - The investigation was not conducted at the end of the Jammu based manufacturer and whole case has been based on the investigation conducted at Commissioner Central Excise, Merrut-II. Without investigation, it cannot be held that the Jammu based manufacturer were not manufacturer during the impugned period. Moreover, the entries of vehicles at the toll barriers also certified that the movements of raw material and finished goods. Further during the period of investigation itself, the Jammu based manufacturer were allowed continue their activity by procuring inputs from UP based supplier and selling goods manufacturing to their buyer/appellant. During the course of investigation, itself shows that the allegation is only on the basis of the assumption and presumption, therefore, it cannot be held that the appellants were not manufactured the goods during the impugned period. The Jammu based manufacturer were manufacturer during the impugned period and paid the duty on the goods manufactured by them. Consequently, the cenvat credit can t be denied to the recipient of goods located in the State of U.P i.e. M/s Sangam Aromatics - the allegations against the appellants are based on assumption presumption which is not sustainable - penalty also not imposable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Denial of CENVAT credit to M/s Sangam Aromatics.
2. Imposition of penalties on the co-appellants.
3. Allegation of non-existence of raw material suppliers.
4. Allegation of non-manufacture of goods by Jammu-based units.
5. Validity of investigation conducted by the Commissioner of Central Excise, Meerut-II.
6. Compliance with Section 9-D of the Central Excise Act.
7. Invocation of the extended period of limitation for issuing show cause notice.
8. Relevance of previous Tribunal decisions in similar cases.

Detailed Analysis:

1. Denial of CENVAT Credit to M/s Sangam Aromatics:
The appellants challenged the denial of CENVAT credit availed on goods purchased from Jammu-based manufacturers. The Tribunal noted that the investigation did not conclusively prove that the Jammu-based manufacturers did not manufacture the goods. The entries of vehicles at toll barriers certified the movement of raw materials and finished goods, indicating that the goods were indeed manufactured and transported. The Tribunal held that the appellants were entitled to avail CENVAT credit on the goods cleared by the Jammu-based manufacturers.

2. Imposition of Penalties on the Co-Appellants:
The Tribunal found that the penalties imposed on the co-appellants were based on assumptions and presumptions without concrete evidence. The investigation conducted by the Commissioner of Central Excise, Meerut-II, was not substantiated by any direct evidence against the appellants. Therefore, the penalties on the co-appellants were deemed unsustainable and were set aside.

3. Allegation of Non-Existence of Raw Material Suppliers:
The investigation alleged that the farmers from whom the inputs were purchased were non-existent, leading to the conclusion that the commission agents never supplied inputs to the Jammu-based manufacturers. However, the Tribunal found that the investigation did not include any direct examination of the Jammu-based manufacturers to verify these claims. The Tribunal held that without concrete evidence, the allegations of non-existence of raw material suppliers were not sustainable.

4. Allegation of Non-Manufacture of Goods by Jammu-Based Units:
The Tribunal noted that the investigation was solely based on the findings of the Commissioner of Central Excise, Meerut-II, and did not include any direct investigation of the Jammu-based manufacturers. The Tribunal emphasized that the entries of vehicles at toll barriers and the continued manufacturing activities during the investigation period indicated that the Jammu-based manufacturers were indeed manufacturing the goods. Therefore, the allegation of non-manufacture of goods was not upheld.

5. Validity of Investigation Conducted by the Commissioner of Central Excise, Meerut-II:
The Tribunal criticized the investigation for being based on assumptions and for not including any direct examination of the Jammu-based manufacturers. The Tribunal highlighted that the investigation failed to provide concrete evidence to support the allegations. The Tribunal referenced a similar case (Nanda Mint and Pine Chemicals Ltd.) where the investigation by the Commissioner of Central Excise, Meerut-II, was found to be flawed. The Tribunal concluded that the investigation was not valid and could not be the basis for denying CENVAT credit or imposing penalties.

6. Compliance with Section 9-D of the Central Excise Act:
The appellants argued that the procedure under Section 9-D of the Central Excise Act was not followed, as the adjudicating authority did not call the witnesses for examination in chief or offer them for cross-examination. The Tribunal agreed, citing the case of CCE, Delhi-I vs. Kuber Tobacco Industries, and held that the demand of duty could not be confirmed without following the proper procedure under Section 9-D.

7. Invocation of the Extended Period of Limitation for Issuing Show Cause Notice:
The appellants contended that the show cause notice was issued by invoking the extended period of limitation, which was not sustainable. The Tribunal did not find any justifiable reason for invoking the extended period of limitation and thus held that the show cause notice was not valid.

8. Relevance of Previous Tribunal Decisions in Similar Cases:
The Tribunal referenced several previous decisions, including the case of Nanda Mint and Pine Chemicals Ltd., where similar allegations were made, and the Tribunal had set aside the demands and penalties. The Tribunal found that the facts of the present case were identical to those in the referenced cases, and thus, the previous decisions supported the appellants' claims.

Conclusion:
The Tribunal set aside the impugned orders, allowed the appeals, and granted consequential relief to the appellants. The Tribunal held that the Jammu-based manufacturers were indeed manufacturing the goods, and the appellants were entitled to avail CENVAT credit. The penalties imposed on the co-appellants were also set aside. The investigation conducted by the Commissioner of Central Excise, Meerut-II, was found to be flawed and not substantiated by concrete evidence.

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