2024 (6) TMI 842 - AT - Central Excise

Denial of CENVAT Credit - levy of penalty - Clandestine Removal - physical shortage of huge quantity of the raw materials than the actual quantity of recorded stocks - onus to prove - cross-examination of witnesse - admissibility of evidences. Clandestine Removal - physical shortage of huge quantity of the raw materials than the actual quantity of recorded stocks - HELD THAT - The reasons for shortage has been explained by the appellant but no verification was conducted by the department to find out the actual true. It is noticed that only one theft event has been detected by the appellant on 02.10.2011 and the same was reported to the local police - In the present matter department merely assumed that the said shortage was due to theft. Further it is also found that there is no other corroborative evidence to establish that the shortage was on account of short-receipt of raw material. In that circumstances, we hold that the investigation was conducted by the Revenue is deficient and incomplete. In that circumstances, the charge of shortage of inputs stands disproved. CENVAT Credit - HELD THAT - There is no evidence, that the shortage of inputs are due to diversion of inputs or theft of the inputs or clandestine clearances of inputs. When there is no finding that the inputs on which credit has been taken were clandestinely removed/ diverted what remains is improper accounting of the inputs. For improper accounting the cenvat credit cannot be demanded. In these circumstances, there is no evidence to sustain a finding that this is a case of irregular or incorrect taking or utilisation of credit. In such a situation, no cenvat demand is sustainable under Rule 14 of Cenvat Credit Rules, 2004. Admissibility of evidences - HELD THAT - Statements recorded during investigation in the present matter, whose makers are not examination-in-chief before the adjudicating authority, would have to be eschewed from evidence, and it will not be permissible for Ld. Adjudicating Authority to rely on the said evidences. Therefore, none of the said statements were admissible evidence in the present case - it is not found that the impugned order to be sustainable. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Denial of Cenvat credit and imposition of penalties.
2. Alleged theft and physical shortage of raw materials.
3. Implementation and reconciliation of SAP ERP system.
4. Alleged improper accounting and diversion of inputs.
5. Refusal of cross-examination of witnesses.
6. Allegations of fake invoices without actual receipt of goods.

Summary:

Denial of Cenvat Credit and Imposition of Penalties: The appellants challenged the Order-In-Original denying Cenvat credit and imposing penalties. The investigation revealed physical shortages of raw materials, leading to show cause notices and subsequent confirmation of demands and penalties.

Alleged Theft and Physical Shortage of Raw Materials: The investigation by DGCEI officers concluded a significant shortage of raw materials. The appellant argued that the shortage was due to improper recording during the implementation of the SAP ERP system and not due to theft. The Tribunal noted that only one theft incident was reported, and there was no evidence of continuous theft or removal of materials.

Implementation and Reconciliation of SAP ERP System: The appellant claimed that the discrepancies were due to the transition to the SAP ERP system, which initially led to improper recording of material consumption. The Tribunal found that the SAP entries were made to reconcile actual stock with the system and not to conceal any removal of materials.

Alleged Improper Accounting and Diversion of Inputs: The Tribunal observed that the investigation lacked evidence of diversion or clandestine removal of inputs. The shortage was attributed to improper accounting during the SAP implementation. The Tribunal emphasized that assumptions and presumptions without tangible evidence could not sustain the demand.

Refusal of Cross-Examination of Witnesses: The Tribunal noted that the refusal to grant cross-examination of witnesses weakened the evidentiary value of their statements. The reliance on statements without cross-examination was deemed insufficient to support the charges.

Allegations of Fake Invoices Without Actual Receipt of Goods: The Tribunal found no documentary evidence supporting the allegation of fake invoices. The statements of individuals like Shri Hasmukbhai Patel were not corroborated with concrete evidence, and the refusal of cross-examination further invalidated these claims.

Conclusion: The Tribunal set aside the impugned order, stating that the investigation was deficient and incomplete. The demand for Cenvat credit recovery was based on presumptions without substantial evidence. The appeals were allowed with consequential relief, as per law.