2024 (7) TMI 380 - AT - Central Excise

CENVAT Credit - Receipt of unaccounted inputs without documents for compensating the inputs covered under CENVAT invoices purchased from ship breakers based in Alang and Sosiya - Availment of CENVAT Credit without actual receipt of inputs. HELD THAT - In the present case by not allowing the cross examination of witnesses in terms of Section 9(D), the said statements cannot be relied upon while adjudicating the case. In the present case except various statements, there is no other documentary evidence to establish that the appellant have not received the inputs and not used in the manufacture of the final product. As per the documentary evidence available with the appellant, it is clear that they have received inputs covered under the duty paying invoices, they have recorded the same in their books of accounts - Though, investigating agency presumes that against such payment the appellant have returned the money to ship breaking unit but to support this allegation, there is not a single evidence to show that the appellant has returned the money in cash to the supplier as this allegation is not substantiated by the investigation. It is found that under a common investigation relying on the same evidences and statements under the common alleged modus operandi show cause notices were issued to various other firms whose cases are on the same pedestal as the same present appellants. It is found that under a common investigation relying on the same evidences and statements under the common alleged modus operandi show cause notices were issued to various other firms whose cases are on the same pedestal as the same present appellants. In one of the case of C.C.E S.T. Silvasa vs. Vishal Casteels 2024 (1) TMI 881 - CESTAT AHMEDABAD this Tribunal has dismissed the Revenue s appeal, upholding the adjudication order whereby, in an identical case demand was set aside. It can be seen that in the present case as well as the case above a common investigation was conducted and same evidences were relied upon such as statements of brokers, transporters and ship breakers. Therefore, the ratio of the above decision is directly applicable in the facts of the present case. Considering the finding of the above decision and also the facts and circumstances of the present case, the Revenue could not establish the case of non-receipt of inputs beyond doubt. Therefore, the demand of Cenvat Credit is not sustained. The impugned order is not sustainable, hence, we set aside the same - Appeal allowed.

Issues Involved:
1. Receipt of unaccounted inputs without documents for compensating the inputs covered under CENVAT invoices purchased from ship breakers.
2. Availment of CENVAT Credit without actual receipt of inputs.
3. Violation of principles of natural justice due to denial of cross-examination of witnesses.
4. Reliance on statements and documents without direct evidence.
5. Imposition of penalties on the appellant and its partner.

Issue-wise Detailed Analysis:

1. Receipt of Unaccounted Inputs Without Documents:
The investigation alleged that the appellant received unaccounted inputs to compensate for the inputs covered under CENVAT invoices purchased from ship breakers. It was claimed that the appellant engaged in this practice from May 2007 to August/September 2008. The investigation relied on statements from brokers, transport vehicle owners, and ship breakers. However, the tribunal found that there was no direct documentary evidence to support this allegation. The statements were either retracted or not subjected to cross-examination, violating the principles of natural justice. The tribunal noted that the appellant had recorded the inputs in their books of accounts and issued the goods for production, which were cleared on payment of duty. The department failed to provide evidence that the appellant received different materials under the guise of the inputs covered by the invoices.

2. Availment of CENVAT Credit Without Actual Receipt of Inputs:
The investigation claimed that the appellant availed CENVAT credit without actually receiving the inputs. The tribunal observed that the department could not prove that the appellant did not receive the inputs covered under the duty-paying invoices. The appellant made payments through cheques/RTGS, and there was no evidence that the amounts were returned in cash. The tribunal emphasized that the burden of proof lies with the department to show that the appellant did not receive the inputs, which was not established in this case. The tribunal also referenced a similar case involving Vishal Casteels, where the demand was dropped due to insufficient evidence.

3. Violation of Principles of Natural Justice:
The appellant argued that the cross-examination of witnesses whose statements were relied upon was not allowed, violating Section 9D(1) of the Central Excise Act, 1944. The tribunal agreed, stating that the adjudicating authority grossly violated the principles of natural justice by not allowing cross-examination. The tribunal highlighted that for statements to be admissible as evidence, cross-examination is mandatory. Since the cross-examination was not allowed, the statements could not be relied upon for adjudication.

4. Reliance on Statements and Documents Without Direct Evidence:
The tribunal noted that the investigation relied heavily on statements and letters from various individuals without direct documentary evidence. Many statements were retracted, and the cross-examination of witnesses was not permitted. The tribunal found that the department could not establish that the appellant received different materials or diverted the goods covered under the CENVAT invoices. The tribunal emphasized that mere statements are not sufficient to prove fraudulent availment of CENVAT credit without corroborative evidence.

5. Imposition of Penalties:
The show cause notice proposed penalties on the appellant and its partner under various provisions of the Central Excise Rules and Act. The tribunal observed that penalties could only be imposed if there was evidence of dealing with goods knowing their confiscable nature. In this case, there was no evidence that the goods were liable for confiscation. Therefore, the tribunal found that the imposition of penalties was not justified.

Conclusion:
The tribunal set aside the impugned order, stating that the demand of CENVAT credit was not sustainable due to the lack of direct evidence and violation of principles of natural justice. The appeal was allowed with consequential relief, and the penalties imposed were also set aside.

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