2012 (4) TMI 160 - AT - Central Excise

Appeals allowed due to premature denial of credit, emphasizing cross-examination and conclusive evidence

The appeals were allowed as the denial of cenvat credit to the manufacturer was deemed premature without the conclusion of proceedings against the ... Appellant is manufacturer of copper wires falling under chapter heading No. 7408 of Central Excise Tariff Act, 1985 - procured allegedly copper ingot converted by into copper wires through certain job workers –claiming cenvat credit on the basis of invoices issued by supplier - Revenue rejected the claim of CENVAT stating that assessee was not supplied copper ingots and cenvat credit has been obtained by the appellant on the basis of fake invoices - the adjudicating authority placing reliance on the statement of an employee of supplier of ignot came to the conclusion that no copper ingots corresponding to the invoices were manufactured or transported to the appellant from factory – appellant contented that the appellant was not allowed to cross - examine the statement of employee of supplier - Held that:- This case critically depends on proving that manufacturer of copper ingot did not have the facility to manufacture it in his factory - only evidence appearing against the appellant is the statement of authorized Signatory of manufacturer of copper ingot - if the SCN is to be adjudicated on the bare evidence relied upon in the SCN, cross-examination of authorized Signatory of manufacturer of copper ingot is necessary - - matter is remitted back to the adjudicating authority to proceed Issues:Appeal involving the denial of cenvat credit based on alleged fake invoices for copper ingots; Cross-examination of witness not allowed; Reliance on statement of employee without opportunity for cross-examination; Dependency of outcome on pending adjudication against supplier; Lack of evidence for alternative source of purchase of inputs.Analysis:The appeals in question revolve around the denial of cenvat credit to the manufacturer of copper wires due to alleged procurement of copper ingots from a supplier, M/s V.K. Metals Works, based on purportedly fake invoices. The Revenue contended that the copper ingots were not supplied, leading to the issuance of show cause notices to the manufacturer. The adjudicating authority relied on the statement of an employee of M/s V.K. Metals Works, Sh. Shankar Lal Gupta, without allowing for cross-examination by the manufacturer, which was deemed a violation of natural justice principles. The manufacturer argued that until the proceedings against M/s V.K. Metals Works were concluded, the denial of duty credit was premature. The jurisdictional Commissioner had initiated proceedings against M/s V.K. Metals Works, raising questions about their compliance with an exemption notification. The manufacturer's position was that the denial of duty credit should be linked to the outcome of the proceedings against the supplier. The Tribunal, in a similar case involving M/s V.K. Metals Works, had remanded the matter back to the adjudicating authority due to insufficient evidence and the necessity of cross-examination. The Tribunal emphasized the importance of due process and the need for conclusive evidence before determining duty evasion. Additionally, the department failed to provide evidence of an alternative source for the inputs procured by the manufacturer, further complicating the matter.The Tribunal acknowledged that the outcome of the appeals was intertwined with the pending adjudication against M/s V.K. Metals Works. Given the reliance on the unchallenged statement of an employee without cross-examination, the original adjudication order and the subsequent order by the Commissioner were deemed unsustainable. Consequently, the appeals were allowed, and the matter was remanded to the original adjudicating authority. The manufacturer was to be given the opportunity to cross-examine witnesses, and the findings against M/s V.K. Metals Works by the Commissioner were to be considered in the fresh adjudication. The Tribunal highlighted the importance of upholding natural justice principles and ensuring a fair process in such matters.In conclusion, the appeals and stay applications were disposed of, emphasizing the need for a fair and thorough examination of the evidence, including the opportunity for cross-examination, before determining the denial of cenvat credit based on alleged irregularities in procurement transactions.