2014 (10) TMI 723 - HC - Central Excise

Cenvat credit allowed despite transporter claims of non-delivery due to lack of corroborating evidence

Commissioner Versus Motabhai Iron And Steel Industries

Gujarat HC upheld Tribunal's decision allowing Cenvat credit to assessee. Revenue's demand was based solely on uncorroborated statements from ... Cenvat credit - allegation of non receipt of material - statutory documents seized from the assessee's custody - right of cross-examination - Held that:- It is apparent that no investigation had been taken by the Department at the end of the suppliers to ascertain the facts regarding delivery of goods. Moreover, the statutory records of the assessee concerned, shows receipt and consumption of goods. There was no statement of the supplier that the goods were not supplied to the assessee and were supplied to a third party. In light of the aforesaid facts, it cannot be said that the findings recorded by the Tribunal are in any manner erroneous. demands were based upon the statements of transporters or drivers of the trucks which were not corroborated by any evidence. Under the circumstances, the Tribunal was justified in holding that only on the basis of third party statements, such demand cannot be made. Moreover, as rightly pointed out by the Tribunal, no investigation has been conducted at consignors' place or at the place where the said goods are alleged to have been supplied. Under the circumstances, it cannot be said the Tribunal has committed any error in deleting the aforesaid demands. All the goods supplied by M/s. Motabhai Iron & Steel were accompanied by documents evidencing payment of duty. The representative of M/s. Motabhai Iron & Steel had nowhere admitted that the assessee was issued only invoices and that there was no delivery of goods to the assessee. Besides, all the payments that were made to M/s. Motabhai Iron & Steel were made through bank drafts. The Tribunal has also noted that, in all, demand was made in respect of 44 consignments. However, it was only in respect of two transporters, who had transported merely three consignments that the alleged discrepancy had been pointed out, whereas, in case of other transporters, no discrepancy has been found. In the light of the aforesaid findings recorded by the Tribunal, it cannot be said that there is any error in the conclusion arrived at by the Tribunal while deleting the demand - Decided against Revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court, as proposed by the appellant-Commissioner of Central Excise under section 35G of the Central Excise Act, 1944, are as follows:(i) Whether the Tribunal erred in ignoring the provisions of Section 36A of the Central Excise Act, 1944, particularly by disregarding statutory documents seized from the assessee's custody and records;(ii) Whether the Tribunal wrongly ignored material evidence including statements of transporters, drivers, lorry receipts, and records of the assessee, resulting in a perverse finding contrary to documentary evidence;(iii) Whether the right of cross-examination is a matter of right in quasi-judicial proceedings when the assessee has not provided details justifying cross-examination;(iv) Whether, in absence of evidence produced by the assessee regarding admissibility of CENVAT Credit, the Tribunal erred in allowing the appeals, considering the burden of proof lies with the manufacturer claiming such credit;(v) Whether the Tribunal was justified in setting aside various penalties imposed on the assessee.2. ISSUE-WISE DETAILED ANALYSISIssue (i) and (ii): Treatment of Evidence and Statutory Documents under Section 36A of the Central Excise ActRelevant Legal Framework and Precedents: Section 36A of the Central Excise Act empowers authorities to seize documents during investigation. The proper appreciation of such seized documents and associated evidence is crucial in determining the legitimacy of CENVAT credit claims. Precedents emphasize that documentary evidence, corroborated by other material, must be carefully scrutinized to avoid wrongful denial or allowance of credit.Court's Interpretation and Reasoning: The Tribunal's order was examined in detail with respect to each demand confirmed by the adjudicating authority. The Court noted that the Tribunal did not disregard statutory documents but rather critically analyzed the evidence, including seized documents, statements, and records.For instance, regarding the demand of Rs. 14,42,177 based on statements of consignors and transporters denying receipt of goods, the Tribunal found that the sole reliance on such statements without corroboration was insufficient to disallow credit. It further noted that the assessee had recorded receipt of goods in statutory books and made payments through banking channels. The Tribunal also emphasized the non-appearance of key witnesses for cross-examination, which diminished the evidentiary value of their statements.Similarly, in other demands, the Tribunal highlighted the absence of investigation at the suppliers' end and lack of corroborative evidence to support the claims of non-delivery. The Court agreed with the Tribunal's approach that mere third-party statements without supporting material could not sustain the demands.Key Evidence and Findings: The Court reviewed the statements of various parties including transporters, truck owners, RTO officials, and suppliers. It was found that many statements were uncorroborated or retracted, and crucial witnesses failed to appear for cross-examination. The assessee's records showed consistent receipt and consumption of goods, with payments made through banking channels.Application of Law to Facts: The Court underscored the principle that in quasi-judicial proceedings, evidence must be reliable and subjected to cross-examination if contested. The Tribunal's refusal to rely on untested statements was consistent with this principle. The Court found no error in the Tribunal's appreciation of evidence or its application of Section 36A.Treatment of Competing Arguments: The appellant argued that the Tribunal ignored independent evidence such as octroi receipts and statements from transporters and third parties indicating diversion or non-delivery of goods. The Court held that these pieces of evidence were either uncorroborated or not subjected to cross-examination, thus weakening their probative value. The respondent contended that the Tribunal's findings were factual and not perverse; the Court concurred.Conclusions: The Court concluded that the Tribunal did not err in its treatment of statutory documents and material evidence. The findings were based on a holistic and balanced assessment of evidence rather than selective disregard.Issue (iii): Right of Cross-Examination in Quasi-Judicial ProceedingsRelevant Legal Framework: The right to cross-examination is recognized as a fundamental procedural safeguard in quasi-judicial proceedings to ensure fairness and reliability of evidence.Court's Interpretation and Reasoning: The Court noted that the assessee sought cross-examination of key witnesses whose statements were adverse to the assessee's case. However, these witnesses failed to appear despite summons. The Tribunal held that in such circumstances, the statements could not be relied upon against the assessee.Key Evidence and Findings: The non-appearance of witnesses such as Shri Arjandas and others was critical. The Tribunal's refusal to base adverse findings solely on their statements was consistent with principles of natural justice.Application of Law to Facts: The Court endorsed the Tribunal's approach that the right of cross-examination cannot be negated or circumvented by allowing reliance on untested statements. This ensured procedural fairness.Treatment of Competing Arguments: The appellant argued that cross-examination was not a matter of right if no details were provided by the assessee. The Court rejected this, emphasizing that the summons were issued and non-appearance of witnesses deprived the assessee of the opportunity, thereby weakening the prosecution's case.Conclusions: The Court held that the Tribunal correctly applied the principle of cross-examination, and no error arose from this aspect.Issue (iv): Burden of Proof Regarding Admissibility of CENVAT CreditRelevant Legal Framework: Under the CENVAT Credit Rules, the burden of proving admissibility of credit lies on the manufacturer or the claimant of such credit.Court's Interpretation and Reasoning: The Tribunal found that the assessee had produced statutory records, payment proofs through banking channels, and consistent entries evidencing receipt and consumption of inputs. The absence of any contradictory evidence from suppliers or consignors weakened the case against the assessee.Key Evidence and Findings: Documentary evidence such as invoices, ledger entries, and payment proofs were relied upon by the Tribunal. The Court found that the assessee discharged the burden of proof adequately.Application of Law to Facts: The Court agreed with the Tribunal that in absence of credible evidence negating receipt of goods, the burden of proof was satisfied by the assessee.Treatment of Competing Arguments: The appellant contended that the Tribunal erred in allowing appeals despite absence of admissibility evidence. The Court rejected this, noting that the Tribunal's findings were factually supported and not perverse.Conclusions: The Tribunal did not err in its application of the burden of proof principle.Issue (v): Setting Aside Penalties Imposed on the AssesseeRelevant Legal Framework: Penalties under the Central Excise Act and CENVAT Credit Rules are imposed for fraudulent availment of credit or non-compliance.Court's Interpretation and Reasoning: The Tribunal set aside penalties on the ground that the demands themselves were not sustainable due to lack of corroborative evidence and procedural infirmities such as failure to cross-examine witnesses. The Court found that penalties cannot be sustained if the foundational demands are not justified.Key Evidence and Findings: The same evidentiary lacunae and procedural defects that led to setting aside demands also applied to penalties.Application of Law to Facts: The Court upheld the Tribunal's reasoning that penalties must fall if the underlying demand is deleted.Treatment of Competing Arguments: The appellant urged that penalties were rightly imposed due to fraudulent credit claims. The Court found no basis for this given the Tribunal's findings.Conclusions: The setting aside of penalties was justified and legally sound.3. SIGNIFICANT HOLDINGSThe Court affirmed the Tribunal's detailed findings and reasoning, emphasizing the following core principles and determinations:'Only on the sole basis of statement of proprietor of M/s. Star Associates is to the effect that they have received only invoices from M/s. Vasmin Corporation cannot be made a ground to deny credit to the appellant unit.''In such a case when there is no investigation has been conducted at the consignors place nor at the places where the said goods alleged to have been consigned in the show cause notice, the statement of the transporters cannot be relied upon.''The goods were duly found to have recorded in the Appellant's factory and were consumed in the production. The payment was made through banking channels which is not denied.''The statement made by Shri Arjandas lost its efficacy and therefore could not have been used against the assessee.''In absence of any perversity in the findings recorded by the Tribunal, the impugned order does not give rise to any question of law, much less, a substantial question of law so as to warrant interference.'Final determinations included dismissal of all appeals, confirmation that the Tribunal's appreciation of evidence was neither perverse nor erroneous, and that the demands and penalties imposed on the assessee were rightly set aside due to lack of credible evidence and procedural defects.