2015 (1) TMI 217 - AT - Central Excise

Tribunal overturns denial of CENVAT credit, faults lack of cross-examination and evidence

M/s. Kusum Ingots & Alloys Ltd. Versus CCE., Indore

The Tribunal ruled in favor of the appellant, setting aside the Commissioner's decision to deny CENVAT credit based on endorsed gate passes. The Tribunal ... Denial of CENVAT Credit - Credit of duty availed on the basis of endorsed duty paying gate passes - Held that:- officers, who visited the appellant s factory on 13.12.1994, did not find any incriminating documents from the premises. The allegations made by the Revenue that these trading firms were being governed by the appellant and they were having the overall control over them, do not emanate any evidence on record. On the contrary, Shri MK Jain, General Manager(Finance) of the applicant company in both his statements recorded on 04.03.1996 and 20.07.1996 have categorically stated that they were receiving the raw-materials from the traders in question, who were major suppliers of the raw-materials. The adjudicating authority has chosen to ignore the said statement of Shri MK Jain. No enquiries stand made from Shri Sundrawat and Shri Duggar, whose names were taken by Shri Anil Khandelwal as the persons who were taking the bills arranged by him and were making the cheques and with whom cheque books of various parties remained. No blank cheque books were recovered from the appellant s factory during the course of search. No enquiries were conducted from the concerned bank so as to corroborate the statements of the said traders. There is not sufficient evidence to arrive at a finding that the appellant had availed CENVAT credit on the basis of bogus gate passes without bringing raw-materials into their factory, we also note that the Revenue has not shown any other alternate source of procurement of raw-materials. Admittedly, the appellant had manufactured their final product, which has been cleared on payment of duty. In the absence of any raw-material, it is not only difficult but virtually impossible and impractical for the appellant to manufacture their final product. There is neither any allegation much less any evidence on record to show that the appellant had procured the raw-materials from other alternate source. - The adjudicating authority has also referred to the fact that some of the vehicles were found to be non-transport vehicles. He has given a list of vehicle numbers in his impugned order. However, we have been shown that all the 23 vehicle numbers found in the said list were never mentioned in the gate passes under the cover of which duty paid material was received by the appellant. It remains undisclosed as to from where the adjudicating authority has picked up the said 23 vehicle numbers. Further, no investigation stands made from the actual manufacturers, who have supplied the goods to the traders, who in turn had endorsed the gate passes. If according to the Revenue, the traders have only endorsed the gate passes, there is no evidence on record as to where the goods actually received by them under the cover of gate passes issued by the manufacturers have vanished. - impugned order is not sustainable - Decided in favour of assesse. Issues Involved:1. Denial of CENVAT credit based on endorsed gate passes.2. Non-availability of cross-examination of input suppliers.3. Reliability of statements from traders and transporters.4. Evidence of actual receipt of raw materials.5. Allegations of fraudulent transactions based on Income Tax Department's report.6. Verification of documents by the Superintendent.Detailed Analysis:1. Denial of CENVAT Credit Based on Endorsed Gate Passes:The Commissioner confirmed a demand of Rs. 1,20,73,908/- and Rs. 26,21,716/- against the appellant by denying them CENVAT credit on the basis of endorsed duty-paying gate passes. The Commissioner also imposed interest and penalties on the appellants and their officials under Rule 209A of Central Excise Rules, 1944. The appellant's factory was searched, and endorsed gate passes were resumed, which formed the basis of the credit availed.2. Non-availability of Cross-Examination of Input Suppliers:The Tribunal had previously remanded the matter to the Commissioner to allow cross-examination of input suppliers, which was not adequately done in the de novo proceedings. The Commissioner issued summons to the input suppliers, but they did not appear for cross-examination. The Commissioner incorrectly observed that the suppliers appeared and reiterated their statements, which was factually incorrect. The Tribunal held that it was the Revenue's responsibility to produce the witnesses for cross-examination, citing multiple judicial decisions.3. Reliability of Statements from Traders and Transporters:The statements of traders were inculpatory, indicating that gate passes were endorsed without actual supply of materials. However, during the de novo adjudication, two transporters admitted to supplying goods to the appellant, which contradicted the traders' statements. The Tribunal found that the transporters' statements could not be disregarded and that the traders' statements alone could not be the sole basis for denying credit.4. Evidence of Actual Receipt of Raw Materials:The Tribunal noted that no incriminating documents were found during the search of the appellant's factory. The statements of the appellant's General Manager, Finance, indicated that raw materials were received from traders. No blank cheque books were recovered, and no bank enquiries were conducted to corroborate the traders' statements. Letters from bank officials accused the Income Tax authorities of pressuring them to implicate the appellant, which was considered significant.5. Allegations of Fraudulent Transactions Based on Income Tax Department's Report:The Revenue's case was primarily based on the Income Tax Department's report. However, the Income Tax Appellate Tribunal (ITAT) had set aside the proceedings against the appellant, holding the transactions genuine. The Tribunal found it inconsistent to consider the same transactions fraudulent for CENVAT credit purposes. The Tribunal emphasized the lack of evidence to support the Revenue's allegations of fraudulent transactions.6. Verification of Documents by the Superintendent:The Tribunal referred to the cross-examination of the Superintendent, who confirmed that the gate passes were defaced as per legal provisions after verification. This indicated that the documents were duly verified, supporting the appellant's claim of receiving raw materials.Conclusion:The Tribunal held that the impugned order was not sustainable due to the failure to allow proper cross-examination, the contradictory findings of the Commissioner, and the lack of sufficient evidence to prove fraudulent transactions. The Tribunal also noted that the appellant had manufactured and cleared final products on payment of duty, with no evidence of alternate raw material procurement. The Tribunal set aside the impugned order, ruling in favor of the appellant on the merits of the case, without addressing the issue of the demand being barred by limitation.