2016 (11) TMI 1330 - AT - Central Excise

Tribunal overturns denial of cenvat credit due to lack of evidence

The Tribunal set aside the order denying cenvat credit to the appellant for goods purchased from a non-existent dealer. Emphasizing the lack of proper ... Cenvat credit - investigation of supplier, manufacturer and transporter - burden of corroborative evidence to prove non-receipt - presumption of paper transaction versus tangible proof - retrospective cancellation of registrationCenvat credit - investigation of supplier, manufacturer and transporter - burden of corroborative evidence to prove non-receipt - Whether cenvat credit can be denied to the appellant where the supplier was found to be non-existent but no investigation was conducted of the manufacturer or the transporter and the supplier had filed ER-1 returns accepted by the department - HELD THAT: - The Tribunal held that mere cancellation of the dealer's registration and a departmental finding of non-existence at the dealer's premises are not sufficient, by themselves, to deny cenvat credit to the recipient. In the absence of any investigation of the manufacturer-supplier or the transporter to verify whether goods were dispatched and delivered, there was no corroborative evidence to support the allegation that the appellant received only invoices and not the goods. The fact that the supplier was a registered dealer who had filed ER-1 returns accepted by the department weighed against an inference of sham transactions. The Tribunal relied on its earlier decisions in the case of M/s Dhawan Steel Industries and subsequent orders in Sadhashiv Casting Pvt. Ltd. and M/s Jain Steel Tubes , which held that cases cannot be sustained on presumptions of paper transactions without tangible supporting evidence. Applying that reasoning, the Tribunal concluded that credit could not be disallowed on the basis of the material on record. [Paras 6, 7, 8]Impugned order disallowing cenvat credit set aside; appeal allowed with consequential relief, if any.Final Conclusion: In view of absence of corroborative investigation into the manufacturer and transporter and on application of precedents, the denial of cenvat credit was reversed and the appeal allowed. Issues:Denial of cenvat credit on inputs due to non-existence of dealer M/s S.K. Garg & Sons.Analysis:The appellant procured goods from M/s S.K. Garg & Sons, a first stage dealer, who was found non-existent during an investigation. The appellant availed cenvat credit on goods purchased from M/s S.K. Garg & Sons, leading to a show cause notice denying cenvat credit. The matter was adjudicated, and cenvat credit was denied, with duty, interest, and penalty imposed. The appellant contended they physically received the goods and used them in manufacturing final goods, arguing against the denial of cenvat credit.Analysis Continues:The appellant's counsel argued that no inculpatory statement existed, and no investigation was conducted with the transporter or manufacturer/supplier of the goods. They also highlighted that M/s S.K. Garg & Sons filed ER-1 returns accepted by the department, supporting their claim. The Department's Representative opposed, citing the non-existence of M/s S.K. Garg & Sons and the lack of storage capacity, justifying the denial of cenvat credit.Analysis Continues:The Tribunal observed the absence of investigations at the end of the manufacturer/supplier or transporter to ascertain the truth. The registration and filing of returns by M/s S.K. Garg & Sons were noted, emphasizing the lack of evidence to prove the appellant did not receive the goods. Precedent cases were referenced where similar issues were addressed, leading to the conclusion that without proper investigation, cenvat credit cannot be denied.Analysis Concludes:Based on the observations, the impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal emphasized the necessity of corroborative evidence and proper investigation before denying cenvat credit, highlighting the importance of substantiated allegations over presumptions.