Tribunal Overturns Denial of Cenvat Credit and Duty Demand Due to Lack of Evidence

The Tribunal set aside the denial of Cenvat credit on the ground of manufacturing activity, citing precedent that if the final product is cleared on payment of duty, credit cannot be denied based on manufacturing. The demand of duty based on alleged clandestine removal was dismissed due to lack of tangible evidence supporting the allegations. Additionally, the denial of Cenvat credit on furnace oil usage was overturned as the revenue failed to provide evidence contradicting the appellants' explanation. The show cause notice issued after the normal limitation period was deemed barred by limitation, resulting in the appeal being allowed on both merits and limitation.

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Issues:
1. Denial of Cenvat credit on the ground of manufacturing activity.
2. Demand of duty based on alleged clandestine removal.
3. Denial of Cenvat credit on furnace oil usage.
4. Limitation period for issuing show cause notice.

Analysis:

Issue 1: Denial of Cenvat credit on the ground of manufacturing activity
The appellants were engaged in manufacturing Forged Blanks of stainless steel and alloy steel, as well as flanges of non-alloy steel and stainless steel. The show cause notice proposed denial of Cenvat credit and duty demand, alleging that the appellants' activities did not amount to manufacturing. The Commissioner's order confirmed the denial of Cenvat credit. However, the Tribunal referred to the case of Asian Color Coated Ispat Ltd. Vs Commissioner of Central Excise, where it was held that if the final product is cleared on payment of duty, the Cenvat credit cannot be denied based on manufacturing activity. The Tribunal found no justification for confirming the demand, ultimately setting aside the denial of Cenvat credit.

Issue 2: Demand of duty based on alleged clandestine removal
A demand of Rs. 84.29 lakhs was confirmed based on allegations of clandestine removal, primarily relying on duty paid by the appellants on scrap. The appellants argued that they manufactured final products of different varieties, and the scrap collected and sold as stainless scrap was to avoid revenue objections. The Tribunal noted the lack of evidence provided by the revenue regarding raw material procurement, actual manufacture, clearance to buyers, transportation, or consideration receipt. The Tribunal emphasized that allegations of clandestine removal require tangible evidence, which was absent in this case. Consequently, the Tribunal set aside the demand based on clandestine removal.

Issue 3: Denial of Cenvat credit on furnace oil usage
A portion of the demand amounting to Rs. 84,097 was confirmed by denying Cenvat credit on furnace oil usage. The adjudicating authority claimed that since the appellants had a pipeline for CNG supply, there was no need for furnace oil usage. However, the appellants explained that furnace oil was used for specific purposes like heat treatment, which was not rebutted by the revenue with contrary evidence. The Tribunal found the demand unsustainable due to lack of evidence against the appellants' explanation.

Issue 4: Limitation period for issuing show cause notice
The show cause notice was issued after 22 months from the audit conducted, which exceeded the normal limitation period. Citing a judgment by the Hon'ble Allahabad High Court, the Tribunal held that the notice issued after the normal limitation period was barred by limitation as per Section 11A of the Central Excise Act. Consequently, the Tribunal ruled that the notice was also barred by limitation, leading to the setting aside of the impugned order and allowing the appeal with consequential relief to the appellant on both merits and limitation.

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