2019 (11) TMI 555 - AT - Central Excise

Tribunal rules in favor of appellant, overturns denial of Cenvat credit and penalties

The tribunal overturned the denial of Cenvat credit and imposition of penalties on the appellant, ruling in their favor. It found flaws in the ... Cenvat credit - Admissibility of credit on invoices without receipt of goods - Investigation by DGCEI - Burden of proof on Revenue - Benefit of doubt - Penalty for wrongful credit - Show cause notice based on third-party statement - Pick and choose investigationCenvat credit - Admissibility of credit on invoices without receipt of goods - Investigation by DGCEI - Burden of proof on Revenue - Benefit of doubt - Cenvat credit cannot be denied to the appellants where Revenue has not established that inputs were not received and the investigation has infirmities. - HELD THAT: - The Tribunal examined the material placed on record and found that the Revenue failed to establish that the inputs referred to in the invoices were not received by the appellants. The appellants' employees gave statements that the inputs were received and used in manufacture, and M/s Prime Metalloys Pvt Ltd stated that it had supplied the goods to the appellants. The DGCEI investigation did not examine the directors of the invoicing firm, the manufacturers/suppliers or the transporters to verify non-supply or non-receipt. In absence of contrary evidence and in view of investigative lacunae, the benefit of doubt was held to lie with the appellants and Cenvat credit could not be denied. [Paras 7]Cenvat credit allowed to the appellants.Penalty for wrongful credit - Cenvat credit - No penalty is imposable on the appellants where Cenvat credit is held to be admissible. - HELD THAT: - Since the Tribunal concluded that the Cenvat credit could not be denied on merits due to lack of proof of non-receipt and deficiencies in the investigation, any penalty predicated on denial of credit could not survive. The factual and legal basis for imposing penalty thus fell away. [Paras 8]Penalty quashed.Show cause notice based on third-party statement - Investigation by DGCEI - Pick and choose investigation - The show cause notice and investigation were unsustainable where they were founded solely on the statement of a third party who was not made a party to the proceedings and the investigation was not comprehensive. - HELD THAT: - The Tribunal noted that the DGCEI's action was premised on the statement of Sh. Amit Gupta, who was not made a party to the show cause notice; further, the investigating agency did not conduct independent enquiries of the invoicing firm's directors, the purported suppliers or transporters. The selective reliance on that statement and the absence of corroborative enquiries rendered the investigation infirm and the resultant adjudication unsustainable. [Paras 9]Impugned investigation and resultant order set aside.Final Conclusion: Appeals allowed; impugned order set aside, Cenvat credit allowed for the period 18.05.2011 to 11.08.2011 and penalties quashed in view of defective investigation and absence of proof of non-receipt of inputs. Issues Involved:- Denial of Cenvat credit based on invoices without physical receipt of goods- Adequacy of investigation by DGCEI- Examination of directors and suppliers of goods- Verification of goods received by the appellant- Imposition of penaltiesAnalysis:1. Denial of Cenvat credit based on invoices without physical receipt of goods: The case involved an appeal against the denial of Cenvat credit to the appellant on the grounds that they had received only invoices and not the actual goods. The investigation revealed a scheme where invoices were issued without physical receipt of goods, leading to inadmissible Cenvat credit. The appellant contested this denial, arguing that proper investigation was lacking, and the goods were indeed received and used in their factory for dutiable goods, which were cleared after payment of duty.2. Adequacy of investigation by DGCEI: The appellant raised concerns about the adequacy of the investigation conducted by the DGCEI. They pointed out that no investigation was carried out on the directors of the supplier firm, the manufacturers/suppliers of the goods, or the transporters mentioned in the invoices. The appellant also highlighted discrepancies in the investigation process, emphasizing that no evidence was presented to show that the inputs were not received in their factory.3. Examination of directors and suppliers of goods: The appellant argued that the directors of the supplier firm were not investigated to verify the supply of goods. However, the respondent contended that the statements of the main accused, who admitted to the fraudulent scheme, were sufficient to establish the denial of Cenvat credit.4. Verification of goods received by the appellant: The appellant maintained that the goods were indeed received in their factory, as confirmed by their staff, but no further verification was conducted by the investigating team. The lack of examination of the staff who received the goods raised doubts about the validity of denying Cenvat credit to the appellant.5. Imposition of penalties: The issue of imposing penalties on the appellant was also addressed. The appellant argued that since the Cenvat credit could not be denied due to lack of proper investigation, no penalties should be imposed. The tribunal agreed with the appellant's arguments and set aside the impugned order, ruling in favor of the appellant and allowing the appeals.In conclusion, the tribunal found that the investigation conducted by the DGCEI was flawed and lacked proper verification, leading to the benefit of the doubt being given to the appellants. Consequently, the denial of Cenvat credit and the imposition of penalties were overturned, and the appeals were allowed.