2023 (6) TMI 192 - HC - Central Excise

Customs Tribunal Decision Upheld, Exemption Valid, Investigation Lacked Evidence

The Court upheld the Customs, Excise & Service Tax Appellate Tribunal's decision in favor of the Respondent, ruling that the exemption was validly ... Area Based Exemption - conclusion as reached is perverse for non-consideration of the evidence or not - CESTAT has taken into consideration the materials available on record or not - power of the High Court, to interfere with an order passed by an Appellate Tribunal - section 35G of Act, 1944. HELD THAT:- It is well settled that the power of the High Court under section 35G of Act, 1944 to interfere with an order passed by an Appellate Tribunal is very limited and the same can be done, only when the Court is satisfied that the case involves substantial questions of law - Finding of facts reached by an Appellate Tribunal cannot be interfered or reversed in an appeal under section 35G of the Act’ 1944 without coming to a conclusion that the said finding of fact is either perverse or not based on materials on record. The word “Perverse” in the legal parlance is defined to mean “against the weight of evidence”. It is equally well settled that even when from the evidence two inferences are possible, then the one drawn by the Tribunal below should be opted. Such finding of facts and decision can only be interfered in an appeal under section 35G of the Act’ 1944, when such decision is based on inadmissible evidence or arrived at without evidence or recorded based on misreading of materials on record and documents. In the case in hand, from the show cause notice as well as from the order of the Commissioner dated 29.07.2008, it is clear that the order of exemption granted to the respondent on 10.12.2002 is not disputed - the conclusion of the Appellate Tribunal in discarding the Investigation report on ground that the investigation was done in the year 2005 and not immediately after the exemption was granted, cannot be faulted with. Therefore, the course of action adopted by the appellate authority in placing reliance on the recorded facts in the order dated 10.12.2002 granting exemption cannot be said to be perverse. The allegations levelled in the show cause notice dated 29.10.2007 and confirmed in Commissioners order dated 30.11.2007 are based on the foundation that no purchase of plants and machinery was made as claimed by the assessee and such allegations has been established through the statement of the vendors from whom the machineries were purchased and also from the statement of the alleged transporters. However, these statements were recorded in the year 2005 whereas the exemption order was issued on 10.12.2002 and further such statements are also not supported by any tangible material including documents which would show the transactions done by the vendors during the aforesaid period of supply - The fact also remains that there is no whisper by the authority/department that the findings recorded by the competent authority in order dated 10.12.2002, while granting exemption are incorrect or that no verification was made by the authority before granting such exemption. That being the position, the conclusion of the learned Appellate Tribunal as discussed and summarised, cannot be said to be perverse. The substantial questions of law formulated are answered against the appellant and in favour of the assessee - Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal's conclusion that the benefit of an area-based excise exemption was rightly granted (and therefore its setting aside of the Commissioner's demand) was perverse or unsupported by materials on record, warranting interference under section 35G of the Central Excise Act. 2. Whether the Appellate Tribunal failed to consider material evidence relied upon by the Department (investigation statements of alleged suppliers and transporters, invoices and alleged fabrication), such that the Tribunal's fact-finding is vitiated by perversity, misreading or non-consideration of record evidence. 3. Whether delay in department's investigation (investigation undertaken in 2005 though exemption granted in 2002) and reliance on after-acquired documents/statements rendered the departmental case unreliable as a matter of law. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Standard of interference by High Court under section 35G - when appellate fact-finding can be disturbed Legal framework: Section 35G confers limited jurisdiction to the High Court to interfere with Tribunal orders; interference with Tribunal findings of fact is permissible only when a substantial question of law arises or when findings are perverse (i.e., against the weight of evidence), based on inadmissible evidence, arrived at without evidence or recorded by misreading materials on record. Precedent treatment: The Court relies on established principles that appellate courts/High Courts must not routinely re-appraise concurrent or exclusive fact findings of a specialized tribunal; only decisions amounting to perversity or lacking evidentiary basis attract interference. Authoritative Supreme Court jurisprudence was cited to emphasize the restricted scope of interference. Interpretation and reasoning: The Tribunal's finding that exemption was granted after verification (including an on-site visit by the Deputy Commissioner confirming plant and machinery and commercial production date) was supported by the exemption order dated 10.12.2002. Given that two permissible inferences could be drawn from the record, the Court applies the principle that the Tribunal's inference should be preferred unless shown to be perverse. The Court emphasises that the term 'perverse' means a conclusion against the weight of evidence and that absent perversity, the Tribunal's fact-finding must stand. Ratio vs. Obiter: Ratio - the High Court's articulation of the limited scope of interference under section 35G and the definition/threshold of perversity. Obiter - ancillary remarks on appellate deference to Tribunal expertise. Conclusion: The High Court will not disturb the Tribunal's fact-finding that the exemption was properly granted unless the appellant establishes perversity or absence of supporting material; on the facts, no such perversity is shown. Issue answered against the appellant. Issue 2: Adequacy and admissibility of departmental evidence (statements of suppliers/transporters, alleged forged invoices) and whether Tribunal misread or ignored material evidence Legal framework: Administrative demand based on misuse of exemption requires proof that the assessee was ineligible; evidence may include documentary proof, supplier statements, and on-site verification. The probative value of post-grant investigative statements and alleged forged documents must be tested against contemporaneous verification and corroborative material. Precedent treatment: The Court reiterates that findings founded on inadmissible or uncorroborated evidence may be impeachable; however, where contemporaneous verification by the competent authority exists, subsequent departmental assertions based solely on later statements may not displace earlier findings without tangible documentary support. Interpretation and reasoning: The Commissioner relied principally on statements recorded in 2005 from alleged suppliers and transporters to assert that invoices were forged and that machinery purchases did not occur as declared. The Tribunal placed weight on the exemption order (10.12.2002) which recorded an on-site verification that plant and machinery were in operation and commercial production had commenced in 2000. The Court finds that the departmental case lacked documentary corroboration for the 2005 statements and did not identify any contemporaneous misverification in the 2002 exemption order. The Tribunal's rejection of the departmental case is thus a permissible evaluation of evidentiary weight rather than a perverse conclusion. Ratio vs. Obiter: Ratio - where an exemption is granted after on-site verification and contemporaneous findings, subsequent departmental statements lacking documentary support cannot, without more, render the earlier verification unreliable. Obiter - commentary that investigation ideally should be contemporaneous but delayed investigations are not per se fatal if supported by credible evidence. Conclusion: The Tribunal did not misread or ignore material evidence; rather it found the departmental evidence (post-grant statements and uncorroborated allegations of forgery) insufficient to displace the earlier verified exemption. Issue decided against the appellant. Issue 3: Effect of delay in departmental investigation and the appropriate timing of verification Legal framework: Administrative verification may be undertaken prior to grant or subsequently; delay does not automatically invalidate an investigation but affects the assessment of reliability and weight of the evidence collected later. Precedent treatment: The Court recognises that while the department should verify applications before or shortly after grant where feasible, the absence of immediate verification does not, by itself, establish that a later investigation is invalid - its findings must be judged on evidential quality. Interpretation and reasoning: The Tribunal noted that the departmental investigation that recorded supplier statements occurred in 2005, whereas exemption was granted in 2002 after a factory visit. The Court accepts the Tribunal's view that if the department had specific doubts it should have conducted earlier verification, and that reliance solely on delayed statements without documentary corroboration weakens the departmental case. The Court does not treat delay as dispositive but as a factor relevant to probative value which the Tribunal legitimately considered. Ratio vs. Obiter: Ratio - delay in investigation is a relevant factor in assessing evidentiary weight; absence of contemporaneous corroboration weakens the departmental case. Obiter - no categorical bar on delayed investigation. Conclusion: Delay in investigation undermined the probative value of the departmental evidence in this case; the Tribunal reasonably relied on the contemporaneous exemption record. Issue resolved in favour of the assessee. Cross-references and Integrated Conclusion All issues interrelate: the threshold question under section 35G (Issue 1) required examining whether the Tribunal's reliance on the exemption order and rejection of delayed, uncorroborated departmental statements (Issues 2 and 3) constituted perversity. Because the exemption was contemporaneously granted after verification and the departmental evidence was based on later statements without supporting documents, the Tribunal's fact-finding was not perverse. The substantial questions of law were therefore answered against the appellant and the Tribunal's order upheld.