CENVAT credit recovery appeal dismissed due to inadmissible statements lacking proper cross-examination under section 9D

CESTAT New Delhi dismissed Revenue's appeal regarding CENVAT credit recovery with interest and penalty. The case involved second-stage dealers allegedly issuing invoices without actual goods supply. The tribunal held that statements from five individuals became irrelevant and inadmissible as proper cross-examination procedures under section 9D were not followed, violating natural justice principles. Despite intelligence reports indicating non-existent entities in the supply chain, the tribunal ruled that thorough investigation following prescribed procedures was required. Without admissible evidence after excluding the statements, the original order favoring the assessee was upheld.

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Issues Involved:
1. Validity of CENVAT credit availed based on invoices issued by second stage dealers.
2. Admissibility of statements recorded under Section 14 of the Central Excise Act.
3. Compliance with Section 9D of the Central Excise Act regarding the relevancy of statements.
4. Evidence of actual receipt of goods by the respondent.

Summary of Judgment:

1. Validity of CENVAT Credit:
The Revenue contended that the respondent availed ineligible CENVAT credit based on invoices issued by second stage dealers without actual receipt of goods. The investigation revealed that the second stage dealer, M/s Mahalaxmi Scrap Trading Company, issued invoices without receiving goods and the manufacturers cited in the invoices did not exist or did not produce any goods during the relevant period.

2. Admissibility of Statements:
The Revenue relied on statements recorded under Section 14 of the Central Excise Act from various individuals, including the second stage dealer's authorized signatory, who admitted that goods were not physically received. However, the respondent argued that these statements were inadmissible as the procedure under Section 9D was not followed.

3. Compliance with Section 9D:
The Tribunal emphasized that for statements to be relevant and admissible, the procedure under Section 9D must be followed. This includes examining the person who made the statement before the adjudicating authority. The Tribunal cited the Jindal Drugs Pvt Ltd vs. Union of India case, which held that the procedure under Section 9D is mandatory. Since the procedure was not followed, the statements were deemed irrelevant and inadmissible.

4. Evidence of Actual Receipt of Goods:
The Tribunal noted that the respondent had provided evidence of receiving goods directly from the second stage dealer, bypassing the dealer's premises. The Tribunal found that the respondent was not required to investigate the entire supply chain but only needed to ensure that goods were received under proper invoices. The letters from the jurisdictional officers indicating non-existence of manufacturers were insufficient to prove that no goods were supplied to the respondent.

Conclusion:
The Tribunal upheld the Commissioner (Appeals) order, concluding that the Revenue failed to establish that the respondent did not receive the goods. The appeal filed by the Revenue was dismissed, and the Cross Objection filed by the respondent was disposed of.

Order Pronounced on 30.10.2023.

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