CENVAT credit recovery demand set aside due to inadmissible statements under Section 9D procedure violation

CESTAT New Delhi allowed the appeal and set aside the order demanding recovery of CENVAT credit with interest and penalty. The tribunal held that 35 statements relied upon in the show cause notice were inadmissible as proper procedure under Section 9D of Central Excise Act was not followed. The Revenue's case was contradictory - claiming manufacturers/traders didn't exist while simultaneously serving notices on them. The tribunal ruled that the appellant buyer cannot be expected to investigate departmental registration processes or verify the entire supply chain. Taking reasonable precautions by dealing with registered dealers and receiving proper invoices is sufficient. Penalties on individuals were also set aside.

---

---

Issues Involved:
1. Denial of Cenvat credit to the assessee.
2. Imposition of penalties on the assessee and individuals.

Summary of Judgment:

1. Denial of Cenvat Credit:
The assessee, a manufacturer of sponge iron and mild steel billets, availed Cenvat credit on inputs purchased from certain dealers. The Directorate General of Central Excise Intelligence (DGCEI) investigated and found that the manufacturers and traders did not exist at the addresses provided in the invoices, leading to the conclusion that only documents were supplied to enable Cenvat credit without actual supply of goods. The Show Cause Notice (SCN) issued relied on statements and documents which were not admissible as evidence due to non-compliance with Section 9D of the Central Excise Act, 1944. The Tribunal noted that the department's own registration of the dealers and subsequent cancellation indicated either fraudulent registration or a later realization of non-existence. The appellant had taken reasonable precautions by placing orders on registered dealers and receiving goods with proper invoices. Therefore, the denial of Cenvat credit was unjustified.

2. Imposition of Penalties:
The penalties imposed on the assessee and individuals were based on the same inadmissible evidence. The Tribunal highlighted the ambiguity in the department's stance on the existence of the manufacturers and traders, which affected the validity of the penalties. Consequently, the penalties on the assessee and the individuals (Drolia and Choudhary) were not sustainable.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals of the assessee and the individuals, thereby reversing the denial of Cenvat credit and quashing the penalties imposed. The order was pronounced in open court on 30/10/2023.

---