2024 (1) TMI 1116 - AT - Central Excise

Manufacturer Wins CENVAT Credit Appeal After Tribunal Rejects Revenue's Fraud Allegations Without Concrete Evidence

M/s Ecko Cables (P) Ltd. Versus Commissioner of Central Excise And Service Tax, Ludhiana

CESTAT addressed a CENVAT credit dispute involving alleged fraudulent activities. Despite Revenue's objections about a pending case against another party, ... Clandestine/ fraudulent operations - CENVAT Credit - fake invoices - credit availed without actually receiving the material as shown in the invoices issued by M/s V.K Metal Works, Jammu - HELD THAT:- On the preliminary objections raised by the Department that as the decision of the Tribunal in the case of M/s V.K Metal Works is under challenge before Hon’ble High Court of Jammu Kashmir & Ladakh, the present proceedings should be kept in abeyance, it is found that, as submitted by learned Counsel for the appellant, there is no stay granted by Hon’ble High Court of Jammu Kashmir & Ladakh; Tribunal has decided cases of similar customers of M/s V.K Metal Works even after the issue was under challenge as there was no stay granted - no case has been made by the Department to keep this case pending. Department has issued a show-cause notice to the appellants on the excisability of “copper keeth” thereby indirectly accepting that there was manufacturing activity and that the Department cannot take the stand that there was no manufacturing activity. It is also found that the Principal Bench relied on the case of R.A Castings Pvt. Ltd. [2008 (6) TMI 197 - CESTAT NEW DELHI] upheld by Hon’ble Allahabad High Court [2010 (9) TMI 669 - ALLAHABAD HIGH COURT] and by Hon’ble Supreme Court [2011 (1) TMI 1302 - SC ORDER] and decided the case in favour of M/s V.K Metal Works. The Tribunal decided the case of M/s Rachna Metal Industries Pvt. Ltd. [2018 (11) TMI 973 - CESTAT ALLAHABAD] in favour of the appellants therein, similarly placed as the present appellant observing that Even in the abovereferred case of M/s V.K. Metals and Others, the clandestine removal findings stands set aside by the Tribunal by observing that there has to be shown the receipt of raw material, utilization of the same, actual manufacture of the finished goods, the evidence of transportation and identity of the buyers etc. Inasmuch as nothing has been shown in the present case by the Revenue, we find no reasons to confirm the demand. It is found that the facts of the present case are identical and the proceedings emanated from the same investigation against M/s V.K Metal Works. There is no reason as to why a different view can be taken in this case. Accordingly, the impugned order is not sustainable. Appeal allowed. The core legal questions considered in this appeal are:1. Whether the proceedings against the appellant for denial of CENVAT credit based on alleged fraudulent transactions involving M/s V.K Metal Works, Jammu, should be kept pending due to the pendency of a challenge to the principal case before the Hon'ble High Court of Jammu & Kashmir and Ladakh.2. Whether the appellant, as a customer of M/s V.K Metal Works, is liable to be denied CENVAT credit on the ground that M/s V.K Metal Works did not have any manufacturing activity and issued bogus invoices, thereby enabling fraudulent availment of credit.3. The applicability and effect of earlier Tribunal decisions and judicial precedents on the issue of fraudulent availment of CENVAT credit in cases involving M/s V.K Metal Works and similarly placed customers.Issue 1: Whether the proceedings should be kept pending due to the pendency of the challenge before the Hon'ble High CourtThe Department contended that since the principal case against M/s V.K Metal Works was under challenge before the Hon'ble High Court of Jammu & Kashmir and Ladakh, the present appeal involving a customer of M/s V.K Metal Works should be held in abeyance. The appellant countered that the Tribunal had already decided the principal case in favour of M/s V.K Metal Works, with no stay granted by the High Court, and that other similarly placed customers' appeals had been decided notwithstanding the pendency of the High Court petition.The Tribunal examined the relevant facts and procedural posture, noting that the principal order of the Tribunal in favour of M/s V.K Metal Works dated 23.05.2018 was challenged before the High Court on 04.12.2018 but no stay was granted. The impugned order in the present appeal was passed on 26.07.2022 during the pendency of the appeal before the High Court. The Tribunal further observed that the Department had not objected to the decision at the Appellate Authority level and that various Benches of the Tribunal had decided cases of other customers without awaiting the High Court's decision.Relying on these facts, the Tribunal held that the Department had not made a sufficient case for keeping the present proceedings pending. The absence of a stay order and the precedent of deciding similar appeals under similar circumstances weighed against the Department's contention.Issue 2: Whether the appellant is liable to denial of CENVAT credit on the ground of fraudulent availment based on the alleged bogus manufacturing activity of M/s V.K Metal WorksThe Department alleged that M/s V.K Metal Works had no manufacturing facilities and had issued bogus receipts of raw materials and manufactured goods, thereby enabling fraudulent availment of CENVAT credit by its customers, including the appellant. The appellant relied heavily on the Principal Bench's Final Order dated 23.05.2018, which had found no evidence of bogus manufacturing activity or fraudulent credit passing by M/s V.K Metal Works.The Tribunal analyzed the Principal Bench's findings, which included the following key points:Copper scrap was duly transported to the factory of M/s V.K Metal Works, with sufficient documentary evidence on record.The Department itself had issued a show-cause notice on the excisability of 'copper keeth,' thereby indirectly accepting the existence of manufacturing activity.The Tribunal relied on the precedent of R.A Castings Pvt. Ltd., where it was held that mere allegations of clandestine removal or bogus manufacturing without positive and affirmative evidence cannot sustain a demand.Further, the Tribunal noted decisions in cases of similarly placed customers such as Rachna Metal Industries Pvt. Ltd., Omega Rolling Mills Pvt. Ltd., and KEI Industries Ltd., where the Tribunal had set aside demands for denial of CENVAT credit due to lack of evidence of fraudulent transactions.The Tribunal emphasized that allegations of clandestine removal and bogus transactions are serious and require confirmation through positive, affirmative evidence. In the absence of such evidence, the demand cannot be sustained. The Tribunal quoted from the Rachna Metal Industries decision:'Apart from the computer print outs we find that there is no other evidence produced by the Revenue on record. It is well established law and does not require the support of any precedent decision to observe that the allegations of clandestine removal are serious allegations and are required to be confirmed on the basis of positive and affirmative evidences. Even in the abovereferred case of M/s V.K. Metals and Others, the clandestine removal findings stands set aside by the Tribunal by observing that there has to be shown the receipt of raw material, utilization of the same, actual manufacture of the finished goods, the evidence of transportation and identity of the buyers etc. Inasmuch as nothing has been shown in the present case by the Revenue, we find no reasons to confirm the demand.'The Tribunal found that the facts of the present case were identical to those in the cited precedents and that no additional evidence was produced by the Department to distinguish the present case. Therefore, the impugned order denying credit was not sustainable.Issue 3: Applicability of earlier Tribunal and judicial precedentsThe appellant relied on a series of Tribunal and High Court decisions that had examined the issue of fraudulent availment of CENVAT credit in cases involving M/s V.K Metal Works and its customers. These cases consistently held that the Department must establish positive evidence of bogus transactions, including proof of receipt of raw materials, actual manufacture, transportation of finished goods, and identity of buyers, to sustain a demand.The Tribunal referred to multiple decisions, including those of the Principal Bench, various Benches of the Tribunal, and High Courts, which had set aside demands in the absence of such evidence. The Department cited some authorities to support the contention that the matter should be kept pending, but the Tribunal found those authorities inapplicable to the procedural question of whether to keep the proceedings pending.The Tribunal's reasoning demonstrated adherence to the principle that serious allegations of fraud require strong, affirmative evidence, and that mere suspicion or computer-generated data is insufficient to deny credit.Significant holdings:'There has to be shown the receipt of raw material, utilization of the same, actual manufacture of the finished goods, the evidence of transportation and identity of the buyers etc. Inasmuch as nothing has been shown in the present case by the Revenue, we find no reasons to confirm the demand.''The Department has issued a show-cause notice to the appellants on the excitability of 'copper keeth' thereby indirectly accepting that there was manufacturing activity and that the Department cannot take the stand that there was no manufacturing activity.''As the order of the Tribunal in the case of M/s V.K Metal Works is under challenge before Hon'ble High Court of Jammu Kashmir & Ladakh, but no stay has been granted, and different Benches of the Tribunal have decided the cases of other customers of M/s V.K Metal Works, there is no reason to keep this case pending.'The Tribunal conclusively held that the impugned order denying CENVAT credit was unsustainable and allowed the appeal with consequential relief.