CENVAT credit demand set aside due to inadmissible transporter statements without cross-examination under Section 9D

CESTAT Kolkata set aside demand for denial of CENVAT credit against appellant who had suspended manufacturing activities and surrendered registration. Revenue's case relied solely on transporters' statements and assumption of paper transactions due to absence of machinery during investigation. Tribunal held transporters' inculpatory statements inadmissible as cross-examination was denied under Section 9D of Central Excise Act, 1944. Appellant had legitimately procured inputs, made payments through account payee cheques, and utilized CENVAT credit for duty payment on clearances. No adverse findings against suppliers or recipients during investigation. Demand and penalties on both appellants set aside. Appeal allowed.

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Issues Involved:
1. Denial of Cenvat Credit.
2. Imposition of Penalties on the appellants.
3. Allegations of paper transactions without actual manufacturing.
4. Procedural lapses and non-joinder of essential parties.
5. Invocation of extended period for demand.
6. Legality of penalties imposed on both the proprietorship firm and the proprietor.

Summary:

Denial of Cenvat Credit:
The appellants were alleged to have availed Cenvat Credit irregularly by engaging in paper transactions without actual receipt of inputs or manufacturing operations. The investigation revealed that the appellants had procured raw materials and issued invoices but were not found to have sufficient manufacturing facilities. Statements from transporters and other parties were used to support the allegations.

Imposition of Penalties:
The adjudicating authority imposed penalties on both the proprietorship firm and the proprietor. The appellants argued that since the proprietor and the firm are one and the same, separate penalties should not be imposed. The Tribunal found this argument valid and set aside the penalties on the proprietor.

Allegations of Paper Transactions:
The investigation was initiated after the appellants had surrendered their central excise registration. Statements from various parties, including transporters, were used to allege that the appellants were involved in paper transactions. However, the Tribunal found that the appellants had made payments through account payee cheques and had also paid duty through PLA, indicating genuine transactions.

Procedural Lapses and Non-Joinder of Essential Parties:
The appellants contended that the show cause notice (SCN) was prejudged and suffered from non-joinder of essential parties like the suppliers and purchasers of the goods. The Tribunal noted that the suppliers and purchasers confirmed the transactions, and the transporters' statements were not cross-examined as required u/s 9D of the Central Excise Act, 1944.

Invocation of Extended Period for Demand:
The demand covered the period from June 2007 to July 2008, with the SCN issued on 24.08.2009. The appellants argued that the extended period could not be invoked. The Tribunal found that the investigation started after the surrender of registration, and there was no cogent evidence to support the allegations of paper transactions.

Legality of Penalties Imposed:
The Tribunal observed that the penalties imposed on both the proprietorship firm and the proprietor were not sustainable. Since the demand on account of denial of Cenvat Credit was set aside, the penalties were also not imposable.

Conclusion:
The Tribunal set aside the impugned demand and penalties, allowing both appeals with consequential relief. The order was pronounced in the open court on 25.04.2024.

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