CENVAT credit allowed despite non-existent dealer allegations when appellant followed Rule 9(5) verification procedures

The CESTAT New Delhi allowed the appeal in a CENVAT credit case where the appellant was accused of receiving invoices without actual duty-paid goods from non-existent manufacturers and dealers. The appellant had verified invoices were in prescribed format under Rule 11 of Central Excise Rules, 2002, the dealer was registered with central excise authorities, goods were transported with proper documentation, statutory records were maintained, and payments made through banking channels. The tribunal found the appellant had taken all reasonable precautions per Rule 9(5) of CENVAT Credit Rules, 2004, setting aside the recovery demand, interest, and penalties.

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Issues Involved:
1. Denial of Cenvat credit.
2. Allegations of fictitious transactions.
3. Cross-examination of witnesses.
4. Precedent cases and similar investigations.
5. Compliance with Cenvat Credit Rules.
6. Examination of evidence and burden of proof.
7. Penalty on the appellant and its director.

Summary:

1. Denial of Cenvat Credit:
The appellant, M/s. Rotocast Industries Ltd., challenged the Order in Original dated 29.09.2018, which denied Cenvat credit of Rs. 1,97,53,930/- and imposed an equal amount of penalty, along with a separate penalty of Rs. 10,00,000/- on its Director, Shri Sunil Kumar Melani.

2. Allegations of Fictitious Transactions:
The Directorate General of Central Excise Intelligence (DGCEI) alleged that the appellant received only duty-paying documents without the actual supply of goods from two 2nd stage dealers, M/s. Jai Balaji Steel & Co. and M/s. Sandeep Commercial Company. The investigation concluded that both the 1st stage and 2nd stage dealers involved were fictitious, and the transactions were mere paper transactions.

3. Cross-Examination of Witnesses:
During adjudication, the appellant sought cross-examination of 28 persons, including 24 whose statements were relied upon and 4 DGCEI officers. Only the cross-examination of the DGCEI officers was conducted, as the other witnesses did not appear despite multiple opportunities.

4. Precedent Cases and Similar Investigations:
The appellant cited a similar case involving M/s. Prakash Industries Ltd., where the CESTAT, New Delhi, set aside the Order-in-Original and allowed the appeal, holding that the party had correctly availed the Cenvat Credit. The appellant argued that their case should be decided similarly.

5. Compliance with Cenvat Credit Rules:
The appellant contended that they complied with Rule 9(5) of the Cenvat Credit Rules, 2004, by verifying that the invoices issued by the 2nd stage dealers were in the prescribed format, the dealers were duly registered, and payments were made through proper banking channels. The appellant argued that they took all reasonable precautions before taking credit and were not responsible for verifying the existence of the 1st stage dealers or manufacturers.

6. Examination of Evidence and Burden of Proof:
The learned Authorized Representative argued that the appellant failed to prove the actual physical movement of goods and the genuineness of transactions. The burden of proof lies with the claimant of the credit. The investigation revealed that the 1st stage dealers did not exist, and the transportation details were inconsistent with the nature of the goods.

7. Penalty on the Appellant and its Director:
The appellant argued that there was no evidence to show that the Director knowingly abetted the availment and utilization of irregular Cenvat credit. The imposition of penalty under Rule 26 of the Central Excise Rules, 2002, was contested as there was no proposal holding any goods liable for confiscation.

Judgment:
The Tribunal noted that the appellant had taken all reasonable precautions as per legal provisions and had complied with the Cenvat Credit Rules. The Tribunal referenced previous decisions in similar cases where the appeals were allowed, and the orders were set aside. Consequently, the Tribunal set aside the impugned order and allowed the appeals, including the penalties imposed on the appellants.

(Pronounced in the open Court on 29.04.2024)

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