2024 (6) TMI 492 - AT - Central Excise

CESTAT sets aside copper clandestine removal demand citing lack of evidence and natural justice violations

Commissioner of Central Goods and Service Tax, Customs and Central Excise, Alwar Versus M/s. Kesri Steels Limited (Vice-Versa)

CESTAT NEW DELHI allowed the appeal, holding that allegations of clandestine removal of 536.134 MT copper were merely presumptive without corroborative ... Clandestine removal of 536.134 MT of copper - diversion of imputs - existence of cogent and corroborative material establishing the fact of actual clandestine clearance or not - violation of principles of natural justice - availment of irregular Cenvat credit - time limitation. Clandestine removal - HELD THAT:- The allegations of clandestine removal of the final product of assessee are merely presumptive allegations. This Tribunal in Century Metal Recycling Pvt. Ltd. [2016 (1) TMI 967 - CESTAT NEW DELHI] has held that when there is no documentary evidence of clandestine removal of raw material i.e. transport details, buyer details, financial transactions etc. adduced, in the absence of the corroborative evidence, statutory records cannot be discarded merely on the basis of wrong interpretation and the presumption alleging the Cenvat credit as inadmissible is held unsustainable in that circumstance. In Suzuki Synthetics Pvt. Ltd. [2014 (11) TMI 990 - CESTAT AHMEDABAD], the Tribunal observed that if the case of clandestine removal is to be sustained based on private records then the same is required to be supported by corroborative evidence with regard to purchase of raw material, manufacture of final goods, flow-back of money or identification of the buyers and their statement, etc. The ratio laid down in the above mentioned judgments is squarely applicable to the present case also as there is no corroborative and tangible evidence adduced by the department establishing clandestine clearance/diversion of input material by the assessee except the presumption about the same. Violation of principles of natural justice - HELD THAT:- Though the department has taken the plea that there are three test reports which supports the department’s contention but it is observed that there is no apparent denial to the fact that the three of the samples picked up by the department were of irregular shape and were not homogenous at all and as is mentioned in CRCL Report itself. The sample as was picked up from the M/s. Nalwa Steel premises, the buyer of the assessee, the sample being absolutely homogenous and showing the result of 11.9% of copper content in the Ingot - Department has failed to show any cogent reason of concealing the M/s. Nalwa steels sample report. The adjudicating authority itself has held that not informing the assessee about M/s. Nalws Steels sample test report clearly shows that show cause notice has relied upon the test reports which did not favour the assessee. Non disclosing the vital fact of the report which supports assessee is held to be the violation of principal of natural justice. Wronful avaiment of CENVAT Credit - HELD THAT:- There is no evidence about transportation of 20.636 MT of ingots from the appellant to anybody else without payment of duty. No shortcomings have been noticed in the accounts maintained by the assessee. Thus, there is no iota of evidence or investigation made by the department to prove that the raw material of the assessee as shown to be consumed is an excess as compared to its consumption in the final products. There is no evidence even to show that the final products were clandestinely cleared by the assessee. In view thereof, the confirmation of the recovery of Cenvat credit alleging the same to be irregular for 20.636 MT of ingots to have been clandestinely removed is also not sustainable - the demand/reversal of availed Cenvat credit has wrongly been confirmed despite accepting the M/s. Nalwa Steels sample report. Extended period of Limitation - HELD THAT:- It is clear that department has produced no evidence about any evasion of duty by the appellant. The allegations of clandestine removal are held to have no supportive evidence. Admittedly, the assessee is a registered manufacturer. Returns were being regularly filed. Accordingly, the suppression of facts to evade duty has wrongly been raised against the appellant - the department has intentionally and wrongly concealed the correct test reports. In fact, the departmental adjudicating authority itself has appreciated the same while dropping the major part of demand - the demand, whatsoever has wrongly been confirmed on the assessee. Clearly the present is not the case of suppression of facts or misrepresentation as is alleged - the extended period of limitation has wrongly been invoked. The SCN itself is barred by time - Appeal allowed. Issues Involved:1. Alleged fraudulent availing of Cenvat credit by the assessee.2. Alleged clandestine removal of inputs (copper ingots/scrap).3. Validity of the demand confirmed by the adjudicating authority.4. Invocation of the extended period of limitation for recovery of Cenvat credit.Detailed Analysis:1. Alleged Fraudulent Availing of Cenvat Credit:The department alleged that the assessee availed fraudulent Cenvat credit amounting to Rs.2,57,94,584/- during the period 31.12.2004 to 25.02.2008. The allegation was based on the observation that the ratio of copper consumption against the production of S.S. Ingots and Alloy Steel Ingots was 12.31%, much higher than the manufacturing standards which require a maximum of 2% copper. The adjudicating authority confirmed a demand of Rs.12,06,902/- out of the proposed demand.2. Alleged Clandestine Removal of Inputs:The department's case was built on the premise that the assessee had clandestinely removed 536.134 MT of copper and availed irregular Cenvat credit on this quantity. However, the assessee contended that there was no evidence of such clandestine removal or diversion of inputs. The Tribunal noted that no unaccounted stock of raw material or finished goods was found during the search, and there was no investigation into the buyers or transportation of the alleged clandestinely removed copper.3. Validity of the Demand Confirmed by the Adjudicating Authority:The Tribunal observed that the adjudicating authority confirmed the demand of Rs.12,06,902/- based on the assumption of clandestine removal of 20.636 MT of copper ingots without any corroborative evidence. The Tribunal held that the confirmation of the recovery of Cenvat credit was not sustainable due to the lack of tangible evidence of clandestine removal, such as transport details, buyer details, or financial transactions.4. Invocation of the Extended Period of Limitation:The Tribunal held that the extended period of limitation was wrongly invoked. The assessee was a registered manufacturer who regularly filed returns, and there was no evidence of willful suppression of facts to evade duty. The Tribunal cited the Supreme Court's rulings in Anand Nishikawa Co. Ltd. and Pushpam Pharmaceuticals Co., which emphasized that suppression of facts requires a deliberate act to escape duty payment. The Tribunal concluded that the department's concealment of the correct test reports and the lack of evidence of evasion negated the grounds for invoking the extended period.Conclusion:The Tribunal allowed the appeal filed by the assessee, setting aside the demand of Rs.12,06,902/- and the imposition of penalty. The appeal filed by the department was dismissed. The Tribunal held that the allegations of clandestine removal and fraudulent availing of Cenvat credit were not substantiated by evidence, and the extended period of limitation was wrongly invoked. The show cause notice was deemed barred by time.