CENVAT credit denial overturned as demand based solely on uncorroborated third-party statement lacks supporting evidence

CESTAT Kolkata allowed appeals challenging denial of CENVAT credit and penalties imposed on three appellants. The tribunal found that the entire case was based solely on one appellant's statement without corroborative evidence. The revenue alleged evasion through non-receipt of pig iron and misuse of CENVAT credit facility. However, the authorized representative of the third appellant never admitted any transactions with the first appellant, and goods received were used in manufacturing dutiable final products. The tribunal held that demand cannot be raised based on third-party statements alone without supporting evidence, setting aside penalties against all appellants.

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Issues Involved:

1. Entitlement of appellant No.3 to CENVAT credit based on invoices from M/s. Rashmi Metaliks Ltd. and M/s. Neo Metaliks Ltd.
2. Legitimacy of penalties imposed on appellant No.1, 2, and 3 under relevant Central Excise and CENVAT Credit Rules.

Issue-wise Detailed Analysis:

1. Entitlement to CENVAT Credit:

The central issue in this case was whether appellant No.3 was entitled to avail CENVAT credit on the invoices issued by M/s. Rashmi Metaliks Ltd. and M/s. Neo Metaliks Ltd. The Revenue's case was based on the recovery of notebooks from appellant No.1, which allegedly showed that goods were received by appellant No.1 on behalf of appellant No.2 and 3 and were diverted using other transporters. The appellants argued that appellant No.3 received and used the goods in manufacturing their final products, which were duly taxed. The Revenue failed to provide evidence that the goods were not present in appellant No.3's stock or used in manufacturing. The adjudicating authority concluded that without corroborative evidence, CENVAT credit could not be denied to appellant No.3.

2. Legitimacy of Penalties:

The penalties imposed on the appellants were based on the alleged wrongful availment of CENVAT credit. For appellant No.1, the penalty was proposed under Rule 26 of the Central Excise Rules, 2002, read with Rule 15 of the CENVAT Credit Rules, 2004, for his role in the alleged diversion of goods. Appellant No.2 faced penalties under the same rules for purportedly being aware of and consenting to the wrongful practices. The appellants contended that the penalties were unjustified as the goods were not liable for confiscation, and there was no evidence of dealing with non-receipt goods. The adjudicating authority found that the penalties could not be sustained in the absence of evidence proving non-receipt of goods or fraudulent transactions.

Conclusion:

The adjudicating authority set aside the impugned order, allowing all appeals with consequential relief. The decision emphasized the lack of corroborative evidence from the Revenue to support the allegations of non-receipt of goods and wrongful availment of CENVAT credit. Consequently, the penalties imposed on the appellants were also deemed unsustainable.

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