2025 (5) TMI 1689 - AT - Central Excise

Appeal allowed against Cenvat credit denial on fake invoice allegations lacking corroborative evidence and proper investigation

M/s Hans Metals Ltd. Versus Commissioner of Central Excise & CGST, Kanpur

CESTAT Allahabad allowed the appeal and set aside the demand for Cenvat credit denial based on alleged fake invoices. The tribunal found that proceedings ... Demand of Cenvat credit - fake invoices - imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004 [CCR, 2004] read with Section 11AC of Central Excise Act, 1944 [CEA, 1944] - availing the facility of Cenvat credit in respect of inputs, capital goods and input services - invoking extended period of limitation - HELD THAT:- After having heard both the sides and on perusal of records, I find that the entire proceedings have been initiated on the basis of statements made by the manufacturers and the Excise dealers which have been solely relied to conclude that the Appellant has not received the goods. Merely on the basis of the communication made by the DGCEI, Jamshedpur, Cenvat credit has been unjustifiably denied to the Appellant by the jurisdictional Central Excise authorities. No other evidence is available on record but the statements, which too have not been allowed to be cross- examined. No investigation was done from the side of Department and no findings were given in the impugned orders regarding the authentication of Invoices, Bilties, Vehicle weighing machine statements and Bank transactions between the Appellant and supplier. I find that the evidence collected by the Revenue is only in the shape of statements of third party. It is well settled that in the case of clandestine allegation, the onus to establish the same is on the Revenue, which is required to be satisfied by production of sufficient, tangible and positive evidence. The uncorroborated statements of third party cannot be adopted as an evidence, without corroboration from an independent source though such statements can be of some value but cannot be solely relied upon for the purpose of holding against the assessee. I find that the Appellant has contested that the demand was barred by limitation. In this regard, I find that the SCN dated 04.10.2018 was issued for the period 2013-14. Accordingly, the extended period of limitation was invoked. As per the undisputed fact, the Appellant was registered and was maintaining all the records such as Bank transactions, bilties & RG-23A Pt-II. Appellant has filed the monthly ER-1 returns on a regular basis and the records were also audited. There was no suppression of facts on the part of the assessee. Hence, demand for extended period was hit by limitation - Section 11A of CEA, 1944. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief to the Appellant, as per law. The core legal questions considered in this appeal include:1. Whether the demand of Cenvat credit and imposition of penalty based solely on statements of suppliers, without corroborative evidence, is sustainable.2. Whether the appellant, as a bona fide purchaser, is entitled to Cenvat credit when it has produced documentary evidence such as invoices, bilties, vehicle weighing machine statements, bank transactions, and statutory records.3. Whether the extended period of limitation under Section 11A of the Central Excise Act, 1944, can be invoked in the present case, considering the appellant's maintenance of records and regular filing of returns.4. The evidentiary value of uncorroborated third-party statements in confirming demands under Central Excise laws.Issue-wise detailed analysis:1. Reliance on Statements of Suppliers Without Corroborative EvidenceThe relevant legal framework includes Rule 15 of the Cenvat Credit Rules, 2004, Section 11AC of the Central Excise Act, 1944, and established principles of evidence law concerning the burden of proof and admissibility of evidence. Precedents cited include decisions where uncorroborated statements of third parties were held insufficient to confirm demands.The Court noted that the entire proceedings were initiated based on statements of the suppliers, specifically the proprietor of M/s Shiv Metaliks, who admitted issuance of fake invoices. However, these statements were not corroborated by independent evidence, nor was cross-examination allowed. The appellant produced substantial documentary evidence including invoices, bilties, vehicle weighing machine statements, and bank transaction records demonstrating payment through banking channels rather than cash, supporting the genuineness of transactions.The Court relied on the Tribunal's earlier ruling in G.S. Alloy Castings Ltd., where it was held that uncorroborated statements of third parties cannot be solely relied upon to deny Cenvat credit. The Court emphasized that the Revenue failed to investigate transporters or verify the authenticity of documents, and did not explain how the appellant manufactured final products without the raw materials in question. The Court found the Revenue's reliance on third-party statements insufficient and unjustified.Competing arguments from the Revenue, which sought to uphold the demand based on supplier statements, were rejected due to lack of corroboration and procedural fairness (no cross-examination).The conclusion was that the demand based solely on uncorroborated statements was unsustainable.2. Bona Fide Purchaser Status and Documentary EvidenceThe appellant contended that it was a bona fide purchaser who had received goods and paid consideration inclusive of duty through banking channels. The appellant maintained statutory records such as RG23 Pt-II and filed monthly ER-1 returns regularly, which were audited without discrepancies.The Court acknowledged these submissions and found that the appellant's documentary evidence was credible and consistent. The appellant's records reflected receipt and utilization of inputs, and there was no evidence of suppression or misstatement. The Court referred to several precedents supporting the principle that a bona fide purchaser who maintains proper records and pays duty cannot be denied credit merely on the basis of supplier statements.The Court applied the law to the facts and held that the appellant's entitlement to Cenvat credit was established by documentary evidence and statutory compliance.3. Limitation and Extended Period under Section 11A of the Central Excise Act, 1944The Department issued the Show Cause Notice invoking the extended period of limitation for the period 2013-14. The appellant challenged this on the ground that there was no suppression or fraud and that all records were maintained and returns filed regularly.The Court observed that the appellant was registered, maintained all relevant records, and filed ER-1 returns regularly. There was no allegation or evidence of suppression of facts or fraud on the part of the appellant. Consequently, the invocation of extended limitation was found to be unjustified under Section 11A.The Court applied the statutory provisions and principles of limitation law to hold that the demand was barred by limitation.4. Evidentiary Value of Uncorroborated Statements and Procedural FairnessThe Court emphasized settled legal principles that in cases of clandestine allegations, the onus lies on the Revenue to produce sufficient, tangible, and positive evidence. Uncorroborated statements of third parties, especially when cross-examination is denied, cannot be solely relied upon to confirm demands.The Court cited the Tribunal's decision in Madhura Ingots & Steel Co. Pvt. Ltd., which relied on the Allahabad High Court ruling in Parmarth Iron Pvt. Ltd., holding that statements of prosecution witnesses not subjected to cross-examination are inadmissible for confirming demand. Further, evidence such as diaries or ledgers not properly identified or explained is inadmissible.The Court found that the Revenue failed to investigate further or produce corroborative evidence and did not allow cross-examination, thereby violating principles of natural justice and evidentiary standards.The competing argument from the Revenue that the statements alone were sufficient was rejected on these grounds.Significant holdings include the following verbatim excerpts and principles:'The uncorroborated statements of third party cannot be adopted as an evidence, without corroboration from an independent source though such statements can be of some value but cannot be solely relied upon for the purpose of holding against the assessee.''It is well settled that in the case of clandestine allegation, the onus to establish the same is on the Revenue, which is required to be satisfied by production of sufficient, tangible and positive evidence.''If the Revenue does not allow cross-examination of any prosecution witness then Revenue cannot rely on the statement given by such prosecution witness for confirmation of demand.''The appellant was a bona fide purchaser of the goods for a price which included the duty element and payment was made by cheque. The appellant had received the inputs which were entered in the statutory records maintained by the appellant.''The demand for extended period was hit by limitation - Section 11A of CEA, 1944.'Final determinations:- The demand of Cenvat credit and penalty based solely on uncorroborated statements of suppliers is unsustainable.- The appellant, as a bona fide purchaser maintaining proper records and paying duty, is entitled to Cenvat credit.- The invocation of extended period of limitation was improper in the absence of suppression or fraud.- The appeal was allowed, the impugned order set aside, and consequential relief granted to the appellant as per law.