2025 (6) TMI 841 - AT - Central Excise

Manufacturer entitled to CENVAT credit when goods received in factory and duty paid for final products

Jindal Stainless Hisar Limited, Metal Traders India Private Limited, Metal Linkers International Limited, National Udyog, K.S. Enterprises P Ltd., Agsons Agencies Private Limited, Siddhartha Bronze Products, Khushboo India Private Limited, B.R. Jindal Udyog Versus Commissioner of Central Goods, Service Tax and Central Excise-Delhi East

CESTAT New Delhi allowed the appeal, setting aside the impugned order denying CENVAT credit. The Tribunal held that since the appellant received goods in ... CENVAT Credit - goods whose receipt as “inputs” in the factory premises and subsequent utilization in the manufacture of dutiable final goods is undisputed - reliance placed on the inculpatory statements of the witnesses to provide non-receipt of nickel, and consequently, non-manufacture of copper nickel alloy ingots - impugned Order has been passed after a delay of 4 years - invocation of extended period of limitation - levy of penalties. HELD THAT:- The penalties have been imposed on the ground that they have aided and unaided M/s J. V. Industries to avail inadmissible cenvat credit and M/s J. V Industries has opted for SVLDR Scheme 2019 and SVLDRS Form-4 has been issued to them, in that circumstances, no penalty can be imposed against the appellant as the matter against the appellant are also closed. Denial of CENVAT Credit - HELD THAT:- The said issue has been examined by this Tribunal in the appellant’s own case [2018 (5) TMI 380 - CESTAT CHANDIGARH (LB)] wherein the majority order was that M/s. JSL Stainless Ltd. was entitled to avail Cenvat Credit on the goods supplied by M/s. National Udyog and M/s. Ridhi Sidhi Alloys Pvt. Ltd. Further, in terms of Rule 3 of CCR, 2004, the manufacturer is entitled to take cenvat credit on inputs which have been received in their factory. Admittedly, in the case, it is the finding of the adjudicating authority that the appellant has received coppor ingots in their factory. Although, the description in the invoices is not as per the observation made by the adjudicating authority, the same cannot be fetal to deny cenvat credit to the appellants as held by the Hon’ble Allahabad High Court in the case of Juhi Alloy [2014 (1) TMI 1475 - ALLAHABAD HIGH COURT] wherein the Hon’ble High Court observed 'Ultimately, the issue in each case is whether, within the meaning of Rule 9(3) of the Rules of 2004, the assessee has taken reasonable steps to ensure that the inputs in respect of which he has taken Cenvat credit were goods on which appropriate duty of excise was paid. Once it is demonstrated that reasonable steps had been taken, which is a question of fact in each case, it would be contrary to the Rules to cast an impossible or impractical burden on the assessee.' Conclusion - i) As the Appellant No.1 has received the goods in their factory and paid duty thereon which has been used by the appellant in the manufacture of the final product, which has been cleared on payment of duty, in that circumstances, cenvat credit cannot be denied to the Appellant No.1. ii) As it is held that Appellant No.1 has taken cenvat credit correctly, in that circumstances, no penalties can be imposed on the Appellants No. 1 and 4 to 9. There are no merit in the impugned order, the same is set-aside - appeal allowed. The core legal questions considered in this judgment are:1. Whether the appellant manufacturer legitimately availed Cenvat Credit on copper nickel alloy ingots purportedly received and used as inputs in the manufacture of dutiable final goods, despite allegations of non-receipt of such goods in the factory premises.2. Whether the statements recorded under Section 14 of the Excise Act, relied upon by the Department to allege non-receipt and non-manufacture of copper nickel alloy ingots by the manufacturer, are admissible and reliable, especially after cross-examination.3. Whether the extended period of limitation under proviso to Section 11A(1) of the Excise Act and Rule 14 of the Cenvat Credit Rules, 2004, is invokable for recovery of alleged inadmissible Cenvat Credit.4. Whether penalties under Rule 26 of the Excise Rules, 2002, can be imposed on the commission agents and directors involved, considering the nature of their involvement and legal provisions.5. Whether the appellant manufacturer and associated parties acted with bona fide belief and due diligence in availing Cenvat Credit, and whether denial of credit is justified on the basis of invoice description discrepancies.6. The legal effect of settlement of the matter by the manufacturer under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, on the proceedings against other appellants.Issue-wise Detailed Analysis:1. Legitimacy of Cenvat Credit Availment on Copper Nickel Alloy IngotsLegal Framework and Precedents: Rule 3 of the Cenvat Credit Rules, 2004, allows credit only on inputs received in the factory for use in manufacture of dutiable goods. Precedents such as Commissioner of Central Excise & Customs v. MDS Switchgear Ltd., and CCE v. Juhi Alloys Ltd. establish that bona fide receipt and use of inputs entitles credit, even if the supplier's records are not verifiable by the recipient.Court's Interpretation and Reasoning: The Court recognized that the appellant manufacturer had placed orders and received goods from commission agents, who in turn procured from the manufacturer JV Industries. The appellant entered these goods in statutory records and used them in manufacturing stainless steel. The Department did not dispute the physical receipt of inputs by the appellant but challenged the genuineness based on invoice descriptions and alleged non-manufacture of copper nickel alloy ingots by JV Industries.Key Evidence and Findings: Physical stock verification at the appellant's factory confirmed receipt of copper and nickel cathodes but not copper nickel alloy ingots. Statements under Section 14 initially suggested non-receipt of nickel and non-manufacture of copper nickel alloy ingots by JV Industries. However, upon cross-examination, many witnesses retracted or qualified their earlier statements, citing coercion or pre-typed statements. The appellant also produced evidence of payment and statutory records corroborating receipt.Application of Law to Facts: The Tribunal held that once receipt of goods is established on the balance of probabilities, credit cannot be denied solely on invoice description discrepancies. The appellant acted in bona fide reliance on valid invoices and statutory entries. The principle that a buyer is not required to verify supplier's internal records or duty payments was emphasized.Treatment of Competing Arguments: The Department relied on the initial statements and investigation findings to allege fraud and non-receipt. The appellant countered that statements were unreliable due to coercion and that the Department failed to produce transport or other documentary evidence negating receipt. The Tribunal found the appellant's submissions more credible and consistent with legal principles.Conclusion: The appellant manufacturer legitimately availed Cenvat Credit on inputs received and used, and denial of credit on invoice description mismatch was unjustified.2. Admissibility and Reliability of Statements Recorded Under Section 14Legal Framework and Precedents: Statements recorded under Section 14 of the Excise Act can be relied upon only if the witness is available for cross-examination as per Section 9D. Precedents such as Surya Wires Pvt. Ltd. v. Principal Commissioner and Synergy Steels Ltd. v. Commissioner emphasize this requirement.Court's Interpretation and Reasoning: The Tribunal noted that several witnesses whose statements were relied upon by the Department were cross-examined and many retracted or clarified their earlier statements, citing coercion or undue pressure. Some key witnesses were not produced for cross-examination, rendering their statements inadmissible.Key Evidence and Findings: Cross-examination revealed that initial statements denying receipt of nickel or copper nickel alloy ingots were incorrect or obtained under duress. Some witnesses confirmed receipt of copper nickel alloy ingots, contradicting earlier statements.Application of Law to Facts: The Tribunal applied the principle that statements not subjected to cross-examination cannot be relied upon. Further, retracted or ambiguous statements lack evidentiary value.Treatment of Competing Arguments: The Department argued that hostility in cross-examination does not diminish the truthfulness of statements. The Tribunal rejected this, holding that voluntary and consistent statements are necessary for reliance.Conclusion: Statements relied upon by the Department to allege non-receipt or fraud were not reliable or admissible, and thus could not justify denial of credit or imposition of penalties.3. Invokability of Extended Period of Limitation and Recovery of DemandLegal Framework and Precedents: The proviso to Section 11A(1) of the Excise Act and Rule 14 of CCR, 2004, permit extended limitation only if suppression of facts or fraud is established. Cases such as Accurate Chemicals Industries v. CCE and Birla Corporation Ltd. v. Commissioner affirm that bona fide belief and disclosure negate extended limitation applicability.Court's Interpretation and Reasoning: The Tribunal found no evidence of suppression or fraud by the appellant manufacturer. The appellant had disclosed credit availment in statutory returns and maintained records. The Department's case rested on disputed statements and invoice description discrepancies, insufficient to invoke extended limitation.Key Evidence and Findings: The SCN was issued beyond the normal one-year period. No concealment or misrepresentation was proved. The appellant had acted in good faith.Application of Law to Facts: The Tribunal held that extended limitation could not be invoked where no suppression or fraud was established. Consequently, the demand and interest recovery were not sustainable.Treatment of Competing Arguments: The Department contended that mis-description and conspiracy justified extended limitation. The Tribunal rejected this, emphasizing need for clear proof of suppression.Conclusion: The demand raised beyond normal limitation period was time-barred and not sustainable.4. Imposition of Penalties Under Rule 26 of Excise RulesLegal Framework and Precedents: Rule 26 penalties apply to natural persons, and require proof of knowledge or reason to believe that goods are liable to confiscation. Cases such as Steel Tubes of India Ltd. v. CCE clarify scope.Court's Interpretation and Reasoning: The Tribunal noted that commission agents and directors were penalized on assumption of conspiracy. However, the appellant manufacturer's credit was held legitimate, negating basis for penalties. Further, the provisions of Rule 26(2) were inapplicable before 1.3.2007.Key Evidence and Findings: No cogent evidence was found that commission agents had knowledge of wrongdoing or that they dealt in excisable goods with intent to evade duty.Application of Law to Facts: Penalties were not sustainable in absence of proof of mens rea or statutory applicability.Treatment of Competing Arguments: The Department argued conspiracy and knowledge; the Tribunal required concrete evidence, which was lacking.Conclusion: Penalties imposed on commission agents and directors were not justified and were set aside.5. Bona Fide Belief and Due Diligence of the Appellant ManufacturerLegal Framework and Precedents: The law requires a purchaser to take reasonable steps to ensure inputs on which credit is claimed are duty paid. The purchaser is not expected to verify supplier's internal records. This principle is supported by rulings in Juhi Alloys Ltd., Tata Motors Ltd., and others.Court's Interpretation and Reasoning: The appellant manufacturer had valid duty paying invoices, entered goods in statutory records, made payments by cheque, and used inputs in manufacture of dutiable goods. The appellant could not be expected to investigate supplier's manufacturing process or internal compliance.Key Evidence and Findings: The appellant's statutory records, payment proofs, and physical receipt of goods were not disputed. The Department failed to establish any deliberate wrongdoing by the appellant.Application of Law to Facts: The Tribunal applied the principle that bona fide purchasers acting with reasonable diligence are entitled to credit, even if supplier commits irregularities unknown to them.Treatment of Competing Arguments: The Department sought to impute knowledge of supplier's fraud to the appellant. The Tribunal rejected this, emphasizing the impracticality and legal untenability of such expectation.Conclusion: The appellant acted bona fide and with due diligence; denial of credit on mere invoice description mismatch was unwarranted.6. Effect of Settlement by Manufacturer under Sabka Vishwas SchemeLegal Framework: The Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, permits settlement of legacy disputes and closure of proceedings against declarants.Court's Interpretation and Reasoning: The manufacturer JV Industries settled its dispute under the Scheme, and accordingly, penalties and demands against it were closed. The Tribunal held that penalties could not be imposed on other appellants on the same grounds once the manufacturer's matter was settled.Conclusion: Proceedings and penalties against appellants connected to the manufacturer were not sustainable post-settlement.Significant Holdings:'Once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, the buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs. The buyer will be therefore entitled to claim Modvat credit on the said assumption. It would be most unreasonable and unrealistic to expect the buyer of such inputs to go and verify the accounts of the supplier or to find out from the department of Central Excise whether actually duty has been paid on the inputs by the supplier. No business can be carried out like this, and the law does not expect the impossible.''The statements recorded under Section 14 of the Excise Act cannot be relied upon unless the witness is produced for cross-examination as per Section 9D. Statements obtained under coercion or retracted during cross-examination have no evidentiary value.''Extended period of limitation under proviso to Section 11A(1) can be invoked only upon proof of suppression or fraud. Mere discrepancy in invoice description or reliance on unreliable statements does not justify invoking extended limitation.''Penalties under Rule 26 of the Excise Rules require proof of knowledge or reason to believe, and apply to natural persons. Imposition of penalty without such proof is unsustainable.''Where the manufacturer has settled the dispute under the Sabka Vishwas Scheme, proceedings and penalties against connected parties cannot be sustained on the same grounds.''The doctrine of preponderance of probability applies in quasi-judicial proceedings; revenue need not prove fraud with criminal standard but must establish facts on balance of probabilities.'Final determinations:The appellant manufacturer legitimately availed Cenvat Credit on inputs received and used in manufacture; denial of credit on invoice description mismatch is not justified.Statements relied upon by the Department are inadmissible or unreliable due to coercion and lack of cross-examination.The extended period of limitation is not invokable; demand and interest recovery are unsustainable.Penalties imposed on commission agents and directors are set aside due to lack of evidence of knowledge or intent.The appellant acted bona fide and with due diligence in availing credit; no suppression or fraud established.Proceedings against appellants connected to the settled manufacturer are closed.The impugned order disallowing credit and imposing penalties is set aside; appeals are allowed with consequential relief.