2025 (10) TMI 609 - AT - Central Excise

Denial of CENVAT credit overturned as s.9D-recorded statements inadmissible; credits restored, interest and penalties quashed

M/s. Globe Steel & Alloys Private Limited and Shri Sunil Bansal, Director Versus Pr. Commissioner of C.G.S.T. and Central Excise, Ranchi

CESTAT held that denial of CENVAT credit was unsustainable: the investigation was incomplete and relied on uncorroborated statements recorded without ... Wrongful availment of CENVAT credit - credit availed on the basis of non-existence suppliers - entire case is based on the statements recorded under Section 14 of the Central Excise Act, 1944 - evidence of transportation submitted by the Revenue - interest and penalty - HELD THAT:- It is found that the investigating officers have not conducted any enquiry at the factory of the appellant-company. No stock of raw materials or finished goods were taken. Thus, it is agreed with the submission of the appellant that there was no discrepancy in stock of raw materials and finished goods in their factory. It is also found that no investigation was conducted with the person dealing with purchase and maintaining inventory at the appellant's factory, to establish the charge of non-receipt of materials in the factory. It is also a fact that no enquiry was made with security staff/personnel posted at the factory gate of the appellant; no investigation was also made with the weighbridge operator of the appellant's factory. It is found that in the present case, the investigation was selectively conducted at the transporter's end. On a test check basis, 21 invoices involving CENVAT Credit of Rs.15,99,466.13 (out of the total disputed credit of Rs.3,44,11,544/-) i.e., 4.6%, were randomly picked up and the vehicle registration numbers appearing on those invoices were verified from online portal. It purportedly emerged that all these 21 vehicle numbers pertain to L.M.V. which could not be used to transport the impugned goods. It is found that in respect of rest of the invoices involving CENVAT Credit of Rs.3,28,12,077.87, there is no allegation that those were pertaining to cases of L.M.V. Resultantly, it was alleged that the appellant has taken CENVAT Credit on the basis of fake invoices without actual receipt of goods. However, it is found that there is no corroborative evidence brought on record by the investigation to substantiate these allegations. It is also observed that the entire case has been made on the basis of the statements recorded from 15 persons, without there being any corroborative evidence. Since these oral statements have not been tested in terms of Section 9D of the Central Excise Act, it is opined that these statements cannot be treated as admissible evidence and are, therefore, irrelevant - The statements recorded from different witnesses are thus irrelevant pieces of materials due to non-compliance of Section 9D of the Central Excise Act, 1944 and hence, have to be eschewed from evidence. Thus, the denial of cross examination vitiates the entire proceedings, which have been built on the basis of such untested statements - it is opined that as the statements relied upon in this case have not been tested as mandated under section 9D of the Central Excise Act, 1944, therefore, these statements cannot be treated as admissible evidence in these proceedings. The denial of CENVAT Credit merely on the basis of the findings that some of the vehicles said to have been used for transportation were found to be L.M.V. and could not have been used to transport the impugned goods cannot sustain - CENVAT Credit availed by the appellant-company cannot be denied on the basis of the statements selectively recorded from some of the transporters and some discrepancy found in the vehicle numbers and on the basis of statements alone it cannot be concluded that the appellant has not actually received the goods into the factory and received only invoices. Consequently, the denial of CENVAT Credit availed by the appellant on this ground is not sustainable. Regarding the evidence of transportation submitted by the Revenue, it is observed that it is not the case of the Department that the impugned goods were not transported by the transporters. Only two transporters owning 4 vehicles i.e. Sri Arvind Dubey, Owner of one vehicle (JH-05W-4991) and Sri Kamlesh Dubey, Owner of 3 vehicles (JH-05AL-0707, JH-05AF, JH-05Q-0707), out of the total of more than 350 vehicles involved in the instant case, stated that they have not transported the goods. Further, as the statements of said two transporters are not tested under Section 9D, hence, by operation of Section 9D, said statements have become irrelevant piece of material. On the basis of the statements recorded from the dealers and transporters and some discrepancy found in the vehicle numbers, it cannot be concluded that the appellant has not actually received the goods into the factory and received only invoices. In view of the above findings, the appellant company has correctly availed credit on the strength of invoices received from various dealers and manufacturers and hence, the denial of CENVAT Credit to the appellant-company is not sustainable. Interest - penalty - HELD THAT:- As the credit availed by the appellant is legal and proper, the question of demanding interest or imposing penalty does not arise. Accordingly, the demands of interest and imposition of penalties as confirmed in the impugned orders are set aside. Penalty on Director of the appellant-company - HELD THAT:- The penalty has been imposed on him on the allegation that he was instrumental in availing the irregular credit. Since the credit availed by the appellant company is found be regular, as per the discussions hereinabove, and there is no infirmity in availment of credit by the appellant-company, the penalty imposed on the Director namely, Shri Sunil Bansal, is not sustainable. Accordingly, the same is set aside. Thus, the denial of CENVAT Credit to the appellant company vide the impugned orders is not sustainable. Accordingly, the disallowance of credit in the impugned orders along with interest set aside. The penalties imposed vide both the orders are also set aside - penalty imposed on the Director is not sustainable. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit can be disallowed on the basis that suppliers were 'non-existent' and that goods were not received where the Department's case rests primarily on statements recorded during investigation and selective transporter verifications. 2. Whether statements recorded under Section 14 of the Act (investigative statements) that were not tested as required by Section 9D of the Central Excise Act (or the comparable Customs provisions) are admissible and can form the basis for disallowance, demand, interest and penalty. 3. Whether a denial of credit on the basis of a test-check/sample of invoices (and alleged discrepancies in a small percentage of vehicle registration numbers) is legally sustainable when statutory records, payments through banking channels, inventory entries and duty paid on final products remain uncontroverted. 4. Whether imposition of penal consequences (penalty on the assessee and personal penalty on a director) can be sustained where the underlying disallowance of credit is not established. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of disallowing CENVAT credit where Department relied on investigative statements and selective transporter checks Legal framework: CENVAT Credit Rules require that a manufacturer claiming credit maintain statutory records (RG-23A Part-I/II, ER-1, etc.) and allows credit where bona fide transactions are established; revenue demands must be founded on cogent evidence of non-receipt or sham transactions. Precedent treatment: The Tribunal and several High Courts have held that a bona fide buyer who receives invoices, records receipt in statutory registers, makes payment through banking channels and uses inputs in manufacture (duty paid on final clearance) is ordinarily entitled to credit; reliance solely on third-party or transporter statements without corroboration is insufficient. Interpretation and reasoning: The Court examined the investigative approach-searches, statements from dealers/manufacturers, and a random check of 21 invoices (4.6% of disputed value) revealing vehicle numbers allegedly inconsistent with goods transport. The Tribunal found no investigation at the assessee's factory (no stock verification, no inquiry with purchase/inventory personnel, weighbridge operator or security staff) and noted lack of corroborative evidence to negate the statutory records and bank payments. The selective nature of transport checks and absence of enquiry into the bulk of invoices undermined the revenue's inference that all purchases were paper transactions. Ratio vs. Obiter: Ratio - denial of credit cannot rest solely on selective transporter statements, minor discrepancies in vehicle records, or letters from third parties where statutory records, banking evidence and consumption of inputs in manufacture remain uncontradicted. Obiter - observations on administrative practices and investigative omissions. Conclusion: Denial of CENVAT credit on the grounds advanced by the Department was unsustainable; credit allowed. Issue 2 - Admissibility and evidentiary value of statements recorded under Section 14 absent compliance with Section 9D Legal framework: Section 9D prescribes conditions under which statements recorded before a gazetted officer during investigation become relevant in adjudication - either circumstances under clause (a) exist or the deponent is examined as a witness before the adjudicating authority and the authority forms a written opinion to admit the statement in the interests of justice (clause (b)). Precedent treatment: Multiple authoritative decisions require strict compliance with Section 9D(1)(b); statements not so tested/admitted cannot be relied upon in adjudication. The Tribunal relied on several decisions interpreting the mandatory nature of Section 9D and analogous Customs provisions. Interpretation and reasoning: The Tribunal held that the relied-upon statements of dealers/manufacturers/transporters were not tested in terms of Section 9D; cross-examination requests were denied; no circumstances under clause (a) were shown to exist. Consequently, those statements were irrelevant and inadmissible as evidence for proving non-receipt or fraud. The Tribunal emphasized the statute's protective purpose against coerced admissions and the sequential procedure of examination-in-chief, cross-examination and re-examination. Ratio vs. Obiter: Ratio - statements recorded during investigation, if not admitted in evidence following Section 9D(1)(b), carry no evidentiary value in adjudication proceedings and cannot support a demand or penalty. Obiter - detailed exposition of Section 9D reasoning drawn from other authorities. Conclusion: The investigative statements could not be relied upon; they were to be eschewed from evidence and could not sustain the disallowance or penalties. Issue 3 - Sustainability of sample-based denial and impact of statutory records, banking evidence and consumption of inputs Legal framework: Revenue may disallow credit if fraud or non-receipt is proved; however, burden lies on the Department to prove non-receipt by cogent, corroborative evidence. Statutory records and documented payments are material evidence of receipt and bona fides. Precedent treatment: Authorities hold that an assessee who records receipt in statutory registers, pays suppliers by banking channels and consumes inputs in manufacture (where duty on final goods is accepted by revenue) has a strong prima facie case; isolated or sample discrepancies do not justify wholesale disallowance absent corroboration. Interpretation and reasoning: The Tribunal found that the Department's test check of 21 invoices comprising 4.6% of the disputed credit, and resultant inference from alleged L.M.V. registrations, could not justify disallowance of the entire credit. The Tribunal observed accepted facts: registered suppliers, excise invoices, entries in RG-23A Part-I/II, ER-1 returns, bank payments and duty paid on finished goods. The Department produced simple letters from certain manufacturers denying supply, but did not reconcile these with the assessee's contemporaneous records nor establish alternative sourcing or financial flow back. On the preponderance of probabilities, the statutory and banking records and consumption evidence prevailed. Ratio vs. Obiter: Ratio - credit cannot be denied across the board on the basis of a limited sample showing discrepancies in vehicle details or uncorroborated third-party denials where the assessee's statutory records, payment trail and consumption are otherwise intact. Obiter - discussion of practicalities of transport overloading, fake plates and investigative limitations. Conclusion: Sample-based findings and selective transport statements did not sustain the denial; credit was correctly availed on invoice strength and must be restored. Issue 4 - Validity of interest and penalties where underlying credit disallowance is set aside Legal framework: Interest and penalty flow from an established demand/infraction; if foundational demand is unsustainable, ancillary interest and penalty cannot be sustained. Precedent treatment: Where demand is struck down for lack of proof, penalties and interest incident thereto are set aside. Interpretation and reasoning: Having held that credit was properly availed and that the Department failed to produce admissible, corroborative evidence of fraud/non-receipt, the Tribunal concluded there was no legal basis to levy interest or penalties, including the personal penalty imposed on the director. Ratio vs. Obiter: Ratio - where disallowance/demand is unsustainable, consequent interest and penalty are also unsustainable and must be set aside. Obiter - none material. Conclusion: Interest and penalties confirmed by the adjudicating authorities (including the personal penalty) were set aside. Overall Conclusion The Tribunal allowed the appeals: disallowance of CENVAT credit was set aside; the supporting investigative statements were held inadmissible for failure to comply with Section 9D; selective transporter checks and sample discrepancies did not constitute adequate corroboration to deny credit given intact statutory records, bank payments and uncontradicted consumption of inputs; consequential interest and penalties (including a personal penalty on a director) were vacated.