2026 (1) TMI 322 - AT - Central Excise

Cenvat credit claims for alleged paper input purchases without delivery; denial reversed as VAHAN checks and statements fell short

Whether Cenvat credit could be denied as fraudulently availed on paper transactions without receipt of inputs was determined against the Revenue, as ... Irregular availment of Cenvat Credit - availment and utilization of Cenvat Credit in violation of laid down legal principles merely, on the basis of paper transactions, fraudulently made without receiving goods in the factory of production - admissibility of the computerized data as obtained from the web Portal - HELD THAT:- Merely on the basis of enquiries conducted on the basis of VAHAN portal and statement of owners identified in a few of the cases of such vehicles, cannot constitute a conclusive inference to allege non-receipt of the said goods. It is a foregone conclusion that as long as the vehicle is identified, to be of a non-commercial nature, the owner of the said vehicle will certainly assert its actual and non-commercial nature. Any enquiry therefore does not go into establishing the revenue’s charge. This is all the more so when the transactions are substantiated through bank transactions and not an iota of doubt is cast upon their veracity. It fails the fundamental principle of economics to conclude that one would make payments through licit channels when no material supply is effected by the suppliers. Such obviously fallacious conclusions are not supported in law and that is why the rigors of Section 36B also come into play. The Learned Commissioner (Appeals) has held that “the contention of making payments through account pay checks or RTGS also did not hold good” and observed that M/s. Gagan Ferrotech Ltd. was a regular customer of the supplier company and adjustment of such payments against other supplies was not a very difficult task - It is noted that no discrepancy at even a single place with regard to incorporation of the goods in various accounts like RG-23 A Part I or Part II or the DSA or Raw material register or even ER-1 return filed have been pointed out or ascertained by the revenue. Also no case of short receipt or excess stocks of finished goods or any other transactional evidence has been placed on record in support by the Revenue vis-à-vis the banking transactions. This leads to the inevitable conclusion that the claims of the revenue are completely unfounded and baseless and therefore fail on the touchstone of legality of the evidence relied upon. There is lack of legal merit in the order of the lower authority, denying the cenvat credit availed and the same is therefore set aside. Penalties as imposed on the various appellants herein are also clearly not sustainable and are required to be dismissed - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether Cenvat Credit could be denied solely on the basis that vehicle numbers reflected on input invoices were allegedly non-existent or not goods vehicles as per VAHAN portal, despite admissions by supplier and recipient regarding actual supply, receipt, and use of inputs, and in absence of corroborative evidence of non-receipt. (ii) Whether computer printouts/data extracted from the VAHAN web portal could be relied upon as admissible evidence without compliance with Section 36B of the Central Excise Act, and whether such non-compliance vitiated the demand founded on that material. (iii) Whether penalties imposed on the noticees, including a director, were sustainable when the substantive allegation of fraudulent/irregular availment of credit (non-receipt of inputs) was not established on legally admissible and cogent evidence. 2. ISSUE-WISE DETAILED ANALYSIS (i) Denial of Cenvat Credit based only on VAHAN-related vehicle discrepancies Interpretation and reasoning: The Court found that the impugned denial rested on a single foundational premise: that certain vehicle numbers in invoices were not suitable for transporting bulky goods or were not traceable on the VAHAN portal. The Court treated this as insufficient, particularly because both the suppliers and the recipient admitted that the goods were supplied, received, and used in manufacture of finished goods cleared on payment of duty. The Court also noted that payments for the inputs were made through banking channels, cheques were encashed, and the show cause notice did not allege any flow-back of funds. Further, the Court found no discrepancies were pointed out in statutory and accounting records relating to receipt and utilization of inputs, and there was no supporting transactional evidence such as stock discrepancies or other corroboration to support non-receipt. Conclusions: Vehicle-number anomalies, without independent corroboration and in the face of consistent banking and record evidence supporting receipt and utilization, could not sustain the allegation of paper transactions or non-receipt. The credit denial was therefore held legally unsustainable. (ii) Admissibility and evidentiary value of VAHAN portal printouts without Section 36B compliance Legal framework: The Court examined Section 36B of the Central Excise Act in relation to reliance on computer-generated evidence. It also considered the inclusive meaning of 'document' (as discussed in the judgment) to determine whether printouts of digitally maintained data fall within documentary evidence requiring statutory compliance. Interpretation and reasoning: The Court rejected the Revenue's stance that Section 36B was inapplicable because the information was obtained from a web portal rather than stored on a personal computer. The Court held that any information culled out from digital storage and reproduced in printed form is a computer printout/facsimile of digitally maintained records and therefore must satisfy Section 36B requirements. Since the prescribed legal requirements were not adhered to, the Court held the VAHAN-derived material lacked meaningful credibility and could not constitute a reliable basis to sustain the demand. Conclusions: Non-compliance with Section 36B rendered the VAHAN portal printouts legally unreliable for sustaining the demand; reliance on such material, particularly as the sole basis, was impermissible. (iii) Sustainability of penalties (including on a director) where the core allegation fails Interpretation and reasoning: Having concluded that the evidence was inadequate and legally infirm to establish non-receipt and fraudulent availment of credit, the Court held that penalties imposed on the appellants could not stand. The Court also expressly accepted the applicability of the cited ratio (as applied in the judgment) to hold that penalty on the director was not leviable in the circumstances of the case. Conclusions: Penalties were held unsustainable and were set aside along with the credit denial; the appeals were allowed with consequential relief as per law.