2026 (3) TMI 504 - AT - Central Excise

Cenvat credit denial overturned where circumstantial evidence failed and contemporaneous records upheld the credit entitlement.

Denial of cenvat/modvat credit on galvanized primer (GP) sheets was held unsupported by the evidentiary material: departmental reliance on circumstantial ... Demand for recovery of modvat/cenvat credit availed on GP sheets alongwith interest and penalty - burden of proof for clandestine clearance - production of sufficient initial evidence - extended period of limitation - contemporaneous documents. CENVAT credit on GP sheets - HELD THAT:- The Tribunal held that the Revenue failed to produce evidence identifying buyers of allegedly cleared GP sheets or documentary proof that GP sheets procured were clandestinely sold and replaced by HR/CR sheets. Reliance on opinions that GP sheets are not normally used in manufacture did not establish inevitable non-use by the appellants. In the absence of primary evidence of diversion or market disposal, the departmental case did not raise a presumption sufficient to shift the onus to the appellants, and credit could not be denied merely on surmise or circumstantial reasoning. [Paras 7] Demand for CENVAT credit denial sustained by the lower authorities was not supported by evidence and was therefore set aside. Burden of proof for clandestine clearance - HELD THAT:- Adopting the reasoning reproduced from the Tribunal's decision in Silence Auto, the Court affirmed that while the legal onus of proof remains, the evidentiary onus shifts only after the Revenue adduces sufficient evidence to give rise to a reasonable inference of clandestine clearance. Here, the Revenue did not produce evidence of buyers or alternate procurement sources for HR/CR sheets; therefore the evidence was insufficient to shift the burden and the appellants' explanations remained unrebutted. [Paras 7] Revenue did not discharge the initial evidentiary burden; therefore the onus did not shift to the appellants and departmental allegations failed. Demand barred by limitation - HELD THAT:- The Tribunal observed that the appellants had regularly reflected the credit in statutory records, filed returns and had their accounts defaced by jurisdictional authorities without objection; earlier assessments did not indicate concealment or suppression. On these facts, invoking the extended period was not justified and the demand was time-barred. [Paras 7] The extended period of limitation could not be invoked and the demand was held to be barred by limitation. Final Conclusion: Following precedents arising from the same investigation, the Tribunal concluded that the Revenue failed to produce sufficient evidence of clandestine clearance and could not invoke extended limitation; the impugned orders were set aside and the appeals allowed with consequential relief. Issues: Whether the demand for recovery of modvat/cenvat credit availed on GP sheets alongwith interest and penalty, sustained on the basis of the departmental investigation, is legally maintainable and whether the demand is barred by limitation.Analysis: The departmental case rested on circumstantial and investigatory material alleging that GP sheets could not be used for manufacture of the appellants' final products and that clandestine clearance had occurred, but no buyer of the alleged cleared GP sheets was identified and no documentary evidence was produced to show disposal of GP sheets into market or procurement of HR/CR sheets from alternate sources. The evidence relied upon by the department established only that GP sheets are not normally used for the relevant OE parts; it did not prove impossibility of use or the alleged clearances. The appellants produced explanations and demonstrative samples showing possible use of GP sheets after de-galvanisation; the departmental findings rejecting that explanation rested on assumptions, conjecture and economic surmise rather than concrete proof. The invoices and statutory records showing availing of credit were contemporaneous and were not objected to by excise authorities earlier, undermining invocation of extended limitation on the basis of suppression or mala fide.Conclusion: Demand, interest and penalty impugned in the appeals are not sustainable; the denial of cenvat/modvat credit on GP sheets is not proved and the demand is barred by limitation. The appeals are allowed with consequential relief, if any, as per law.