TaxTMI 
TaxTMI 
2019 (12) TMI 176
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....M/s Avon Meters Pvt. Ltd. is engaged in the manufacture of Energy Meters and registered with the Central Excise Department. As the appellants are manufacturing excisable product, therefore, they are availing cenvat credit on capital goods, inputs and input services. The appellant is registered since 1996 and regularly filing their statutory returns and regular central excise audit was conducted in their premises. To manufacture of Energy Meters, the appellants are procuring certain inputs and taking cenvat credit thereon. The premises of the appellant was visited by the preventive team of Central Excise Department on 11.02.2015 acting on an information that the appellant were engaged in large scale evasion of central excise duty by fraudulently availing cenvat credit without actual receipt and use of raw materials. During the search, physical verification was stock of inputs as well as finished goods was conducted and as a result of verification of BOPT film (poly film) weighing 6949.900 Kgss was found short vis-a-vis the recorded balance of 6971.900 Kgs. Records regarding availment of cenvat credit by the appellant as per details mentioned in the panchnama dated 11.02.2015 were ta....
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....capital goods received in the factory of manufacturer of final product or premises of the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10^th day of September, 2004. 17.1 Further, as per sub rule (k) of Rule 2 of the Credit Rules, "input' means- (i) all goods used in the factory by the manufacturer of final product; or (ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; 17.2 As envisaged under Rule 3(1) of the CENVAT Rules, the manufacturer availing CENVAT credit had to ensure that they have taken CENVAT credit on the goods which are actually received by them duly covered by the invoices- Further, the provisions of Rule 9(5) of the Credit Rules, 2004, read as under:- "The manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the i....
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....rported use of BOPP film in wrapping the meters. Statement of Sh. Ramesh Sharma Store Incharge was also to be recorded as he had earlier not stated the true facts regarding recovery of invoice from Electronic Store under his charge. But, both these persons did not appear despite repeated summons issued to them. Whenever summons were sent to either of them a standard reply was submitted by the Noticee that the concerned person is on leave. Sh. Nikhil Goel, Director of the Noticee also appears to have stated false facts in his only statement dated 04/06/2015. Sh. Nikhil Goel had inter alia stated that they used to mix blend different types of plastic materials with polycarbonate; that they used to use Polyfilm extensively in %Tapping different parts of the meters at each stage and the meters; there was sudden increase in the usage of poly film and during December, 2014 January, 2015 the usage shown as 7 to 9 MT per day (and supposidely dumped as scrap in nearby plot) which was earlier not that much and after January Noticee appears to have received no Poly film as their CENVAT documents for February and March show. The claim of Sh. Nikhil Goel in his Statement that they had done dust....
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....awal, Accountant of the Noticee admitted to have got made entries at the ICC's where incase of plastic granules entries were made the basis of fake invoices and GRs as for the said goods, there was a provision for payment of advance tax with the Punjab Excise & Taxation Department.. 18. From the above, it appears that the Noticee had failed to discharge its statutory duty of proving the admissibility of cenvat credit since the facts on records suggest that the Noticee had indulged in mere paper transactions only, without actual receipt of impugned goods. 19. Thus, from the above facts, it appears that the Noticee have availed inadmissible CENVAT credit fraudulently on impugned goods involving CENVAT credit amounting to Rs. 7,84,04,706/- (as per details given in Annexure A, B, C & D) during the period 01/082011 to 31/03/2015 as detailed below: Sr. No. Annexure No. Amount of CENVAT credit (Rs.) 1. A 2,48,92,889/- 2. B 2,43,36,840/- 3. C 1,66,02,397/- 4. D 7,84,04,706 Total 7,84,04,706/- Copies of Cenvat A/c register of (R.G. 23-A Part-II) are attached as RUD-131. The cenvat credit of Rs. 7,84,04,7....
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.... Surjit Bhadu, Advocate appeared on behalf of the M/s Avon Meters Pvt. Ltd. and submits as under:- i. The demand in the present case was raised vide Show Cause Notice dated 30.08.2016 in respect of below mentioned four commodities : - a) Plastic granules other than polycarbonate b) Polyfilm c) Electric Wires and Cable d) Electronic component and accessories ii. The demand is raised on the allegation that the noticee has fraudulently availed Cenvat Credit without actual receipt / raw material, thus, the entire case of the revenue in Show Cause Notice was that the noticee / appellant did not receive the raw material in question at all. The case of revenue is of complete non-receipt of material. The Revenue's case is not shortage of material. PLASTIC GRANULES OTHER THAN POLYCARBONATE iii. The appellant is engaged in manufacture of electrical energy meters and for manufacturing various meter parts, the plastic granules are used for making moulded parts of the meter. During the relevant period the appellant purchased various plastic granules i.e. polycarbonate, ABS, polypropylene, PS, PE, PMMA etc. which were receiv....
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.... of entire quantity of plastic granules. Such service tax payment is not disputed by the revenue. - It is admitted fact by revenue that the transactions of purchase of plastic granules by appellant were recorded at Information Collection Centre (ICC) established by Punjab Government as per the Show Cause Notice. - It is also not disputed by the revenue that on entire purchase of plastic granule, the appellant deposited advance / entry tax @ 8% to the credit of Punjab VAT department. - The revenue did not make any enquiry at the end of suppliers of plastic granules and no statement was recorded of suppliers. - The suppliers in their reply to Show Cause Notice has categorically confirmed the actual supply of goods to the appellant. - The goods were duly recorded in the statutory records of the appellant. - Despite of repeated and numerous statements of different officials of the Appellant, there is no inculpatory statement. Rather, the officials of the Appellant every time confirmed the receipt of the impugned Inputs. - There is no proof or investigation of diversion of impugned goods from the suppliers premises to 3rd pa....
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....re is no verification of the process of manufacture adopted by the Appellant by any agency. - In the present case, although the revenue has alleged that a huge quantity of the plastic granules other than polycarbonate was not used in manufacture of final product i.e. electric meters, however, at the same time there is no investigation or evidence to show how the final products (more than 57 Lakhs electric meters) are manufactured, if disputed inputs were not used. The revenue has received excise duty on final products and their quantity is not disputed as the same are supplied to Government Departments. - During the second visit on 16.02.2015, the visiting staff made weighment of some meter parts and other items to verify the consumption of the inputs vis-à-vis the final product manufactured by the Appellant, however, after a formality of weighment of some parts, neither any further investigation is done, nor it is relied upon in the Show Cause Notice or impugned order. In fact, the revenue had found out that the quantity final product manufactured by the Appellant could not be manufactured if the disputed inputs are alleged to be not used by the Appellant,....
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....r parts of the meter namely meter base, base cover, terminal block and terminal cover but has completely ignored other essential parts such as meter seals, meter switches, wires and cable glands and meter box which are manufactured by the appellant using all types of plastic granules and this fact was specifically stated in the statement of Shri Nikhil Goel in his statement dated 04.06.2015. While dealing with this submission the Adjudicating Authority admitted that the meter seals, meter switches, wires and cable glands constitute only 2 to 5% by weight of the meter base, meter cover, terminal base and terminal cover. Thus, the Adjudicating Authority itself broke the presumption of the Show Cause Notice that no plastic granules other than polycarbonate were at all received. - The Adjudicating Authority wrongly held that the meter box are nothing but meter cover. Infact, meter box is altogether different item which consumes substantial plastic granules and the same has not at all been considered in the Show Cause Notice or the Order in Original. POLYFILM viii. The Cenvat Credit on polyfilm is denied to the appellant on the allegation that the polyfilm was....
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....ere controlled by Shri Amit Aggarwal who clearly stated in his statement dated 10.12.2015 that the goods were physically supplied to the appellant. No Show Cause Notice has been issued to the said three traders who arranged and sold polyfilm to the appellant. In such a case, no demand can be raised in respect of such supplies. - The purchase of polyfilm was on FOR basis to the factory of appellant and in all the invoices, the consignee is shown factory of the appellant. - All the purchases was made against C-Forms issued by the Punjab VAT Department. The C forms are discharged only after the purchase inputs are validly used in manufacture of taxable goods. The Order in Original duly notes the contention of the appellant, however, nothing is brought on record to show the misuse of C forms. - The Adjudicating Authority did not allow the cross-examination of the witnesses including transporters whose statements are relied upon for denying Cenvat Credit on polyfilm, rather, specifically rejected the request of cross-examination. Thus, in terms of judgment of Hon‟ble Supreme Court in the case of Andaman Timber Industries Vs. CCE, Kolkata-II - 2015 (324) ....
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.... rejected in past by the buyers as it looked second hand / reused which was a larger cost than polyfilm, therefore, to avoid the rejection and to maintain good track record the appellant decided to use the polyfilm albeit the cost. xii. In the Show Cause Notice and order lot of stress has been given on the 25 Invoices whose copies were found in the factory, however, the goods covered by said invoices were not received. In this regard, it is firstly submitted that the appellant has not taken Cenvat Credit on the said invoices, therefore, there is no effect of such invoices on the present matter. Secondly, even in relation to conduct of appellant, all the invoices in the matter were issued between 20.01.2015 to 31.01.2015 and had been received by the appellant immediately. The visit of the Central Excise department was on 11.02.2015. If the appellant was in practice of availing credit without receipt of goods, they would not have waited for 20 days before taking credit, especially when they could have taken the credit in January 2015 and could have used the credit on 10th of February. WIRES AND CABLES xiii. In the Show Cause Notice, denial of Cenvat Credit ....
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....AND ACCESSORIES xix. That in the Show Cause Notice, the denial of Cenvat Credit was proposed for the amount of Rs. 1,25,72,580/-, however, the demand of Rs. 33,79,372/- was dropped by the Adjudicating Authority in relation 3 suppliers namely M/s Team Tech Electronics Ltd., M/s Rabyte Electronics and M/s Analogics Tech India Ltd. xx. At the same time, demand of Rs. 91,93,208/- was confirmed on the electronic components and accessories supplied by M/s Nata Devices India Pvt. Ltd. (Nata Devices). The main allegation for denial of Cenvat Credit on electronic components and accessories supplied by M/s Nata Devices is that the same have not been received by the appellant in their factory in or in relation to manufacture of meter parts, In nutshell, it is concluded that for such electronic components and accessories, only invoices are received but goods are not received. xxi. At the outset, it is submitted that since the Cenvat Credit on the identical goods have been allowed in respect of above three suppliers, there remains no dispute that the electronic components and accessories in question are inputs for the appellant. xxii. That the supplier M/s Na....
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....rt arrangement as per his wisdom, under authority of Appellant. The entry in GR may have been made either by driver or by some persons of transporter who were present at the time of loading consignment of M/s Nata. As the such truck would be already loaded with some other material of another supplier of the Appellant, the first name remains in the name of supplies whose material is already loaded in truck and accordingly, the entry in ICC and / or in freight account of Appellant was made. Such an arrangement was though beneficial for the Appellant in commercial terms, however, is not to prejudice of revenue as there was no violation of law or tax evasion. xxvi. The revenue has not discharged its onus to prove that the material was not actually received by the appellant. There is no tests or expert report or any other finding to the effect that the electronic components and accessories supplied by M/s NATA devices were not used OR could not be used, in manufacture of the final products of the Appellant. In view of the above it is prayed that the impugned Order in Original No. LUD-EXCUS-000-COM-00-07-19-20 dated 12.07.2019 may be set aside to the extent it is prejud....
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.... It is further to be mentioned in this context that even otherwise there is no provisions in the Central Excise Act, for the imposition of penalty for merely issuing of invoices without actual supply of material. The act does not prescribe the imposition of penalty for such an offence. Even though the appellant are taking categoric stand that they have actually supplied the goods yet it is to be mentioned that in the absence of any provisions in the Act for imposition of penalty for mere issuance of invoices without actual supply of material, the penalty cannot be imposed under Rule 26(2) of the Central Excise Rules. Rules cannot override the provisions of the Act. Rules 26(2) has been incorporation in the Central Excise Rules in terms of Section 37 of the Central Excise Rules Act, 1944 which is reproduced hereunder:- Section 37. Power of Central Government to make rules:- (1) The Central Government may make rules to carry into effect the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may- [(i) provide for determining under section 4 the nearest ascertainable equivalent of t....
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....other excisable goods, or of any component parts or ingredients or containers thereof; (vi) provide for the employment of officers of the Government to supervise the carrying out of any rules made under this Act; (vii) require a manufacturer or the licensee of a warehouse to provide accommodation within the precincts of his factory or warehouse for officers employed to supervise the carrying out of regulations made under this Act and prescribe the scale of such accommodation; (viii) provide for the appointment, licensing, management and supervision of bonded warehouses and the procedure to be followed in entering goods into and clearing goods from such warehouses; (ix) provide for the distinguishing of goods which have been 271 [manufactured after registration], of materials which have been imported under licence, and of goods on which duty has been paid, or which are exempt from duty under this Act; (x) impose on persons engaged in the production or manufacture, storage or sale (whether on their own account or as brokers or commission agents) of salt, and, so far as such imposition is essential for the proper levy and collection of the ....
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....ion to, the manufacture of excisable goods;] [(xviaa) provide for credit of service tax leviable under Chapter V of the Finance Act, 1994 (32 of 1994), paid or payable on taxable services used in, or in relation to, the manufacture of excisable goods;] [(xvib) provide for the giving of credit of sums of money with respect to raw materials used in the manufacture of excisable goods;] [(xvic) provide for charging and payment of interest as the case may be, on credit of duty paid or deemed to have been paid on the goods used in, or in relation to, the manufacture of excisable goods where such credit is varied subsequently;] (xvii) exempt any goods from the whole or any part of the duty imposed by this Act; [(xviia) provide incentives for increased production or manufacture of any goods by way of remission of, or any concession with respect to, duty payable under this Act;] (xviii) define an area no point in which shall be more than one hundred yards from the nearest point of any place in which salt is stored or sold by or on behalf of the Central Government, or of any factory in which saltpetre is manufactured or refined, and regul....
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....e thousand rupees]. [(4) Notwithstanding anything contained in sub-section (3), and without prejudice to the provisions of section 9, in making rules under this section, the Central Government may provide that if any manufacturer, producer or licensee of a warehouse- (a) removes any excisable goods in contravention of the provisions of any such rule, or (b) does not account for all such goods manufactured, produced or stored by him, or (c) engages in the manufacture, production or storage of such goods without having applied for the [registration as] required under section 6, or [(d) contravenes the provisions of any such rule with intent to evade payment of duty, then all such goods shall be liable to confiscation and the manufacturer, producer or licensee shall be liable to a penalty not exceeding the duty leviable on such goods or [two thousand rupees], whichever is greater.] This Act has been applied to- "(1) The Central Government may make rules, including rules conferring the power to issue notifications with retrospective effect under those rules, to carry into effect the purposes of this Act.". Note. - Amendment....
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....ing the course of investigation of drivers, various suppliers, transporters and buyers which revealed that the appellant has not received the inputs in question in the factory premises and it was a mere paper transaction, therefore, they are not entitled to avail cenvat credit. 7. Heard the parties and considered the submissions. 8. Form the above submissions and facts placed before us, the sole issue arises, (i) whether the appellant M/s Avon Meters Pvt. Ltd. is entitled for cenvat credit which has been denied by the Ld. Commissioner alleging that it was mere a paper transaction or not?, and (ii) Whether the penalty under Rule 26 of Central Excise Rules can be imposed on the co-appellants or not? Issue No. 1 In this case, the intelligence was gathered by the Revenue that the appellant is availing cenvat credit on the inputs in question without receiving in their factory and there are not input, therefore, the investigation was conducted. During the course of investigation, the stock taking was conducted and on verification of the stock on the date of investigation. The stock of the following goods were found are as under:- The allegation of the revenue is based on t....
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....facturer the final product. 12. We further take a note of the fact that in most of the cases, there is a entry at Information Collection Centre (ICC) of the state VAT, which show that the goods have been passed through ICC and reached to the factory of the appellant. Moreover, no cross examination of the persons whose statements have been relied upon were granted cross examination, neither their statements have been taken in compliance to the provisions of Section 9D of the Central Excise Act, 1944 as held by this Tribunal in the case of CCE, Delhi-I vs. Kuber Tobacco Industries. reported in 2016 (338) ELT 113 (Tri. Del.) wherein this Tribunal has observed as under:- "7. We have gone through the facts of the case wherein the certain machines were installed at Sandeep Poultry Farm Khasra No. 63/3, Village Khera Khurd, New Delhi-110082 found wherein 'Kanchan/Kanchann' brand gutka and 'wiz' brand pan masala manufactured clandestinely without declaring the said premises as registered premises for manufacture of the said gutka. The contention of M/s. Kuber is that they were not involved in the activity of manufacture of gutkhas and the said activity was illicit and misused o....
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....scribed in sub-section (1) of Section 9D is required to be scrupulously followed, inasmuch as in adjudication proceedings as in criminal proceedings relating to prosecution. Therefore, sub-section (1) of Section 9D set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer shall be relevant, for the purpose of proving the truth of the facts contained therein. If the circumstances are absent, therefore, the statement, which has been made during the course of inquiry/investigation, before a gazetted Central Excise Officer, cannot be treated as relevant for the purpose of proving the fact contained therein as observed by Hon'ble Delhi High Court in the case of J.K. Cigarettes (supra) wherein Hon'ble High Court has observed as under :- 12. Bare reading of the above section manifests that under certain circumstances, as stipulated therein, statement made and signed by those persons before any Central Excise Officer of a gazetted rank during the course of inquiry or proceedings under this Act can be treated as relevant and taken into consideration if under the given circumstances such a person cannot be produced for cross-examin....
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....tatement to be considered. 10.We further find that in the case of Smt. Sharadamma (supra), Hon'ble Karnataka High Court has observed as under :- 9. It is not the duty of the Court to direct the parties or compel the parties as to in what manner they should conduct their case before the Court or also what quality of evidence they should place before the Court. But the duty of the court is only to appreciate the case in the proper perspective and on the basis of what is placed before the Court. Even with regard to the prayer for permitting the applicant to cross-examine the plaintiff, the prayer is misconceived as the question of cross-examination arises only when a witness has tendered evidence in chief-examination. Under section 138 of the Indian Evidence Act, cross-examination follows chief-examination, but not without chief-examination. If there is no chief-examination, there is no cross-examination. It is only witness who is examined in chief who can be cross-examined. Therefore, a prayer for cross-examination of the plaintiff even when the plaintiff has not been examined in chief is ridiculous and not provided for under Section 138 of the Indian Evidence Act. ....
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.... pertinent at this stage to refer to Section 138 of the Indian Evidence Act which provides : Order "138. of examinations. - Witnesses shall be first examined-in-chief then (if the adverse party so desires) cross-examined, then (if the party calling him so desires) re-examined. The examination and cross-examination must relate to relevant facts but the cross-examination need not be confined to the facts to which the witness testified on his examination-in-chief. Direction for re-examination. - The re-examination shall be directed to the explanation of matters referred to in cross-examination; and if new matter is, by permission of the Court, introduced in re-examination, the adverse party may further cross-examine upon that matter." 10. We therefore find force in the submission of the ld. counsel for the appellant. We find no reason to justify rejection of request made by the appellant to the adjudicating authority in light of Section 138B of the Act, to summon witnesses for examination and to offer them for cross-examination if their statements were to be considered as relevant and admitted in evidence in the interest of justice. 12.We f....
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....e. Thereafter, the witness is offered to be cross-examined. In the absence of examination-in-chief, allowing the cross-examination, is a futile exercise. We further find that the appellant have challenged the impugned order on the ground that the evidence in the form of statements gathered have no link of the appellant to the activities took at Sandeep Poultry Farm which is required to be examined on the basis of records available during the course of adjudication and the same has not been considered judicially. 15. In view of the above, the impugned order is set aside. The adjudicating authority shall be at liberty to re-adjudicate the matter after following the procedure laid down under Section 9D of the Act as discussed above. 16.The appeals are disposed of in the above terms". Therefore, all the statements recorded during the course of investigation cannot be relied upon. 13. We further take a note of the fact that in the show cause notice although various discrepancies were found during the course of investigation in the records of the appellant, but, the main allegation made in the show cause notice is that the input in question on which cenvat credit ....
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....is set-aside and the appeals are allowed with consequential relief, if any. (Order pronounced on 03.12.2019) ============= Document 1 Stock verification at the prernises of M/s Avon Meters Pvt. Ltd., Derabassi Stock Verivied(Electrical) from stock summery upto 11 Feb., 2015 Sr. Name of Goods No. 3 V Coin Cell 1 2 3 4 5 Penasonic/MaxellCR-2032 Bare PCB-AV-315 Cap TANT 22uf Hall Sensor AH 180 3 PIN HCPL-817-50AE/ H11A817A3SD G IC ADE 7758 7 IR333/ HO-A 5 MM Quantity as per records of the Party Quantity as per physical verification Remarks # 927900 927900 Verified 84840 84840 Verified: 874834 874834 Verified: 457724 457724 Verified 145932 145932 Verified 3504 3504 Verified 318990 318990 Verified 83 LCD GLASS AV-286622 R-O 75146 75146 Verified 9 LED SMM, RED 349478 349478 Verified 1.0 LED BASE 12 MM (GRAY) 115631 115631 Verified 3.1. Poly corbonate ABS Grey 475 KG 475 KG Verified 2.2 Poly corbonate Grey Verified 1625 KG 1625 KG 1.3 Poly corbonate Grey HD Verified 25 KG 25 KG 14 ....