2025 (5) TMI 401 - AT - Central Excise

CENVAT Credit availed by the appellant-company on inputs purchased from a registered dealer - credit availed credit irregularly on the basis of invoices without actual receipt of inputs by way of paper transactions - imposition of penalties under Rule 26(1) and (2) of the Central Excise Rules 2002 upon the co-appellants - extended period of limitation - HELD THAT - In this case the appellant-company was procuring inputs through the dealer namely M/s. Vikash Industrial Corporation who is a registered dealer. The said dealer has shown in his invoices the manufacturers as M/s. Tata Steel Limited M/s. Steel Authority of India Limited M/s. Jindal Steel Products Limited M/s. Jindal Steel Power Limited M/s. Garden Reach Ship Builders Engineers Limited M/s. Ambuja Cements Limited M/s. Balmer Lawrie Company Limited M/s. Skipper Limited etc. There is no statement from the registered supplier cum dealer in the instant case i.e. M/s Vikash Industrial Corporation (proprietor Sri Dipak Kumar Nathani) denying supply of goods to the appellant-company. If such be the admitted position and it is said so after carefully going through the statement of Sri Dipak Kumar Nathani dated 05.02.2013 then we find it difficult to hold that the appellant-company had been required to go behind the covering documents issued by the said M/s. Vikash Industrial Corporation under the provisions of the Central Excise Act 1944 read with the Central Excise Rules 2002 - when all relevant particulars stood duly mentioned in the said invoices it was wholly impractical and quite unreasonable to expect the recipient-company to go behind the said documents examine the actual procurement of goods from the concerned manufacturer and establish transportation of such goods from the factory premises or godown or other premises of the concerned manufacturers up to the premises of the concerned dealer and then to the recipient s premises. During the course of investigation statements of the owners of few vehicles were recorded who stated that they had not transported the said goods. However most of these statements of the vehicle owners were recorded after 3-4 years of the events. Further these persons from whom statements were recorded are the owners of the transporting vehicles and no statement from the drivers of the said vehicles have been recorded in this case - Moreover the above vehicle owners were required to be questioned during the course of investigation as to whether they were driving the said vehicles for transportation of goods during the impugned period or not. If these owners of the transporting vehicles were found to be driving the vehicles during the said period only in that case and if not proven otherwise the statements recorded from such transporters may be admissible although not conclusive. In these circumstances we find that the CENVAT Credit availed by the appellant no. 1 cannot be denied. Mere recording statements from transporters/vehicle owners with regard to few invoices cannot be the reason to deny the whole of the CENVAT Credit availed by the appellant-company. The Revenue has also failed to bring on record as to from where the appellant-company procured the inputs as it is the claim of the appellants that the inputs procured by them have been used in the manufacture of their final products which have finally suffered duty - the CENVAT Credit cannot be denied to the appellant. Extended period of limitation - HELD THAT - The appellant-company had purchased its requirements from M/s Vikash Industrial Corporation without any notice or knowledge of its internal workings and nothing was brought to our attention wherefrom it may be concluded that it had reason to doubt the genuineness of the supplies effected by the said Vikash Industrial Corporation. Receipt of the disputed inputs stood duly evidenced by the appellant-company s receipted challans stores receipt vouchers and stock ledgers and the appellant-company throughout maintained its stand that without receiving such inputs it would not have been possible to manufacture finished goods subsequently cleared to the Indian Railways on payment of appropriate duty - the extended period of limitation cannot be invoked without specific and concrete findings of fraud suppression or willful misstatement. Penalty - HELD THAT - As the availment of CENVAT Credit is regularized therefore no penalty is imposable on the appellants. Conclusion - i) The Revenue failed to bring on record any evidence to show how the appellant-company could have manufactured the finished goods without receipt of inputs which were duly accounted for in the appellant s records. Credit cannot be denied. ii) The extended period of limitation cannot be invoked without specific and concrete findings of fraud suppression or willful misstatement. The mere general observation by the adjudicating authority is insufficient. iii) As the availment of CENVAT Credit is regularized therefore no penalty is imposable on the appellants. Appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the legitimacy of CENVAT Credit availed by the appellant-company on inputs purchased from a registered dealer, the validity of the disallowance of such credit by the revenue authorities, the applicability of extended limitation periods for recovery of duty, and the legality of penalties imposed on the appellants. Specifically, the issues include:

1. Whether the appellant-company had bona fide received the inputs (M.S. scrap) from the registered dealer and was entitled to avail CENVAT Credit on such inputs under the Central Excise Act, 1944 and CENVAT Credit Rules, 2004.

2. Whether the disallowance of CENVAT Credit on the ground of alleged non-receipt of inputs, based on statements of vehicle owners and investigation against the dealer and its suppliers, was justified.

3. Whether the invocation of the extended period of limitation for recovery of duty was legally sustainable in the absence of clear and specific findings of fraud, suppression, or willful misstatement.

4. Whether the imposition of penalties under Rule 15(2) of the CENVAT Credit Rules, 2004 and Rule 26 of the Central Excise Rules, 2002 on the appellant-company and its officials was justified.

Issue-wise Detailed Analysis:

1. Entitlement to CENVAT Credit on Inputs Purchased from Registered Dealer

The relevant legal framework includes the Central Excise Act, 1944 and the CENVAT Credit Rules, 2004, which allow manufacturers to avail credit of excise duty paid on inputs used in manufacture. The appellant-company was registered under the Act, regularly filed returns, and cleared finished goods on payment of duty. Inputs (M.S. scrap) were purchased from M/s Vikash Industrial Corporation, a registered dealer, under dealer excise invoices reflecting the manufacturers' particulars, including reputed companies such as Tata Steel Limited, Steel Authority of India Limited, and others.

The Court noted that the appellant-company maintained all statutory records-receipted challans, store receipt vouchers, stock ledgers-and paid for the inputs through banking channels. The appellant relied on the dealer's registration and invoices in good faith and used the inputs in manufacturing final products. There was no evidence that the appellant had knowledge or notice of any irregularity in the dealer's internal workings.

The Court emphasized that the appellant-company was entitled to rely on the documents issued by the registered dealer and was not required to investigate the genuineness of the dealer's supply chain beyond the covering invoices, as per the provisions of the Central Excise Act and Rules.

2. Justification for Disallowance of CENVAT Credit Based on Investigations and Statements of Vehicle Owners

The revenue's case was based on a Show Cause Notice alleging irregular availment of CENVAT Credit on the basis of dealer invoices without actual receipt of inputs, relying on statements recorded from some vehicle owners denying transportation of goods to the appellant's factory, and investigations against the dealer's supplier, M/s Vinny Technocrats Pvt. Ltd.

The Court found no statement from the dealer himself denying supply to the appellant-company. The statements of vehicle owners were recorded years after the transactions and were not corroborated by statements from the actual drivers or other transport records. The Court held that such statements were unreliable and inadmissible as conclusive evidence.

Precedents were cited, including a recent decision of the Tribunal in a similar matter, where demands based on partial investigations and uncorroborated transporter statements were set aside. The Court also referred to judgments of the Gujarat High Court and other Tribunals emphasizing that demands based solely on third-party statements without thorough investigation and corroborative evidence cannot sustain disallowance of credit.

The Court further observed that the revenue failed to explain how the appellant could have manufactured the finished goods cleared on payment of duty without receipt of inputs. The appellant's records showed receipt and consumption of inputs, and the dealer's invoices were not controverted by any concrete evidence.

3. Applicability of Extended Period of Limitation

The disputed CENVAT Credit related to the period November 2008 to February 2012, but the Show Cause Notice was issued beyond the normal one-year limitation period. The revenue invoked the extended period of limitation under proviso to Section 11A(1)/11A(4) of the Act on grounds of fraud, suppression, or willful misstatement.

The Court held that the adjudicating authority failed to specify or pinpoint any concrete ingredient justifying invocation of extended limitation and merely made a general observation that all ingredients were present. The appellant-company had acted bona fide, maintained records, sourced inputs through banking channels, and had undergone regular departmental audits without any contemporaneous objection.

The Court relied on precedents holding that extended limitation can only be invoked on clear and specific findings of fraud or suppression, which were absent here. The Court therefore held the demand barred by limitation.

4. Legality of Penalties Imposed on the Appellants

Penalties were imposed under Rule 15(2) of the CENVAT Credit Rules, 2004 and Rule 26 of the Central Excise Rules, 2002 on the appellant-company and its officials for alleged irregular availment of credit.

Given the Court's findings that the appellant-company was entitled to the credit, had acted bona fide, and that the disallowance was unsustainable, the Court held that no penalty was imposable. The Court found the penalties to be illegal, unjustified, and unwarranted, especially in the absence of any proven wrongdoing or fraudulent intent on the part of the appellants.

Significant Holdings:

"We find it difficult to hold that the appellant-company had been required to go behind the covering documents issued by the said M/s. Vikash Industrial Corporation... it was wholly impractical and quite unreasonable to expect the recipient-company to go behind the said documents, examine the actual procurement of goods from the concerned manufacturer and establish transportation of such goods..."

"The statements of the vehicle owners were recorded after 3-4 years of the events, were uncorroborated, and no statements from the drivers were recorded. Such statements are unreliable and inadmissible."

"The Revenue failed to bring on record any evidence to show how the appellant-company could have manufactured the finished goods without receipt of inputs, which were duly accounted for in the appellant's records."

"The extended period of limitation cannot be invoked without specific and concrete findings of fraud, suppression or willful misstatement. The mere general observation by the adjudicating authority is insufficient."

"No penalty is imposable on the appellants as the availment of CENVAT Credit is regularized and the appellants acted bona fide."

Core principles established include the entitlement of a registered manufacturer to rely on invoices issued by a registered dealer for availing CENVAT Credit, the requirement of concrete and corroborated evidence to disallow credit on grounds of non-receipt, the necessity of specific findings to invoke extended limitation, and the protection of bona fide assessees from unjust penalties.

Final determinations were that the disallowance of CENVAT Credit was unsustainable, the demand was barred by limitation, and the penalties imposed were illegal. Consequently, the impugned order was set aside and all appeals were allowed with consequential relief as per law.