Facts of the Case

The Revenue challenged the order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), which had allowed the assessee's appeal by setting aside the demand of CENVAT Credit along with penalties.

The respondent, M/s Ashirwad Foundries Private Limited, was engaged in manufacturing castings and had availed CENVAT Credit amounting to Rs. 5,57,78,466 on the strength of invoices allegedly issued by fictitious and non-existent manufacturers during FY 2013-14 and 2014-15.

The Department alleged that the invoices were fake, the suppliers were non-existent, and no actual movement of raw materials had taken place. The adjudicating authority confirmed the demand, interest and penalty. However, CESTAT allowed the appeal primarily on the ground that statements recorded during investigation could not be relied upon without complying with Section 9D of the Central Excise Act and that adequate opportunity for cross-examination had not been granted.

The Revenue filed an appeal before the Calcutta High Court challenging the Tribunal's order.

 

Issues Involved

  1. Whether CENVAT Credit can be denied where the assessee fails to establish actual receipt and transportation of inputs.
  2. Whether statements recorded under Section 14 of the Central Excise Act could be relied upon without invoking Section 9D.
  3. Whether denial of cross-examination invalidates adjudication proceedings in the facts of the present case.
  4. Whether voluntary statements of the Director, never retracted, constitute valid evidence.
  5. Whether the Tribunal erred in setting aside the adjudication order despite overwhelming documentary evidence.
  6. Whether invocation of the extended limitation period was justified.

 

Petitioner's (Revenue's) Arguments

  • The Director of the assessee voluntarily admitted during investigation that the suppliers were fictitious and the transactions were fraudulent.
  • These statements were never retracted at any stage, including in reply to the Show Cause Notice.
  • The adjudicating authority relied not merely on third-party statements but also on documentary evidence, investigation reports and the Director's own admissions.
  • Verification through the VAHAN portal established that many vehicles mentioned in invoices were three-wheelers, mopeds and non-transport vehicles incapable of carrying raw materials.
  • The Tribunal wrongly invoked Section 9D although the assessee had never raised such plea during adjudication.
  • The Department successfully discharged its burden of proving fraudulent availment of CENVAT Credit.

 

Respondent's (Assessee's) Arguments

  • Statements recorded during investigation were inadmissible without following the mandatory procedure prescribed under Section 9D.
  • Failure to provide cross-examination violated principles of natural justice.
  • Payments had been made through banking channels and transportation service tax had also been paid.
  • Allegations of fraudulent transactions were based merely on assumptions and conjectures.
  • Extended limitation could not be invoked since departmental scrutiny had already taken place earlier.

 

Court Order / Findings

The Calcutta High Court allowed the Revenue's appeal and restored the adjudication order.

The Court held that:

  • The Director's statements were voluntary, categorical and never retracted.
  • The Tribunal incorrectly proceeded on the assumption that Section 9D was attracted, although such objection had never been raised by the assessee before the adjudicating authority.
  • The Department possessed substantial documentary evidence apart from witness statements.
  • The assessee never disputed that the suppliers were non-existent nor produced evidence proving genuine receipt of inputs.
  • Verification of vehicle details clearly established that many vehicles mentioned in invoices were incapable of transporting heavy raw materials.
  • Proceedings before the adjudicating authority are quasi-judicial and not criminal trials; therefore, proof on the basis of preponderance of probabilities is sufficient.
  • Payment through banking channels alone cannot validate fraudulent transactions.
  • The burden shifted to the assessee after the Department established fraudulent availment of CENVAT Credit, which the assessee failed to discharge.
  • Extended limitation was rightly invoked considering the fraudulent nature of the transactions.

Accordingly, the High Court set aside the Tribunal's order and restored the adjudication order against the assessee.

 

Important Clarification

The Court clarified that:

  • Section 9D of the Central Excise Act is not automatically applicable in every adjudication.
  • Cross-examination is not an absolute right and depends upon the facts of each case.
  • Voluntary statements recorded under Section 14 of the Central Excise Act, when not retracted, constitute reliable evidence.
  • Adjudication proceedings are governed by the principle of preponderance of probabilities, not proof beyond reasonable doubt.
  • Banking transactions alone cannot establish genuineness where surrounding evidence proves fraudulent availment of credit.
  • Fraudulent invoices issued by non-existent suppliers cannot confer valid CENVAT Credit.

 

Sections Involved

  • Section 11A & Section 11A(4), Central Excise Act, 1944
  • Section 14, Central Excise Act, 1944
  • Section 9D, Central Excise Act, 1944
  • Rule 3, Rule 4, Rule 9 & Rule 14 of the CENVAT Credit Rules, 2004
  • Rule 4, Rule 6, Rule 8 & Rule 12 of the Central Excise Rules, 2002

 

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1782890352_159compressed.pdf

 

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