On the basis of third party statements demand cannot be made.

Case:COMMISSIONER VERSUS MOTABHAI IRON AND STEEL INDUSTRIES

Citation:2014-TIOL-1617-HC-AHM-CX

Brief Facts:All these appeals arise out of the common order dated 10th January 2014 passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as "the Tribunal") in Appeals No. E/-636-771-825-826-827-855/ 2007 respectively and hence the same were taken up together and disposed of by this common judgment.
The appellant-Commissioner of Central Excise, Ahmedabad in these appeals under section 35G of the Central Excise Act, 1944 [hereinafter referred to as "the Act"] has proposed the following identically worded five questions in each of the appeals, stated to be substantial questions of law:
    (i)        Whether the Tribunal committed serious error in ignoring the provisions of Section 36A of the Central Excise Act, 1944, by ignoring the statutory documents seized from the custody and records of the assessee and others?
   (ii)        Whether the Tribunal committed error in ignoring material evidence of statement of transporters, drivers, lorry receipts, records of the assessee including aspect of details given about non usable vehicles for transportation etc and hence, reached to a perverse finding contrary to documentary evidence?
(iii)        Whether right of cross examination can be matter of right in quasi judicial proceedings in absence of details provided by assessee for the cause of cross examination?
(iv)        Whether in absence of any evidence produced by the said assessee regarding admissibility of Cenvat Credit, the CESTAT has not erred by allowing the appeals of the said assessee as the burden of proof regarding the admissibility of CENVAT credit lies upon the manufacturer taking such credit under Cenvat law?
   (v)        Whether Tribunal was right in setting aside various penalties imposed against assessee?
The facts giving rise to the present appeals are that M/s. Bajrang Castings Private Limited, Sanand (hereinafter referred to as "the assessee") is engaged in the manufacture and sale of MS Ingots, falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1986 on which central excise duty is leviable under the provisions of the Act and the rules framed there under. The assessee also holds Central Excise Registration No. AAACB - 6237-FXM-001 and had been availing Cenvat credit on their raw materials i.e., MS scrap, etc.
Based on intelligence, on 29th July 2003, searches were conducted by the officers of the Central Excise, Ahmedabad II at the business premises of the assessee. During the course of the searches, it was found that the modus operandi adopted by the assessee was to procure cenvatable invoices from the ship-breakers of Alang and the registered dealers/traders without actually receiving the goods mentioned in the central excise invoices. To compensate this supply of raw materials, the concerned assessee procured local non-excisable scrap from the local suppliers and produced MS Ingots from it and cleared it from the cenvat credit taken on the basis of above mentioned cenvatable invoices to avoid payment of duty from PLA on the clearances of the finished goods. In this regard, inquiry came to be extended to various registered dealers namely (a) M/s. Star Associates, Ahmedabad, (b) M/s. Vasmin Corporation, Bhavnagar, (c) M/s. Motabhai Iron & Steel Industries, Viramgam who allegedly had fraudulently issued cenvatable invoices. During the course of searches and further inquiry, statements of - Shri Amit Bhasin, Director of the assessee, Shri Shivprasad Pathak, Supervisor of the assessee, as well as statements of the concerned persons of above three-traders, angadia, various truck owners/drivers, RTO authority, Octroi authority, etc., were recorded to corroborate the evidence collected by the Central Excise officers. After detailed investigation, a show cause notice dated 31st January 2006 came to be issued to the assessee and other co-noticees for recovery of cenvat credit to the tune of Rs. 1,69,94,433/- which was alleged to have been taken and utilized fraudulently.
It appears that out of 898 consignments shown to have been transported to the assessee
M/s. Bajrang Casting Private Limited, on which cenvat credit was availed, inquiry was made in respect of 131 cases pertaining to three parties viz., M/s. Star Associates, M/s. Motabhai Iron & Steel Industries and M/s. Vasmin Corporation. The adjudicating authority, while deciding the case, extended the benefit of doubt to the assessee and ordered recovery of cenvat credit of Rs.47,08,339/-. By an order dated 30th March 2007, the adjudicating authority, that is, the Commissioner of Central Excise, Ahmedabad-II disallowed the credit of Rs.47,08,339/-to the assessee under rule 12 of the CENVAT Credit Rules, 200102 (hereinafter referred to as "the rules") read with provisions of section 11A(1) on the ground that it had availed cenvat credit on invoices issued by the above referred firms without actual delivery of the goods. A penalty of Rs. 47,08,339/- came to be imposed on the assessee under rule 13 of the rules read with section 11AC of the Act. A penalty of Rs. 20,00,000/- came to be imposed on the Director of the assessee - Shri Amit Bhasin. A penalty of Rs. 1,00,000/- came to be imposed on the supervisor of assessee Shri Shivprasad Pathak, under rule 209A of the erstwhile Central Excise Rules, 1944 and rule 13 of the rules. Further, penalties of Rs. 5,00,000/- on M/s. Star Associates, Rs. 1,00,000/-on M/s. Vasmin Corporation and of Rs. 3,00,000/- on M/s. Motabhai Iron & Steel came to be imposed under rule 209A of the erstwhile Central Excise Rules, 1944 and rule 13 of the rules on the ground that these firms had issued invoices without actual delivery of the goods.
The adjudicating authority confirmed the demand against the assessee on the following counts:
    (i)        A demand of Rs. 14,42,177/- was confirmed on the ground credit had been taken on the strength of the invoice issued by M/s. Star Associates but without receiving the material;
   (ii)        A demand of Rs. 5,42,938/- was confirmed on the ground that the cenvat credit which was availed and utilized by the assessee was in fact for the goods which were delivered to other buyers within the limits of the Ahmedabad Municipal Corporation for which octroi had been paid, whereas, the factory of the assessee was situated outside the octroi limit, hence, there was no question of payment of octroi;
(iii)        A demand of Rs. 2,57,347/- was based upon the statement of the administrator of the truck, who had stated that no delivery of goods had been made to the factory of the assessee;
(iv)        A demand of Rs.3,26,188/- came to be confirmed on the ground that as per the verification report submitted by the Regional Transport Officer, in seventeen cases, it was found that the vehicles which were shown to have transported the goods were not capable of carrying the goods, therefore, the question of receipt of such goods did not arise, despite which cenvat credit had been taken;
   (v)        A demand of Rs. 5,83,537/- came to be confirmed on the ground that as per the truck owners/drivers, the material as shown in the invoices and weighbridge slips was not actually transported, hence, the records like weighment slips were fabricated;
(vi)        A demand of Rs. 12,62,428/- came to be confirmed against the assessee in respect of the goods supplied by M/s. Motabhai Iron & Steel, Viramgam on the ground that the goods were not transported in the same vehicle by M/s. Motabhai Iron & Steel in which, the goods were received by them from M/s. Bhushan Steels, Hoogly;
(vii)        A demand of Rs. 2,94,274/- came to be confirmed on the ground that M/s. Vasmin Corporation has only issued the invoices to the assessee.
Being aggrieved by the order passed by the adjudicating authority, the assessee and other conoticees went in appeal before the Tribunal. By the impugned order, the Tribunal has allowed the appeals and set-aside the demand as well as penalties imposed on the assessee M/s. Bajrang Castings Private Limited as well as other parties.

Appellant Contention:Learned standing counsel for the appellant, vehemently assailed the impugned order by submitting that the Tribunal has failed to appreciate the evidence on record in proper perspective, and therefore, the findings recorded by the Tribunal are perverse to the record of the case. It was submitted that the Tribunal has failed to consider the outcome of the investigation made from the transporters, angadia, drivers their documents and the detailed inquiries from the road transport authorities, octroi authorities, etc. It was submitted that the Tribunal has failed to consider the evidence collected by the investigating officer and solely relied upon the submissions made by the assessee. It was urged that the mere fact that Shri Bhagchandani could not be cross-examined because he did not appear in the proceedings, cannot be said to have fatal effect as other independent evidences were available on record. It was urged that the revenue had obtained a report from the Octroi Department which is in the nature of independent evidence which clearly shows that the goods had never reached the factory of the assessee, but were diverted elsewhere. It was submitted that statements of Shri Lokesh Agarwal, proprietor of Sakambari Steel and Shri Rajkumar Agarwal, partner of Paras Steel were recorded. Both these persons admitted that they had received material from various ship breakers but did not receive any central excise invoices. According to the learned counsel, non appearance of these two persons for cross examination has no effect as their statements are supported by the statement of Shri Usufbhai Talat, the administrator of three trucks which is in the nature of independent evidence. Attention was invited to the findings recorded by the adjudicating authority to point out that despite a plethora of evidence establishing that the assessee had not received duty paid goods and had wrongly availed cenvat credit on such goods on the basis of bogus invoices, the Tribunal has, on an improper appreciation of evidence on record, allowed the appeals. It was, accordingly, urged that the appeals require consideration on the questions of law as proposed, or as may be formulated by this court.

Respondent Contention: Opposing the appeals, learned senior advocate with learned advocate for the respondent in each of the appeals submitted that the Tribunal has, upon appreciation of evidence on record, recorded findings of fact and based its conclusion thereon. It was contended that there is no perversity in the findings recorded by the Tribunal and in absence of any perversity in such findings, even if it was possible for this court to take a different view on the basis of same material, the same would not give rise to any question of law. The attention of the court was drawn to the findings recorded by the Tribunal to submit that the same being just, legal and proper, there is no warrant for interference by this court. Reliance was placed upon the decision of this court in case of Gujarat Setco Clutch Limited v. Union of India, 2012 (278) ELT 160 (Guj), for the proposition that even if another view different from the one recorded by the Tribunal is possible, the same would not give rise to a substantial question of law.

Reasoning of Judgment:This court has considered the submissions advanced by the learned advocates for the respective parties and had perused the record of the cases. A perusal of the impugned order passed shows that the Tribunal has in relation to the demand of Rs.14,42,177/- recorded the following findings:
"After appreciating submissions made by both the sides, I find that the demand of Rs. 14,42,177/- is on the basis of statement of consignor of goods that he has received only invoices from M/s. Vasmin Corporation, Bhavnagar without physical receipt of M. S Scrap and on the strength of such bogus invoices, he has passed on the CENVAT credit to the appellant unit. Reliance has also been placed upon the statements of some of the drivers/transporters whose vehicle number was mentioned on the weighment slip and who denied transported any goods to the Appellant Unit. However, I find that only on this basis the credit cannot be disallowed to the Appellant unit. Apart from the statement of Shri Arjandas and some of the transporters nothing has been brought on record to show that the goods were not received by the Appellant. I find that M/s. Star Associates being registered dealer under Central Excise issued invoices to the Appellant who has duly recorded the receipt of such goods in their records and made payment through banking channels. There is no such evidence that the said amount towards purchase was received back by the Appellant and in support of contention that the goods were transported, reliance was placed on Form 40 of the Sales Tax and purchase tax was paid by the supplier as seen from the ledger annexed with the appeal. I also find that the Appellant had pointed out discrepancy in statement of consignor Shri Arjandas and prayed for his cross examination. He was summoned twice but he did not appear. In such a case, I tend to agree with the contention of the Appellant that the demand cannot be fastened upon the Appellant on the basis of his statement. I find that only on the sole basis of statement of proprietor of M/s. Star Associates is to the effect that they have received only invoices from M/s. Vasmin Corporation cannot be made a ground to deny credit to the appellant unit. I also find that it is a fact that M/s. Star Associates were regularly supplying goods to the Appellant unit. In the past also and on no occasion it was found that they have issued invoices without actual supply. I also find that statement of Shri Bhasin, Director of the Appellant unit was recorded in respect of credit an amount of Rs. 77,627/- said to be received by some other party. However, the said statement was retracted by Shri Bhasin very next day. In such view of facts, and my above view, I do not find any reason to disallow credit of Rs. 14,42,177/- to the Appellant."
From the findings recorded by the Tribunal, it is apparent that the sole basis of the demand was the statement of Shri Arjandas who did not appear pursuant to the summons issued to him. The assessee was, therefore, deprived of an opportunity to cross examine the witness in respect of the statements made against him. In these circumstances, no reliance can be placed on the statement of such witness who has not subjected himself to cross examination by the affected party. Under the circumstances, the statement made by Shri Arjandas lost its efficacy and therefore could not have been used against the assessee. Besides, the Tribunal has also found that M/s. Star Associates was regularly supplying goods to the assessee in the past and on no occasion, it was found that they had issued invoice without actually supplying the goods. It is in the light of the aforesaid facts that the Tribunal has deleted the disallowances of credit of Rs.14,42,177/-. Under the circumstances, it cannot be said that there is any infirmity in the view taken by the Tribunal while deleting the disallowance of credit of Rs. 14,42,177/-.

In respect of demand of Rs.5,42,938/-, the Tribunal has recorded as follows:
"In respect of demand of Rs. 5,42,938/-, I find that the demand is based upon the findings that the octroi receipt shows the delivery of the goods within the municipal limits of the city whereas the factory is situated outside municipal limits. Reliance is also placed upon the statement of the administrator of trucks who denied the transportation to M/s. Bajrang and partner of two units who actually alleged to have received the goods without invoices. However, I find that only the statement of administrator of truck and octroi receipt the receipt of goods cannot be disputed. I find that the goods were consigned by the ship breakers and no investigation was conducted at their end to ascertain the fact of delivery of goods. Hence, no demand can be made against the Appellant. Moreover, the partners of the firm who are said to have actually received the goods were summoned for cross examination, but they did not appear, in such case their statements cannot be relied upon. The goods were found to be duly shown as received and entered in the factory of the Appellant. The statutory records of the Appellant concern show the receipt and consumption of the goods. Pertinently, it is noted that there is no statement of the supplier that the goods were not supplied to the assessee and were supplied to the said third parties. Neither there is any evidence that the said third parties have made any payment to the suppliers of the goods. I therefore find no reason to disallow credit of Rs.5,42,938 to the Appellant."
From the findings recorded by the Tribunal, it is apparent that no investigation had been taken by the Department at the end of the suppliers to ascertain the facts regarding delivery of goods. Moreover, the statutory records of the assessee concerned, shows receipt and consumption of goods. There was no statement of the supplier that the goods were not supplied to the assessee and were supplied to a third party. In light of the aforesaid facts, it cannot be said that the findings recorded by the Tribunal are in any manner erroneous.

In respect of the demands of Rs. 2,57,347/- and Rs. 5,83,537/- , the Tribunal has recorded, thus:

"Similarly, I find that demand of Rs. 2,57,347/- nd Rs. 5,83,537/- is also based upon statement of administrator/transporter/drivers of trucks who denied that there was delivery of the goods to the factory of the Appellant. This demand has been confirmed against the Appellant on the ground that the consignments have been transported by trucks to the Appellants, but were delivered elsewhere. I find that the statements of the transporters are not corroborated with any evidence. Only on the basis of third party statements demand cannot be made. No investigation has been made at the alleged place of delivery of goods for which the invoices were received by the Appellant. In such case when there is no investigation has been conducted at the consignors place nor at the places where the said goods alleged to have been consigned in the show cause notice, the statement of the transporters cannot be relied upon. Hence, I find that the demand of Rs. 2,57,347/- and Rs. 5,83,537/- is not sustainable."
From the evidence on record, it appears that the above demands were based upon the statements of transporters or drivers of the trucks which were not corroborated by any evidence. Under the circumstances, the Tribunal was justified in holding that only on the basis of third party statements, such demand cannot be made. Moreover, as rightly pointed out by the Tribunal, no investigation has been conducted at consignors' place or at the place where the said goods are alleged to have been supplied. Under the circumstances, it cannot be said the Tribunal has committed any error in deleting the aforesaid demands.
As regards the demand of Rs. 3,26,188/-, the Tribunal has recorded as follows:
"The demand of Rs.3,26,188/- has been made against the Appellant that as per the verification reported by the PTO in 17 cases, it was found that the vehicles shown to have transported the goods were not capable of carrying the goods as same pertains to Tanker/trailer/Delivery Van or LGV / Taxi and Passenger Van and thus the Appellant has availed irregular credit. I find that the goods were duly found to have recorded in the Appellant's factory and were consumed in the production. The payment was made through banking channels which is not denied. No investigations have been made at the consignors end in this regard. In such case, I do not find any reason to disallow the credit to the appellant. I rely upon the judgment of M/s. Monarch Metals P. Limited v. Commissioner of C.Ex., Ahmedabad, 2010 (261) ELT 508 (Tri-Ahmedabad) = 2009-TIOL-1936-CESTAT-AHM wherein it was held that credit is available where the assessee produced ample evidence in shape of documentary record to prove that they had actually received inputs from first dealer and made payments through Demand Draft."
Thus, the demand of Rs.3,26,188/- was based upon the fact that the vehicles which were shown to have transported the goods were not capable of carrying such goods. However, the Tribunal upon appreciation of the evidence on record has found as a matter of fact that the goods were duly found to have been recorded in the assessee's factory and were consumed in production. Moreover, payment was made through banking channels and no investigation had been made at the consignors' end in this regard. Under the circumstances, no error can be found in the findings recorded by the Tribunal so as to warrant interference.
In respect of the demand of Rs.13,62,301/-, the Tribunal has recorded thus:
"A demand of Rs.13,62,301/- is against M/s. Bajrang on the goods supplied by M/s. Motabhai Iron & Steel, Viramgam based upon findings that the goods were not transported in the same vehicle by M/s. Motabhai Iron & Steel in which the goods were received by them from M/s. Bhushan Steel, Hoogly. It is also contended that one of the owners of the trucks used for transportation denied the transportation of goods and that one of the truck who had transported two consignments was found to be elsewhere and it is not possible for the said truck to be at two places. Reliance has also been placed upon the statements of the godown keeper of M/s. Motabhai that he did not loaded any goods for the Appellant. In this context, I agree with the submissions made by the learned counsel that all the delivery of goods made by M/s. Motabhai Iron were accompanied with the duty paying documents. Shri Zaheerbhai Jakirbhai Patel of M/s. Motabhai Iron & Steel in his statement dated 23rd August 2003 nowhere admitted that the Appellant were issued only invoices and non delivery of goods to the Appellant. Moreover, all the payments of M/s. Motabhai Iron were made through Bank drafts. I also find that the godown keeper of M/s. Motabhai on cross examination has clearly stated that his job was only loading the goods and the name of the Appellant concern was written as the officers told him that the enquiry pertains to the appellant. Also in his letters to the Superintendent (Prey.) had made his position clear. It is also pertinent to see that in all demand was made on 44 consignments. However, only in respect of two transporters who had transported merely 3 consignments, the alleged discrepancy has been pointed out whereas in case of other transporters, no discrepancy has been found. I also find that the director of the Appellant company in his statement on 19.09.2003 has clearly stated that the payment is made to M/s. Motabhai after one month of the receipt of the goods. Nowhere he has denied the receipt of goods from M/s. Motabhai. In such circumstances, when there is no corroboration from either the records of M/s. Motabhai and the Appellant, I do not find any reason to disallow credit to the appellant. The demand cannot be confirmed against the assessee only on the basis of statements of third parties when there are no evidences in support of such statements."
Thus, from the evidence on record, it appears that all the goods supplied by M/s. Motabhai Iron & Steel were accompanied by documents evidencing payment of duty. The representative of M/s. Motabhai Iron & Steel had nowhere admitted that the assessee was issued only invoices and that there was no delivery of goods to the assessee. Besides, all the payments that were made to M/s. Motabhai Iron & Steel were made through bank drafts. The Tribunal has also noted that, in all, demand was made in respect of 44 consignments. However, it was only in respect of two transporters, who had transported merely three consignments that the alleged discrepancy had been pointed out, whereas, in case of other transporters, no discrepancy has been found. In the light of the aforesaid findings recorded by the Tribunal, it cannot be said that there is any error in the conclusion arrived at by the Tribunal while deleting the demand of Rs.13,62,301/-.
As regards the demand of Rs.2,94,274/-, the Tribunal has recorded thus:
"In respect of demand of Rs. 2,94,274/- on the ground that M/s. Vasmin Corporation has only issued the invoices to the Appellant as accepted by Shri Shabbirali Vasaya of M/s. Vasmin Corporation, I find from the facts that the statement of proprietor of M/s. Vasmin Corporation, Shri Shabbir Ali was recorded after three years ie., 25.10.2005 of issue of Bills in favour of appellant and even that statements was retracted by him the very next day i.e., 26.10.2005. In such case his statement losses its evidentiary value. Apart from above, I also find that payment to M/s. Vasmin Corporation for purchases was made through banking channels and therefore the demands cannot be confirmed against the Appellant. I therefore hold that the demand cannot be confirmed against the appellant."
From the findings recorded by the Tribunal, it is apparent that payment to M/s. Vasmin Corporation in respect of purchases was made through banking channels. Under the circumstances, the Tribunal has rightly held that the demand cannot be confirmed against the assessee. The Tribunal has further found that it is an undisputed fact that all the purchases were duly recorded in the statutory books of the assessee and the goods were also found to be entered in its statutory records. That the Department had not made any investigation at the unit of the assessee, which could have supported the findings of the adjudicating authority. None of the consignors of the goods have denied the clearance of goods to the assessee. There was no evidence on record to show that the records maintained by the assessee were not correct. The Tribunal, was accordingly, of the view that on the basis of statements of some transporters which were not corroborated by any material on record, a huge credit could not be disallowed. It is under these circumstances that the Tribunal has set aside the demands and the penalties imposed upon the assessee and the conoticees.
In light of the findings of fact recorded by the Tribunal upon a detailed appreciation of the evidence on record, as discussed hereinabove, it is not possible to state that the conclusion arrived at by the Tribunal is in any manner perverse to the record of the case. On behalf of the appellant, nothing has been pointed out to indicate that the Tribunal has placed reliance upon any irrelevant material or that any relevant material has been ignored. The learned counsel for the appellant is not in a position to point out any material to the contrary so as to dislodge the finding of facts recorded by the Tribunal. Under the circumstances, in absence of any perversity in the findings recorded by the Tribunal, the impugned order does not give rise to any question of law, much less, a substantial question of law so as to warrant interference. Moreover, as rightly pointed out by the learned advocate for the respondent, even if on the same material it was possible to take a different view, the same would not give rise to a substantial question of law.

Decision:Appeal dismissed.

Comment:The crux of this matter is related to CENVAT credit availed on the basis of invoices without actual delivery/receipt of inputs. However, in absence of any evidence demand of duty cannot be made and hence, Tribunal took clear view that on the basis of third party statement no one can make demand of duty. Moreover, as rightly pointed out by the learned advocate for the respondent followed by High Court that even if on the same material it was possible to take a different view, the same would not give rise to a substantial question of law.

Prepared By:Hushen Ganodwala

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