Whether demand based upon the statement of third party is sustainable when there is no corroborative evidence from an independent source?

PJ/CASE LAW/2016-17/3039

Case:- G.S. ALLOY CASTINGS LTD. VersusCOMMISSIONER OF C. EX., GUNTUR

Citation:- 2016 (331) E.L.T. 310 (Tri. - Bang.)

Brief facts:- The appellant was engaged in the manufacture of MS Bars of varying sizes and they procured the raw material i.e. Crop End Billets/Ingots scrap etc. mainly from Visakhapatnam Steel Plant.
It is seen that the officers of the Directorate General of Central Excise Intelligence, Regional Unit, Hyderabad conducted a search in the premises of one M/s. Usha Enterprises, in respect of the Central Excise matters relatable to that unit. They recovered certain incriminating documents and in terms of the said documents, certain Central Excise Invoices issued by one M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd., Visakhapatnam showing the appellant as consignee were recovered. On an explanation, Shri Ashok Garg, Managing Director of the said M/s. Usha Enterprises deposed that two pages of the said record relatable to supplies made by M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd. relates to fake arrangement made by them with M/s. Usha Enterprises as also with M/s. G.S. Alloy Castings Ltd. In terms of the said arrangements, M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd. is issuing invoices on the basis of which M/s. G.S. Alloy Castings Ltd. is availing the credit, without actually receiving of the inputs. They received their commission in between. He also gave the details of encashment of cheque amounts and exchange of the same with cash.

Statement of Shri Korry Yadagiri, Accounts Clerk of M/s. Usha Enterprises were recorded wherein he admitted about the notings on the said two pages. As per the statement of Shri Grandhi Ramji, Managing Director of M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd. deposing that Crop End Billets, which do not fit in to their manufacturing process are being sold in the open market and they have business dealing with M/s. Usha Enterprises and he also gave details of the cash amount being returned to M/s. Usha Enterprises as against the cheque given by them. Statement of one Shri K.R.G. Sundaram, Manager (Administration) of the appellant’s company was also recorded. As per his statement, they have placed orders for the scrap to M/s. Usha Enterprises, who supplied the same as per the monthly schedule and rates would be negotiated as per the market condition prevailing from time to time. They received the quantity of scrap mentioned in the invoice issued by M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd. on account of M/s. Usha Enterprises.
On the above basis, the Revenue entertained a view that Cenvat credit to the extent of Rs. 2,60,369/- stands availed by the appellant, on the basis of the invoices issued by M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd., on account of M/s. Usha Enterprises, without actually receiving the said raw material. Accordingly proceedings were initiated against them resulting in confirmation of demand and imposition of penalty.
On appeal against the said order of the original adjudicating authority, the Commissioner (Appeals) observed that the entire case of the Revenue is based upon the statements recorded during the course of investigation, which statements are uncorroborated by any documentary evidence. He observed that the appellant's officers nowhere admitted that they have not received the raw material in question and the statements recorded by the officers only reflected the financial arrangement between M/s. Usha Enterprises and M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd. They have made the payments of the raw material by cheque and the Revenue has also not made any enquiry from the transporters even though their names were available. As such, by taking note of affidavit of one of the transporters, M/s. Srinivasa Transport, he concluded that the goods have actually transported up to the factory premises and there is no need to deny the availment of credit. He accordingly set aside the impugned order of the original adjudicating authority.
The said order of the Commissioner (Appeals) was appealed against by the Revenue before the Tribunal. The Tribunal vide its Final Order Nos. 705 & 706/2011, dated 14-10-2011 observed that the Commissioner (Appeals) while setting aside the order of the original adjudicating authority has taken into consideration an affidavit of one Shri D. Srinivasa Rao, a representative of M/s. Srinivasa Transporter, which was not before the original adjudicating authority. Accordingly, the Tribunal set aside the order of the Commissioner (Appeals) and remanded the matter for fresh decision without considering the affidavit of Shri D. Srinivasa Rao.
In the remand proceedings, the Commissioner (Appeals) has upheld the order of the original adjudicating authority. Hence the present appeal.

Appellant’s Contention: The appellants in the statement recorded during the investigation had clarified their stands that they have actually received the materials in question and any documents recovered from the premises of third party cannot be adopted to hold against them.

Reasoning of Judgment:- After hearing both sides and after going through the impugned orders including the order of the Tribunal vide which the matter was remanded, they find that the entire case of the Revenue is based upon the statements of the authorized representatives of M/s. Usha Enterprises and M/s. Sree Tirumala Steel Rolling Mills Pvt. Ltd. Apart from that, there is not even an iota of evidence on record to show that the appellant has not actually received the inputs in question. Even the said statements have not been tested about their correctness by granting cross-examination. There is no inculpatory statement of the present appellant and on the contrary, the appellant’s representative, has clarified, in the statement recorded during the investigation that the inputs were actually received by them. It is not the Revenue’s case that the said Crop End Billets were not the raw material for the appellant.
Even if they do not take into consideration the affidavit of Shri D. Srinivasa Rao in terms of the earlier order of the Tribunal, they find that the evidence collected by the Revenue is only in the shape of statements of third party. It is well settled that in the case of clandestine allegation, the onus to establish the same is on the Revenue, which is required to be satisfied by production of sufficient, tangible and positive evidence. The uncorroborated statements of third party cannot be adopted as an evidence, without corroboration from an independent source though such statements can be of some value but cannot be solely relied upon for the purpose of holding against the assessee.
They also note that the Revenue has not bothered to make any investigation from the transporters even though their names were available in the respective invoices. They have not found out whether the vehicles number mentioned in the invoice, have been actually used for the transportation of the goods or not. The Revenue is silent on the issue that if the appellant has not received the materials in question, how have they manufactured the corresponding final products. It is not the Revenue’s case that they have procured the raw material from any other alternative source. It is not only inpractical but impossible to manufacture the final product without raw material in question. The appellants having reflected the raw material in their Cenvat credit account and having shown the utilization of the same, heavy duty stands cast on the Revenue to establish that such raw material was not the one which was covered by invoice in question and stands procured by the assessee from any other source. There is neither any allegation much less any evidence to reflect upon the procurement of raw material from any outside source.
In view of the above, they find no merits in the Revenue’s stand. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that Evidence collected by Revenue is only in the shape of statements of third party. It is well settled that in the case of clandestine allegation, the onus to establish the same is on the Revenue, which is required to be satisfied by production of sufficient, tangible and positive evidence.Uncorroborated statements of third party cannot be adopted as an evidence, without corroboration from an independent source though such statement can be of some value but cannot be solely relied upon for the purpose of holding against the assessee. It is not only impractical but impossible to manufacture the final product without raw materials. Appellants having reflected the raw material in their Cenvat credit account and having shown the utilization of the same, heavy duty cast on Revenue to establish that such raw material were not the one which was covered by invoice and stands procured by assessee from any other source.

Prepared by:- Monika Tak

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PJ/CASE LAW/2016-17/3039

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