M/S Sm Energy Teknik & Electronics Ltd vs Commissioner, Central Excise & Service ...

Appeal No.E/7,234/2010 [Arising out of OIA No.Commr(A)/231 & 232/VDR-II/2009, dt.05.10.2009, passed by Commissioner (Appeals), Central Excise & Service Tax, Vadodara]

1. M/s SM Energy Teknik & Electronics Ltd., 2. Shri Manohar Naik Appellants

Vs

Commissioner, Central Excise & Service Tax, Vadodara-II Respondent

Represented by:

For Appellants: Shri Vishal Agarwal, Shri P.K. Shetty, Ms.Dimple Gohil - Advocates For Respondent: Shri G.P. Thomas, Authorised Representative

For approval and signature: Honble Mr. P.K. Das, Member (Judicial)

1. Whether Press Reporters may be allowed to see the No Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of Seen the order?

4. Whether order is to be circulated to the Departmental Yes authorities?

CORAM: HONBLE MR. P.K DAS, MEMBER (JUDICIAL)

Date of Hearing: 27.03.2015 Date of Decision:01.05.2015

Order No.10467-10468/2015,DT.01.05.2015

Per: P.K. Das

1. These appeals are arising out of a common order and therefore, both are taken up together for disposal.

2. The relevant facts of the case, in brief, are that M/s SM Energy Teknik & Electronics Ltd (Appellant No.1) was engaged in the manufacture of Industrial Machineries, classifiable under Chapter 84 of the Schedule to the Central Excise Tariff Act, 1985. On 12.04.1999, the office premises of the Appellant were searched by Central Excise officers. They also searched the office premises of two registered dealers viz. M/s Prakash Steelage Ltd and M/s Prakash Steel, both located at Mumbai. The said officers seized several records and documents of the Appellant and also recorded the statements of appellants, the said dealers and transporters.

3. A Show Cause Notice dt.30.09.1999 was issued, proposing demand of MODVAT Credit amounting to Rs.44,25,049.00 alongwith interest and to impose penalty of equal amount of MODVAT and to appropriate the amount already deposited by the Appellant No.1. It has also proposed to impose penalty on Shri Manohar Naik, Executive Director, the other two dealers and the transporters under Rule 209A of erstwhile Central Excise Rules, 1944. It has been alleged that during the period from April 1996 to November 1998, the Appellant No.1 had wrongly availed MODVAT Credit on the strength of invoices, without physically receiving the raw materials as mentioned in the said invoices. The Adjudicating authority confirmed the demand of MODVAT Credit of Rs.44,25,049.00 alongwith interest and imposed penalty of equal amount of MODVAT Credit and also appropriated the amount deposited by them. It has also imposed penalty of Rs.2,50,000.00 on Appellant No.2 amongst others. By the impugned order, the Commissioner (Appeals) rejected the appeals filed by the Appellants herein.

4. Learned Advocate appearing on behalf of the Appellants contested the impugned order on merit and also on limitation. He submits that the Appellant availed credit during the period 1996-97 & 1997-98 and the Central Excise invoices were duly defaced by the Range Superintendent and audited by the Central Excise Officers. No dispute was raised. It is further submitted that the Appellant received the goods accompanied with the Central Excise invoices at their factory and used in the manufacture of final product, cleared on payment of duty. The entire transaction is by cheque, duly recorded in CENVAT records. He submits that both the dealers in their statements stated that they have supplied the material to them. The Appellants retracted their statements. The statements relied upon by the Adjudicating authority are of uncorroborative nature. It is also submitted that the credit was denied merely on the basis of the report of RTO in respect of 11 invoices out of 66 invoices. The Commissioner (Appeals) in earlier remand order directed the cross examination of the transporters, which was not allowed. He submitted the written submissions and the compilation of case laws.

5. The learned Authorised Representative on behalf of the Revenue reiterates the findings of the Commissioner (Appeals). He submits that MODVAT Credit was denied on the basis of evidence to the extent

of the report of RTO that the vehicle numbers mentioned in the invoices are incapable to carry of such huge quantities of the material. He submits that in the instant case, both the authorities below has given a clear finding that the cross-examination is not necessary. He relied upon the various case laws as mentioned in the impugned order.

6. After hearing both the sides and on perusal of the records, I find that by the OIO dt.26.08.2004, the Adjudicating authority confirmed the demand of MODVAT Credit alongwith interest and imposed penalty of equal amount on Appellant No.1 and also imposed penalty on the Appellant No.2 and others. By OIA No.Commr(A)/094 to 098/VDR-II/2005, dt.29.03.2005, the matter was remanded to the original authority on the ground that the Adjudicating authority never allowed the cross-examination of the relevant persons. It has also not recorded any finding by the Adjudicating authority about the retracted statement or the affidavit inspite of specific submission of the Appellant. No finding was recorded by the Adjudicating authority regarding the change in truck number. In de-novo adjudication, the Adjudicating authority again confirmed the demand of MODVAT Credit alongwith interest and imposed penalty of equal amount of MODVAT Credit and appropriated the amount deposited by the Appellant No.1. It has also imposed penalty of Rs.2.5 lakhs on Shri Manohar Naik, the Executive Director of the Appellant Company amongst others. By the impugned order, the Commissioner (Appeals) upheld the Adjudication order.

7. It is revealed from the records that during the period 1996-97 and 1998-99, the Appellant availed the MODVAT Credit on the basis of invoices issued by the said dealers. The jurisdictional Central Excise

officers defaced the invoices as required under the law as it stood during the material period. The departmental officers audited the statutory records. It is also stated that the statement recorded of Appellant No.2 on 30.08.1999 was retracted on 02.09.1999. The said dealers in their statements stated before Central Excise officers that they have supplied the material to the Appellant. It is also recorded that the vehicles were arranged by broker/transporter.

8. It is seen from the show cause notice that Shri A.M. Seth of M/s Prakash Steel, Mumbai, the registered dealer, stated that it is general practice in the Steel market to hire agents for arranging the transportation of the goods. In case of supplies made to Appellant as detailed in Annexure-II of his statement, dt.27.08.1999 the transportation was arranged through a transportation broking agent. The Appellants employees had contacted the transport broker who provided services for hiring of transports and vehicles from various vehicle owners and transport companies and the transport broker to arrange the transportation of the goods to the Appellant. The terms of agreement between the transport broker was that he will arrange the lorries for transportation and present to them the freight bills and lorry receipts wherever applicable to them for payment and that he shall also co-ordinate with the representative of the Appellant office situated at Mumbai. The representative of Mumbai office of the Appellant used to be in touch with the transport broker and he used to send one of the representatives to their godown and the transport broker used to send the lorry hired by him and after inspection and loading of the goods in front of the representative of the Appellant the goods used to

be transported as per the instruction of the said representative of Appellant of the Mumbai office. The transport broker used to instruct the lorry driver and the transport company. Since the instruction to the transport broker was that they shall co-ordinate directly with the lorry owners/the transport companies and that he shall present to them copies of freight bills and lorry receipts in order that their accounts department of M/s Prakash Steel shall make the payments and therefore it is possible that in some cases the broker might have arranged local lorries for transportation of the goods and given the freight bills/lorry receipts of other transport companies. In order to get the payments from their accounts department, it is possible that since many of the small lorry owners did not prepare lorry receipts and therefore the transport agent might have hired local lorry owners to transport the goods as per the instruction of the said representative of Appellant of the Mumbai office. He further stated that the responsibilities of taking delivery of the goods brought by Appellant as detailed in Annexure-II of this statement dt.27.08.1999 was on the broker and the said representative of Appellant of the Mumbai office. Once the delivery of the goods had been taken by the representative of Appellant, of the Mumbai office and by the transporter hired by the broker, the responsibilities of M/s Prakash Steel ceased to exist and the ownership of the goods as detailed in Annexure-II of this statement had been transferred to Appellant. They had supplied the goods as detailed in Annexure-II and received payment through cheques. He further stated that as far as they are concerned they had made the payments to the broker on presentation of freight bills and lorry receipts as required by their accounts department.

9. The Appellants have argued that all the materials received in the factory, were recorded in the Stores Inwards, Inspection Report and also in the Cardex System maintained in the Stores in the factory. Central Excise Officers Audit party audited this record. The Commissioner (Appeals) observed that the non-receipt of the inputs in the Appellants factory has been confirmed by the statements dt.12.04.1999 and 31.08.1999 of the Executive Director of the Appellant Company and the statements of the transporters. I find that the Commissioner (Appeals) in his earlier order, remanded the matter to the Adjudicating authority with certain directions as under:-

In this context, I find that it is not in dispute that the entire case of the department regarding wrongful availment of modvat credit on raw-materials/inputs without actual receipt of the consignment is mainly based on the statements given by the Executive Directors/in-charge of the transporters. During the proceedings before the Additional Commissioner, the appellants had made request that they should be given an opportunity for cross examination of the persons whose statements had been relied upon by the department. However, the Adjudicating Authority neither gave cross examination of the relevant persons nor gave any reason for refusal. In fact, the party against whom such material is intended to be used may adopt cross examination as the only mode of explanation or commenting or demolishing the materials collected against him. The right of cross-examination is normally regarded as forming part of natural justice unless sufficient reasons are recorded.

It is also seen that the persons viz. (i) Shri Manohar Naik, Executive Director of the appellants' unit (ii) Shri Mumtaz Ali, in-charge of M/s. Star Transport Corporation (iii) Shri Govind Vishnavi, incharge of M/ s. New Satyapur Transport (iv) Shri M. Insaf Hussain whose statements had been relied upon by the department, had retracted their individual statements immediately after the statements were recorded under Affidavits duly notorized. It is also fact on record that there is nothing on record or in findings of the lower authority that these affidavits were not received by the department. Moreover, there is no finding of Adjudicating Authority about the retracted statements or the affidavits inspite of specific submission of the appellants in reply to show cause notice ".

10. In de-novo adjudication, the Adjudicating authority had not granted cross-examination. By the impugned order, the Commissioner (Appeals) observed as under:-

5.3 In this regard, it is observed that retraction is not a new phenomena; when a person is caught in the clutches of law, he tries to save his skin; retraction is one such method. The transporters are co-accused in the act of transfer of MODVAT Credit without transporting the goods for which they were paid a sum of Rs.400/- per bilty. From the Appellants side, it was the Executive Director Shri Manohar Naik, who played the vital role. So, retraction at a belated stage in such cases cannot negate position stated by them in their original statement under Section 14 of the Central Excise Act, 1944. Moreover, when summons were issued to them by the Department for their cross-examination, they did not turn up, fearing the outcome. Hence, in my opinion, allowing or not allowing of cross-examination of such co-accused will not serve any purpose.

11. I am unable to agree with the findings of the Commissioner (Appeals). It is noted that the Department had not filed any appeal against the earlier order of the Commissioner (Appeals). Hence, the Adjudicating authority should have followed the direction of the Commissioner (Appeals). The main object of cross-examination is to find out the truth and detection of falsehood in human testimony. The adverse party in a proceeding should have right an opportunity to cross examine the witnesses. The Honble Delhi High Court in the case of Basudev Garg Vs Commissioner of Customs  2013 (294) ELT 353 (Del.) held that the statement against the assessee cannot be used without giving them opportunity of cross examining the deponent. The cross examination is a valuable right of the accused/noticee in quasi judicial proceedings which can have adverse consequence for them. In the present case, Department heavily relied upon the statement of the transporters and none of them appeared for cross examination and therefore, such statements cannot be relied upon. In this context, the Appellant stated that Shri Govind Vishnoi, in-charge of M/s New

Satyapur Transport Company, in his statement dt.13.04.1999 stated that he had not transported the goods and issued the lorry receipts on receipt of consideration of Rs.200 to Rs.300 per lorry receipt. It is submitted that the said transport company had not transported even one consignment. Regarding statement of the Executive Director of the Appellant Company, it is submitted that the statement dt.31.08.1999 was retracted by him on 02.09.1999. In any event, the statement of the Executive Director is contrary to the evidences and therefore, such statement cannot have any evidentiary value.

12. The Revenue also relied upon the report of RTO. It is submitted that the RTO report is related to only in inspect of 11 consignments (covers 6 different vehicle numbers) out of 66 consignments. It is also submitted that in 5 of the 6 instances, were RTO report had been called for, the vehicle nos. in respect of which the report was being called for, was different from that mentioned in the invoices.

13. After considering the overall facts and circumstances of the case and the evidences, I find that there is no dispute in the Central Excise invoices are genuine and the goods were cleared from the supplier of inputs accompanied with Central Excise invoices. It is evident from the statements of the supplier of inputs that the goods were transported through the broker/transporter. The statements of the transporters were heavily relied upon, but they did not turn up for cross-examination and therefore, such evidence cannot be relied upon. The applicability of RTO report in respect of all the consignments is doubtful. It is not clear from the RTO report that it would be applicable in respect of 66 consignments. There is no evidence that the goods

14. were diverted by the Appellant. It is important to note that the supplier of input categorically stated that the goods were transported through the agents/broker of the transporter and the vehicle numbers were mentioned in the invoices at their instance. In such situation, MODVAT Credit cannot be denied merely on the basis of report of RTO.

15. The Honble Gujarat High Court in the case of Commissioner Vs M/s Motabhai Iron & Steel Industries  2015 (316) ELT 374 (Guj.) on the identical situation, dismissed the appeal filed by the Revenue. It has been held as under:-

19. From the findings recorded by the Tribunal, it is apparent that payment to M/s Vasmin Corporation in respect of purchases as made through banking channels. Under the circumstances, the Tribunal has lightly 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 co-noicees.

16. In the case of Commissioner of Central Excise Vs Sakeen Alloys Pvt.Ltd.  2014 (308) ELT 655 (Guj.), it is held as under:-

7. As can be noted from the decision of the Tribunal,? it has extensively dealt with the entire factual matrix presented before it. The Tribunal rightly concluded that in the case of clandestine removal of excisable goods, there needs to be positive evidences for establishing the evasion, though contended by the Revenue. In absence of any material reflecting the purchase of excessive raw material, shortage of finished goods, excess consumption of power like electricity, seizure of cash, etc., the Tribunal noted and held that there was nothing to bank upon except the bare confessional statements of the proprietor and of some of the persons connected with the manufacturing activities and such statements were retracted within no time of their recording. The Tribunal also noted the fact that the requisite opportunity of cross-examination was also not made available so as to bring to the fore the true picture and therefore, it concluded against the Revenue observing that not permitting the cross-examination of a person in-charge of records of M/s. Sunrise Enterprises and absence of other cogent and positive evidences, would not permit it to sustain the demand of Rs.1.85 Crores raised in the Demand notice and confirmed by both the authorities below.

17. In the present case, it was found that the input supplier supplied input accompanied with Central Excise invoice. There is no dispute of genuinity of invoice. It is clearly evident from the statement of input supplied by the transporter. In such a situation, the statements of transporter are contrary to statement of input supplier, cannot be relied upon, as they did not turn up from cross-examination. The RTO report had not given a clear picture of applicability in respect of the consignments. In the facts of the present case, RTO report cannot be sole basis of denial of MODVAT Credit. There is no dispute that the Appellant paid the cheques to the input supplier and the entire transaction was duly recorded in statutory records. Hence, I do not find any reason to deny the MODVAT Credit and to impose penalty.

18. In view of the above discussion, denial of MODVAT Credit alongwith interest and imposition of penalties cannot be sustained on merit, without going into the submission on limitation of the Appellants. Accordingly, the impugned order is set aside. The appeals filed by the Appellants are allowed with consequential relief.

(Pronounced in Court on 01.05.2015)

(P.K. Das) Member (Judicial) cbb 11