Denial of CENVAT Credit Based Solely on Uncorroborated Third-Party Statements: CESTAT Sets Aside Demand [Read Order]

The Allahabad Bench of Customs, Excise and Service TAx Appellate Tribunal ( CESTAT )set aside the demand against the assessee regarding denial of CENVAT credit, which was based solely on uncorroborated third-party statements from a supplier’s investigation.

Hans Metals Ltd.,appellant-assessee, manufactured and cleared iron and steel sections. It claimed Cenvat credit on inputs, capital goods, and services. One supplier, M/s Shiv Metalicks, Jamshedpur, was investigated by DGCEI officers. The investigation showed that Shiv Metalicks had issued fake invoices and passed incorrect Cenvat credit to the assessee. The supplier’s proprietor admitted this in his statement. Based on this, the authority confirmed the demand against the assessee.

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A single member bench of P.K.Choudhary (Judicial Member) heard both sides and reviewed the records. It found that the entire proceeding was based only on statements from manufacturers and excise dealers, which were relied upon to conclude that the appellant had not received the goods.

The denial of Cenvat credit by the jurisdictional authorities was based solely on communication from DGCEI, Jamshedpur, without any other evidence. These statements were not allowed to be cross-examined. The department did not investigate or verify invoices, bilties, vehicle weighing records, or bank transactions between the appellant and the supplier.

In a similar case, the tribunal noted that uncorroborated third-party statements could not be solely relied upon to hold against the appellant, especially when no cross-examination was allowed. The assessee had clarified during investigation that the inputs were actually received, and there was no evidence to show raw materials were procured from elsewhere. The department also failed to verify transport details, and it was not explained how the appellant manufactured products without the alleged raw materials.

Read More: CESTAT quashes Excise Demand, Rules CENVAT Credit Restrictions Unconstitutional

The appellate tribunal further observed that in cases of clandestine allegations, the burden to prove them lies with the department, which must provide tangible, positive evidence. Statements without independent corroboration could not sustain the demand.

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Regarding limitation, the bench noted the show cause notice dated October 4, 2018, was issued for 2013-14, invoking the extended limitation period. However, the assessee had maintained all records, filed returns regularly, and there was no suppression of facts. Therefore, the demand for the extended period was barred under Section 11A of the Central Excise Act, 1944.

Accordingly, the CESTAT set aside the impugned order and allowed the appeal.

To Read the full text of the Order CLICK HERE

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