The two member bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, quashed the excise duty demand and penalty, stating that there can be no denial of Central Value Added Tax (CENVAT) Credit without cogent evidence of paper transactions.
The assessee No.1 Bijoy Gupta is the proprietor of assessee No.2, Devis Manufacturing Works who was engaged in the manufacture of machines and parts thereof and obtained central excise registration. The assessee purchased raw materials namely MS Sheet, MS Channel, MS Rod, MS Angle, MS Plate, MS Nuts & Bolts, Welding Rod, Electric Switch etc. issued for manufacturing of the said machines and parts thereof.
An intelligence was gathered that the assessee are passing credit of duty by way of paper transaction without physically receiving any inputs and without carrying out any manufacturing operation. During the course of the investigation statement of one Surendra Bahadur, Guard was recorded, who stated that the appellant had left the factory two months back and there was no machinery of the appellant in the said premises and all the machines which were lying there were of M/s. Saha Fabricators.
Thereafter the statement of Ratan Saha was recorded who stated that the appellant has taken the factory on rent from 01.07.2007 as per the agreement dated 01.06.2007. There was no machine and other tools. Electricity used by the appellant for manufacturing and other purposes were taken from CESC line. There was no other source of power etc.. There was no generator.
Thereafter, investigation was conducted with the various buyers and transporters of the goods to the various buyers. Some of the transporters have made inculpatory statements alleging that they have not transported the goods to the buyers.
On the basis of the investigation, it was alleged that as the appellants were not having sufficient manufacturing facility in their factory premises, as they were not having the machines to manufacture such a huge machinery nor these machinery were transported to the buyers and electricity consumption is very low, in that circumstances, as the appellants was not engaged in manufacturing of the impugned goods, but was engaged only in paper transactions, therefore, whatever Cenvat credit they have availed is required to be reversed
A show cause notice was issued to the assessee on 24.08.2009 for the period June 2007 to July 2008 alleging that the appellant was engaged in the activity of paper transaction and passing on Cenvat credit to the various buyers. The matter was adjudicated, demand on account of denial of Cenvat credit was confirmed against the appellant along with interest and penalty on both the appellants were imposed.
Mr N.K.Chowdhury representing the assessee submitted that assessee No.1 is the proprietor of assessee No.2, and since a penalty has already been imposed on appellant No.2, no penalty can be imposed on appellant No.1, as they are essentially the same entity. Therefore, the penalty on appellant No.1 should be set aside.
With regard to the merits of the case, he submitted that the assessee had taken the premises on rent, which included the machineries, manufacturing shed, office room, and plain land, as per the Agreement dated 01.06.2007. The assessee had registered the premises for manufacturing activities and was granted registration on 19.06.2007. The Post Verification Report dated 20.07.2007 of the department showed no discrepancies. The assessee was also utilizing the existing electricity meters, machines, and tools installed on the premises.
Mr B.K.Singh representing the department supported the impugned order and submitted that the assessee was in the habit of distributing irregular Cenvat credit to various manufacturers as the assessee was not having any manufacturing facility and dealing with paper transactions for availing Cenvat credit and issuing Cenvatable invoices to enable them to take inadmissible Cenvat credit.
The bench found that in this case the assessee has intimated suspension of their manufacturing activities vide letter dated 10.07.2008 and thereafter surrendered their registration on 01.08.2008 and whole of the investigation have been started thereafter. Moreover, the appellant has procured inputs from various dealers, manufacturers and suppliers and made payments through account payee cheques and investigation was conducted at their end and no inculpatory statement has been made by the supplier of the goods
Further, the assessee has supplied to various recipients of the goods whose investigation was also conducted at their end. They have also stated that they have received the goods in question and made the payment through account payee cheques. It is also evident on record that whatever Cenvat credit has been taken by the appellant, the appellant has utilized the same for payment of duty on the clearance of the goods and also paid sufficient amount of duty through PLA.
Accordingly, the two coram of Ashok Jindal (Judicial member) and K. Anpazhakan (Technical member) held that the demand on account of denial of Cenvat Credit was set aside, as the demand against the assessee was not sustainable, therefore, penalty on the assessee are not imposable. Moreover, the assessee No.1 is the proprietor of the assessee No.2, therefore, penalty on both the appellant is also not sustainable in the facts and circumstances of the case.
The impugned demand confirmed and penalty imposed on the assessee were set aside. Accordingly, CESTAT set aside the impugned order and allow the appeal with consequential relief.
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