‘Half-Hearted Investigation by DRI’: CESTAT Remands Genuineness of Manufacturing Activity Matter for Reinvestigation [Read Order]

Welcord Component Industries, the appellant, is engaged in the manufacture of wire-insulated assemblies used in mosquito repellent devices for Godrej Consumer Products Ltd. A search was conducted at their premises by the Central Excise department on December 8, 2014, during which the statements of several employees and partners were recorded.

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Based on these statements and certain documents, a show cause notice was issued alleging that the appellant wrongly availed CENVAT credit on inputs that were never received and that the firm was merely procuring finished goods under fictitious invoices for resale.

The department argued that the appellant did not possess the required manufacturing facility and had claimed input credit fraudulently. The adjudicating authority confirmed the demand, interest, and penalties through a common Order-in-Original dated March 14, 2017. Aggrieved by this, the appellant, along with its partners, approached the CESTAT.

The appellant’s counsel argued that the investigation was flawed. They submitted that stock-taking on the day of the search was incomplete and did not account for all raw materials, work-in-progress, or semi-finished goods. They also pointed out that relevant manufacturing machinery was present, and stock records showed the availability of essential raw materials like copper wires and PVC wires.

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The revenue counsel argued that there was no real manufacturing activity at the appellant’s premises and that the credit claimed was based on invoices for inputs never actually received. They argued that the machines at the site were non-functional or incapable of producing the claimed goods, and the available stock did not align with the appellant's claims.

The two-member bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) observed that the department alleged the absence of manufacturing, but it did not fully deny the existence of machinery or manufacturing activity. Key evidence, including a DVD submitted by the appellant to demonstrate manufacturing operations and stock details from the mahazar, was not addressed in the adjudicating authority’s order. The tribunal also observed that no effort was made to consult an expert to assess the condition of the machinery or to verify records at Godrej’s end.

The tribunal held that the investigation was only a partial effort, and the conclusions were drawn without complete verification. It found that serious claims by the appellant had either been overlooked or ignored.

The tribunal set aside the order and remanded the matter to the adjudicating authority with directions to conduct a thorough examination of the evidence, including inquiries with Godrej, and to pass a fresh order within 90 days. The appeal was disposed of with liberty to both parties to present all relevant materials.

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