Case Law Details
Ghankun Steels Pvt. Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Delhi)
The appeals arose from a common order confirming recovery of Cenvat credit of ₹28,40,329, its appropriation and imposition of penalty against the appellant company and its director. The appellant was engaged in the manufacture of Sponge Iron and M.S. Ingots and availed Cenvat credit on various raw materials. The Department initiated proceedings after receiving information that certain suppliers and dealers from whom the appellant had procured inputs were non-existent entities and had allegedly issued Cenvatable invoices without actual supply of goods during 2012-13 and 2013-14. Based on the investigation, a show cause notice proposed denial and recovery of the Cenvat credit, which was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals).
Before the Tribunal, the appellant contended that the proceedings formed part of a larger investigation involving the same intermediary parties and that similar matters had already been decided in favour of other assessees. It was further submitted that the demand had been confirmed solely on the basis of third-party statements and evidence collected during investigation. The appellant argued that statements recorded under Section 14 of the Central Excise Act, 1944 could not be relied upon unless the procedure prescribed under Section 9D had been followed. It was also submitted that no search had been conducted at the appellant’s premises, no panchnama had been drawn, and the appellant had produced the purchase invoices sought by the Department. According to the appellant, the invoices were valid Cenvatable invoices issued by entities registered with the Department, and the denial of credit was therefore unwarranted.
The Department supported the impugned order, contending that the suppliers and dealers were found to be non-existent, the invoices were bogus, and the investigation, statements of transporters, money trail and other documentary evidence established that no goods had actually been supplied. It relied upon a Tribunal decision holding that Cenvat credit was not admissible where manufacturers or dealers had merely generated invoices without manufacturing or supplying goods.
The Tribunal examined the material on record and observed that the Department’s case substantially rested upon statements of third parties, particularly those recorded during investigation, and data recovered from their premises. The appellant had specifically sought permission to cross-examine those witnesses, but the request had been rejected on the ground that their statements were voluntary and had not been retracted. The Tribunal held that this was not a valid reason for denying cross-examination. It observed that cross-examination is an important component of the justice delivery system and is a statutory requirement flowing from Section 9D of the Central Excise Act, 1944. Referring to judicial precedents, the Tribunal noted that statements recorded under Section 14 cannot be relied upon unless the conditions prescribed under Section 9D are satisfied and the affected party is afforded an opportunity to cross-examine the makers of those statements. It further observed that even the order rejecting the request for cross-examination had not been properly communicated to the appellant.
The Tribunal further held that the Department had relied only on third-party evidence without producing corroborative material. It reiterated that allegations involving clandestine manufacture or removal cannot be sustained solely on third-party documents or statements in the absence of concrete evidence such as excess production, procurement of additional raw materials, transportation details, sale proceeds, receipt of finished goods by buyers or excess electricity consumption. It found that no such corroborative investigation had been carried out in the present case.
The Tribunal also held that the mere fact that the invoice-issuing entities were later found to be non-existent did not automatically justify denial of Cenvat credit to the appellant unless the Department established that the appellant was aware of such non-existence or that the invoices were bogus. It noted that the appellant had cleared its final products on payment of duty, maintained the prescribed records, and availed credit on invoices containing the particulars required under Rule 9 of the Cenvat Credit Rules. In the absence of evidence showing that the appellant had not received the goods or had knowingly participated in the alleged fraud, the allegations founded upon statements of manufacturers, dealers or transporters could not be relied upon against the appellant.
Holding that the Department had failed to prove wrongful availment of Cenvat credit through legally admissible and corroborative evidence, the Tribunal set aside the recovery of Cenvat credit, the appropriation already made and the penalties imposed. Consequently, the appeals were allowed.
FULL TEXT OF THE CESTAT DELHI ORDER
Present order disposes of two appeals arising out of the same order. One appellant being company and another its proprietor. M/s. Ghankun Steels Pvt. Ltd., the appellant herein is engaged for manufacture of Sponge Iron and M.S. Ingots with Shri Bimal Kishore Khetan and Shri Ankit Chopudhary, the directors thereof. Appellants are using Iron ore, coal, Sponge Iron, Pig Iron, Dolomite, MS Waste & Scrap and Silico Manganese as major raw materials/inputs for manufacturing of their final product. The Revenue got a specific information that the raw material suppliers of the appellant were not found in existence and were found to have taken and utilized huge amount of Cenvat credit without manufacturing any goods during the year 2012-13 and 2013-14. The co-noticees namely, M/s. Rakti Trading Pvt. Ltd., M/s. Yes Commtrade (India) Pvt. Ltd., M/s. Supreme Multi Trade Pvt. Ltd. and M/s. Singh Mineral & Infra Tech, are such non-existing entities.
1.1 The information was received pursuant to the investigation on the premise that certain registered manufacturing entities like M/s. High Tide Infra Project Pvt. Ltd., M/s. Supreme Multi Trade Pvt. Ltd., M/s. Singh Mineral & Infra Tech, co-noticees, are not genuine entities. These entities have been alleged to have issued Cenvatable invoices without actual goods being supplied to the first and second stage dealers in Raipur such as M/s. Rakti Trading Pvt. Ltd. and M/s. Yes Commtrade (India) Pvt. Ltd. The transaction found to be managed by Shri Pradeep Kumar Agrawal, the Proprietor of M/s. Supreme Multi Trade Pvt. Ltd., Raipur, (the another co-noticee) and Shri Rajendra Manohar Soni, the Director of M/s. Supreme Multi Trade Pvt. Ltd. with their facilitator Shri Rajesh Agrawal, the co-noticee. The notice has not been served to M/s. Rajendra Manohar Soni.
1.2 On the basis of evidences gathered during the investigation, the department alleged that during the period 2013-14, the appellant has availed improper Cenvat credit amounting to Rs.28,40,329/- on the strength of fake invoices issued by registered dealers as mentioned above. Accordingly, the Show Cause Notice No.111/2015-16 dated 11.05.2017 was served upon the eight above named co-noticees proposing the Cenvat credit of Rs.28,40,329/- to be disallowed and to be recovered from the appellant. The said proposal has been confirmed vide Order-in-Original No. 39/2017 dated 13.14.2018. Appeal against the said order has dismissed vide Order-in-Appeal No. 382 to 383/2018-19 dated 26.09.2018. Being aggrieved, the appellant is before this Tribunal.
2. I have heard Ms. Parul Sachdeva and Ms. Prerna Jain Kala, learned counsels for the appellant and Shri Anand Narayan, learned Authorized Representative for the department.
3. Learned counsel for the appellants has submitted that the present show cause notice is part of a larger investigation involving allegations against the same intermediary parties qua different sets of ultimate manufactures. All of these proceedings have already reached this Tribunal and stands concluded in favor of the respective assesses. The middlemen that of M/s. Jetking Trading and Agencies Pvt. Ltd., M/s. RMS Steel and Company, M/s. Prakash Industries, M/s. High Tide Projects Pvt. Ltd., M/s. Supreme Multi Trade Pvt. Ltd., M/s. Singh Mineral & Infratech and Shri Pradeep Kumar Agarwal, have been the common middlemen for all those proceedings and for the present one also. Hence the issue stands covered in favour of the assesses.
3.1 Learned counsel further submitted that the demand has been confirmed purely on the basis of the third party evidence and the submissions recorded during investigation. Third party evidence cannot be relied upon for confirmation of demand and imposition of penalty. The following decisions have been relied upon:
(i) Grace Casting Ltd. Vs. Commr. Of C.Ex. & S.T., Ahmedabad-III reported as 2019 (369) ELT 751 (Tri.-Ahmd.)
(ii) Jyoti Industries Vs. Comm. Of C.Ex. & S.T., Ludhiana reported as 2016 (343) ELT 690 (Tri-Del.)
(iii) Anj Metal Recycling Pvt. Ltd. Vs. Comm. Of C.Ex. Chandigarh reported as 2016 (337) ELT 453 (Tri.Chan.)
(iv) Victora Tools Engineers (P) Ltd. Vs. Comm. Of C.Ex. Delhi-IV reported as 2014-TIOL-2693-HC-ALL-CX
3.2 Similarly the statements recorded under Section 14 of Central Excise Act, 1944 during investigation cannot be relied upon unless procedure prescribed under Section 9D of the said Act is followed. Following decisions have been relied upon:
(i) M/s. Surya Wires Pvt. Ltd. Vs. Principal Commissioner, CGST reported as 2025-TIOL-736-CESTAT-DEL
(ii) Punjab & Haryana in the case of G-Tech Industries Vs. Union of India reported as 2016 (339) ELT 209 (P&H)
(iii) Jindal Drugs Pvt. Ltd. Vs. Union of India reported as 2016 (340) ELT 67 (P&H)
(iv) Goyal Tobacco Co. Pvt. Ltd. Vs. VVE & ST, Jaipur reported as 2017 (348) ELT 720 (Tri.-Del.).
3.3 Finally it is submitted that no search was conducted at the premises of the appellant. No Panchnama was drawn. The department merely had issued summons to the appellant seeking purchase invoices of waste and scrap, which were duly submitted by the appellant. Thus, the appellant has been wrongly involved as the co-noticee. The Cenvat credit has been filed on the Cenvatable invoices. The parties which have been alleged non-existent were issued registration by the department itself. The Cenvat credit therefore has wrongly been denied. With these submissions, appeal is prayed to be allowed.
4. While rebutting these submissions, learned Departmental Representative has reiterated the findings arrived at by Commissioner (Appeals). In addition, it is submitted that there have been relevant evidence on the record which proves that the suppliers and dealers of the appellant were found non-existent. The sufficient evidence is there to prove that the invoices on strength whereof the impugned Cenvat credit of Rs.28,40,329/- was availed were the bogus invoices. Even the money trail produced on record shows that the payments were made to the fictitious dealers by the appellant. The statements of the appellant Directors and employees stands duly corroborated from the statements of the transporters and on the basis of local inquiries. The transporters whose vehicle no. appeared on the invoices denied having transported any material for the said consignment. The documentary evidence which was seized at the time of searches finally corroborates the entire investigation supporting the allegations against the appellant. Learned Departmental Representative has relied upon the decision of this Tribunal in the case of Commr. Of C.Ex. & CGST, Udaipur Vs. Prem Jain Ispat Udyog Pvt. Ltd. reported as 2022 (381) ELT 533 (Tri-Del.), wherein it was held that assessee was not entitled to take Cenvat credit where input manufacturer/dealers had not manufactured/sold/cleared any goods but generated invoices only for passing Cenvat credit. With these submissions, the appeal is prayed to be dismissed.
5. After hearing the parties and perusing the record, I observe and hold as follows:-
5.1 The basic information as was received by the Department was against M/s. High Tides Infra Pvt. Ltd. Various other co-noticees have been served with the Show Cause Notice based upon the statements recorded during investigation. The most relied statement is that of Pradeep Aggarwal, Proprietor of M/s. Subh Multi Trade Co. Pvt. Ltd. as was initially recorded on 01.10.2015 and subsequently on 19.02.2016 which was recorded before DGCI. The data as was received from his premises vide Panchnama dated 09.05.2015 has also been heavily relied upon by the Department. The admitted fact therefore remains is that these statements and the data amounts to a third party evidence. Another fact admittedly is that the appellant craved for leave to cross-examine these witnesses but the request was turned down on the ground that the statements of the witnesses were voluntary and have not been retracted. I am of the opinion that the reason for denying cross-examination is not justified. Cross-examination is a most relevant tool of justice delivery system so as to undo the bias, if any. It is otherwise a statutory mandate flowing from Section 9D of Central Excise Act, 1944. The section reads as follows:-
(1) A statement made and signed by a person before any Central Excise Officer of a Gazette rank during the course of any inquiry or proceeding under this Act shall be relevant, for the the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, –
Section 9D. Relevancy of statements under certain circumstances. –
(1) A statement made and signed by a person before any Central Excise Officer of a Gazette rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, –
(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or
(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
( 2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.
5.2 Hon’ble High Court of Punjab & Haryana in the case of M/s. Ambika International (supra) and also in the case of G-tech Industries vs. Union of India reported as 2016 (339) E.L.T 209 (P & H) has held that unless a person is examined in terms of section 9D and unless the affected parties is given an opportunity to cross-examine him, no reliance can be placed on any statement recorded under Section 14 of Central Excise Act. In that case also the entire demand was based on third party investigation and statement given by the third party. No single document was found issued by the appellant nor there was a confessional statement of the appellant. In the present case, the Adjudicating Authority is thus, opined to have relied upon third party evidence only. It is also apparent that even the order of rejecting the request of cross-examination was no properly communicated to the appellant.
Since the sole challenge to the order is its reliance upon third party evidence, it is necessary to check the evidentiary value of the third party evidence. The relevant case law in the case of Bajrangbali Ingots & Steel Pvt. Ltd. & Suresh Agarwal vs. CCE, Raipur in Appeal No. E/52062 & 52066/2018 heard on 16.11.2018, which is held as follows:-
“9. The law i.e. as to whether the third party records can be adopted as an evidence for arriving at the findings of clandestine removal, in the absence of any corroborative evidence, is well established. Reference can be made to Hon’ble Allahabad High Court decision in the case of Continental Cement Company Vs. Union of India – 2014 (309) ELT 411 (All.) as also Tribunal’s decision in the case of Raipur Forging Pvt. Ltd. Vs. CCE, Raipur-I – 2016 (335) ELT 297 (Tri.-Del.), CCE & ST, Raipur Vs. P.D. Industries Pvt. Ltd. – 2016 (340) ELT 249 (Tri.-Del.) and CCE & ST, Ludhiana Vs. Anand Founders & Engineers – 2016 (331) ELT 340 (P&H). It stand held in all these judgements that the findings of clandestine removal cannot be upheld based upon the third party documents, unless there is clinching evidence of clandestine manufacture and removal of the goods.”
It is well settled law that there has to be some concrete evidence which would show clandestine manufacture of goods, as was reiterated by Tribunal, Delhi in the case of Commissioner of Central Excise & Service Tax, Raipur vs. P.D. Industries Pvt. Ltd. reported as 2016 (340) ELT 249 (Tri.-Del. ). Earlier also in the case of Continental Cement Company vs. Union of India reported in 2014 (309) ELT 411 (All.), Hon’ble High Court of Allahabad has held:-
“12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials have been purchased.
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.”
5.3 Merely because the company issuing invoice was found nonexistent, the appellant could not be denied the availment of Cenvat Credit thereupon unless and until his involvement in terms of his knowledge about such non-existence and about the invoice to be bogus is not proved on record. Otherwise also there is no denial that the appellant has cleared his final product on payment of duty. In such circumstances and that the invoices were containing all the particulars as are required un Rule 9 of Cenvat Credit Rules and that the appellant was also making the record of all those details. The allegations based on the statements given by other manufacturers, first or second stage dealers or even by the transporters cannot be read against the appellant. I draw my support from the decision of Hon’ble High Court of Allahabad in the case of Commissioner of Central Excise, Customs and Service Tax vs. Juhi Alloys Ltd. reported as 2014 (302) ELT 487 (All.) where it was held that though the invoice of manufacturer issued in the name of registered dealers was found fake, though the manufacturer of import was not found existing but it would be impractical to require the assessee to go behind the records maintained by the first stage dealer. Once assessee is found to have acted with all reasonable diligence in its dealings within the meaning of Rule 9 (3) of Cenvat Credit Rules, 2004 will amount to casting an impossible or impractical burden on the assessee and same would be contrary to the rules. Tribunal, Chennai also in the case of Adhi Alloys Pvt. Ltd. vs. CCE, Ludhiyana reported as 2017 (346) ELT 113 has held that demand on the grounds of invoices being issued by non-existent dealer without delivering goods, in absence of any corroborative evidence to show that assessee has not received goods, cannot be confirmed and Cenvat Credit cannot be denied to such assessee. I further observed that despite the investigation in the present case began with the information against M/s. High Tides Infra Project Pvt. Ltd. But no penalty has been imposed on said M/s. High Tide Infra Project.
6. In view of the entire above discussion and no other evidence on record except as discussed above, I hold that the department has failed to prove the allegations of the wrong availment of Cenvat credit by the appellant. In view of these observations, I hold that the recovery of Cenvat credit has wrongly been confirmed and the Cenvat credit already paid has wrongly been appropriated. Penalty upon the appellant also been wrongly imposed. The order under challenge is accordingly set aside. Consequent thereto, the appeals stands allowed.
[Order pronounced in the open Court on 19.05.2026]
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