Demand cannot be confirmed merely based on statement of witness

Demand cannot be confirmed merely on the basis of statement of witness (not corroborated by any evidence)who didn’t appear for cross examination by affected party

Bajrang Castings Private Limited (the Assessee) was engaged in manufacturing and sale of MS Ingots. During the course of searches, it was noted that the modus operandi of the Assessee was doubtful. It was alleged thatthe Assessee was availing Cenvat credit on the basis of Cenvatable invoicesfrom the registered dealers/ traders without actually receiving the goods andto compensate this supply of raw materials, the Assessee procured local non-excisable scrap from the local suppliers and produced MS Ingots from it and cleared it from the Cenvat credit taken on the basis of above mentioned Cenvatable invoices to avoid payment of duty from PLA, on the clearances of the Finished Goods.

On the basis of the abovementioned information, inquiry was initiated to various registered dealers namely (a) Star Associates, Ahmedabad, (b) Vasmin Corporation, Bhavnagar, (c) Motabhai Iron & Steel Industries, Viramgam, who allegedly had fraudulently issued Cenvatable invoices.During the course of searches and further inquiry, statements of Director of the Assessee, supervisor of the Assessee, as well as statements of the concerned persons of above three traders, angadia, various truck owners/ drivers, RTO Authority, Octroi Authority, etc., were recorded to corroborate the evidence collected by the Central Excise officers.

After the completion of the extensive investigation, a Show Cause Notice dated January 31, 2006 was issued to the Assessee and other co-noticees (the Respondents) for recovery of Cenvat credit of an amount of Rs. 1,69,94,433/- alleged to have been taken and utilized fraudulently.Out of 898 consignments, inquiry was made in respect of 131 cases pertaining to three parties viz., Star Associates, Motabhai Iron & Steel Industries and Vasmin Corporation.

The Adjudicating Authoritywhile deciding the case, extended the benefit of doubt to the Respondentsand ordered recovery of Cenvat credit of an amount Rs.47,08,339/-. The Department also levied penalties on the Respondents, their Directors and dealers.

Being aggrieved, the Respondents preferred their respective appeals before the Hon’ble CESTAT. However, the Hon’ble CESTAT relied upon the findingsin the case of Gujarat Setco Clutch Ltd. Vs. Union of India [2012 (278) ELT 160] and allowed the appeals and set-aside the demand as well as penalties imposed on the Respondents. The Hon’ble CESTAT held that Department merely relied on statement of a third party, who did not appear for cross-examination pursuant to summons issued to him, hence Cenvat credit cannot be denied on mere statements of transporters without any corroborative evidences.

Being aggrieved, the Department filed an appeal before the Hon’ble High Court of Gujarat submitting that mere fact that one person could not be cross-examined because he did not appear in the proceedings, cannot be said to have fatal effect as other independent evidences were available on record.

The Hon’ble High Court of Gujarat held as under:

• The Adjudicating Authority raised the demand on the basis of statement of third partywho did not appear in pursuance of the summons issued to him. Further, the Tribunal has also found that Star Associates was regularly supplying goods to the Assessee in the past and on no occasion, it was found that they had issued invoice without actually supplying the goods;
• No investigation had been taken by the Department at the end of the suppliers to ascertain the facts regarding delivery of goods. Moreover, the statutory records of the Assessee had shown the receipt and consumption of goods. There was no statement of the supplier that the goods were not supplied to the Assessee and were supplied to a third party;
• Demands were based upon the statements of transporters or drivers of the trucks which were not corroborated by any evidence. Moreover, no investigation has been conducted at consignors’ place or at the place where the said goods are alleged to have been supplied;
• 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. There was no evidence on record to show that the records maintained by the Assessee were not correct;
• In these circumstances, no reliance can be placed on statement of such witness who has not subjected himself to cross examination by affected party. Said statement lost its efficacy and could not have been used against the Assessee.

Therefore, the Hon’ble High Court held that on the statements of some transporters which were not corroborated by any material on record, a huge amount of Cenvat credit cannot be disallowed. Accordingly, the Order of the Hon’ble Tribunal was upheld.+

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