Modvat cannot be denied only the basis of statement recorded without providing assessee opportunity to cross examine evidences

Brief facts of the case:

M/s SM Energy Teknik & Electronics Ltd (Appellant No.1) was engaged in the manufacture of Industrial Machineries, classifiable under Chapter 84 of the Schedule to the Central Excise Tariff Act, 1985. On 12.04.1999, the office premises of the Appellant were searched by Central Excise officers. They also searched the office premises of two registered dealers viz. M/s Prakash Steelage Ltd and M/s Prakash Steel, both located at Mumbai. The said officers seized several records and documents of the Appellant and also recorded the statements of appellants, the said dealers and transporters.

A Show Cause Notice was issued, proposing demand of MODVAT Credit amounting to Rs.44,25,049.00 along with interest and to impose penalty of equal amount of MODVAT and to appropriate the amount already deposited by the Appellant No.1. It has also proposed to impose penalty on Shri Manohar Naik, Executive Director (Appellant No.-2). It has been alleged that during the period from April 1996 to November 1998, the Appellant No.1 had wrongly availed MODVAT Credit on the strength of invoices, without physically receiving the raw materials as mentioned in the said invoices. The Adjudicating authority confirmed the demand of MODVAT Credit of Rs.44,25,049/- along with interest and imposed penalty of equal amount of MODVAT Credit. He also imposed penalty of Rs.2,50,000/- on Appellant No.2.

The adjudication order was upheld by the Commissioner (Appeals). Aggrieved by the same, the assessee company and its director preferred an appeal before the CESTAT.

Contention of the Assessee:

The learned counsel for the assessee contended that the appellant availed credit during the period 1996-97 & 1997-98 and the Central Excise invoices were duly defaced by the Range

Superintendent and audited by the Central Excise Officers and no dispute was raised at that time. It was further submitted that the appellant received the goods accompanied with the Central Excise invoices at their factory and used in the manufacture of final product, cleared on payment of duty. The entire transaction is by cheque, duly recorded in CENVAT records.

He also submitted that the credit was denied merely on the basis of the report of RTO in respect of 11 invoices out of 66 invoices without allowing the cross examination of the transporters.

Contention of the Revenue:

The learned authorized representative for the revenue reiterated the findings of the Commissioner (Appeals). He submitted that MODVAT Credit was denied on the basis of evidence to the extent of the report of RTO that the vehicle numbers mentioned in the invoices are incapable to carry of such huge quantities of the material. He also submitted that Shri Govind Vishnoi, in-charge of M/s New Satyapur Transport Company, in his statement dt.13.04.1999 stated that he had not transported the goods and issued the lorry receipts on receipt of consideration of Rs.200 to Rs.300 per lorry receipt. It was submitted that the said transport company had not transported even one consignment. Due to such clear findings the cross-examination was not necessary

Decision of the CESTAT:

The tribunal observed that the entire case of the department regarding wrongful availment of modvat credit on raw-materials/inputs without actual receipt of the consignment is mainly based on the statements given by the In-charge of the transporter and RTO report. In the present case, Department heavily relied upon the statement of the transporters and none of them appeared for cross examination and therefore, such statements cannot be relied upon.

The revenue also relied on RTO report which was related to only in inspect of 11 consignments (covers 6 different vehicle numbers) out of 66 consignments. It is also submitted that in 5 of the 6 instances, were RTO report had been called for, the vehicle nos. in respect of which the report was being called for, was different from that mentioned in the invoices. The applicability of RTO report in respect of all the consignments was doubtful.

In the present case, it was found that the input supplier supplied input accompanied with Central Excise invoice. There is no dispute of genuinity of invoice. It is clearly evident from the statement of input supplied by the transporter. In such a situation, the statements of transporter are contrary to statement of input supplier, cannot be relied upon, as they did not turn up from cross-examination. The RTO report had not given a clear picture of applicability in respect of the consignments. In the facts of the present case, RTO report cannot be sole basis of denial of MODVAT Credit. There is no dispute that the Appellant paid the cheques to the input supplier and the entire transaction was duly recorded in statutory records. Hence, I there is no good reason to deny the MODVAT Credit and to impose penalty.

Thus, in result the appeal of the assessee is allowed.