CESTAT Ahmedabad Allows Cenvat Credit Despite RTO Vehicle Discrepancies

Grace Casting Ltd. Vs C.C.E. & S.T. (CESTAT Ahmedabad)

The appeals before the CESTAT Ahmedabad arose from an order confirming demand of Cenvat credit, interest and penalties against Grace Castings Ltd. and its Director on the allegation that the company had fraudulently availed Cenvat credit on invoices issued without actual receipt of raw materials. The investigation relied upon RTO reports indicating that several vehicle numbers mentioned in the invoices corresponded to vehicles incapable of transporting the goods, statements of certain transporters denying transportation, and statements of some weighbridge owners denying the weighment slips. A show cause notice was issued and the adjudicating authority confirmed the demand, which was upheld by the Commissioner (Appeals).

Before the Tribunal, the appellant contended that the department’s case rested primarily on RTO reports and statements of only two transporters despite involvement of 36 transporters and 2,451 consignments. The disputed consignments covered only about 521.99 MT out of approximately 41,030 MT of raw materials procured during the relevant period. The appellant submitted that suppliers had never denied supply of goods or receipt of payment, the inputs were duly entered in statutory records, payments for goods and transportation were made through banking channels, finished goods manufactured from those inputs were cleared on payment of duty, and there was no evidence that goods covered by the invoices had been diverted elsewhere or that alternative unaccounted inputs had been procured. The appellant also relied on several judicial precedents in support of its case.

The Revenue argued that the RTO reports established that the vehicles mentioned in the invoices were incapable of transporting the goods and that statements of two transporters supported the allegation that the goods had not been transported. The Revenue relied upon various judicial decisions to contend that the credit had been wrongly availed.

In rejoinder, the appellant distinguished the authorities relied upon by the Revenue and reiterated that the goods had been received under valid duty-paid documents, payments were made through account payee cheques, quantities were recorded in statutory registers, transportation charges were accounted for, suppliers had affirmed sale of the goods and receipt of payment, finished goods were manufactured and cleared on payment of duty, no allegation had been made regarding procurement of raw materials from undisclosed sources, no financial flow-back had been alleged, and service tax had been paid on transportation. The appellant further relied upon the Gujarat High Court decision in Motabhai Iron & Steel Industries, submitting that even where RTO reports existed, credit had been allowed after considering the overall evidence.

After considering the submissions and records, the Tribunal observed that the principal evidence relied upon by the department consisted of the RTO reports and statements of two transporters. Against this, the Tribunal found that receipt of goods had been recorded in the statutory Cenvat records, purchases had been entered in the books of account, payments for goods and transportation had been made through cheques, suppliers had affirmed sale and receipt of payment, finished goods had been manufactured and cleared on payment of duty, and there was no evidence that the goods were diverted elsewhere or that any unaccounted inputs had been procured. The Tribunal also noted that the Managing Director’s statement was exculpatory and that no shortage of stock had been found. It distinguished the Gujarat High Court decision in Gyscoal Alloys Ltd. on facts, observing that the present case lacked the additional inculpatory evidence present in that matter. The Tribunal found the facts to be closer to Motabhai Iron & Steel Industries, where credit had been allowed despite RTO discrepancies after considering the surrounding evidence.

Holding that the evidence on record established receipt and use of the inputs and that the RTO reports alone were insufficient to deny credit in the facts of the case, the Tribunal concluded that there was no substantial evidence warranting disallowance of Cenvat credit. Accordingly, it set aside the impugned order and allowed the appeals.

Cases Discussed

• Classic Strips Ltd. v. CCE – 2016 (339) ELT 144 (Tri. Mum.).
• Motabhai Iron & Steel Industries v. CCE, Ahmedabad-II – 2014 (302) ELT 69 (Tri. Ahd.), affirmed in 2015 (316) ELT 374 (Guj.).
• Sharma Chemicals v. CCE, Calcutta-II – 2001 (130) ELT 271 (Tri.).
• CCE, Ludhiana v. Parmatma Singh Jatinder Singh Alloys Pvt. Ltd. – 2011 (266) ELT 67 (Tri. Del.).
• Shakti Roll Cold Strips Pvt. Ltd. – 2009 (242) ELT A83 (SC).
• Adhunik Ferro Alloys Ltd. v. CCE, Chandigarh – 2009 (233) ELT 131 (Tri. Del.).
• Jyoti Industries v. CCE & ST – 2016 (343) ELT 690 (Tri. Del.).
• Veer Enterprises v. CCE – 2015 (319) ELT 305.
• Anj Metal Recycling Pvt. Ltd. v. CCE – 2016 (337) ELT 453 (Tri. Chan.).
• Harsaran Dass Sita Ram v. CCE – 2015 (322) ELT 686 (P&H).
• Gyscoal Alloys Ltd. v. CCE – 2014 (35) STR 199 (Guj.).
• Agarwal Metals & Alloys v. CCE, Surat-II – 2013-TIOL-854-CESTAT-AHM.
• Viraj Alloys Ltd. v. CCE, Thane-II – 2004 (177) ELT 892 (Tri. Mum.).
• Genius Electricals & Electronics Pvt. Ltd. v. CCE – 2018-TIOL-463-CESTAT-DEL.
• A & S Textiles Ltd. v. CCE, Coimbatore – 2018-TIOL-1308-CESTAT-MAD.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The brief facts of the case are that the appellant M/s Grace Castings Ltd. Are engaged in the manufacture of MS Channels, Flats, Square Bar, Ingots, Round bar, Cold bar, CJ Casting etc. falling under chapter 72 and 73 of the CETA, 1985 and also availing Cenvat credit facility as per CCR, 2004. The main raw material for the manufacture of their final products are MS Scrap, MS Ingots, MS Billets, Ferro items like Aluminum, Manganese, SS Scrap, Silicon, Titanium, Chrome, pig iron etc. The intelligence was gathered by Central Excise Officers and necessary investigation has been initiated against the appellant. As per the allegation of the Revenue, investigation revealed that the appellant had availed Cenvat Credit on the strength of invoices issued by various raw material suppliers as they have fraudulently passed on the Cenvat Credit by issuing invoice only without actual supply of material.

Searches were carried out by the Central Excise Officers at the factory premises as well as business premises of the appellant and certain documents were withdrawn for further investigation. The investigation was carried out with respect to the vehicles mentioned in the input invoices used for transporting the goods from inputs/ raw materials suppliers to the appellant. The details of the vehicle numbers mentioned in the invoices were called for from various RTO and weighbridge owners. The reports received from various RTOs, revealed that the vehicles used for carrying the raw materials from the supplier of the raw materials to the appellant factory were loading rickshaw, passenger rickshaw, Maruti van, LMV Taxi, LMV Trailer, Motor Cycle, LMV Tanker, Public Bus etc. The said vehicles do not have capacity to carry the goods mentioned in the invoices. Further investigation was carried out with the transport vehicle owners/ agents who have denied the transportation of goods under the concern invoices. Some weighbridge owners were also summoned and they have also denied to have weighed the goods covered under the concerned invoices and also denied the concerned weighment slips issued by them. The investigations were also carried out with the raw material suppliers mentioned in the invoices and broker of the transport vehicle. The statement of Director of the appellant Company was recorded wherein he has not disputed that the goods under the relevant input invoices were received in the factory, however as regard vehicle number, he has not explained the discrepancy. On the basis of these facts and evidence gathered, it was alleged that the appellant had availed the credit fraudulently without receipt of inputs. Accordingly, the SCN was issued which was culminated in the adjudication order whereby the demand of Cenvat credit along with interest and penalty was confirmed and a penalty under Rule 26 of Central Excise Rules, 2002 was also imposed on the Director of the appellant Sh. Vidyutbhai Vinodchandra Kapadia. Both the appellants have filed the appeal before the Commissioner (Appeals) against the order in original which came to be rejected and the order in original was upheld, therefore, the present appeals.

2. Sh. Hardik Modh, Ld. Counsel appearing on behalf of the appellants submits that the entire case of the department was made out on the basis of RTO reports and statements of two transporters. The majority of evidences are in favour of the appellant which cannot be discarded only on the basis of the RTO reports and statement of two transporters. He submits that the statements of brokers are exculpatory wherein they denied that the goods were not transported from the premises of the suppliers. The suppliers arranged lorry / trucks for transportation of the material for which the appellant paid transportation charges. He submits that total 36 transporters are involved in the alleged disputed transactions. The Revenue recorded statements of only two transporters, namely, M/s Jai Ambe Transport Co. and M/s Gurukrupa Roadways. He submits that against the total 101 consignments, the transportation of only 25 consignees were made by the aforesaid two transporters. Therefore on the basis of these statements, demand cannot be confirmed. He submits that the transportation is not under dispute on the basis that in some instances the transportation charges was paid by the suppliers, details of other transporters in respect of payment made by the suppliers are evident from the records. He submits that the appellant procured approximately 41030 MT during the disputed period out of which the allegation of wrong availment of credit is only in respect of 521.99 MT which is less than 2% of the total procurement of the materials. For such a small portion, the discrepancy as regard vehicle number is obvious. He submits that the Revenue failed to establish beyond doubt that the goods received were only on paper and physically there was no receipt of goods by the appellant. The Revenue has not shown anything on record to establish that the goods were not physically received as well as completely ignored the documents and exculpatory statements of the supplier showing that the goods were actually transported. In this regard, he placed reliance on the following judgments:

• Classic Strips Ltd. Vs CCE 2016 (339) ELT 144 (Tri. Mum)
• Motabhai Iron & Steel Industries Vs CCE Ahmedabad-II 2014 (302) ELT 69 (Tri. Ahd) which was affirmed by the Hon’ble Gujarat High Court reported at-
• Vs Motabhai Iron & Steel Industries 2015 (316) ELT 374 (Guj.)
• Sharma Chemicals vs CCE Calcutta-II 2001 (130) ELT 271 (Tri.-Cul)

He further submits that suppliers of the goods never stated that they have not supplied the goods. They stated that the transportation were arranged by the appellant. Suppliers did not dispute about the receipt of payment. He further submits that it is not the case of the department that the appellant with connivance of the suppliers diverted the goods and availed the cenvat credit based only on invoices. The case of the Revenue is that suppliers only supplied the goods which stand negated on the basis of suppliers statement. He submits that the appelant procured total 2451 consignment during the disputed period out of which only with reference to the vehicle number in respect of 101 consignments was noticed. In such a huge transaction in some of the cases the mistake in mentioning the vehicle numbers in the invoices is possible, therefore, merely on this mistake it cannot be concluded that the goods were not received by the appellant. In support he placed reliance on the following judgments.

• CCE Ludhiana vs Parmatma Singh Jatinder Singh Alloys Pvt. Ltd. 2011 (266) ELT 67 (Tri. Del).
• Vs Shakti Roll Cold Strips Pvt. Ltd. 2009 (242) ELT A83 (SC)
• Adhunik Ferro Alloys Ltd. Vs CCE Chandigarh 2009 (233) ELT 131 (Tri. Del)
• Jyoti Industries vs CCE & ST 2016 (343) ELT 690 (Tri.Del)

He further submits that all the consignment of inputs under dispute were received by the appellant are recorded in the statutory records. The payment of those consignments were made through proper channel by cheque. The said inputs were used in the manufacture of final product which has been shown in the records of the appellant and those final product were cleared on payment of duty. In these facts it cannot be said that the goods were manufactured without receipt of inputs in question. There is no evidence brought on record by the Revenue that in lieu of the inputs contained in the invoices some other material were received. At the same time there is no evidence that materials cleared on payment of duty on the basis of input invoices were not supplied to the appellant but diverted somewhere else. He submits that when the finished goods were cleared on payment of duty and payment transaction is done through banking channel no doubt can be raised that the inputs were not received by the appellant. In support, he placed reliance on the judgment of:

• Veer Enterprises vs CCE 2015 (319) ELT 305
• Anj Metal recycling Pvt. Ltd. Vs CCE 2016 (337) ELT 453 (Tri. Chan.)

3. Sh. J. Nagori, Ld. AR appearing on behalf of the appellant submits that there is no dispute that the transport vehicles shown to have been used in the invoices for transportation of inputs by the supplier to the appellant were reported by the RTO that those vehicles are not capable of transporting the inputs. Therefore, this evidence itself is sufficient to establish that the inputs were not transported and received by the appellant. He further submits that two transporters have admitted that the goods were not transported to the appellant. In support, he relied upon the following judgments:

• Harsaran Dass Sita Ram vs CCE 2015 (322) ELT 686 (P&H)
• Gyscoal Alloys Ltd. Vs CCE 2014 (35) STR 199 (Guj.)
• Agarwal Metals & Alloys vs CCE Surat – II 2013-TIOL-854-CESTAT-AHM
• Viraj Alloys Ltd. Vs CCE Thane-II 2004 (177) ELT 892 (Tri-Mum)
• Genius Electricals & Electronics Pvt. Ltd. Vs CCE 2018-TIOL-463-CESTAT-DEL
• A & S Textiles Ltd. Vs CCE Coimbatore 2018-TIOL-1308-CESTAT-MAD

4. Ld. Counsel in his rejoinder filed by the written submission subsequent to the hearing of the case filed on 21.06.2018 wherein he submits that the judgment of Hon’ble Gujarat High Court in case of Gyscoal Alloys Ltd. (supra) relied upon by the Revenue is not squarely applicable in the facts of the present case. As per the facts of the said case, apart from RTO report there were other ample evidences whereas in the present case there is only RTO report that too small quantity of consignments as against the huge number of consignments. In the present case, majority of statements including the statement of the director are exculpatory wherein it was stated that the goods were received therefore, the judgment in the case of Gyscoal Alloys Ltd. (supra) is not applicable in the facts of the present case. He submits that similarly in the cases relied upon by the Revenue in the case of Harsaran Dass Sita Ram, A & S Textiles Ltd., Genius Electrical & Electronics Pvt. Ltd. (Supra), the facts of those cases are different from the facts of the present case, therefore, the same are not applicable. He made further submission as under:

a) The appellant received goods in valid duty paid documents and made payment through account payee cheques. Quantities of inputs were properly recorded in RG-23A Part-I Register. The finished goods were cleared on payment of Central Excise duty;

b) Transportation charges were paid by account payee cheques and all the transportation charges were accounted in the books of account;

c) Clearance of the goods with payment of duty from suppliers’ premises was never disputed. The ledger account of the transporters show payment of transportation and payment of TDS which established transportation of goods;

d) All the suppliers affirmed sale of goods and having received the payment for sale of goods;

e) Scrutiny of records did not dispute about use of inputs in manufacture of final products. The department had not questioned the correctness of the quantity manufactured by the appellant and mentioned in daily Stock Account;

f) No any allegation was made against the appellant that they procured the quantity of raw materials mentioned in Central Excise Invoices from other sources;

g) Vehicle numbers mentioned in invoices did not get tally with original registration numbers in 101 cases out of 2451 does not mean that the appellant never received the goods;

h) There is no allegation of financial flow back;

i) Service tax payment in respect of transportation of goods was made which establish transportation of goods.

He submits that even though jurisdictional Gujarat High Court after passing the order in the case of Gyscoal Alloys Ltd. (supra), dealing with similar issue in the case of Motabhai Iron & Steel Industries (supra) even though there was an RTO report but considering the other facts, the credit was allowed and upheld the order of the Tribunal.

5. I have carefully considered the submissions made by both the sides and perused the records. I find that in the entire investigation the evidences which were brought on records are RTO reports according to which the vehicle number shown in invoices are not capable of transporting the heavy goods like inputs and the two transporters’ admission that the goods were not supplied to the appellant. I find that contrary to this evidences the fact that the appellant have recorded the receipt of the goods in their cenvat account i.e. RG-23A, the purchase of the goods under the invoices in question were booked in books of accounts. The payment against the said invoices were made through cheque, even the payment of transportation was also made by cheque.

The Revenue could not bring any evidence that the goods covered under the invoices were diverted to any other place. It is also not the case of the department that the appellant have procured some unaccounted inputs to cover up the quantity of input shown in the invoices. The statement of managing director of the appellant company is exculpatory. He, in his statement, clearly stated that the inputs covered in the invoices was received by the appellant and used in the manufacture of final product. As regard, the judgments cited by the rivals, I find that each case of this nature cannot be equated with others for the reason that each case has a different facts and evidences, therefore, in the nature of cases like clandestine removal or fraudulent availment of credit, the facts and evidences have to be independently considered in each case. The Revenue has heavily relied upon Hon’ble Gujarat High Court judgment in the case of Gyscoal Alloys Ltd. (supra) wherein the Hon’ble High Court on the basis of RTO report held that the inputs were not received by the assessee. It is observed that in the said judgment, the various other facts were involved such as, it has been proved that the assessee had made the false entries of receipt of the goods; there were considerable evidences which show that the goods were not received by the assessee; there was also shortage found at the time of search; the statements of the director was inculpatory and the director had admitted about non-receipt of the goods in his statement. However, in the present case no such inculpatory statement is available, there was no shortage found in the stock if had the appellant availed the credit without receipt of inputs, there must be shortage of inputs which is not the case here, therefore, the facts of the case in Gyscoal Alloys Ltd. (supra) were different from the facts of the present case. The Hon’ble Gujarat High Court dealing with the similar issue in the case of Motabhai Iron Steel Industries (supra) agreed with the Tribunal despite the fact available in that case that as per RTO reports the vehicle were not capable of carrying the goods but on the basis of other facts, such as the goods were found duly recorded in the appellants factory and consumed in the production, the payment were made through banking channels, no evidence of non supply of the goods by the consignor etc. considering these facts, the Hon’ble Gujarat High Court itself upheld the order of the Tribunal. It is also observed that these facts are not under dispute that the appellant have recorded the receipt of the goods in RG-23 part –I register and payment of the same was made through cheque. The finished goods were cleared on payment of Central Excise duty. Transportation charges were also paid by account payee cheque and such payment was accounted for in the books of accounts. The clearances of all the goods from the suppliers premises was never disputed. The payment of transportation was made after deduction of TDS. All the suppliers affirmed the sale of goods and receipt of payments for such sale. There is no evidence that the inputs shown in the invoices received by the appellant were not used in the manufacture of final product. Department has not disputed the correctness of quantity manufactured by the appellant recorded in their daily stock account. There is no allegation by the department regarding the financial flow back that against the invoices for which the payments were made through cheque, any cash payment was received by the appellant. The service tax payment in respect of transportation of goods also establish the transportation of goods. With all these undisputed facts, merely on the basis of the RTO reports, it cannot be concluded that the inputs were not received by the appellant. Therefore the facts are established that the appellant have received the inputs in their factory used in the manufacture of final product and same was cleared on payment of duty. Therefore, there are no substantial evidence which result the disallowance of credit. Accordingly, I set aside the impugned order and allow the appeals.

(Pronounced in the open court on 16.07.2018)