CESTAT Chandigarh Deletes CENVAT Credit Demand Based on V.K. Metal Works Investigation

Ecko Cables (P) Ltd. Vs Commissioner of Central Excise And Service Tax (CESTAT Chandigarh)

CESTAT Chandigarh allowed the appeal filed by M/s Ecko Cables against denial of CENVAT credit of Rs.16,63,743/-. The proceedings arose from a DGCEI investigation into M/s V.K Metal Works, Jammu, which alleged that the unit had no manufacturing facilities, had shown bogus receipt of raw material and manufacture, and had fraudulently passed on CENVAT credit to various customers. Ecko Cables, engaged in manufacturing electric wires and cables, was one of the customers against whom credit was sought to be denied.

A show-cause notice dated 09.06.2011 was issued seeking denial of the credit, which was confirmed by the Order-in-Original dated 20.02.2015 and affirmed by the Appellate Authority through the impugned order dated 26.07.2022.

Before the Tribunal, the Department objected to deciding the appeal on the ground that the CESTAT decision concerning M/s V.K Metal Works was under challenge before the Hon’ble High Court of Jammu Kashmir & Ladakh. The appellant submitted that there was no stay granted by the High Court and that the Tribunal had already decided cases involving similarly placed customers of M/s V.K Metal Works.

The Tribunal rejected the Department’s request to keep the proceedings pending, noting that no stay had been granted and that different Benches had already decided cases involving other customers of M/s V.K Metal Works. On merits, the Tribunal relied upon the Principal Bench’s findings that sufficient documentary evidence existed regarding transportation of copper scrap to M/s V.K Metal Works and that the Department’s own show-cause notice concerning “copper keeth” indirectly accepted manufacturing activity.

The Tribunal also noted that the facts of Ecko Cables were identical to those in the case of M/s Rachna Metal Industries Pvt. Ltd., which arose from the same investigation. Since the proceedings against the present appellant emanated from the same investigation and there was no reason to take a different view, the impugned order was held unsustainable. The appeal was accordingly allowed with consequential relief, if any, as per law.

Background of the Case

The Directorate General of Central Excise Intelligence (DGCEI) investigated M/s V.K Metal Works, Jammu. According to the investigation, the unit did not have manufacturing facilities and had shown bogus receipts of raw material and manufacture, besides fraudulently passing on CENVAT credit to various parties.

It was alleged that customers of M/s V.K Metal Works had availed CENVAT credit without actually receiving the material covered by invoices issued by M/s V.K Metal Works. M/s Ecko Cables was one such customer.

The appellants were engaged in the manufacture of electric wires and cables. A show-cause notice dated 09.06.2011 was issued seeking to deny CENVAT credit of Rs.16,63,743/-. The demand was confirmed through the Order-in-Original dated 20.02.2015 and subsequently affirmed by the Appellate Authority by order dated 26.07.2022.

Department’s Objection Regarding Pendency Before High Court

Revenue submitted that the CESTAT order concerning M/s V.K Metal Works, Jammu, was under challenge before the Hon’ble High Court of Jammu Kashmir & Ladakh. On that basis, the Department contended that the present proceedings should await disposal of the proceedings before the High Court.

The appellant, on the other hand, submitted that the Tribunal had already decided the case of M/s V.K Metal Works in favour of the appellant therein, holding that there was no sufficient evidence to allege clandestine or fraudulent operations by M/s V.K Metal Works. It was further submitted that although the Department had challenged that order, no stay had been granted by the High Court.

Tribunal Rejects Request to Keep Proceedings Pending

The Tribunal found that there was no stay granted by the Hon’ble High Court of Jammu Kashmir & Ladakh. It also noted that the Tribunal had decided cases concerning similar customers of M/s V.K Metal Works even after the issue had been challenged before the High Court.

The Tribunal observed that the CESTAT order dated 23.05.2018 had been challenged on 04.12.2018, whereas the impugned order in the present matter was passed on 26.07.2022 during the pendency of the appeal. The Tribunal further noted that the Department had not objected to the matter being decided at the Appellate Authority level.

In these circumstances, the Tribunal held that the Department had not made out a case for keeping the proceedings pending.

Findings on Merits

The Principal Bench of the Tribunal, in the case concerning M/s V.K Metal Works, had found that copper scrap had been duly transported to the factory of M/s V.K Metal Works at Jammu and that sufficient documentary evidence was available on record.

The Tribunal also noted that the Department had issued a show-cause notice to the appellants concerning the excisability of “copper keeth”. According to the Tribunal, this indirectly accepted that there was manufacturing activity, and the Department could not take the stand that there was no manufacturing activity.

The Principal Bench had also relied upon R.A Castings Pvt. Ltd. – 2001 (237) ELT 674 (Tri.), which was stated in the supplied material to have been upheld by the Hon’ble Allahabad High Court and the Hon’ble Supreme Court, and had decided the case in favour of M/s V.K Metal Works.

Reliance on Decision in Rachna Metal Industries

The Tribunal considered the decision in M/s Rachna Metal Industries Pvt. Ltd., involving a similarly placed customer of M/s V.K Metal Works. The Tribunal reproduced the finding that, apart from computer printouts, there was no other evidence produced by Revenue.

“Apart from the computer print outs we find that there is no other evidence produced by the Revenue on record.”

The Tribunal also reproduced the finding that allegations of clandestine removal were serious allegations requiring positive and affirmative evidence. The decision referred to the need to establish receipt of raw material, its utilisation, actual manufacture of finished goods, transportation evidence and identity of buyers.

In that case, the demand of Rs.19,88,803/- along with interest and imposition of penalty had been set aside.

Present Case Held Identical to Other V.K Metal Works Customers

The Tribunal found that the facts of the present case were identical to those in the proceedings concerning M/s Rachna Metal Industries Pvt. Ltd. and that the proceedings against Ecko Cables emanated from the same investigation against M/s V.K Metal Works.

The Tribunal held that there was no reason to take a different view in the present case. Accordingly, it found that the impugned order was not sustainable.

Final Decision

CESTAT Chandigarh allowed the appeal filed by M/s Ecko Cables and granted consequential relief, if any, as per law.

Order pronounced on: 25/01/2024

Cases Discussed

• KEI Industries Ltd. – 2022 (4) TMI 1104- CESTAT New Delhi.
• Jai Balaji Industries Ltd. – 2022 (3) TMI 99- CESTAT Kolkata.
• Rachna Metal Industries Pvt. Ltd. – 2018 (11) EMI 973-CESTAT Allahabad.
• Vinod Kumar Jain – 2018 (5) TMI 1515- CESTAT New Delhi.
• Omega Rolling Mills Pvt. Ltd. – 2018 (7) TMI 2261- CESTAT Mumbai.
• Bhupinder Steel Pvt. Ltd. – 2018 (4) TMI 1788- CESTAT Chandigarh.
• R.P. Multi Metals Pvt. Ltd. and Shiva Castings Pvt. Ltd. – 2018 (4) TMI 1086 (Tri. Chan.).
• Dutt MultimetalsPvt. Ltd. – 2017 (346) ELT 115 (Tri. Chan.).
• Adhunik Alloys Ltd. – 2016 (344) ELT 426 (Tri. Chan.).
• Jolly Board Ltd. – 2015 (323) ELT 80 (Bom.).
• Titanor Components Ltd. – 2009 (238) ELT 596 (Bom.).
• Shri Nirmal Kumar Aggarwal – 2009 (2) TMI 841- Punjab & Haryana High Court.
• DCM Engineering Works – 2009 (2) TMI 842 – Punjab & Haryana High Court.
• West Coast Paper Mills Ltd. – 2004 (164) ELT 375 (SC).
• R.A Castings Pvt. Ltd. – 2001 (237) ELT 674 (Tri.) [upheld by Hon’ble Allahabad High Court 2011 (269) ELT 337 A11 and by Hon’ble Supreme Court -2011 (261) ELT A108].
• C. Pinto – 2018 (9) GSTL 95 (Tri. LB).
• M/s V.K Metal Works, Jammu – Final Order No.51982 – 51997/2018 dated 23.05.2018.

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

Directorate General of Central Excise Intelligence (DGCEI) investigated a case against M/s V.K Metal Works, Jammu and observed that the unit did not have any manufacturing facilities; have shown bogus receipts of raw material and manufacture and have fraudulently passed on CENVAT credit to various parties. It was alleged that the different customers of M/s V.K Metal Works, Jammu have availed CENVAT credit without actually receiving the material as shown in the invoices issued by M/s V.K Metal Works, Jammu. The appellants, M/s Ecko Cables, are engaged in the manufacture of electric wires and cables, is one such customer. A show-cause notice dated 09.06.2011 seeking to deny credit of Rs.16,63,743/- was issued to the appellants and was confirmed by OIO dated 20.02.2015 and was affirmed by the Appellate Authority vide impugned order dated 26.07.2022. Hence, this appeal.

2. At the outset, Revenue has raised an objection stating that the CESTAT order, on the case investigated against M/s V.K Metal Works, Jammu, is under challenge before Hon’ble High Court of Jammu & Kashmir and therefore, these proceedings need to wait the disposal of the said petition by the Hon’ble High Court. Learned Counsel for the appellants, on the other hand, submits that CESTAT has decide d the case of M/s V.K Metal Works, Jammu in favour of the appellant therein holding that there was no sufficient evidence to allege clandestine/ fraudulent operations by M/s V.K Metal Works, Jammu; though Department has challenged the order, no stay has be en granted by the Hon’ble High Court and therefore, there is no reason to keep the proceedings pending; moreover, CESTAT has decided the cases of co – noticees (similarly placed customers of M/s V.K Metals) notwithstanding the fact that the appeal is pending before the Hon’ble High Court of Jammu Kashmir & Ladakh.

3. Ms. Krati Singh, learned Counsel for the appellants, submits that the Principal Bench of the Tribunal vide Final Order No.51982 – 51997/2018 dated 23.05.2018 held that there is no evidence to establish that M/s V.K Metal Works have claimed bogus manufacturing activity and have passed on CENVAT credit in a fraudulent manner; CESTAT in the same case has set aside the order passed against a few customers of M/s V.K Metals and held that as a manufacturing activity of M/s V.K Metals cannot be alleged to be bogus, the availment of CENVAT credit by their customer cannot be held to be fraudulent. She further submits that Tribunal has decided the cases of other customer like Rachna Metal Industries Pvt. Ltd., Omega Rolling Mills Pvt. Ltd. and M/s KEI Industries Ltd. etc. on the basis of Principal Bench’s decision as cited above. She relies on the following cases:

• Vinod Kumar Jain – 2018 (5) TMI 1515- CESTAT New Delhi.
• Rachna Metal Industries Pvt. Ltd. – 2018 (11) EMI 973-CESTAT Allahabad.
• Omega Rolling Mills Pvt. Ltd. – 2018 (7) TMI 2261- CESTAT Mumbai.
• KEI Industries Ltd. – 2022 (4) TMI 1104- CESTAT New Delhi.
• Bhupinder Steel Pvt. Ltd. – 2018 (4) TMI 1788- CESTAT Chandigarh.
• Adhunik Alloys Ltd. – 2016 (344) ELT 426 (Tri. Chan.)
• Shri Nirmal Kumar Aggarwal – 2009 (2) TMI 841- Punjab & Haryana High Court.
• DCM Engineering Works – 2009 (2) TMI 842 – Punjab & Haryana High Court.
• Dutt MultimetalsPvt. Ltd. – 2017 (346) ELT 115 (Tri. Chan.).
• R.P. Multi Metals Pvt. Ltd. and Shiva Castings Pvt. Ltd. – 2018 (4) TMI 1086 (Tri. Chan.).
• Jai Balaji Industries Ltd. – 2022 (3) TMI 99- CESTAT Kolkata.

4. Ms. Shivani, learned Authorized Representative for the Department, reiterates the findings of the OIO and OIA. She relies on the following cases to argue that the case should be kept pending:

• West Coast Paper Mills Ltd. – 2004 (164) ELT 375 (SC).
• C. Pinto – 2018 (9) GSTL 95 (Tri. LB).
• Jolly Board Ltd. – 2015 (323) ELT 80 (Bom.).
• Titanor Components Ltd. – 2009 (238) ELT 596 (Bom.)

5. Heard both sides and perused the records of the case. On the preliminary objections raised by the Department that as the decision of the Tribunal in the case of M/s V.K Metal Works is under challenge before Hon’ble High Court of Jammu Kashmir & Ladakh, the present proceedings should be kept in abeyance, I find that, as submitted by learned Counsel for the appellant, there is no stay granted by Hon’ble High Court of Jammu Kashmir & Ladakh; Tribunal has decided cases of similar customers of M/s V.K Metal Works even after the issue was under challenge as there was no stay granted. I find, interestingly, that though the order of CESTAT dated 23.05.2018 was challenged by the Hon’ble High Court on 04.12.2018; the impugned order was passed on 26.07.2022 i.e. during the pendency of the appeal. When the Department had no objection for decision at the Appellate Authority level, there is no reason as to why such objection is being taken before this Bench. Moreover, as submitted by learned Counsel for the appellants, different Benches of the Tribunal have decided the cases of other customers of M/s V.K Metal Works as there was no stay. Therefore, I am of the considered opinion that no case has been made by the Department to keep this case pending.

6. Coming to the merits of the case, I find that the Principal Bench of the Tribunal, vide Final Order cited above, has found inter alia that copper scrap has been duly transported to factory of M/s V.K Metal Works at Jammu for which sufficient documentary evidence is available on record; Department has issued a show -cause notice to the appellants on the excitability of “copper keeth” thereby indirectly accepting that there was manufacturing activity and that the Department cannot take the stand that there was no manuf acturing activity. I also find that the Principal Bench relied on the case of R.A Castings Pvt. Ltd. – 2001 (237) ELT 674 (Tri.) [upheld by Hon’ble Allahabad High Court 2011 (269) ELT 337 A11 and by Hon’ble Supreme Court -2011 (261) ELT A108] and decided the case in favour of M/s V.K Metal Works.

7. I find that Tribunal decided the case of M/s Rachna Metal Industries Pvt. Ltd. (supra) in favour of the appellants therein, similarly placed as the present appellant observing as follows:

“8. Apart from the computer print outs we find that there is no other evidence produced by the Revenue on record. It is well established law and does not require the support of any precedent decision to observe that the allegations of clandestine removal are serious allegations and are required to be confirmed on the basis of positive and affirmative evidences. Even in the above – referred case of M/s V.K. Metals and Others, the clandestine removal findings stands set aside by the Tribunal by observing that there has to be shown the receipt of raw material, utilization of the same, actual manufacture of the finished goods, the evidence of transportation and identity of the buyers etc. Inasmuch as nothing has been shown in the present case by the Revenue, we find no reasons to confirm the demand. Accordingly, the demand of Rs.19,88.803/- along with interest and imposition of penalty is set aside.”

8. I find that the facts of the present case are identical and the proceedings emanated from the same investigation against M/s V.K Metal Works. There is no reason as to why a different view can be taken in this case. Accordingly, I find that the impugned order is not sustainable.

9. In view of the above, the appeal is allowed with consequential relief, if any, as per law.

(Pronounced on 25/01/2024)