Case Law Details
Sainath Industries Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
CESTAT Ahmedabad held that as DRI just prior to investigations by DGCEI took away all records pertaining to the import of scrap, the manufacturer cannot be expected to produce documents showing transport and receipt of the goods in the factory. Accordingly, demand of Cenvat alleging non-receipt of inputs set aside.
Facts- The Appellants, M/s. Sainath Industries during the period June 2004 to November 2006 availed Cenvat Credit of the Additional Duty of Customs (CVD), Education Cess thereon and Special Additional Duty of Customs (SAD) paid on the inputs viz. Aluminium/Copper/ Brass/ Zinc Scrap imported by them for use in relation to the manufacture of Ingots of Aluminium/Copper/Brass/ Zinc, which were cleared on payment of duty.
In November 2006, the DGCEI initiated investigations in respect of imports of Aluminium/Copper/ Brass/ Zinc Scrap made by the Appellant, M/s. Sainath Industries as well as other importers-manufacturers.
It was the case of DGCEI that in all the aforesaid cases of imports of the scrap by various manufacturers, who had all engaged M/s. Pankaj Shipping and Transport Company, part of the consignments of the said Scrap were off-loaded at Bhiwandi/ Navi Mumbai en-route to the factories of the said manufacturers and that the same were disposed of in the local market in cash and that instead of such imported duty paid scrap so disposed of, the said manufacturers procured local non-duty paid Bazaar Scrap. It was therefore the case of DGCEI that the said manufacturers were not entitled to Cenvat Credit of the duty paid on the imported scrap which was so disposed of.
In the course of investigations, the DGCEI recorded various statements. Based on the DLR reports and statements, a Show Cause Notice dated 1-7-2009was issued to the Appellants, M/s. Sainath Industries proposing to deny the Cenvat Credit. The Commissioner of Central Excise confirmed the demand for Cenvat Credit. Being aggrieved, the present appeal is filed.
Conclusion- In the case of Sunland Metal Recycling Industries and Ors v CCE, Vapi, this Tribunal has held that where DRI had just prior to investigations by DGCEI taken away all records pertaining to the import of scrap, the manufacturer cannot be expected to produce documents showing transport and receipt of the goods in the factory. Further, since none of the deponents of the Statements recorded by DGCEI have been examined in the adjudication proceedings, as required by Section 9D of the Central Excise Act 1944, the same cannot be considered as evidence.
Held that the revenue could not establish that the appellant have not received the input in their factory, hence the demand of Cenvat credit in the present case is not sustainable. Consequently the penalties are also not sustainable.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
1. The present appeals are preferred against impugned Order-In-Original dated 30-01-2012 passed by Commissioner of Central Excise, Vapi whereby he has denied CENVAT Credit of the duty paid on Aluminium/Copper/ Brass/ Zinc Scrap, which was imported by the Appellant – M/s. Sainath Industries for use in relation to the manufacture of Ingots of Aluminium/Copper/Brass/ Zinc. Penalties have been imposed upon the Appellant – Rajeshwar R. Dubey who was the Partner in the firm – M/s. Sainath Industries; the Appellant – Hitesh H. Kachhara was Partner in the said firm up to May 2005.
2. The facts relevant to the matter are that the Appellants, M/s. Sainath Industries during the period June 2004 to November 2006 availed Cenvat Credit of the Additional Duty of Customs (CVD), Education Cess thereon and Special Additional Duty of Customs (SAD) paid on the inputs viz. Aluminium/Copper/ Brass/ Zinc Scrap imported by them for use in relation to the manufacture of Ingots of Aluminium/Copper/Brass/ Zinc, which were cleared on payment of duty.
2.1 The said Inputs were imported at the Port of Nhava Sheva and the customs clearance and transportation thereof from Nhava Sheva to the factory of M/s. Sainath Industries at Silvassa was undertaken by M/s. Pankaj Shipping and Transport Company, of which the Appellant – Shri Rajeshwar R. Dubey is proprietor. The transportation was undertaken in Trailer Trucks owned by M/s. Pankaj Shipping and Transport Company as well as hired from M/s. Noel Enterprises and M/s. Om Sai Ram Containers Movers.
2.2 In November 2006, the DGCEI initiated investigations in respect of imports of Aluminium/Copper/ Brass/ Zinc Scrap made by the Appellant, M/s. Sainath Industries as well as other importers-manufacturers such as Sunland Alloys, Sunland Metal Recycling Industries and Garg Industries P. Limited, whose customs clearance and transport was attended by M/s. Pankaj Shipping and Transport Company.
2.3 It was the case of DGCEI that in all the aforesaid cases of imports of the said Scrap by various manufacturers, who had all engaged M/s. Pankaj Shipping and Transport Company, part of the consignments of the said Scrap were off-loaded at Bhiwandi/ Navi Mumbai en-route to the factories of the said manufacturers located in Silvassa and Daman and that the same were disposed of in the local market in cash and that instead of such imported duty paid scrap so disposed of, the said manufacturers procured local non-duty paid Bazaar Scrap. It was therefore the case of DGCEI that the said manufacturers were not entitled to Cenvat Credit of the duty paid on the imported scrap which was so disposed of.
2.4 The aforesaid allegations are based on Daily Loading Reports (DLR) prepared by the Drivers/ Supervisors of M/s. Pankaj Shipping and Transport Company at Nhava Sheva, which showed the destination of the goods to be Bhiwandi. Accordingly, the DGCEI sought to deny the Cenvat Credit in respect of all such containers for which the said DLR showed the destination as Bhiwandi.
2.5 In the course of the said investigations, the DGCEI recorded statements of Rajeshwar R. Dubey dated 11.9.2007 and 24.12.2008; Statement dated 28.02.2009 of Sanjay Chaturvedi, Accounts Manager of M/s. Sainath Industries and Statement dated 6-6-2008 of George Joseph, proprietor of M/s. Noel Enterprises, whose trailer-trucks were hired by Rajeshwar R. Dubey.
2.6 Based on the DLR reports and statements, a Show Cause Notice dated 1-7-2009was issued to the Appellants, M/s. Sainath Industries proposing to deny the Cenvat Credit of Rs.87,89,457/- in respect of 42 Containers (842.129 M. tons) of Scrap, by contending that since the destination mentioned in the DLRs was Bhiwandi, the said imported inputs were diverted to local markets and sold in cash and that the imported inputs so diverted were substituted with bazaar (local) non-duty paid scrap.
2.7 The Appellant contested the Show Cause Notice by their Reply dated 14-2-2011, by which it was inter alia submitted as follows:
a) That all inputs have been duly received in the factory and accounted for in RG 23-A Register and used in relation to the manufacture of final products which have been cleared on payment of duty,
b) That there is no evidence of diversion of the duty-paid imported inputs at Bhiwandi; the allegation of disposal of the duty-paid imported inputs for cash is totally unsubstantiated as not a single buyer of such alleged disposal has been identified and there is no evidence of receipt of payment in cash by the Appellants,
c) That there is absolutely no evidence of procurement of bazaar (local) non-duty paid scrap by the Appellants to substitute the duty-paid imported inputs. No such bazaar scrap was found in the factory at the time of search of the factory.
d) That no reliance can be placed on the inculpatory portion of statements of Rajeshwar R. Dubey as the same contradicted the other portion of his statements from which it is apparent that initial mention of Bhiwandi in DLR was not the final destination and transportation continued beyond Bhiwandi to the factory of the Appellants,
e) That statement of Rajeshwar R. Dubey that there might be diversion of inputs is totally vague and unreliable as no particulars of any diversion have been given and not a single buyer has been identified. He was forced to admit to diversion under threat to suspend and cancel his CHA license,
f) That it was necessary to examine Rajeshwar R. Dubey and no reliance can be placed on his statements in absence of his examination before the adjudicating authority.
g) That diversion of the duty-paid inputs cannot be said to be established merely based on the DLRs in absence of any corroborative evidence of diversion in the form of buyers, transportation to the buyers and receipt of payment from buyers.
h) That it is impossible to hold that there is diversion of 842 M. tons worth Rs.5 crores without even a single buyer being identified and without any evidence of receipt of payment by the Appellants of such a large amount.
2.8 After giving hearing in the matter, the Commissioner of Central Excise, Vapi passed the impugned Order-in-Original dated 30-1-2012 whereby he has confirmed the demand for Cenvat Credit of Rs.87,89,457/- and imposed equivalent penalty under Section 11AC of the Central Excise Act, 1944. He has further imposed penalty of Rs.10,00,000/- on Shri Rajeshwar R. Dubey and a penalty of Rs.5,00,000/- on Shri Hitesh H. Kachhara.
3. Shri J.C. Patel, learned counsel along with Shri Rahul Gajera, Advocate appearing on behalf of appellants, submits that in identical matters, which are all based on common investigations by DGCEI, this Tribunal has held the denial of the Cenvat Credit to be unsustainable in law; that no reliance can be placed on the Statements of Shri Rajeshwar R. Dubey to conclude that there was diversion of the imported duty paid inputs; that none of the deponents of the Statements recorded by DGCEI have been examined in the adjudication proceedings, as required by Section 9D of the Central Excise Act 1944, no reliance can be placed on the same and that the Show Cause Notice and the Order-in-Original have incorrectly proceeded on the basis that the Appellants could not produce documents to prove transportation up to the factory at Silvasaa.
4. Shri Rajesh K Agarwal, learned Superintendent (AR) appearing on behalf of Revenue reiterated the findings given in the Order-In-Original dated 30.01.2012.
5. We have carefully considered the submissions made by both the sides and perused the records. We find that in the identical matters, which are all based on common investigations by DGCEI, involving the same CHA and transporters and the same statements/ evidence/contentions, this Tribunal has in the following decisions held the denial of the Cenvat Credit to be unsustainable in law:
(a) Sunland Alloys and Ors vs. CCE, Vapi-2015 (10) TMI 1104- CESTAT AHD
(b) Sunland Metal Recycling Industries and Ors vs. CCE, Vapi-2016 (2) TMI 534-CESTAT AHD
(c) CCE vs. Garg Industries P. Ltd and ors-2023 (3) TMI 637-CESTAT AHD
(d) Rajeshwar R Dubey v CCE, Vap i- Order No. A / 11317 /2023 dated 22-6-2023
5.1 In the aforesaid decisions this Tribunal has held that since there is not even an iota of evidence of disposal of the goods at Bhiwandi/ Navi Mumbai, there being not even a single buyer of the goods who is identified and there being no evidence of receipt of any cash against such alleged disposal, the Cenvat Credit cannot be denied merely on the ground that the destination mentioned in the DLRs/ MLRs of the transporter – Pankaj Shipping and Transport Co was Bhiwandi/ Navi Mumbai. This Tribunal has further held that in the absence of any evidence of procurement of the scrap from alternate source/ bazaar scrap, it cannot be assumed that the imported duty paid scrap was substituted with local non-duty paid bazaar Scrap and the Cenvat Credit of the duty paid on the imported scrap cannot be denied. This Tribunal has further held that no reliance can be placed on the Statements of Rajeshwar R. Dubey to conclude that there was diversion of the imported inputs for the following reasons:
a) Rajeshwar R. Dubey has given contradictory statements. In the first statement dated 11/09/2007 Shri Rajeshwar Prasad R Dubey has inter alia stated that imported scrap is first taken to the godowns in Bhiwandi and unloading of the imported Cargo from the container is done for the further transportation. That at Bhiwandi godown the imported goods were not only unloaded from the container but also stacked in their godown till further transportation were made. In the subsequent statement dated 19/12/2008, after three months Shri Rajeshwar Prasad R Dubey gives a different version that the hired transporter never transported any imported goods after they were unloaded at Bhiwandi or New Bombay after their receipt from JNPT.
b) In view of such contradictory statements, examination of Rajeshwar R. Dubey as required by Section 9D of the Central Excise Act 1944 was necessary and that having not been done, no reliance can be placed on his statements,
c) In none of the Statements of any person, there is any indication as to where the goods were allegedly diverted and to which buyers the same were sold and delivered.
5.2 This Tribunal has held that statements recorded would not be sufficient to establish the charges alleged in the show cause notice. The statements should be supported by corroborative evidence. In the case on hand, if the department alleges that the raw materials were diverted without reaching the factory, then there should surely be evidence to show how the manufacturers have substituted the raw material since the statutory records show production and clearance of finished goods and clearance thereof on payment of duty. There is absolutely no evidence to show the substitution of raw material, which would cut the root of the allegation as the statutory records show that goods were manufactured. No shortage of raw material was detected during search of factory. No single buyer of diverted raw material was found by the revenue.
5.3 In the instant case, it can be observed that at the time of search of the factory on 1-12-2006 no bazaar scrap was found in the factory, there is absolutely no evidence of procurement of local non-duty paid bazaar scrap for substitution of the imported duty paid scrap. In fact, Rajeshwar R. Dubey has in his Statement dated 29-11-2007 stated that the Appellants were not purchasing any Scrap from the local market. There is not a single buyer identified to whom the imported duty paid scrap was allegedly sold and there is no evidence whatever of any cash received by the Appellant for such alleged sale. In that view, it is impossible to hold that there is diversion of 842 M.Tons worth Rs. 5 crores without even a single buyer being identified and without any evidence of receipt of cash payment by the Appellant of such a large amount; all the imported duty paid inputs have been duly accounted for in RG 23 A Register and the final products have been manufactured and cleared on payment of duty. In his Statement dated 28.02.2009 Appellant – Sainath Industries’ Accounts Manager, Shri Sanjay Chaturvedi has stated that he made entries in RG 23A Register based on instructions of factory gate security staff and sorting supervisor; no investigation has been made with the factory gate security staff and sorting supervisor nor is it the case in the Show Cause Notice that the imported inputs were not entered in the inward gate register; Significantly, payments for transportation of freight was made by cheque up to factory of the Appellant – Sainath Industries at Silvassa. In his Statement dated 6-6-2008, Shri George Joseph, proprietor of Noel Enterprises, whose trailer-trucks were hired by Pankaj Shipping and Transport Company, has confirmed that the goods imported in containers were transported to Bhiwandi and from there to the manufacturer’s factory at Silvassa and that they charged Rs.11,000/- for 20 feet Container for transport to Daman/ Silvasa and Rs.15,000/- for 40 Feet Container for transport to Daman/ Silvasa.
5.4 No reliance can be placed on the Statements of Shri Rajeshwar R. Dubey to conclude that there was diversion of the imported duty paid inputs for the following reasons:
a) The inculpatory portion of statements of Rajeshwar R. Dubey clearly contradict the other portion of his statements from which it is apparent that initial mention of Bhiwandi in DLR was not the final destination and transportation continued beyond Bhiwandi to the factory of the Appellants,
b) The very same statements have already been considered by this Tribunal in the aforesaid decisions and this Tribunal has in the said decisions held that ShriRajeshwar R. Dubey has given contradictory statements. In the first statement dated 11/09/2007 Shri Rajeshwar Prasad R Dubey has inter alia, stated, that imported scrap is first taken to the godowns in Bhiwandi and unloading of the imported Cargo from the container is done for the further transportation. That at Bhiwandigodown the imported goods were not only unloaded from the container but also stacked in their godown till further transportations were made. In the subsequent statement dated 19/12/2008, after three months Shri Rajeshwar Prasad R Dubey gives a different version that the hired transporter never transported any imported goods after they were unloaded at Bhiwandi or New Bombay after their receipt from JNPT.
c) In view of such contradictory statements, examination of Shri Rajeshwar R. Dubey as required by Section 9D of the Central Excise Act 1944 was necessary and that having not been done, no reliance can be placed on his statements. The Appellants had in their reply dated 14-2-2011 requested for such examination of Rajeshwar R. Dubey, which has been turned down by the Commissioner.
d) Statement of Shri Rajeshwar R. Dubey that there might be diversion of 25 containers (department’s case of 42 containers) is totally vague and unreliable as no particulars of any diversion have been given and not a single buyer has been identified, shows he might have been forced to admit to diversion.
e) That it was necessary to examine Rajeshwar R. Dubey and no reliance can be placed on his statements in absence of his examination before the adjudicating authority.
f) Since freight up to Silvassa factory has been paid by cheque, statement dated 19-12-2012 of Shri Rajeshwar R. Dubey that goods were transported only up to Bhiwandi is ex-facie false.
g) It is an admitted position that freight up to Bhiwandi was only Rs.5,000/- (20 Ft container) and Rs. 7,500/- (40 Ft Container) whereas upto Silvasaa, it was double. The statement of Shri Rajeshwar R. Dubey that though payment of freight was made of Rs.10,000/- (20 Ft Container) and Rs.15,000/- (40Ft container), transportation was only up to Bhiwandi and that excess was for miscellaneous expenses is ex-facie false and incapable of belief as miscellaneous expenses for transport to Bhiwandi cannot be equal to freight up to Bhiwandi.
5.5 It is observed that the Show Cause Notice and the Order-in-Original have incorrectly proceeded on the basis that the Appellants – Sainath Industries could not produce documents to prove transportation up to the factory at Silvasaa. Firstly, the freight paid is undisputedly up to Silvasaa. Secondly, Appellants’ Accounts Manager, Shri Sanjay Chaturvedi has stated that he made entries in RG 23A Register based on instructions of factory gate security staff and sorting supervisor. No investigation has been made with the factory gate security staff and sorting supervisor nor is it the case in the Show Cause Notice that the imported inputs were not entered in the inward gate register. Thirdly, the Panchnama dated 0 1.12.2006 itself records that a team of officers of DRI, Surat had already on 13.10.2006 visited the Appellants’ factory and withdrawn all records pertaining to import of the scrap vide Panchanama dated 13.10.2006. In view of the same, the Appellants cannot be expected to produce documents showing transport of the imported scrap to the Appellants’ factory. On identical facts in the case of Sunland Metal Recycling Industries and Ors v CCE, Vapi-2016 (2) TMI 534-CESTAT AHD, this Tribunal has held that where DRI had just prior to investigations by DGCEI taken away all records pertaining to the import of scrap, the manufacturer cannot be expected to produce documents showing transport and receipt of the goods in the factory. Further, since none of the deponents of the Statements recorded by DGCEI have been examined in the adjudication proceedings, as required by Section 9D of the Central Excise Act 1944, the same cannot be considered as evidence.
5.6 In view of above observations, we are of the view that the revenue could not establish that the appellant have not received the input in their factory, hence the demand of Cenvat credit in the present case is not sustainable. Consequently the penalties are also not sustainable.
5.7 In view of foregoing discussion and finding, impugned order is not sustainable therefore, the same is set aside. Appeals are allowed with consequential relief.
(Pronounced in the open court on 26.09.2023)
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