Case Law Details

Case Name : Commissioner Vs. Motabhai Iron & Steel Industries [(2015) 53 475 (Gujarat)]
Appeal Number :
Date of Judgement/Order :
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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.+

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email:

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0 responses to “Demand cannot be confirmed merely based on statement of witness”

  1. Deepak Soni says:

    This is a country of gross harassment by the bureaucrats and the politicians. There is no respect for the law and no fear of the court.Note by the bureaucrats though may be wrong are prepared in the name of the law. The goal of all the activities is money and harassment to the people.The country has no future and narendra Modi is wrongly holding the carrot of GTS. Whether GST or any other tax shall no improve the economy of the nation because there are thousands of parasites in the economy who are sucking the blood and making the nation and economy hollow.The nation does not require any more laws and it now requires honest and hard working bureaucrats and politicians which unfortunately is not in the luck of our nation.Rupee will fall to more than Rs 75 against dollar and economy shall never grow at the rate of more than 5%.The country shall have intelligent persons and the entrepreneur shall leave the country as early as possible.

  2. g.balakrishnan says:

    good judgement indeed, based on Art 14 perception. Dept cannot just by drop of a hat it cannot arbitrarily take on Assesse irrationally.

    Justice is only ideal approach. A law is essentially the ‘applied morality’, the lawyer in enforcing its principles without litigation does more to promote justice between man and man than any other profession. He rarely can secure absolute right , because absolute right is a complicated state of human society, is rarely attainable.
    Life is an eternal compromise, and the lawyer cannot rise superior to the conditions under which he works.

    Many a disappointed litigant has had a poor opinion of law, and therefore, of lawyers, either because he has not obtained full absolute justice, or because , he is a victim of those general rules of human society , such as the statutes of limitation, which , though they work hardship in individual cases, are most necessary and salutary as rules of general application (Lawyers: ‘Some people think that the Lawyer’s business is to make white black; but his real business is to make white white in spite of the stained and soiled condition which renders its true color questionable . He is an intellectual washing machine.’ – J Bleckley.)

    The public before condemning the legal profession shd always appreciate that the administration of justice is necessarily but an approximation toward that that ultimate and absolute justice which may come with the millennium but never before.

    There is between the justice of the courts and absolute a ‘twilight zone’ which the genius of man has not yet succeeded in spanning.

    More over, the average case is a tangled skein of disputed facts , in which the lawyer necessarily accepts client’s version.

    In the average litigated case, no one side is wholly right. Upon the court , and and upon lawyer , rests the ultimate responsibility of determiningb the law and and the facts, and even then it must be said of legal justice, as George Eliot sadly said, in the great climax to ‘Romola’:
    ‘Who can put his fingerv on anact and say: ‘This is Justice’? Justice is like the kingdom of God: It is not without us as a fact, but within us as a great yearning’ (‘What is Justice? Is it more than an Ideal? Can it truthfully be said that it s presence may consist of more application of abstract to the concrete?

    from this one can easily make out a heavy burden is on the bench only certainly not on lawyers!

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