Case Law Details
Panchmahal Steel Ltd Vs PCIT (ITAT Ahmedabad)
Conclusion: Once CESTAT had given a findings that the purchases in question were not bogus, then, additions proposed to be made on the basis of show-cause notice from Central Excise Directorate had no basis which the same could be sustained.
Held: AO discovered a show cause notice from the Central Excise Directorate indicating that assessee had claimed Cenvat credit of Rs. 4,37,07,420/-, which was disallowed. The officer identified that assessee had reported bogus purchases, prompting the reopening of the case with a notice under Section 148. An assessment order issued resulted in the addition of Rs. 27,53,17,729/-for bogus purchases, which comprised Rs. 25,04,72,276/- for the value of goods and Rs. 2,48,45,453/- for Cenvat credit claimed. Upon reviewing the records, PCIT observed that the assessment order was erroneous as it failed to account for the total claimed amount of Rs. 27,98,24,733/-, which included the previously mentioned amounts along with a VAT element of Rs. 45,07,004/-. Consequently, a notice under Section 263 was issued citing the erroneous nature of the assessment and requiring assessee to show-cause why the order should not be set aside for a fresh assessment. Assessee responded with a voluminous submission claiming that proposed additions made were unfounded. Assessee argued that the assessee had not claimed VAT as an expense in their Profit & Loss account (which arguments has now been dropped before us). However, Principal CIT observed that the assessee’s accounting practices implied that VAT was included in the purchase costs, albeit netted off in the accounts. It was held that the very basis on initiation of proceedings under Section 147 had been vacated since additions were made in the hands of the assessee on the basis of show-cause notice from Central Excise Directorate indicating that assessee had claimed Cenvat Credit of Rs. 4.37 crores on bogus purchases. However, once CESTAT has given a findings that the purchases in question were not bogus, then, additions proposed to be made under Section 147 of the Act and 263 of the Act had no basis which the same could be sustained. Thus, if the very foundation of a revision was set aside by a higher authority, any connected proceedings, such as under Section 263 lose their validity.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
Both appeals have been filed by the assessee against the order under Section 263 passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Vadodara-1, vide orders dated 24.03.2021 for Assessment Years 2010-11 & 2011-12. Two assessment years are involved in the instant case but since the facts and issues for consideration are common, both appeals filed by the assessee are being disposed of together by way of a common order, for both the assessment years under consideration.
2. The Assessee has taken the following grounds of appeal:-ITA No.127/Ahd/2021 (A.Y. 2010-11)
“1.00 Order passed u/s 263 of the Act is Bad in Law:
1.01 The order passed by the Learned Pr. CIT u/s 263 is bad in law and liable to be quashed. It is submitted that it to be held so now.
1.02 On the facts and circumstances of your appellant’s case as well as in law, the ld. Pr. CIT has wrongly assumed jurisdiction u/s 263 of the Act in respect of Value Added Tax (VAT) of Rs. 45,07,004/- involved in purchases of SS Scrap which your appellant had never claimed as expense. Ld. Pr. CIT also erred in not appreciating the fact that the ld. AO has dropped the proceedings u/s 154 of the Act after verifying the details and information and explanations submitted by your appellant.
1.03 On the facts and circumstances of your appellant’s case as well as in law, the ld. Pr. CIT has wrongly set-aside the order passed by ld. AO in totality and directed to make fresh assessment though the order passed u/s 143(3) r.w.s. 147 of the Act by the ld. AO is found erroneous in respect of one aspect only.
2.00 Your appellant craves leave to add, alter and / or amend the grounds herein above raised.”
3. The brief facts of the case are that in the case of M/s. Panchmahal Steel Ltd., the assessee filed its return of income for the assessment year 2010-11, declaring a loss of Rs. 9,68,63,129/- on September 16, 2010. The return was selected for scrutiny, leading to an assessment order under Section 143(3) of the Income Tax Act on January 30, 2013, which determined a revised loss of Rs. 5,35,90,266/-. This figure was later amended to Rs. 9,66,38,129/- following a Commissioner of Income Tax (Appeals) order on May 22, 2014. In a subsequent investigation on September 16, 2016, the Assessing Officer discovered a show cause notice dated August 28, 2014, from the Central Excise Directorate indicating that the assessee had claimed Cenvat credit of Rs. 4,37,07,420/-, which was disallowed. The officer identified that the assessee had reported bogus purchases, prompting the reopening of the case with a notice under Section 148 on March 30, 2017. An assessment order issued on December 28, 2017, resulted in the addition of Rs. 27,53,17,729/-for bogus purchases, which comprised Rs. 25,04,72,276/- for the value of goods and Rs. 2,48,45,453/- for Cenvat credit claimed. Upon reviewing the records, PCIT observed that the assessment order was erroneous as it failed to account for the total claimed amount of Rs. 27,98,24,733/-, which included the previously mentioned amounts along with a VAT element of Rs. 45,07,004/-. Consequently, a notice under Section 263 was issued on February 16, 2021, citing the erroneous nature of the assessment and requiring the assessee to show-cause why the order should not be set aside for a fresh assessment. The assessee responded with a voluminous submission claiming that the proposed additions made were unfounded. The assessee argued that the assessee had not claimed VAT as an expense in their Profit & Loss account (which arguments has now been dropped before us). However, Principal CIT observed that the assessee’s accounting practices implied that VAT was included in the purchase costs, albeit netted off in the accounts. This was underscored by a Supreme Court ruling affirming that the nature of receipts matters more than how they are recorded. Moreover, the assessee claimed that the Assessing Officer had verified the case and adopted a singular view, which conflicted with the proposed notice under Section 263 of the Act. Principal CIT disagreed with the assessee, and held that the Assessing Officer neglected to inquire about the VAT element in the claimed purchases. Drawing parallels to the Malabar Industrial Co. Ltd. case, Principal CIT held that failure to investigate relevant aspects of the financials rendered the assessment order erroneous and prejudicial to the revenue’s interests. Ultimately, Principal CIT held that due to the lack of comprehensive inquiry and the erroneous nature of the original assessment, the order under Section 143(3) of the Act was liable to be set aside. The Assessing Officer was instructed to conduct a fresh assessment, ensuring all relevant elements were duly considered and that the assessee was provided a reasonable opportunity to present their case.
4. In appeal before us, the assessee submitted that the entire controversy and basis of proceedings initiated under Section 263 of the Act, against the assessee centered around a show cause notice dated August 28, 2014, from the Central Excise Directorate indicating that the assessee had claimed Cenvat credit of Rs. 4,37,07,420/-, which was disallowed. The Counsel for the assessee submitted that now the entire controversy relating to proceedings initiated by the Central Excise Directorate in the assessee’s own case has been decided in favour of the assessee by CESTAT, Ahmedabad in Excise Appeal No. 10523 of 2016 –DB vide order dated 08.12.2023, wherein it has been held that the purchases made by the assessee are genuine and therefore, nothing survives against the assessee to hold that assessee had incorrectly claimed VAT of Rs. 45,07,004/- as expenses. Further, the Counsel for the assessee also placed reliance on the case of CIT vs. A. Yonus Kunju 228 ITR 147 (Ker) on the proposition that even though the final order was passed by CESTAT subsequent to order of PCIT under Section 263 of the Act, even then 263 proceedings were liable to be set-aside since the very basis for initiating the 263 proceedings had been vacated / decided in favour of the assessee.
5. In response, the Ld. D.R. placed reliance on the observations made by Ld. PCIT in the 263 order.
6. We have heard the rival contentions and perused the material on record.
7. At the outset, it would be useful to reproduce the relevant extracts of the ruling passed by CESTAT vide order dated 08.12.2023 in which the issue has been decided in favour of the assessee:
“6.5 Also, when it comes to the issue of availing Cenvat Credit on MS scrap, the allegation is that the domestic scrap was received by the Appellant Company on which no Central Excise duty would have been paid, whereas the credit was availed on basis of invoices raised by the dealers. There revenue department has doubted the factum of dealers themselves receiving duty paid MS scrap.
6.6 The stray instance where the domestic scrap of 10585 Kg was found in the premises of the Appellant, it is generalized in the present proceedings that the Appellant invariably receives only domestic (non-duty paid) MS scrap from the dealers. Demand of Cenvat Credit on almost 9000 MT of MS scrap is confirmed on this presumptive basis, assuming that on no occasion such scrap was received by the Appellant. Interestingly, it is already on record that the Appellant Company had not even availed any Cenvat Credit on such domestic MS scrap as per OIO No.03/Jankilal/AC/DIII/Vad-I/17-18 dt.31.5.17, meaning thereby that if one has to generalize in the manner done by revenue department, the Appellant as such never avails any credit on domestic scrap, just like the one instance on record.
6.7 In any case, the cross examination of various witnesses was granted to the Appellant, wherein it transpires that most witnesses have either stated that they do not remember the details of the transaction or that the statements did not correctly bring out the factual matrix involved, leading to the evidentiary value of the oral evidences to be diminished. In certain occasions, the contradicting stand taken by some witnesses in first retracting their statements and then during the course of later proceedings stating that they mistakenly retracted it, leading to strong suspicion on the genuineness of the manner in which the statements were recording and entire investigation was done.
6.8 Just as the above case of SS scrap, even in case of MS scrap, there is no allegation or proof of flow back of amounts by anyone to the Appellant as well. There is no evidence of procurement of domestic scrap in cash from open market as well. There is no evidence of sale of duty paid scrap by Dealers in question, to any third party in cash as well. The factum of duty paid goods being cleared by manufacturers and receipt of proper invoice by the Appellant are not in dispute as well.
6.9 The 9078 MT of MS scrap was procured by the dealers and as involved in the present case, if domestic scrap was procured locally to substitute this, not a single supplier for domestic scrap (which presumably was sent to the Appellant) is identified by revenue. Such huge quantity of MS scrap if was sold to other buyers by the Dealers, again it is not shown to whom it was sold as well. There is no proof of receipt or payment for domestic scrap by any person to any other person as well.
6.10 At this stage, we also find merit in the submission made by the Appellant that the issue on hand (for both MS and SS scrap appeals) is squarely covered vide the following decisions, wherein under similar circumstances, identical demands were set aside by the Tribunal vide concurrent orders:
6.11 It was held in the case of Sri Rangathar Industries P. Ltd. 2018 (3) TMI 179 – CESTAT CHENNAI that:
“7. The assessees have been at pains to contend that the raw material received by them was very much in the nature of scrap. Though it was mentioned as HR Coils, Sheets etc., in the Cenvat invoices, these are cuttings of HK Coils. Sheets etc., procured from the registered dealers. Such goods were loosely known as scrap in trade. The main allegation is that in the Cenvat invoices the description of goods (raw material) is HR Coils, HR Sheets, MS Rounds, MS Wire Coil etc., whereas in commercial invoices and other documents the goods (row materials) are described differently as MS scrap. The department thus alleges that assessee has not received any goods in nature of HR coils, MS rounds. Sheets etc., and therefore has availed credit fraudulently.
8. Cenvat credit scheme allows to avail credit on invoices of duty paid on inputs/raw materials supplied by the manufacturers and registered dealers. Only first stage and second stage dealers are permitted to transfer the credit of duty involved in the inputs as the Cenvat credit Rules 2002/2004. In the case before are M/s. Sree Vishnu Steels and M/s. Lakshmi Traders are second stage dealers whereas M/s. R.K. Steel and Alloys and M/s. Ubique Allays are first stage dealers. Apart from these, department has recorded statement of Shri, Periakanippan, who is also a first stage dealer. Shri A.Periakaruppan, Proprietor of M/s. Sri Raaghavendra Steels, one of the dealers, on 21.08.2007 deposed that they received HR sheet, Cff sheet, HR coil, HR, SR coils from JSW Steel Ltd. and Salem Steel Plant Ltd., and Bold to second stage dealers and few companies. He has unequivocally stated that he used to cut the above goods and sell as per customers requirements. That he had said goods to second stage dealers such as M/s. Sree Vishnu Steels and M/s. Lakshmi Traders, Department has heavily relied upon the statement of Shri K. Veluswamy of M/s. Sree Vishnu Steels and Shri V. Aananthan of M/s. Lakshmi Traders contending that these two have stated that Shri Periakaruppan had sent only invoices without goods. However, Shri A. Periakaruppan, denied the statement of thesetwo persons and categorically reiterated that he had sent the goods (HR coils and HR sheets) only along with cenvat invoices after having cut them to size as per the requirement of the customers. We find however that while the lower appellate authority in para 4.4 of the impugned order has taken note of the statement of Shri A. Periakaruppan, however, the assertions given by that person has been brushed aside on the ground that it was just an argument after a long time gap to counter the version made earlier. It is also relevant to note that the said Shri K. Velusamy had, through his statement dt. 18.11.2006 read with his cross examination on 07.08.2008, retracted his admissions made earlier. Shri K. Velusamy had stated that officers had visited premises four times earlier and that it was suggested by them that he had to admit that he received only cenvat invoices. So also we find that V. Ananthan in his initial statement dt. 21.11.2006 had given a statement inter alia that he gets only Central Excise invoices and commercial invoices through agents of first stage dealers and manufacturers and no goods are being received by him. However, at the time of cross examination on 07.08.2008, V. Ananthan stated that he has given such statement because he was threatened by officers. Once the initial admittory statements have been retracted in cross examination, the department s reliance on those statements in support of their allegation will naturally get demolished.
9. Another contention of the appellant is that they received only goods of 55 cd//s, sheets etc. which in commercial parlance is known as scrap which is the reason why in the commercial invoices description is given as scrap . However, as to supplier s invoices only cut to size HR Coils/SS sheets/ plates etc., as purchased from manufacturers like M/s. JSWSteet or Salem Steel Plant were mentioned. The dealers/suppliers prepared the Central Excise invoices on the basis of goods received by them from the said steel plant s. Appellant has consistently asserted that this is the precise reason of calling the goods as scrap and that the test reports have also indicated the same. We find merit in these contentions. Interestingly, the previous case booked against the appellants which resulted in the earlier CESTAT Order No.946-947/05 dt. 06.07.05, alleging that the dealers had purchased HR steel, coil sheets / plates etc. from various manufactures and supplying cuttings to SRIPi. While there was no dispute over this factum, the department in that case found fault with thefoctum of the dealers, even after such cutting having issued invoices with the same description and classification as was described in the invoicesunder which they purchased from manufacturers.
10. Viewed in this light, there is no reason for us not to give credence to the statement ofShri A.Periakaruppan both in his initial statement and also in a subsequent one, who has asserted that he had supplied only such SS coils / plates etc. received from the manufacturers, after cutting them to size as was reauired by SR/PL. We are not able to understand how the department, in the present case, has differed with the stand that was taken in the earlier proceeding and further why statements of A.Periakaruppan have not been relied upon or made part of the SCN. At this juncture, it would be worthwhile to reproduce para-3 of CESTAT Final Order No.946-947/2005 dt. 06,07.2005 in the earlier proceedings as under:
“3. The immediate question before me is whether M/s.SR/L are entitled to avail Modvat credit on the cuttings of plates, sheets etc. Supplied by SCPL It is not in dispute that these are cuttings of p!ates,sheets etc. falling under heading 72.08. The Revenue has no case that the thickness of the plates, sheets etc. was reduced in the activity of cutting. Obviously, the cutting process resulted in reduction of area only. Though thickness is a parameter relevant to classification of these goods under Chapter 72 of the CETA Schedule, area is irrelevant. Sheets, plates etc. Classifiable under heading 7208 are so classifiable in reduced area also. Hence the cuttings supplied by SCPL to SRIL cannot be treated differently from the sheets, plates etc. From which they were cut. In selling the cuttings to M/s. SKIL, SCPL were only dealing in sheets, plates etc. hence the cuttings were correctly declared by SRIL. As the department has not case that SRIL took Modvat credit of duty in excess of what was paid on the cuttings by SCPL, there is no dispute in terms of the quantum of credit. In the circumstances, I hold that M/s. SRIL were taking Modvat credit on cuttings of plates, sheets, etc, Classifiable under heading 72.08 as declared by them under Rule 57F and were not taking credit on scrap /Heading 7204) as alleged by the department. They were eligible for the credit It would follow that no offence can be attributed to SCPL in connection with the regular availment of credit by SRIL”
11. We thus find that the main planks of the departments case against the assessee do not stand to scrutiny. There is also no other cogent or compelling evidence which can prop up department s allegation. Further, even the allegation made by the department that assessees have manufactured their final products by procuring locally manufactured scrap , is also not backed up by any corroborative evidence and can at best be termed as an assumption. If the department alleges that appellant has not received any goods as per the Cenvat invoices and has only received scrap which is locally procured then, the department has to establish from where and how appellants have procured such local scrap. There is no evidence of suppliers of local scrap, transporters, payment to such suppliers etc. The case of the department therefore does not sustain on merits.
12. We also find merit in the plea of limitation raised by the appellants. The SCN has been issued on 05.09.2007 against SRIPL Unit I (Impugned order for Appeal No. E/390/2009) for the period August 2002 to October 2006 invoking extended period under proviso to Section lift. (1) of the Central Excise Act on the ground that SRIPL, Unit-1 have deliberately taken ineligible cenvat credit on non-duty paid scrap by committing fraud with an intention to evade payment of duty and utilising the said credit during the said period. So also, in respect of Appeal E/219/2010, the period involved is September& October 2006 and the SCN dt. 09.10.2007 has been issued similarly invoking extended period on the same grounds. We find that major part of the periods sought to be covered in the SCN are beyond the normal period of limitation. Although extended period of limitation has been invoked we are not able to appreciate how there can be an intent to evade payment of duty considering that the major chunk of their final products of these appellants were exported. Appellants have stated that they have not benefited otherwise by taking any irregular credit as alleged by the department. The proviso to Section 11 A (1) would be attracted when there is suppression of facts with intent to evade payment of duty. The department has no case that appellants utilized the alleged wrongly availed credit to discharge duty liability. There is no evidence coming forth in this angle. The contention of the id. AR that the intention to evade payment of duty need not be proved lacks any legal basis.
13. It would be appropriate to draw inference from the Hon’ble Supreme Court in the case of Cosmic Dye Chemical Vs CCE Bombay -1995 (75) ELT 721 (SC) holding that it is not correct to say that there can be suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of proviso to Section 11A (l) of the Central Excise Act. The relevant paragraphs of above Supreme Court judgment are reproduced as under:
“4. In short, the Tribunal was of the opinion that so far as fraud, suppression or mis-statement of fact in the information statutorily required to be supplied to the excise authorities is concerned, question of intent is immaterial.
5. The main limb of Section 11A provides limitation? of six months. In cases, where the duty is not levied or paid or short-levied or short-paid or erroneously refunded, it can be recovered by the appropriate officer within six months from the relevant date.(Tbe expression ‘relevant date is defined in the Section itself). But the said period of six months gets extended to five years where such nan-levy, short levy, etc., is by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules with intent to evade payment of duty.,,…”
6. Now so far as fraud and collusion are concerned, ? it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word wilful preceding the words misstatement or suppression of facts which means with intent to evade duty. The next set of words contravention of any of the provisions of this Act or Rules are again qualified by the immediately following words with intent to evade payment of duty . It is, therefore, not correct to soy that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be wilful.
14. in the impugned Order-in-Appeal No. 06/2010 to 10/2010-CE dt.29.01.2010 (Impugned order for Appeal No.E/219/2010, E/189/20W, & E/297/20W) the lower appellate authority therein in para 4.8 of the order has addressed this contention of the appellant and has restricted the demand proposed in the SCN only to the normal period. We therefore find that in the appeals filed by SRIPL unit I & II and other co-noticees, there is no justification for invoking extended period of limitation.
15. In the light of discussions made herein above, we have no hesitation in concluding that the proceedings initiated by the department which have resulted in the appeals filed by SRIPL Unit I & II and other co-noticees are not only hit by limitation for the predominant period covered in the SCN, but more particularly cannot be sustained on merits. This being so, the impugned orders are set aside. Assessee s appeals NO.E/390/2009, E/367/2009, E/368/2009, E/378/2009, E/219/2010, E/205/2010, E/206/201Q & E/216/2010 are allowed with consequential relief, if any, as per law.
16. For these very some reasons, no merit is found in the department appeals No.E/189/2010 &E/297/2010for which they are dismissed.”
6.12 It was held in the case of Coimbtore Super Alloys (P) Ltd. 2019 (5) TMI 213 – CESTAT CHENNAI that:
“5.2 Be that as it may, the allegation is that appellants had received only non-duty paid MS scrap but had taken cenvat credit based on invoices of all the dealers in which supply of actual duty paid inputs like CR, HR, CR sheets etc. had been indicated. These allegations have been concluded primarily based on the statement dated 07.11.2008 of one Shri G. Baskaran, Proprietor of Sri Amman Steels who voluntarily stated that actual goods supplied to appellants were nothing but locally procured non duty paid goods in respect of all the 37 invoices. The SCN also makes a reference to a statement dt. 13.3.2009 of Shri S. Murugappan, Proprietor of Sri Karpagam Steels who inter alia admitted that they had supplied “MS scrap to appellants through Sri Amman Steels; that the original goods procured under cover of cenvat invoices were diverted to some other parties who did not need these cenvat bills.
5.3 However, in the replies dt. 16.08.2010 and also 18.08.2010 to the SCN, Sri Amman Steels and Sri Karpagam Steels had denied the allegations and had also actually submitted that they had received the payment from appellant for the supplies made by them and hence it could not be alleged that they had issued only the invoices.
5.4 As per para-2 of the SCN, officers attached to the Headquarters Preventive Unit, Coimbatore visited the appellant’s manufacturing unit on 25.09.2008, based on the intelligence gathered, that appellants ore availing irregular cenvot credit on the non-duty paid inputs received fraudulently in the guise of CR, HR, CR sheets, rejected Cft etc. When the visit to the factory of the appellant was made with such specific intelligence, the minimal action that even a rookie officer would be expected to do is firstly to conduct a stock taking, at least of the raw material inputs lying in the factory and secondly, take samples of such types of inputs being used by the appellant. In fact, we are at a loss to understand how and why such basic protocols were given the go-by. Drawal of the samples of the inputs received by the appellants and their testing etc. may have revealed their actual nature and composition which would definitely have helped vindicate, or as the case may be, dispel the suspicion that was created as per the “intelligence”. That was not done.
5.5 On the other hand, the investigative action appears to have been restricted to verification of records for the purchase of raw materials cenvat credit account and detecting discrepancy in the records maintained by appellants between description of goods actual received as per material inward register and that furnished in the respective dealer’s invoices.
5.6 In any cose, during the course of the hearing, id. Consultant for the appellants has explained that the discrepancy as to the receipt of material in the inward register was due to the fact that appellants had mentioned commercial invoice number and date in the register whereas the department had compared the same with central excise invoices issued by dealer; that apart from this, in their register, appellants had entered the materials received from all the dealers as MS scrap, whereas dealers had mentioned the description as per their purchase invoices.
5.7 It is not the allegation that appellants had only received “fake invoices” without having made any payment towards the amounts billed in such invoices. Per contra, id. Consultant has contended that the appellant had paid the supplier of raw material by way of cheque, including the excise duty element.
5.8 The id. Consultant has also raised a very pertinent argument that there is no allegation that materials supplied to the appellants had not suffered central excise duty. In the absence of any samples of the materials drawn at the time of search/investigation, there is no evidence to support the allegation that appellants had only received locally procured scrap instead of CR, HR, CR sheets etc. as indicated in the input invoices. We also find that no investigation hove been done at the dealer’s end to ascertain whether they had in fact received the impugned duty paid materials from manufacturer suppliers like M/s.Abirami Industries, M/s.Skanda Engineering etc. There is also no investigation that has been done at the end of such manufacturer suppliers, to ascertain whether in fact they had supplied the said CR, HR, CR sheets etc. to the dealers concerned.
5.9 In the event, the entire allegations are supported only by the statement of Shri G.Baskaran, Proprietor of Amman Steels. The examination of Shri G. Baskaran was requested for by the appellants vide their letter dt. 05.01.2011. However, from the facts on record (parole) of the OIO dt. 30.03.2011, it emerges that Shri Baskaran vide a letter dt. 16.03.2011 conveyed his disinclination to appear for a cross examination on the grounds that they had already filed their reply to the 5CN and that they were also o co-noticee in the SCN. The reply alluded to by Shri Baskaran is the letter dt.16.OS. 2010, reference to which is found in para-13 of the 010. In the said reply, the allegations made in the SCN have been denied and it has been contended that the depos/t/ons mode were not corroborated with any tangible or material evidence; that they received payments from the appellant for the supplies and it could not be alleged that they had issued only their invoices. In the circumstances, we find that even the slender thread of “supporting evidence” namely the statement of Shri G. Baskarari, Proprietor of Amman Steels, also stands neutralized. This being so, any allegation based on that sole statement will surely lose their bite.
5.10 Further, in the cross examination held by the adjudicating authority on 22.03.2011, Shri N. Gopinath, Manager (Accounts) of the appellants from whom statement dt. 25.02.2009 had been recorded during investigation, clarified that the officers had noticed only commercial invoice number and date of the dealer instead of Central Excise invoice number / date and apart from this, there was no discrepancy in the material supplied by the dealer. Shri Gapinath further deposed that the department had conducted four Central Excise audits in the past and that no discrepancy in the aval/merit of cenvat credit by appellant was pointed out by audit. It was also deposed that scrap dealers had supplied scrap to appellant and that he did not accept any bill from such dealers without receipt of any goods and denied the allegations that he had insisted for Central Excise invoice from scrap supplier for non-duty paid goods.
5.11 Earlier in these discussions, we had flagged the lack of clarity from the facts on record as to the actual percentage of the total input invoices that were fauna to have discrepancies. In this regard, we find from para 18 of the 010, that during the personal hearing held on 20.03.2011, the Consultant for the appellants had contended that the disputed credit worked out to only 10% and that there was no requirement on the part of appellants to take any erroneous credit. In our view, this averment has lot of implications. When the investigations have found discrepancies in only 10% of the invoices examined for o disputed period of 17 months between June 2005 and November 2006, that too on the basis of o sale statement which also has been subsequently denied by the person concerned, and in the absence of any samples of inputs drawn for corroboration, the allegation that appellants had received only locally procured scrap instead of CK, HR, CR sheets ere. in the input invoice, will not have any legs to stand upon
5.12 We further note that the Ld. Consultant has correctly relied on the ratio of Tribunal decision in a similar case involving disputed cenvat credits on supplies made by the same dealers, M/s.Amman Steels, in Ellen Industries and Others Vs CCE & SJ, where the Tribunal vide Final order No.40462-4464/2019 dt. 12.03.2019 had allowed the appeal. He has also drawn our attention to other Tribunal decisions involving similar facts which too had been allowed in favour of the assessees concerned.
6. In the light of the discussions, findings and conclusions herein above, and also following the ratio laid down by Tribunal in other cases with similar set of facts, we are of the considered opinion that allegations made out against the appellants have not been convincingly proved. This being so, the impugned order cannot sustain and will require to be set aside, which we hereby do. In consequence, the appeal is allowed with consequential benefits, if any, as per law.”
6.13 In light of the above facts and circumstances, the revenue has not been able to substantiate its case, except raising allegations based on mere conjectures and surmises, that the Appellant had not received MS and SS scrap through the dealers. There is no other corroborative evidence to substantiate such serious charges and the demand on this count as such must be quashed and set aside.
7. Accordingly the impugned orders are set aside and all the appeals are allowed, with consequential relief, if any.”
8. Accordingly, in view of the above order, it is evident that the very basis on initiation of proceedings under Section 147 of the Act has been vacated since additions were made in the hands of the assessee on the basis of show-cause notice dated 28.08.2014 from Central Excise Directorate indicating that the assessee had claimed Cenvat Credit of Rs. 4.37 crores on bogus purchases. However, once CESTAT has given a findings that the purchases in question were not bogus, then, in our view additions proposed to be made under Section 147 of the Act and 263 of the Act have no basis which the same can be sustained.
9. This brings us to the next question that when the order was passed by PCIT under Section 263 of the Act on 24.03.2021, then at the relevant time CESTAT had not passed the order holding that the purchases made by the assessee were genuine, which came to be passed on a later date on 08.12.2023 and therefore, at the relevant time there was no infirmity in the order passed by PCIT. In this connection it would be useful to refer to the case of CIT vs. A. Yonus Kunju 228ITR 147 (Kerala). The brief facts of the case are that the assessment of the assessee for 1979-80 was completed on November 2, 1982, at an income of Rs. 18,82,700/-. Thereafter, under section 69A of the Income-tax Act, 1961, an addition of Rs. 20,99,440/- was made with reference to an unaccounted investment of 3,852 bags of raw nuts. Information about the existence of unaccounted possession of raw nuts was available from the State Bank of Travancore where the assessee had credit facilities on the pledge of the stock of raw nuts and in regard thereto there was an excess of 3,852 bags in the records of the bank. The assessee had shown 18,507 bags of raw nuts to the bank for enjoying credit facilities whereas it had shown 14,655 bags in the return of income, that is to say 3,852 bags less. During the pendency of these original proceedings, on April 24, 1979, there was a surprise raid by the Sales Tax Department, Intelligence Wing and it was found by the Sales Tax Department that 5,636 bags of nuts were received in the relevant period at the factory and godown belonging to the assessee. Hence, reassessment proceedings were started and penalty proceedings were also initiated. These were upheld by the Tribunal. On a reference the High Court held that in the sales tax proceedings it had been finally found that there was clear material that 5,636 bags referable to the branch and godown were reflected in the delivery notes showing transfer of goods from the head office to the branch office. The High Court held that when the very initiation and origin of the action under the Income-tax Act, 1961, was due wholly to the action taken by the sales tax authorities and in view of the situation of the two proceedings being of a parallel character, these observations concluding the sales tax proceedings resulting in the final order in regard thereto on May 25, 1990, by the Assistant Commissioner (Assessment) Sales Tax, rendered the reassessment proceedings invalid. While passing the order the High Court made the following observations:-
“Be that as it may, when the very initiation and origin of the action under the Income-tax Act, 1961, owes wholly to the action taken by the sales tax authorities and in view of the situation of the two proceedings being of a parallel character, these observations concluding the sales tax proceedings resulting into the final order in regard thereto have more than sufficient strength to knock down the very basis of assessment action.
” The Deputy Commissioner of Sales-tax (Appeals), Quilon, had found substance in the contention of the assessee that the delivery notes produced before him in a majority of cases correlated with the entries found in the note books which were recovered in the course of inspection and that they represented goods transferred from the head office to the branches. So what would be relevant is not verification with the stock register but the existence of the delivery notes supporting the arrivals in the two branches, the lack of which led to the additions initially in the sales-tax assessments and, therefore, in the income-tax assessment. As the reassessment had proceeded on the basis of the findings in the sales tax assessments and based on the materials recovered in the course of a raid by the Intelligence Wing of the Sales Tax Department, it is rather too late for the Income-tax Officer to turn round and reject the explanation of the assessee which was accepted by the sales tax appellate authority as regards the arrival of goods in the Asramom godowns and Ayathil factory. The reason is that the sales tax appellate authority has found that the delivery notes produced by the assessee before him were relevant material which satisfactorily explained in a majority of cases the arrivals in these branches. Therefore, relevancy of the delivery notes in the context of the explanation of the assessee cannot be brushed aside lightly. The arrivals in the Ashramam godowns and Ayathil factory have been accepted by the sales tax authorities to have come from the head office purchases and represented the branch transactions. Therefore, it cannot be said that the assessee’s explanation remained unsubstantiated.”
29. In view of the above position it must be stated that the material was on the record of the proceedings and when we are required to deal with both the proceedings of assessment as well as levy of penalty it is next to impossible to see the situation in a blind-folded manner. The observations found quoted in the notice under Section 17(3) of the K.G.S.T. Act, 1963, stare penetratingly not only in the face of the record of the assessment proceedings but also justify its cancellation by the
30. Reading the five questions in Income-tax Reference No. 55 of 1991, in the light of our above discussion, the question to be answered would be only one and it would be as follows :
“Whether in the light of the final order dated May 25, 1990, of the Assistant Commissioner (Assessment) III, Sales Tax Office, Special Circle, Quilon, based on notice under Section 17(3) of the K.G.S.T. Act, 1963, the assessment proceedings initiated on the basis of sales tax raid dated April 25, 1979, reopening of the proceedings under Section 143/147 of the Income-tax Act, 1961, ending in the order dated March 28, 1988, of the Income-tax Officer, Central Circle, Trivandrum, as confirmed by the first appellate authority and the Income-tax Appellate Tribunal would be sustainable ?”
31. Our answer in regard thereto would be that such reassessment proceedings would not be sustainable.”
10. In view of the above, looking into the instant facts, when CESTAT has decided the issue in favour of the assessee by holding that the purchases in question were not bogus, we hold that since the very basis on which proceedings were initiated under Section 263 of the Act have been vacated / set-aside, then, order passed under Section 263 of the Act is also liable to be set-aside.
11. In the result, the appeal of the assessee is allowed for both the assessment years in question.
This Order pronounced in Open Court on 27/09/2024
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