Excise Dept. Fails To Prove Non-Receipt of Goods, Cenvat Credit Rightly Claimed by Manufacturer: CESTAT
Pranav B Prem
In a significant ruling, the Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that a manufacturer is entitled to avail Cenvat credit based on invoices issued by a second stage dealer, where the excise department fails to establish that inputs were not received. The Tribunal allowed the appeals filed by M/s. Nirmal Inductomelts Pvt. Ltd. and its associated entity M/s. Purvi Sales Corporation, and set aside the denial of credit and associated penalties imposed by the Department.
The bench comprising Judicial Member Ashok Jindal and Technical Member P. Anjani Kumar ruled that when there is no concrete evidence to prove non-receipt of goods and the invoices fulfill the conditions prescribed under Rule 9(2) of the Cenvat Credit Rules, 2004, credit cannot be denied on presumptive grounds.
The case originated from an investigation initiated by the Directorate General of Central Excise Intelligence (DGCEI), Jamshedpur, acting on information that certain registered dealers were allegedly passing on Cenvat credit to manufacturers through fake invoices without actual movement of goods. Following the investigation, searches were conducted across multiple manufacturers and dealers, leading to the allegation that M/s. Nirmal Inductomelts Pvt. Ltd., a manufacturer of MS Ingots, Angles, Channels, Flats, and Rounds falling under Chapter 72 of the Central Excise Tariff Act, 1985, had wrongly availed Cenvat credit of ₹82,78,275.
The Department alleged that the manufacturer availed credit on the strength of invoices issued by first stage dealers—Hariom Udhyog, Surya Udhyog Corporation, and Maa Parvati Engineering & Castings—who in turn issued invoices based on supplies from allegedly non-existent manufacturers such as OHM Metals, Vedic Chemicals Pvt. Ltd., and Ganpati Enterprises. It was alleged that these invoices were issued without actual supply of goods.
Show cause notices were issued to the appellants proposing recovery of the alleged inadmissible credit along with interest and equivalent penalty under Rule 26 of the Central Excise Rules, 2002. The original authority confirmed the demand and imposed penalties, and this was upheld by the Commissioner (Appeals).
Challenging the orders, the appellant contended that the Department had failed to prove that Ganpati Enterprises or other named manufacturers were non-existent. No investigation report or statement from the manufacturers or transporters was produced. The only statement relied upon by the Department was that of a co-appellant’s partner, which remained uncorroborated and, as per the appellant, did not have probative value. The appellants asserted that the goods were received under valid invoices from second stage dealers, the transactions were properly recorded in statutory registers, payments were made via account payee cheques, and the final products were cleared on payment of excise duty.
The Tribunal observed that the Department's entire case rested on the presumption that the inputs were not received. However, there was no direct evidence of non-receipt of goods. No transporter’s statement was obtained to verify whether goods reached the manufacturing unit, and no contradiction was drawn from records like RG-1 registers or ledger accounts.
The Tribunal held that the manufacturer had fulfilled all the requirements for availing credit under Rule 9(2) of the Cenvat Credit Rules, 2004. The second stage dealers were found to be existing entities, and the invoices bore all the necessary details. The Tribunal noted that in the absence of any contrary evidence from the Department, the presumption must be that the goods were indeed received.
Referring to judicial precedents, including Commissioner of Central Excise & Service Tax v. Juhi Alloys Ltd. [2014 (302) ELT 487 (All)] and Addi Alloys Pvt. Ltd. v. CCE, Ludhiana [2017 (346) ELT 113 (Tri. Chan.)], the bench reaffirmed that unless cogent and corroborative evidence is produced to disprove the receipt of goods, credit cannot be denied merely on the suspicion that the suppliers or intermediaries might be non-compliant.
In particular, the Tribunal reiterated that it is impractical to require the buyer to verify whether duty has been paid by upstream suppliers, especially when payments are made through cheques and transactions are duly recorded in statutory books.
Ultimately, the Tribunal concluded that the Cenvat credit had been lawfully availed by M/s. Nirmal Inductomelts Pvt. Ltd., and that the Department had failed to discharge its burden of proving non-receipt of goods. It held that denial of credit and imposition of penalties in such circumstances were unsustainable. Accordingly, the Tribunal set aside the impugned orders and allowed the appeals, granting consequential relief to the appellants.
Appearance
Mr. B. L. Sharma, Consultant and Ms. Priyanka Goel, Advocate for the appellant
Mr. Bhagwat Dayal, Authorized Representative for the Respondent
Cause Title: M/s. Nirmal Inductomelts Private Limited V. Commissioner of Central Excise And CGST, Jaipur – I
Case No: Excise Appeal No. 51633 Of 2022
Coram: Hon’ble Mr. Ashok Jindal [Member (Judicial)], Hon’ble Mr. P. Anjani Kumar [Member (Technical)]
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