• Dated 11th August, 2021
Tax Alert

Denial of Cenvat Credit on recommendation by DGCEI not justifiable. Statement should be cross examined before passing of any order.

Brief Facts:

The petitioner is engaged in manufacture of M.S. Ingots, ashow cause notice was issued by the respondent proposing denial of CENVAT credit on the grounds that the dealers never supplied the goods. The cenvat credit was denied merely based on communication made by DGCEI enclosing the statement made by person whose cross examination was not allowed.

A writ petition was filed on the grounds that cenvat credit credit cannot be denied without cross examination of the statement shared by DGCEI.

Department Contention:

It was contended that based on letter issued by the DGCEI, it was evident that dealer was issuing excise invoices without actualsale of goods to the dealer. Thus, the cenvat credit claimed by the petitioner based on invoices raised by such dealer was fake and was required to be reversed, since bogus invoices were issued by the dealer without any actual movement of goods.

It was mentioned that cross-examination of the persons whose statements were relied onwas prayed by them however,the request for cross-examination was turned down. Further even after ample opportunities been given by the respondent to thosepersons whose statements have been relied, those persons never turned up before the Adjudicating authority.

Accordingly, from the adjudication order it can be said that petitionerhad an understanding with those persons for not appearingfor cross-examination.

Petitioner Contention:

It was contended that demand was raised based on the statements of the persons whose cross-examination was not allowed to test the correctness and without any basis in the absence of any evidence.

Further reference of several decisions including the following decisions, was submitted in support of the contention that statements made by the person cannot be entered into evidence where the cross-examination of the statements of said persons are sought to be relied against the respondent:

  • CCE vs. Parmarth Iron PvtLtd 2010 (260) ELT 514 (Allahabad)
  • G-Tech Industries vs. UOI 2016 (339) ELT 209 (P&H).
  • Nidhi Auto Pvt Ltd vs. CCE 2020 (33) GSTL 419 (Tri-All)

It was also submitted that goods received were used in themanufacturing process and necessary accounts and statutory records were maintained. Further payment was made in respect of such purchases through banking channels and there is no evidence that the paymenthas been received back so as todispute the authenticity of the transaction.

The above submissionsmade in the course of adjudication was refuted by the authorities and the contention of the petitioner that Cenvat credit has been lawfully availed was ignored.

Observation of Custom & Service Tax Appellate Tribunal Kolkata (CESTAT Kolkata):

It was held that Department relied on statement of those witnesses, however such statement required cross examination.In the given case the petitioner had pleaded that the credit was availed on the goods received by them and the same was accounted in the statutoryrecords. Moreover, payments for such purchases were made through banking challans.

The cenvat credit was denied onthe basis of the communication made by the DGCEI, Jamshedpur, enclosing the statements made by the personswhosecross-examination have not been allowed and no other evidence was available on record.

Hence the same was not justifiable and in support of the above contention various similar Judgment were quoted.

In an identical situation, this Tribunal in the case of Arsh Castings Pvt Ltd vs. CCE, Chandigarh 1996 (81) ELT 276 (Tri) has observed that:

"It is an elementary principle of natural justice and fair play that a person who is sought to be proceededagainst and penalised in adjudication on the basis ofthird-party statements should be afforded effective opportunity to challenge the correctness of the same as per law by cross-examination, if he so desires. If witness do not turn up for cross-examination, it is open to the adjudicating authority to proceed with the adjudication without relying on these statements against the person so charged. Failure of a witness to appear for cross-examinationwill not be a ground to penalise the appellants in law when the appellant is entitled to an opportunity of cross-examination of third party on whose statement reliance is placedthe opportunity by cross-examination of the witnesses also was given.But the persons summoned to appear forcross-examination before me did not turn up"

In case of Pahar Chand & Sons v. The State of Punjab, (1972) 30 STC 211, decided by the Division Bench of the Punjab & Haryana High Court (cited by the appellants in the memo of appeals).

"Setting aside the assessment, the Court observed (1) that "if the assessing authority was relying on the testimony of a witnesses, the assessee should have been afforded an opportunity to cross-examine. It was not open to the assessing authority to get over this hurdle on the plea that the witness had not been produced by the assessee; and (2) that the assessing authority acted on material, which was not legal, to come to the conclusion"

In another case of Nidhi Auto (Supra),decision laid down by the Hon'ble High Court in the case of Parmarth Iron Pvt Ltd. The relevant portion of the decision of the Tribunal is extracted below-

"It is noted that it was held by Hon'ble Allahabad High Court in the case of Commissioner of Central Excise v. Parmarth Iron PvtLtd. (supra) that if Revenue does not allow cross-examination of any prosecution witness, then Revenue cannot rely on the statement given by such prosecution witness for confirmation of demand"

Based onthe above cases, the impugned orders were set aside and relief was given to the petitioner.