[Order per : Archana Wadhwa, Member (J)]. - All the appeals are being decided by a common order as they arise out of same impugned order passed by ld. Commissioner, vide which he had confirmed demand of Rs. 1,20,73,908/- (Rupees One crore twenty lakh seventy three thousand nine hundred and eight only) and of Rs. 26,21,716/- (Rupees Twenty six lakh twenty one thousand seven hundred and sixteen only) against M/s. Kusum Ingots & Alloys Ltd. by denying them Cenvat credit of duty availed on the basis of endorsed duty paying gate passes. The Commissioner has further confirmed the interest along with imposition of penalty of Rs. 25 lakhs (Rupees Twenty five lakhs only) on the said appellants. In addition, penalty of Rs. 20 lakhs (Rupees Twenty lakhs only) stands imposed on Shri Bharat Modi, Managing Director and Rs. 5 lakhs (Rupees Five lakhs only) on Shri M.K. Jain, General Manager (Finance) of the said appellant, in terms of Rule 209A of Central Excise Rules, 1944.
2. As per facts on record, M/s. Kusum Ingots & Alloys (hereinafter referred to appellant) are engaged in the manufacture of steel ingots and other rerollable products falling under Chapter 72 of Schedule to the Central Excise Tariff Act, 1985. The appellant’s factory was put to search by the officers on 13-12-1994, but no incriminating documents were found. However, the officers resumed the copies of the endorsed gate passes on the basis of which appellant had received the inputs and had availed the credit.
3. It is on record that the search of the appellant’s factory was conducted on the basis of the information received from Income Tax Department. However, the Department further investigated the matter and recorded the statements of various traders. As it was found that the appellants were procuring the raw-materials from M/s. Steel and Scrap, M/s. Ambassy Steel and M/s. K.S. Steels, the statements of the concerned persons of the said input suppliers were recorded.
4. As per the statement of Shri Sanjay Maheswari, Proprietor of M/s. Steel & Scrap, recorded on 27-3-1996, Shri Anil Khandelwal, who was its Manager, was looking after the entire work. He stated that Shri Anil Khandelwal used to take a blank cheque duly signed by him for which he was paid Rs. 500/-. He was purchasing gate passes from various factories and was endorsing the same in the name of the appellants, without actual supply of the raw-materials.
Statement of Shri Anil Khandelwal was recorded on 29-3-1996, wherein he deposed that he was earlier working with M/s. K.S. Steel, a proprietary firm of his father and used to procure rolling and scrap materials/scrap from Bhavnagar, (Gujarat) and supplying the same in the local market. He admitted that he had endorsed the gate passes in favour of the appellant without actually selling the goods and all the transactions were only paper transactions.
Statement of Shri Krishan Gopal Khandelwal, proprietor of M/s. K.S. Steel was recorded on 29-3-1996, wherein he again deposed that they were only endorsing the gate passes without the actual movement of goods. Such endorsement was being made by his son Shri Anil Khandelwal.
Subsequently, statements of various other persons were also recorded, which were inculpatory in nature.
5. Revenue, in the light of the disclosures made by the traders approached the appellant and recorded the statement of Shri M.K. Jain, General Manager (Finance) of the appellant company on 4-3-1996 and 20-7-1996. In both the statements, the said deponent stated that they were actually purchasing the raw-materials from M/s. K.S. Steels and M/s. Steel & Scrap of Indore.
6. Based upon the above investigation, proceedings were initiated against the appellant by way of issuance of show cause notice dated 2-7-1997 proposing denial of Cenvat credit availed by them during the period from May, 1990 to December, 1993 on the alleged ground that they have procured only the endorsed duty paying gate passes without actually receiving the inputs.
7. It is seen that during the course of adjudication, the appellant requested for cross-examination of various persons. However, the said request was not acceded to by the Commissioner, who passed the order confirming the demand and imposing penalties. The said order of the Commissioner was challenged before the Tribunal. The Tribunal vide its order No. A/768-770/2000-NB(DB), dated 31-8-2000 has observed that as the demand against the appellant have been mainly confirmed on the basis of the statements of suppliers of M/s. Steel & Scrap, which is raw-material for the manufacture of MS alloy steel, the cross-examination of the input suppliers becomes absolutely necessary. The Tribunal further observed that it is on the same basis that the proceedings were initiated against the appellant by the Income Tax Department, which proceedings have been set aside by the appellate Commissioner of the Income Tax, in which case non cross-examination of Revenue’s witnesses has resulted in contravention of the principles of natural justice. The Tribunal accordingly remanded the matter to the Commissioner for fresh decision after extending the appellant the opportunity to cross-examine the input suppliers.
8. The present impugned order stands passed by the Commissioner in de novo proceedings.
9. During the course of de novo adjudication, the cross-examination of five persons was undertaken. Shri Nathulal Jain and Shri Madanlal were the transporters, who during the course of cross-examination accepted having transported the goods to the appellant’s factory. Shri Kishan Gopal Khandelwal stated that as it was his son Shri Anil Khandelwal, who used to look after the business, he cannot comment upon the same. Two more persons Shri Anil Mansukhani and Shri Kavindra Gandhi were also offered for cross-examination, but as they were not the persons concerned with the case, their cross-examination was not conducted. It is not known as to why the said two unconnected persons were offered for cross-examination.
10. The appellant’s grievance is that even though the matter was remanded by the Tribunal with specific directions to offer the cross-examination of the input suppliers, the Commissioner has failed to do so. Out of five persons offered for cross-examination, two were unconnected, two were transporters and one person was the father of one of the input suppliers, who expressed his ignorance about the business. As such, it stands strongly argued before us that the impugned order having been passed in defiance to the Tribunal’s directions, should be set aside on this ground alone.
11. On going through the impugned order of the Commissioner, we find that summons were issued by him to the input suppliers, requiring their presence for cross-examination on 22-3-2005. Further, as the input suppliers did not cause appearance on the said date, fresh date was fixed for 28-3-2005, on which date, again the said persons did not appear. Though we find that the input suppliers did not appear for cross-examination, the Commissioner in his finding has wrongly observed that the said persons appeared for cross-examination and reiterated their statements recorded during the course of investigations and still stood by the same. The said finding of fact by the adjudicating authority is admittedly against the correct factual position, inasmuch as the Commissioner has himself in the earlier paragraphs recorded that the input suppliers did not appear for cross-examination.
Not only that, he has further observed in para 22 that as the said persons did not appear and inasmuch as the input suppliers were the witnesses from whom the noticee claimed to have purchased raw-materials, it was for them to ensure the persons of the remaining input suppliers for cross-examination. The contention of the ld. Advocate appearing for the appellant is that inasmuch as it was Revenue, who was relying upon the statement of the said witnesses, it was for them to produce the said witnesses for cross-examination. For the above proposition, they have relied upon the following decisions :-
(i) J & K Cigarettes Ltd. v. Collector of Central Excise [ (Del.)].
(ii) Basudev Garg v. CC [ (Del.)]
(iii) C.C.E, Meerut v. Parmarth Iron Pvt. Ltd. [ (All.)]
Further, the Hon’ble Supreme Court in the case of Kishan Chand Chellaram [1980 (SUPP) SCC 660] has held that it is for the Department to produce the persons on whose evidence they are relying upon for cross-examination.
12. Admittedly, the matter was remanded by the Tribunal for allowing the cross-examination of the said input suppliers, who have given inculpatory statement during the course of investigation. Such directions of the Tribunal were binding on the Commissioner. We agree with the ld. Advocate that inasmuch as it was the Revenue, who have relied upon the said statements, it was for them to produce the deponents for cross-examination. No responsibility can be fixed upon the appellants to ensure the presence of the input suppliers for the purpose of cross-examination. We also find that the observations and findings given by the adjudicating authority regarding the cross-examination of the input suppliers are self-contradictory and reflect upon the incorrect factual position. On one hand, in para 20 and 22, he is admitting that the said input suppliers did not appear for cross-examination, on the other hand, he is observing that Shri Anil Khandelwal and Shri Himatlal appeared for cross-examination and agreed to their earlier stand. Inasmuch as the Commissioner has not carried out the directions of the Tribunal, we find the impugned order to be bad in law.
13. Apart from that, we find that the present impugned order is replica of the earlier order passed by the Commissioner, which already stands set aside by the Tribunal.
14. Though the cross-examination of traders were not conducted, but we note that cross-examination of two transporters Shri Nathulal Jain and Shri Madanlal was done during the course of de novo adjudication. The said two transporters have admitted having transported the scrap to the appellant’s factory. The result of the cross-examination of the transporters cannot be brushed aside lightly. The said two transporters were not further examined by the adjudicating authority and there is nothing against the appellant. Inasmuch as the result of the statements of the said two transporters conducted during cross examination is in contrast to the statements of the traders recorded during investigation, we are of the view that the un-corroborated statements of the traders cannot be made the sole basis for denying the Cenvat credit to the appellant, without the support of any other independent evidence. Reference in this regard can be made to the decisions in the cases of Rama Shyama Papers [ (Tri.-Del.)], Globe Synthetics Ltd. [ (Tri.-Del.), Takshila Spinners [ (Tri.)]. In fact, the list is never-ending inasmuch as it is settled law that no adverse findings can be arrived at against an accused on the basis of uncorroborated statements of co-noticees, who have not been produced for examination and in the absence of other independent corroborative evidences.
15. We also note that the officers, who visited the appellant’s factory on 13-12-1994, did not find any incriminating documents from the premises. The allegations made by the Revenue that these trading firms were being governed by the appellant and they were having the overall control over them, do not emanate from any evidence on record. On the contrary, Shri M.K. Jain, General Manager (Finance) of the applicant company in both his statements recorded on 4-3-1996 and 20-7-1996 have categorically stated that they were receiving the raw-materials from the traders in question, who were major suppliers of the raw-materials. The adjudicating authority has chosen to ignore the said statement of Shri M.K. Jain. No enquiries stand made from Shri Sundrawat and Shri Duggar, whose names were taken by Shri Anil Khandelwal as the persons who were taking the bills arranged by him and were making the cheques and with whom cheque books of various parties remained. No blank cheque books were recovered from the appellant’s factory during the course of search. No enquiries were conducted from the concerned bank so as to corroborate the statements of the said traders.
16. Actually, we find that there are letters dated 3-4-1995 written by Shri G.C. Vishwanathan and Shri S.J. Upendra Kamal, Sub Manger of Corporation Bank and Shri G.C. Viswanathan of the said bank to the Assessing Officer, Income Tax Department accusing the assessing officer putting pressure upon them to implicate the appellant. They in their said letters categorically stated that Shri B.K. Modi, Chairman of the appellant company never gave any introduction to anybody to open any account and never deposited any money in the said account. They further wrote in the said letter that Assessing Officer, Income Tax was pressurising the bank to give evidence against the appellant and to say that they have given introduction to 5 to 6 accounts. The said communication by the officers of the bank is an important piece of evidence inasmuch as the present case of the Revenue is primarily based upon the evidences collected by the Income Tax authorities. The said letters have been taken note of by the ITAT while deciding the Revenue’s appeal against the order of the first appellate authority under the income tax laws. The fact that the appellant’s appeal was allowed by the Commissioner (Appeals), which order was further upheld by the ITAT holding the transactions between the parties to be genuine, is an important fact, which cannot be ignored. The Income Tax Appellate Tribunal in their order, vide which the Revenue’s appeal was rejected has categorically held that if the appellant had not purchased, there could not have been corresponding production. Accordingly, the transactions between the appellant and suppliers were held to be genuine. When the said developments were placed before the Commissioner, he observed that the said proceedings before the Income Tax authorities would not be of any binding effect inasmuch as the proceedings before him were not for recovery of fraudulently availed Modvat credit. The said observation of the adjudicating authority cannot be appreciated inasmuch as the entire case of the Revenue was made out on the basis of the report received from Income Tax authorities. If the same evidences have been held to be not proper for holding the transactions between the appellant and various traders as fraudulent transactions, we really fail to understand as to how the very same transactions can be held fraudulent for the purpose of Cenvat credit. Further, the Commissioner or the excise authorities cannot be considered to be sitting in appeal order the decision of the Income Tax authorities and come to a different finding, based upon the same set of evidences.
17. Apart from holding that there is not sufficient evidence to arrive at a finding that the appellant had availed Cenvat credit on the basis of bogus gate passes without bringing raw-materials into their factory, we also note that the Revenue has not shown any other alternate source of procurement of raw-materials. Admittedly, the appellant had manufactured their final product, which has been cleared on payment of duty. In the absence of any raw-material, it is not only difficult but virtually impossible and impractical for the appellant to manufacture their final product. There is neither any allegation much less any evidence on record to show that the appellant had procured the raw-materials from other alternate source.
18. At this stage, we may also refer to cross-examination of Shri C.V. Parmar, Superintendent, who was in charge of the unit at the relevant time. In terms of the Board’s Circular issued vide F. No. 211/23/68-CEX/06, dated 28-5-1986, 100% verification of document is required if the credit of duty involved is of Rs. 10,000/- or more. Shri Parmar in his cross-examination has clearly deposed that he had defaced the documents as per the provisions of law. As such, it can be concluded that the gate passes under the cover of which the raw-materials were received by the appellant and on the basis of which the appellant had availed the credit were duly defaced by the Superintendent after verification of the same.
19. The adjudicating authority has also referred to the fact that some of the vehicles were found to be non-transport vehicles. He has given a list of vehicle numbers in his impugned order. However, we have been shown that all the 23 vehicle numbers found in the said list were never mentioned in the gate passes under the cover of which duty paid material was received by the appellant. It remains undisclosed as to from where the adjudicating authority has picked up the said 23 vehicle numbers.
20. Further, no investigation stands made from the actual manufacturers, who have supplied the goods to the traders, who in turn had endorsed the gate passes. If according to the Revenue, the traders have only endorsed the gate passes, without forwarding the materials to the appellant, there is no evidence on record as to where the goods actually received by them under the cover of gate passes issued by the manufacturers have vanished.
21. For all the reasons recorded above, we hold that the impugned order is not sustainable. As we hold in favour of the assessee on merits of the case, we are not dealing with their contention of the demand being barred by limitation. As a result, the impugned order is set aside and appeals are allowed, with consequential relief, if any, to the appellants.
(Pronounced on 21-10-2014)