TAXAP/172720/2007 1/8 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 1727 of 2007 With TAX APPEAL No. 1726 of 2007 With TAX APPEAL No. 1728 of 2007 To TAX APPEAL No. 1730 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ========================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= COMMISSIONER, CENTRAL EXCISE, AHMEDABAD - II Versus TEJAL DYESTUFF INDUSTRIES ========================================= Appearance : MR HRIDAY C. BUCH for the Appellant None for Opponent(s) : 1, ========================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 28/07/2008 TAXAP/172720/2007 2/8 JUDGMENT ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1. All these appeals have been heard together as they emanate from a common order made by the Customs, Excise Service Tax Appellate Tribunal (CESTAT). 2. In Tax Appeal No.1727 of 2007, the following two questions have been proposed by appellant revenue. “[a] Whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the demand of duty of Rs.1,09,35,008/- against the respondent? [b] Whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the interest and penalties imposed on the respondent?” In Tax Appeal No.1726 of 2007, the following question has been proposed by appellant revenue. “Whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the interest and penalties imposed on the respondent?” In Tax Appeal No.1728 of 2007, the following question has been proposed by appellant revenue. “Whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the TAXAP/172720/2007 3/8 JUDGMENT interest and penalties imposed on the respondent?” In Tax Appeal No.1729 of 2007, the following question has been proposed by appellant revenue. “Whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the interest and penalties imposed on the respondent?” In Tax Appeal No.1730 of 2007, the following question has been proposed by appellant revenue. “Whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the interest and penalties imposed on the respondent?” 3. The respondent herein M/s Tejas Dyestuff Industries is engaged in manufacture of dye intermediates. Respondents of Tax Appeal Nos.1729 of 2007 and 1730 of 2007 are connected with the respondent firm herein while respondents of Tax Appeal Nos.1726 of 2007 and 1728 of 2007 are persons who are registered dealers namely Directors of one M/s Bhimani Chemicals Private Limited, the supplier of certain inputs like LAB and Soda Ash. Respondent firm claimed Cenvat Credit in relation to the aforesaid inputs on the basis of the said inputs being duty paid. The adjudicating authority found that the inputs had not been received by respondent unit and hence after issuing show cause notice, confirmed the demand holding that respondent unit was not entitled to the Cenvat Credit claimed. For this purpose, reliance has been placed on the statements made by some of the present respondents as TAXAP/172720/2007 4/8 JUDGMENT well as one transporter Shri Ravindrabhai M. Shah of M/s Shah Bulk Carrier, Vadodara and employees of the respondent unit. The case of the adjudicating authority is that respondent unit had merely obtained invoices from the dealers showing receipt of duty paid inputs without actually receiving the said goods; the payment towards such invoices, though shown to have been made by cheques, appear to have flown back to the owner of respondent unit; the transporter had stated that the goods in question had been delivered outside octroi limits, and the statements of the employees as well as Directors of the registered dealers supported the case of revenue that in fact no goods had been received by the respondent unit. One more factor which was considered was non-availability of storage capacity by the respondent unit. Accordingly, the adjudicating authority confirmed demand to the tune of Rs.1,09,35,008/- along with another demand of Rs.55,163/- as well as imposed penalties and interest. Confiscation of finished goods and raw material valued at Rs.1,55,685/- was also ordered. 4. All the affected persons preferred appeals before CESTAT. There was difference of opinion amongst the members who originally heard the appeals. The major point of difference was in relation to demand of duty of Rs.1,09,35,008/-, which was liable to be upheld according to Member [Technical]. Insofar as the orders of confiscation, levy of penalties and confiscation of goods are concerned, no findings were recorded by Member [Technical] in relation to some of the items while they stood deleted by Member [Judicial]. 5. The matter was carried before the third member of the TAXAP/172720/2007 5/8 JUDGMENT Tribunal namely President of the Tribunal. The Tribunal has recorded the following findings. (1)There can be no dispute qua the proposition that admitted facts need not be proved and a confession would bind the person making the confession. (2)Ordinarily, confession by partner of a firm and its employees would bind the assessee, but such statement would not bind the co-noticees without corroboration. (3)Though, admissions are binding on the person making the admission, if the said admission is retracted, there has to be some other evidence over and above the confession to bring home the charge. (4)A confessional statement cannot, once retracted, have the same evidentiary value and has to be weighed in scale vis-a-vis other evidence on record to arrive at a correct conclusion. (5)The evidence on record shows that against confessions made by Shri Nareshbhai, Hiteshbhai and Ileshbhai, the facts on record establish that payments towards the inputs have been made by cheques in respect of inputs covered by invoices. (6)The invoices under which the inputs have been received are supported by octroi receipts. (7)The octroi receipts constitute an important and independent documentary evidence supporting the fact that inputs covered by the invoices drawn in name of the assessee, were in fact carried in tankers, brought within municipal limits where the factory of the assessee is situated. (8)The drivers of the tankers have not been examined to establish that the goods were not received by the TAXAP/172720/2007 6/8 JUDGMENT consignee. (9)In the event the goods had not been received by the consignee, the octroi receipts would not have been available with the assessee. (10)There was no evidence to justify inferences about flowing back of cash amount of more than six crores of rupees from the dealers to the assessee in cash once the payments had been received by the dealer by cheques. (11)No prudent businessman would convert a sum of nearly Rs.5.50 crores of accounted money into unaccounted money. (12)The Books of Account of the registered dealer established receipt of payment by cheques. (13)The cross-examination of the Superintendent of Excise Department established that no cross verification was carried out by revenue in relation to the movement of funds after the same were received by cheques. (14)The Directors of the dealer had confirmed having received payment by cheques. (15)All inputs were duly entered in RG-23 register maintained by the assessee. (16)There was no co-relation attempted nor established to show that the inputs in question were not utilized for manufacturing 20 different kinds of final products manufactured by the assessee. (17)To the contrary, at least 7 products manufactured by the assessee were produced by utilizing LAB and Soda Ash as inputs besides other inputs as enumerated in the declarations dated 22.2.99, 3.4.2000, 12.4.2000 and 12.6.2000. (18)That the returns were duly filed by the assessee and the TAXAP/172720/2007 7/8 JUDGMENT fact of usage of inputs for manufacturing the final product was also stated since inception in the declarations made and the returns filed by the assessee. (19)Monthly returns filed under Rule 7 of the Cenvat Credit Rules, 2001, which are on record, established use of these inputs in the final products manufactured by the assessee. (20)As regards storage capacity in the factory, it was found that there were two tanks of 15 metric tonnes capacity, 35 Mild Steel Drums of 250 kg and 45 Carboys of 60 kg capacity. (21)Revenue has failed to co-relate the requirement of inputs vis-a-vis final product manufactured at a given point of time because adequacy of storage capacity can be judged with reference to quantity of inputs received at a particular point of time and not with reference to the total inputs received over a period of two years. 6. Thus, on an overall appreciation of the aforesaid evidence applying the test of preponderance of probability vis- a-vis the confessional statements it has been found by CESTAT that the conclusion of the adjudicating authority that Cenvat Credit claimed is inadmissible, is an incorrect conclusion not supported by the evidence on record. 7. The learned counsel for the appellant laid great emphasis on the inferences and findings recorded by the adjudicating authority and read extensively from the adjudication order to contend that CESTAT had committed an error in law by not appreciating the facts in correct perspective. TAXAP/172720/2007 8/8 JUDGMENT 8. As can be seen from the impugned order of CESTAT and the adjudication order, it is a question of appreciating the same set of facts and evidence available on record. The findings recorded by CESTAT summarized hereinbefore would go to indicate that the case put forth by the assessee is a plausible case and in the circumstances, in absence of any corroborative evidence brought on record by revenue, the findings recorded by CESTAT do not call for any interference. 9. In the aforesaid set of facts and circumstances of the case, none of the questions, as proposed in each of the tax appeals or otherwise, can be termed to be substantial questions of law. The appeals are accordingly dismissed. (D.A. MEHTA, J.) (HARSHA DEVANI, J.) shekhar/-