Gujarat Setco Clutch Ltd. vs Union of India

D.A. Mehta, J.—The appellant has proposed the following substantial questions of law :- (I) Whether when once dispatched and re-entry of the goods is admitted on record in the facts of the present case then any limitation or delay could be invoked under the provisions of Rule 16 of the CENVAT Credit Rules, 2002 in return of goods to deny such credit?

(II) Whether CENVAT Credit can be denied to the appellants on reentry of goods assuming procedural infractions once the substantive dispatch and re-entry of goods is admitted?

(III) Whether CENVAT Credit can be denied on mere presumptions and assumptions?

The learned senior advocate appearing for the appellant submitted, at the outset, that the word ''admitted'' in question Nos. 1 and 2 is a typographical error and should be substituted by the word ''established''. Accordingly, the questions are considered.

The appellant company manufactures clutch plates, clutch assemblies and components thereof, which are liable to duty of excise. The department visited the factory premises of the appellant company and during routine check found that certain finished goods lying in the factory did not tally with the daily stock account register. The explanation of the appellant that the goods were returned by M/s. Telco Limited was not found acceptable and after drawing a Panchnama the goods were ordered to be put under seizure. After investigation, show cause notice dated 30-9-2003 was issued. After considering the reply filed by the appellant on 9-10-2004 respondent authority passed an order on 28-10-2004 confirming the show cause notice.

The appellant carried the matter in appeal before the Central Excise and Service Tax Appellate Tribunal, Mumbai Bench (CESTAT) on 18-4-2007. After hearing the appeal, the two members recorded dissenting opinions. Member (Judicial) agreed with the submissions of the appellant while Member (Technical) agreed with the respondent authority. Matter was referred to Third Member upon such difference of opinion in the following terms :-

(i) Whether the denial of modvat credit of Rs. 59,6,244/- along with interest and penalty of equivalent amount imposed upon M/s. Gujarat Setco Clutch Co. Ltd. has to be upheld as recorded by learned Member (Technical) or the same has to be set aside, as observed by learned Member (Judicial)?

(ii) As to whether the penalty of Rs. 5 lakhs imposed under the provisions of Rule 25 of Central Excise Rules has to be set aside, as held by Member (Judicial), but not considered by Member (Technical)?

(iii) Whether the confiscation of the seized excess found goods has to be set aside, as held by Member (Judicial) and not considered by Member (Technical)?

Vide order dated 27-8-2007 the third party agreed with the Member (Technical) in relation to the denial of CENVAT Credit of Rs. 59,46,244/- and also confirmed the penalty of equivalent amount. The Bench of the Tribunal thereafter passed an order on 10-9-2007 [2008 (229) E.L.T. 137 (Tri.-Ahmd.)] as per the majority opinion which is under challenge in the present appeal.

Learned senior advocate appearing on behalf of the appellant has contended that firstly the onus had wrongly been cast on the appellant. That whether goods were clandestinely removed or not, had to be established by respondent authority. Secondly, it was contended that there was no evidence on record to hold against the appellant that the appellant had indulged in any clandestine removal of goods and the inferences drawn by the respondent authority and the members of the CESTAT constituting majority were not supported by the evidence on record. It was submitted that considering the evidence on record, no reasonable person could have come to the conclusion arrived at by the respondent authority as confirmed by the majority opinion of members of SENVAT [(sic) CESTAT].

The issue involved in the appeal pertains to the eligibility of availment of CENVAT Credit by the appellant on finished goods stated to have been received by the appellant. It is an accepted fact that for the period of July, 2001 to March, 2002, the appellant availed CENVAT Credit on 263 invoices. The case of the appellant was that under those very invoices finished goods were removed from the factory of the appellant, duty paid thereon and dispatched to M/s. Telco Limited. However, M/s. Telco Limited rejected the goods as being defective and hence the goods were returned and in terms of Rule 16 of the CENVAT Credit Rules, 2002, the appellant credited the duty originally paid. That the said credit was utilized for clearance of another lot of goods but there was no evidence, either to show that the goods had not been returned by M/s. Telco Limited, or that while clearing the second lot of goods, there was any clandestine production or clandestine removal. That even the diversion of finished goods alleged by the respondent authority, was not established. It was submitted that the statement of the Transporter with whom the appellant Company had dealings was misread and mis-appreciated by the respondent authority and the majority members of the CESTAT. Learned counsel, therefore, pleaded that, in fact, the entire matter had proceeded on surmises and conjectures in absence of any cogent evidence in support of the case sought to be made out by the respondent authority. Hence, the issue in question gave rise to a substantial question of law which was required to be considered by this Court.

Learned counsel appearing on behalf of the respondent authority, on advance copy, has supported the action of the respondent authority by referring to the order made by the respondent authority.

As can be seen from the three orders made by Member (Judicial), Member (Technical) and Third Member, each of the order proceeds to appreciate the facts in the perspective that each one of them formed in light of the facts on record. The order of the Member (Judicial), which is in favour of the appellant proceeds on the footing that by paying duty at the time of original clearance and thereafter crediting the duty at the time of return of the goods was a revenue neutral exercise and hence appreciated the evidence in the said light. As against that, the majority opinion has not accepted the version put forth by the appellant in light of the evidence on record, the factors which have weighed with the members recording the majority opinion are as under :-

(1) The Representative of M/s. Telco Limited categorically stated that no consignment had been received and, therefore, there is no question of rejecting any consignment.

(2) M/s. Telco Limited has not received any credit notes stated to have been issued in their favour by the appellant.

(3) That actually the credit notes were not forwarded to M/s. Telco Limited.

(4) The statement of the Transporter specifically stated that goods are not being unloaded at a place other than destination recorded in lorry receipts.

(5) The appellant Company has no godown at Pune and, therefore, the said goods are taken back from Pune to Kalol in the same truck.

(6) That the transporter did not have any storage place for storing the finished goods, which were not accepted by Telco Limited.

(7) That the representative of the appellant and the Transporter both had categorically recorded in their statements that the goods were not stored at any place.

(8) That, if the aforesaid statements are accepted at face value, there is no plausible explanation as to why there is delay of 40 to 140 days in receiving back the finished goods from the date of clearance.

(9) That considered in the light of the statement of the Transporter that the goods are transported back in the same truck upon refusal to accept the consignment would not fit in with the explanation tendered for the delay in returning the consignment, namely, the statement that the transporter used to pick up goods from different centers before returning them.

(10) That finished goods dispatched by the appellant to factories of Telco Limited at Banglore and Jamshedpur are stated to have been returned back from Pune.

(11) That the appellant had failed to render any explanation in this regard and correlate sequences that warranted the storage of such finished goods at Pune.

Based on the aforesaid findings of fact arrived at after appreciating the evidence on record, CESTAT, vide majority opinion, has come to the conclusion that the appellant has availed of CENVAT Credit to which, the appellant was not entitled. That as it was the case of the appellant that credit had been entered in the Register because of return of goods, the onus, which was on the appellant to establish return of goods, was not shown to have been discharged in light of the evidence on record. It has further been found by CESTAT that though the original explanation of the appellant was that defective goods have been returned by M/s. Telco Limited for rectification, subsequently, it was found that, in fact, M/s. Telco Limited had never rejected and returned the said goods. That whenever M/s. Telco Limited rejected and returned the goods, it had always issued debit notes for rejection of such goods.

It is in this context that CESTAT has come to the conclusion that the order of denial of CENVAT Credit along with levy of interest and equivalent penalty is justified. Considering the facts of the case as found by CESTAT, it is apparent that the issue revolves round appreciation of facts. It is not possible to state that this is a case of no evidence, nor is it possible to state that irrelevant factors have been considered by CESTAT and relevant factors ignored. In the circumstances, even if another view different from the one recorded by CESTAT is possible on the evidence on record that by itself would not give rise to any substantial question of law so as to warrant interference. Accordingly, in absence of any question of law, as proposed or otherwise, much less a substantial question of law, appeal is dismissed.