By TIOL News Service

MUMBAI, NOV 24, 2015: REVENUE is in appeal before the High Court against the order passed by the CESTAT. The principal contention is that the stand of the Assessee that there is revenue neutrality should not have been accepted in the absence of evidence on record.

The facts - Adjacent to the factory of M/s. Standard Oil, Silvassa, is the factory of another assessee M/s. Standard Oil and Grease. That company is also engaged in the manufacture of same products. M/s. Tarapur Grease India Pvt. Ltd., the third assessee is also manufacturing the same products. These three units are having common directors and partners. They have a common registered head office. The basic raw material (which is the same) procured was exchanged between these three entities on which CENVAT Credit is taken.This is in order to meet the urgent requirement of raw materials. Though the documents and books are privately maintained, yet on search and seizure, it was found that the goods were never diverted to any third parties but were utilized' interse .

The Tribunal has accepted the version of the assessee by holding that the tanker register maintained by the transporter and the statements of the transporters would indicate that inputs have been delivered at the places of these companies and none have been diverted to factories of third parties. There is also no evidence on record to suggest that the inputs cleared by the assessees without reversal of the CENVAT Credit were sent elsewhere and, therefore, there is no cause for denial of credit.

This argument as canvassed before the Tribunal was accepted by applying revenue neutrality doctrine.

In the Revenue appeal it is submitted that there was no evidence on record proving that inputs on which credits were taken were merely exchanged by the assessees with associate companies. Inasmuch as this was a clear case of diversion of inputs without reversal of CENVAT credit taken and, therefore, the orders of the Tribunal are perverse. It is also submitted that the Tribunal having accepted the argument of revenue neutrality chose to impose penalties and, therefore, in view of the conflicting and contradictory conclusions rendered the Tribunal's orders cannot be prima facie sustained and must be set aside.

The High Court observed –

++ It is no doubt true that the procedure adopted was not in consonance with the formalities prescribed by law, however, even the examination of private books and the entries therein having been corroborated by the transporters, resulted in no revenue loss, then, the Tribunal's conclusion cannot be said to be perverse.

++ It may be, as observed by the adjudicating authority, that this mode of clearance gives some temporary benefit to the associate companies but the objection raised was of diversion of goods. That case could not be substantiated by revenue.

++ The Tribunal found that once the inputs have been delivered only at the factories of the assessees from the associate companies, then no loss occurs to revenue. The assessees would derive no benefit by not reversing CENVAT credit on the inputs, when sister concerns are also eligible to take CENVAT credit. Therefore, in the absence of cogent and reliable evidence particularly on the diversion of these inputs, the Tribunal applied the doctrine or principle of revenue neutrality. We do not see how the same was inapplicable in the admitted facts and circumstances.

++ Merely because the penalty has been notionally imposed on all the assessees does not mean that the Tribunal's earlier conclusion, and by applicability of the principle of revenue neutrality, is perverse or vitiated by any error of law apparent on the face of record. Imposition of the notional penalty is for infraction of some procedural rule. That has no bearing on the main issue.

Holding that the findings of fact do not raise any substantial question of law, the Revenue appeals were held as being devoid of merits and were, therefore, dismissed.

(See 2015-TIOL-2657-HC-MUM-CX)