Order Date – 30 October 2023

Parties:  M/s Drolia Electrosteel P. Ltd., Shri Rajiv Drolia, and Shri Anand Choudhary Vs Commissioner, Customs, Central Excise & Service Tax

Facts –

• The Appellant, M/s Drolia Electrosteel P. Ltd. manufactures sponge iron and mild steel (MS) billets. It pays excise duty and avails Cenvat credit on the inputs and input service. They purchased MS scrap from various manufactures and availed Cenvat credit on the invoices issued by them.
• Consequent to the investigation by the DGCEI a Show cause notice was issued proposing to deny the Cenvat credit on the ground that the manufactures were found to be non-existent
• The Demand was confirmed and ordered the recovery of Cenvat credit with interest and Penalty. Also penalty was imposed on other appellants. 

Issue –

• Whether the denial of Cenvat credit based on invoices from alleged non-existent manufacturers is justified?

Order: 

• The Tribunal observed that it is evident that the “non-existent manufacturers/ dealers‟ were all given registrations by the Central Excise Commissionerate. Like the Schrodinger's cat which is both dead and alive, according to the Revenue, these firms both existed and did not exist. Their existence was presumed when they were registered and their existence was denied when their registrations were cancelled.
• In the SCN and the impugned order, their existence was presumed when the SCN and the notices for personal hearing was sent but in the same SCN and the impugned order their existence is denied to deny the Cenvat credit to the assessee.
• There is no evidence or allegation of fraud by the officers, hence, it is reasonable to presume that the appellant believed that the manufacturers/traders existed. Such being the case, the appellant cannot be faulted for also believing that the manufacturers/traders existed and trusting the registrations issued by the department and placing orders on the traders.
• The appellant, as the buyer, cannot be expected to investigate if the departmental officers had issued the registrations correctly or not and take business decisions accordingly. The reasonable precautions which the appellant or any other assessee is expected to take is placing orders on a registered manufacturer or dealer and receiving goods along with a Cenvatable invoice indicating all required details. The assessee is not required to launch an investigation.
• Therefore, found no grounds to deny Cenvat credit to the assessee. Consequently, the penalties imposed on Drolia and Choudhary also cannot be sustained. The impugned order is set aside and all three appeals are allowed.