Cenvat credit denial requires corroborated evidence of bogus invoices, not a supplier's unverified statement alone.

Cenvat credit cannot be denied solely on an upstream supplier's statement alleging non-supply when that statement is not corroborated by the first-stage dealers or the recipient manufacturer. The record here showed receipt of inputs, payment by cheque, proper accounting, and use of the inputs in manufacture of duty-paid final products. In the absence of evidence of cash flow back, transport inquiry, or any alternative procurement theory to explain production, the evidentiary basis was insufficient to sustain denial of credit or penalties.

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Issues: Whether Cenvat credit could be denied and penalties sustained merely on the basis of a supplier's statement alleging non-supply of goods, when the first-stage dealers and the recipient manufacturer asserted receipt of inputs and the record showed payment by cheque and proper accounting of inputs.

Analysis: The demand rested essentially on the statement of the upstream supplier that invoices were issued without actual supply. That statement was not supported by the first-stage dealers or by the recipient manufacturer. The dealers stated that goods were received along with invoices, the recipient confirmed receipt of material, and the inputs were reflected in records and used in manufacture of final products cleared on duty payment. There was also no evidence of cash flow back, no transport enquiry, and no alternative procurement theory advanced by Revenue to explain manufacture of the final products. In these circumstances, the evidentiary basis was insufficient to deny credit or impose penalties.

Conclusion: Cenvat credit could not be denied and the demand and penalties were unsustainable.

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