Deemed Cenvat credit cannot be denied without direct proof of complicity; interest and penalty also fail.

Denial of deemed Cenvat credit was held unsustainable where the Revenue alleged fictitious paper transactions but produced no direct evidence of the assessee's complicity. The Tribunal noted that duty on the final product had already been discharged and that payment through PLA supported the genuineness of the transactions, effectively neutralising the deemed credit availed. Relying on its earlier decision in an identical matter, it held that the facts did not justify confirmation of the credit demand or the consequential interest and penalty. The assessee therefore succeeded.

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Issues: Whether denial of deemed Cenvat credit, along with interest and penalties, was sustainable when the Revenue alleged fictitious transactions but no direct evidence showed the assessee's complicity and duty had been paid through PLA.

Analysis: The demand arose from a claim that processed fabrics were cleared through paper transactions with a non-existent merchant exporter. The appellate authority recorded that there was no direct evidence that the assessee itself had committed the fraud, though it treated the transactions as not proved genuine and reduced the amount recoverable on the basis of duty paid through PLA. The Tribunal noted that the assessee had already discharged duty on the final product and had also paid an amount through PLA, which supported the genuineness of the transactions and effectively neutralised the deemed credit availed. Relying on its earlier decision in an identical matter, the Tribunal held that the facts did not justify sustaining the denial of credit and the consequential levy of interest and penalty.

Conclusion: The denial of deemed credit and the connected demands were unsustainable, and the assessee succeeded.

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