Deemed Cenvat credit cannot be denied on bare allegations where duty payment and lack of direct complicity are shown.

Deemed Cenvat credit could not be denied, with interest and penalty, where the record did not establish direct complicity of the assessee in the alleged fictitious transactions. The Tribunal noted that the merchant exporter was found to be fake and the transactions lacked proof of genuineness, but there was no direct evidence that the fraud was committed by the assessee. Relying on its earlier identical decision and the evidence of duty payment on the final product through the PLA, it held that the allegations alone were insufficient to sustain the demand. The credit, interest, and penalty were therefore set aside.

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Issues: Whether the demand of wrongly availed deemed Cenvat credit, along with interest and penalty, could be sustained where the department alleged fictitious transactions but no direct evidence of fraud by the assessee was brought on record.

Analysis: The appellate authority had found that the merchant exporter was fake and that the transactions lacked proof of genuineness, but it also recorded that there was no direct evidence that the fraud was committed by the assessee. The Tribunal followed its earlier decision on an identical issue, where it had been held that if duty had been paid on the final product and the record showed payment from the PLA, the weight of evidence could not justify denial of the deemed credit merely on the allegation that no manufacturing process had taken place. Applying that reasoning, and relying on judicial discipline, the Tribunal held that the impugned demands could not be sustained.

Conclusion: The demand of credit, interest, and penalty was set aside, and the appeals were allowed in favour of the assessee.

Final Conclusion: The order confirms that, on the facts found, denial of deemed credit was unsustainable and the consequential liabilities could not survive.

Ratio Decidendi: Where the record does not establish direct complicity of the assessee and the duty paid on the final product evidences reversal of the deemed credit, denial of such credit and the consequential demand of interest and penalty cannot be sustained.

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