Cenvat credit cannot be denied on third-party statements alone when goods came through an existing supplier and payment was by cheque.

Cenvat credit could not be denied merely on the basis of a third-party statement alleging non-activity of the original manufacturer and first-stage dealer, where the assessee received goods through an existing second-stage dealer and paid by cheque. Rule 7 of the Cenvat Credit Rules required reasonable verification of the immediate supplier's identity and address, not investigation beyond that chain. The Revenue failed to prove that inputs were never manufactured or cleared, or to produce supporting evidence such as transport records, proof of flow-back of funds, or material showing fictitious supply. On these facts, the credit denial was unsustainable in law.

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Issues: Whether Cenvat credit could be denied on the basis of statements suggesting non-activity of the original manufacturer and the first-stage dealer, when the inputs were received through an existing second-stage dealer and payments were made by cheque.

Analysis: Rule 7 of the Cenvat Credit Rules required the recipient to take reasonable steps to verify the identity and address of the immediate supplier. The appellant received the goods from the second-stage dealer, whose existence was not disputed. The evidence did not establish beyond doubt that the inputs were never manufactured or cleared, and the Revenue relied mainly on the statement of the proprietor of the original manufacturer, who was not shown to be in day-to-day control. There was no evidence from transporters, no proof of flow-back of money, and no material showing any alternative source of inputs. In these circumstances, the recipient could not be expected to go beyond the immediate supplier to verify the prior chain of supply.

Conclusion: Cenvat credit could not be denied, and the denial was unsustainable in law.

Ratio Decidendi: Cenvat credit cannot be disallowed merely on a third party statement where the recipient has dealt with an existing immediate supplier, paid by cheque, and the Revenue fails to prove non-receipt of inputs or other evidence of fictitious supply.

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