Substantiation of substitution allegations and DEPB-linked Cenvat credit turned on proof and the post-amendment trade policy position.

The Department's allegation that imported aluminium scrap was substituted with locally procured scrap failed because no samples were drawn and no cogent evidence proved non-receipt, clandestine removal, or substitution; the charge remained unsubstantiated. Cenvat credit on imported inputs could not be denied where duty was debited through DEPB for the period after the amendment of Para 4.3.5 of the Foreign Trade Policy, because the amendment effective from 28.01.2004 permitted such duty debit to qualify for credit or drawback. The order setting aside the demands was therefore left undisturbed and the revenue's appeal failed.

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Issues: (i) Whether the allegation that imported aluminium scrap was substituted by locally procured scrap was proved by the Department. (ii) Whether Cenvat credit on imported inputs, where duty was debited through DEPB, could be denied for the period after the amendment of Para 4.3.5 of the Foreign Trade Policy.

Issue (i): Whether the allegation that imported aluminium scrap was substituted by locally procured scrap was proved by the Department.

Analysis: The Department did not draw samples of the scrap and did not produce cogent evidence to support the allegation of non-receipt, clandestine removal, or substitution with kabari scrap. In the absence of supporting material, the allegation remained unsubstantiated and the burden of proving such a serious charge was not discharged.

Conclusion: The allegation of substitution of raw material was not proved against the assessee.

Issue (ii): Whether Cenvat credit on imported inputs, where duty was debited through DEPB, could be denied for the period after the amendment of Para 4.3.5 of the Foreign Trade Policy.

Analysis: Para 4.3.5 of the Foreign Trade Policy was amended with effect from 28.01.2004 to permit duty debited through DEPB to be treated as admissible for Cenvat credit or drawback. The credit in dispute pertained to the period after this amendment, and therefore denial of credit was not justified.

Conclusion: The assessee was entitled to Cenvat credit on the imported inputs for the relevant period.

Final Conclusion: No interference was called for with the order setting aside the demands, and the revenue's appeal failed.

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