Cenvat credit on disputed consignments turned on barrier records, illegible entries, and proof of actual receipt of inputs.

Cenvat credit on disputed consignments was tested against Parwanoo barrier records maintained under the Himachal Pradesh sales tax law. Where the records were illegible, no adverse inference was drawn and credit remained admissible. For the remaining consignments, the barrier entries, movement particulars and surrounding circumstances showed that goods were recorded as received before dispatch or moved within impossible time frames, indicating paper transactions and no actual receipt in the factory. The view that ST-XXVI-A records were irrelevant was rejected on these facts, and manufacture or duty payment on final products did not by itself prove receipt of inputs. Penalties were sustained because the fraudulent credit claim involved active participation and connivance.

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Issues: Whether Cenvat credit was admissible on the disputed consignments said to have entered Himachal Pradesh through the Parwanoo barrier, and whether the demand and penalties were liable to be restored with modification on the basis of the sales tax barrier records and other surrounding circumstances.

Analysis: The disputed entries were examined against the barrier records maintained under Section 22 of the Himachal Pradesh General Sales Tax Act, 1968 and Rule 56 of the Himachal Pradesh General Sales Tax Rules, 1970. For a part of the consignments, the records were illegible and no adverse conclusion was drawn, but for the remaining consignments the dates and movement particulars showed that goods were reflected as received before their alleged dispatch, and in some instances the truck movement over long distance within impossible time frames indicated that the transactions were not genuine. The absence of corresponding entry at the barrier, read with the statutory records and surrounding circumstances, established that those consignments were paper transactions and that the inputs were not actually received in the factory. The earlier view that ST-XXVI-A records were irrelevant was rejected for the present facts, and the plea that manufacture and duty payment on final products by itself established receipt of inputs was not accepted. Penalties were sustained because the fraudulent availment of credit involved active participation and connivance.

Conclusion: Cenvat credit was admissible only for the consignments where the records were not legible, but was inadmissible for the remaining disputed consignments. The demand was required to be recalculated and the penalties were maintained with corresponding modification, so the Revenue succeeded substantially.

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