Modvat/cenvat credit denial must consider the full supplier statement and supporting records before alleging fraud.

Disallowance of modvat/cenvat credit could not rest solely on a supplier's statement and alleged bogus invoices where the adjudicating authority ignored the exculpatory portions of that statement and the assessee's supporting records. The assessee's invoices, receipts, cheque payments and statutory cenvat returns required full consideration, and a fraud allegation had to be proved on the entire material before credit could be denied. The HC therefore set aside the earlier order and remanded the matter for fresh adjudication on the complete evidentiary record.

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Issues: Whether disallowance of modvat/cenvat credit based on the supplier's statement and alleged bogus invoices was sustainable without considering the assessee's documentary record and the exculpatory part of the statement.

Analysis: The dispute turned on whether the department had established fraud with reference to the assessee's own transactions. The statement of the supplier contained both incriminating and exculpatory portions, and the adjudicating authority relied only on the adverse material while ignoring the portion that supported the assessee. The record also showed invoices, receipts, cheques and statutory returns, including cenvat records under Rule 57A(c) of the Central Excise Rules, 1944, which required proper consideration. A fraud allegation must be proved by the department, though the onus may shift once a prima facie case is made; that burden could not be discharged by a general presumption divorced from the assessee's documents.

Conclusion: The disallowance of credit could not be sustained on the material as considered, and the matter required fresh adjudication after examining the relevant statement and documents.

Final Conclusion: The appeal succeeded, the earlier order was set aside, and the dispute was sent back for reconsideration on the complete evidentiary record.

Ratio Decidendi: An allegation of fraudulent availment of credit must be tested on the entire material, and where the department relies on a third-party statement, it must consider the statement as a whole together with the assessee's supporting records before denying credit.

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