CENVAT credit and cross-examination: untested third-party statements and private diaries need corroboration before sustaining a demand.

CENVAT credit cannot be denied solely on the basis of a broker's diary and untested third-party statements where the assessee is not allowed cross-examination and the record lacks independent corroboration. The article emphasises that statements used against a noticee ordinarily require an opportunity for cross-examination unless exceptional circumstances exist, and that private diary entries by themselves do not establish liability without reliable supporting evidence. Where there is no independent proof of non-receipt of inputs, alternative procurement, cash flow-back, or clandestine diversion, the demand is not sustainable.

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Issues: Whether CENVAT credit could be denied solely on the basis of a broker's diary and third-party statements without allowing cross-examination and without independent corroborative evidence of non-receipt of inputs or diversion of goods.

Analysis: The appeal turned on the evidentiary value of statements recorded from third parties and private diary entries recovered from the broker. The material on record showed that some of the ship-breaking units did not support the Revenue's version, no statements of the alleged recipient rolling mills were recorded, and no shortage or excess of raw material was found in the appellant's records. The denial of cross-examination was material because the case rested substantially on third-party statements. In such a situation, the settled principle is that statements used against a noticee generally require an opportunity of cross-examination unless exceptional circumstances exist. Private diary entries, even if authentic, do not by themselves establish liability without independent evidence of trustworthiness and corroboration. The Revenue had not adduced sufficient independent evidence of alternative procurement, cash flow-back, or clandestine diversion to sustain the demand.

Conclusion: CENVAT credit could not be denied on the basis of the diary and untested third-party statements alone, and the appellants were entitled to succeed.

Ratio Decidendi: A demand based principally on third-party statements and private records cannot be sustained unless the assessee is afforded cross-examination and the material is supported by independent corroborative evidence.

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