Cenvat credit and clandestine removal: private records need corroboration, while credit fails without proof of receipt or use of inputs

Clandestine removal of GI wires cannot be sustained on a private factory-gate register alone; absent corroboration such as excess raw material, buyer inquiry, or other supporting evidence, the demand fails. By contrast, Cenvat credit is inadmissible where the unit was not operating during the relevant period and no proof shows lawful receipt, movement, or use of inputs, so the related demand and penalties are sustained. The result is partial relief only on the alleged clandestine clearance issue, with the credit and penalty disputes decided against the assessee.

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Issues: (i) Whether the demand relating to alleged clandestine manufacture and clearance of GI wires was sustainable on the basis of a private record maintained at the factory gate without supporting corroboration. (ii) Whether the demand of ineligible Cenvat credit and the connected penalties were sustainable where the unit was not functioning during the relevant period and credit was taken on the basis of invoices.

Issue (i): Whether the demand relating to alleged clandestine manufacture and clearance of GI wires was sustainable on the basis of a private record maintained at the factory gate without supporting corroboration.

Analysis: The alleged clearance was supported only by an internal register maintained at the factory gate. No excess or unaccounted raw material was found, and no inquiry was conducted with the buyer of the finished goods. A case of clandestine clearance cannot rest on suspicion or presumption alone and must be supported by evidence.

Conclusion: The demand on account of alleged clandestine clearance was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand of ineligible Cenvat credit and the connected penalties were sustainable where the unit was not functioning during the relevant period and credit was taken on the basis of invoices.

Analysis: The records showed that the unit was not working during the relevant period when the credit was taken. Even if the inputs were not physically received, or only the documents were received for availing credit, the credit was not admissible. No evidence was produced to show lawful movement of inputs to job workers or any other basis to support the credit.

Conclusion: The demand of ineligible Cenvat credit and the penalties connected with that issue were sustained against the assessee.

Final Conclusion: The appeal succeeded only on the clandestine removal demand and failed on the credit and penalty issues, resulting in a partial relief to the assessee.

Ratio Decidendi: A charge of clandestine removal requires corroborative evidence beyond a private record, whereas Cenvat credit is inadmissible when taken without the unit being operational during the relevant period or without proof of receipt and use of inputs.

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