Cenvat credit demand fails when based on untested witness statements without independent proof of non-receipt of inputs.

Cenvat credit demand and penalties cannot be sustained where the department relies mainly on witness statements that were not tested by cross-examination and produces no independent corroboration that inputs were not received. Here, the assessee had maintained statutory records, filed returns, and cleared finished goods on duty payment, while the departmental case rested on uncorroborated investigation statements and presumption rather than proof. In the absence of evidence establishing diversion or non-receipt of raw materials, the adjudication was untenable. The order-in-original was set aside and the appeals were allowed.

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Issues: Whether the demand of Cenvat credit and consequential penalties could be sustained when the department relied mainly on statements of witnesses who were not produced for cross-examination and when there was no independent corroboration of non-receipt of inputs.

Analysis: The appellants had maintained statutory records, filed returns, and cleared finished goods on payment of duty. The department's case rested substantially on statements recorded during investigation, but many of the witnesses were not made available for cross-examination. In the absence of cross-examination and independent evidence showing that the raw materials were not received, the findings rested on presumption rather than proof. The failure to establish the source of raw materials or to corroborate the alleged diversion of inputs made the departmental case untenable.

Conclusion: The demand of Cenvat credit and the related penalties could not be sustained; the order-in-original was set aside and the appeals were allowed.

Final Conclusion: The appellants succeeded because the adjudication was based on untested statements without adequate corroboration, and the departmental allegations of non-receipt of inputs were not proved.

Ratio Decidendi: A demand based principally on statements of witnesses who are not subjected to cross-examination, without independent corroborative evidence, cannot be sustained.

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