CENVAT credit cannot be denied on suspicion alone when evidence shows receipt and accounting of goods.

CESTAT Hyderabad held that reversal of CENVAT credit, with interest and penalty, could not be sustained where the department alleged fake invoices and non-receipt of goods without independent proof. The assessee's RG-23 records, weighment slips and chartered accountant's certificate supported receipt, return and accounting of the goods, and the dispute was limited to two invoices while other dealings with the same suppliers were not challenged. Mere investigative statements and inferences from alleged dealer irregularities were insufficient to displace this evidence. The demand was therefore set aside and consequential relief followed.

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Issues: Whether the demand of reversal of CENVAT credit, with interest and penalty, on the ground that the disputed invoices were fake and no goods were received by the assessee was sustainable.

Analysis: The assessee produced RG-23 records, weighment slips, and a chartered accountant's certificate showing receipt, rejection, return, and accounting of the goods covered by the disputed invoices. The dispute was confined to two invoices, while several other transactions with the same dealers were not questioned. The only material relied upon by the department consisted mainly of investigative statements and inferences drawn from alleged irregularities in the dealers' chain of transactions. There was no independent evidence to establish non-receipt of goods by the assessee, no transport-related investigation to disprove delivery, and no material to negate the input-output position in manufacture. Such serious allegations of fraudulent credit could not rest on suspicion or assumptions.

Conclusion: The demand was not sustainable and the assessee was entitled to relief.

Final Conclusion: The order confirming recovery, interest, and penalty was set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Allegations of fraudulent CENVAT credit must be established by cogent and independent evidence of non-receipt or misuse of goods, and cannot be sustained on mere suspicion, presumptions, or investigative statements alone.

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