Rule 173Q penalty requires reliable evidence; third-party statements without cross-examination and investigation were insufficient.

Penalty under Rule 173Q of the Central Excise Rules, 1944 could not be sustained where it was based mainly on a third-party statement alleging bogus invoices, because no cross-examination was allowed and no independent enquiry or record verification supported the allegation. The absence of supplier-side investigation and of proof from stock or statutory records at the appellants' premises meant the charge was not established. Consistently with the connected matters and the High Court's view that Rule 173Q requires evidence that the assessee dealt with the goods during the relevant period, the penalty was set aside.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 could be sustained on the basis of a third-party statement alleging issuance of bogus invoices, in the absence of cross-examination and independent investigation.

Analysis: The penalty rested primarily on the statement of a third party, but no cross-examination was granted to the appellants. There was also no independent enquiry from the supplier side or verification of stock and statutory records at the appellants' premises to show that the appellants had actually dealt with goods in the manner alleged. The finding was further supported by the fact that the connected matters involving the buyers had already been set aside, and the High Court had held that penalty under Rule 173Q could not be invoked unless the appellants had dealt with the goods during the relevant period.

Conclusion: Penalty under Rule 173Q was not sustainable and was set aside.

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