Modvat credit on fake invoices requires proof and reasoned adjudication; denial cannot bypass evidence or natural justice.

Modvat credit cannot arise from forged or fake invoices, because fraudulent documents confer no enforceable entitlement. Denial of credit, however, must rest on a reasoned adjudication that properly examines the evidence on receipt of inputs, supplier statements, retraction material, technical feasibility, pricing circumstances, and the assessee's explanation, while giving a fair opportunity to rebut the material. An order that fails to disclose how the enquiry evidence was dealt with, or does not record a proper appraisal before concluding non-receipt of inputs, is inconsistent with natural justice. The adjudication order was set aside and the matter remanded for fresh decision after full consideration of the record.

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Issues: Whether Modvat credit could be denied on the basis of alleged fake invoices and disputed receipt of inputs, and whether the adjudication order required reconsideration for want of proper appreciation of evidence and observance of natural justice.

Analysis: The dispute turned on whether the inputs were actually received and whether the suppliers' statements, retraction evidence, furnace capacity, technical feasibility, and price-related circumstances had been properly examined. The order was found wanting because it did not adequately disclose how the material collected in enquiry was dealt with, nor did it sufficiently demonstrate the chain of evidence relied upon to conclude non-receipt of inputs. The record also required scrutiny of the alleged low-price purchases, the suppliers' financial records, and the appellant's explanation regarding conversion of inputs for usability. An adjudication that proceeds abruptly without confronting the material and without recording a reasoned appraisal was held inconsistent with fair procedure. At the same time, if credit is claimed on forged or fake documents, such documents confer no enforceable entitlement and fraud cannot found a valid claim to credit.

Conclusion: The order of adjudication was set aside and the matters were remanded for fresh decision after full examination of the material and opportunity to rebut it.

Ratio Decidendi: Credit based on forged or fake documents is non est, but denial of credit must rest on a reasoned adjudication that confronts the evidence and complies with natural justice.

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