Cenvat credit cannot be denied on uncorroborated allegations where banking records and manufacturing evidence support genuine transactions

Cenvat credit cannot be denied merely on an allegation of non-receipt of inputs where purchase and sale transactions are supported by banking records, duty has been paid on clearances, and manufacturing activity is otherwise evidenced. Selective reliance on statements of lower-level staff, without the procedural safeguards governing their use, is insufficient to dislodge the credit claim. A separate shortage detected during inspection may still support a limited demand and equal penalty when that discrepancy is independently established on the facts.

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Issues: (i) Whether denial of Cenvat credit and consequential penalty could be sustained on the allegation that the disputed inputs were not actually received from the suppliers and only duty-paid documents were obtained. (ii) Whether the limited demand relating to shortage of goods found at the time of inspection was sustainable.

Issue (i): Whether denial of Cenvat credit and consequential penalty could be sustained on the allegation that the disputed inputs were not actually received from the suppliers and only duty-paid documents were obtained.

Analysis: The remand proceedings were confined to verifying the genuineness of the purchases and sales reflected through banking channels. The earlier finding that the finished goods had been manufactured and duty had been paid was not open to be reopened. The record showed payment for inputs through banking channels, receipt of sale proceeds through banks, payment of duty on clearances, and evidence of manufacturing activity. The adjudicating authority erred in selectively relying on statements of low-level staff while ignoring the statement of the plant in-charge and other supporting material. Statements relied upon without compliance with the safeguards governing their use could not be the sole basis to deny credit. On the available evidence, the allegation that no inputs were received was not established.

Conclusion: The denial of Cenvat credit on the principal allegation was not sustainable, and the related penalties could not survive.

Issue (ii): Whether the limited demand relating to shortage of goods found at the time of inspection was sustainable.

Analysis: The Tribunal accepted that a short-quantity discrepancy was independently established on inspection. That limited demand did not stand on the same footing as the larger credit dispute and was separately supportable on the facts found.

Conclusion: The limited demand of Rs. 8,984/- and the equal penalty were sustained.

Final Conclusion: The impugned order was set aside to the extent it confirmed the main Cenvat credit demand, interest, and associated penalties, but the minor demand arising from the recorded shortage was upheld.

Ratio Decidendi: Where the evidence shows genuine purchase and sale transactions through banking channels, payment of duty on the finished goods, and supporting manufacturing activity, Cenvat credit cannot be denied on selective or uncorroborated material, and statements cannot be relied upon without the procedural safeguards governing their admissibility.

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