Section 9D compliance and corroborated evidence are essential before denying Cenvat credit on alleged non-receipt of inputs.

Recorded statements used to deny Cenvat credit cannot be treated as substantive evidence unless the mandatory procedure under section 9D of the Central Excise Act is followed, including proper examination and opportunity for cross-examination; otherwise the statements are inadmissible against the assessee. Where the alleged non-receipt of inputs is based mainly on transporter statements, the department must independently corroborate that claim with reliable evidence. Contemporaneous documentary records, statutory entries, cheque payments, check-post endorsements, and proof of use of inputs in manufacture can outweigh untested oral statements. On this approach, denial of credit and consequential demand cannot stand without independent proof.

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Issues: (i) whether statements recorded during investigation could be relied upon without examination-in-chief and cross-examination in terms of section 9D of the Central Excise Act, 1944; (ii) whether the allegation of availing Cenvat credit on invoices without receipt of inputs was proved on the basis of transporter statements and surrounding evidence.

Issue (i): whether statements recorded during investigation could be relied upon without examination-in-chief and cross-examination in terms of section 9D of the Central Excise Act, 1944.

Analysis: The statements of the persons relied upon by the department had been recorded during investigation, but the adjudicating authority did not first examine those witnesses in adjudication and did not follow the procedure mandated by section 9D. The refusal to permit cross-examination, while relying on those statements as substantive evidence, offended the statutory scheme and the principles of natural justice. The recorded statements could not be treated as admissible proof of their contents unless the prescribed procedure was first complied with.

Conclusion: The reliance on the statements without following section 9D was not sustainable and was against the assessee.

Issue (ii): whether the allegation of availing Cenvat credit on invoices without receipt of inputs was proved on the basis of transporter statements and surrounding evidence.

Analysis: The department's case rested primarily on oral statements of transporters and a few connected persons, whereas the assessee produced documentary material showing entries in statutory records, cheque payments, sales tax check-post endorsements, and utilisation of the inputs in manufacture of final products cleared on duty payment. The documentary evidence was not rebutted by independent proof of alternative procurement, cash flow back, or any complete transport trail establishing non-receipt. Oral statements, especially when untested and contrary to documents, could not outweigh the assessee's records and the surrounding contemporaneous evidence.

Conclusion: The allegation of non-receipt of inputs and wrongful availment of credit was not proved and was decided in favour of the assessee.

Final Conclusion: The demand, penalty, and connected departmental challenge could not be sustained on the evidence as adduced, and the assessee was entitled to relief while the Revenue's challenge failed.

Ratio Decidendi: Where the department relies on recorded statements to deny Cenvat credit, the mandatory procedure under section 9D must be followed and such statements cannot prevail over unshaken documentary evidence unless independently corroborated by reliable proof.

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