Cenvat credit mismatch and uncorroborated statements cannot by themselves sustain demand; director penalty also set aside.

Cenvat credit on duplex paper could not be denied merely on a period-wise mismatch between receipt and consumption where payments were made through banking channels, there was no evidence of fund flow-back, and untested statements lacked corroboration and cross-examination; the credit demand and related penalty were set aside. The separate demand based on dispatch advices and parallel invoices was remanded for fresh adjudication because the dispute on prior contest required reconsideration after hearing the assessee. Penalty on the director under Rule 26 was also set aside because no confiscation order or material showing mala fide conduct or active involvement was established.

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Issues: (i) Whether Cenvat credit on duplex paper could be denied on the allegation of non-receipt of goods and the corresponding penalty sustained; (ii) whether the demand based on dispatch advices and parallel invoices required fresh adjudication; (iii) whether penalty imposed on the director under Rule 26 of the Central Excise Rules, 2002 was sustainable.

Issue (i): Whether Cenvat credit on duplex paper could be denied on the allegation of non-receipt of goods and the corresponding penalty sustained?

Analysis: Credit under the Cenvat scheme is not governed by a one-to-one correlation between receipt and consumption in a particular period. The mere comparison of receipts and issues for a selected period could not establish non-receipt of the raw material, especially when payments were made through banking channels and there was no evidence of flow-back of funds. The statements recorded during investigation were not treated as sufficient, by themselves, to sustain the allegation, particularly in the absence of cross-examination and independent corroboration from the supplier side. The demand was therefore held to be unsupported by adequate evidence.

Conclusion: The demand of Rs. 12,31,553/- and the equal penalty were set aside in favour of the assessee.

Issue (ii): Whether the demand based on dispatch advices and parallel invoices required fresh adjudication?

Analysis: There was a factual dispute as to whether the demand had in fact been contested before the lower authority. In view of this dispute, the matter required reconsideration after giving the assessee an opportunity to be heard.

Conclusion: The demand of Rs. 4,06,382/- was remanded for fresh decision.

Issue (iii): Whether penalty imposed on the director under Rule 26 of the Central Excise Rules, 2002 was sustainable?

Analysis: The penalty was imposed without any order of confiscation, and no material showed mala fide conduct or active involvement of the director in any illegal activity. With the principal demand set aside and the remaining matter remanded, the basis for the personal penalty was not established.

Conclusion: The penalty of Rs. 3 lakhs on the director was set aside in favour of the appellant.

Final Conclusion: The assessee succeeded on the major credit demand and on the personal penalty, while the balance demand was sent back for reconsideration, resulting in a mixed outcome with partial relief and partial remand.

Ratio Decidendi: Cenvat credit cannot be denied merely on a period-wise mismatch between receipt and consumption when payment through banking channels and lack of corroborative evidence show actual purchase, and statements recorded without cross-examination cannot alone sustain a demand; penalty under Rule 26 requires a legally sustainable basis linked to confiscation or proven culpability.

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