Fraudulent Cenvat credit allegation failed where invoice description differences were explained as commercial nomenclature and no independent evidence supported diversion.

Fraudulent availment of Cenvat credit was not proved where the department relied mainly on invoice descriptions differing from the goods actually received and on statements recorded during investigation. The manufacturer showed procurement through registered dealers, payment by cheque, laboratory testing of inputs before use, and export-oriented finished goods, which reduced any apparent incentive to use non-duty-paid inputs. The relied-upon statements were retracted or disputed as coerced, and no independent documentary or financial evidence showed cash dealings, diversion, or receipt of non-duty-paid goods. The difference in descriptions was accepted as commercial nomenclature in the iron and steel trade, so the duty demand and penalties on the manufacturer, dealer, and signatory were set aside.

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Issues: Whether the department had established fraudulent availment of Cenvat credit by the manufacturer on the basis of invoices describing the goods differently from the goods actually received, and whether the penalties on the dealer and signatory could be sustained.

Analysis: The allegation rested mainly on the disparity between the description in the invoices and the description of the goods received, together with certain statements recorded during investigation. The manufacturer explained that the inputs were purchased through registered dealers, payments were made by cheque, the goods were subjected to laboratory testing before use, and the finished products were largely exported, leaving no apparent incentive to procure non-duty-paid goods for wrongful credit. The statements relied upon by the department were retracted or challenged as having been obtained under coercion, and no independent documentary or financial evidence was produced to show cash transactions, diversion, or receipt of non-duty-paid goods. The differing descriptions were plausibly explained as a matter of commercial nomenclature in the iron and steel trade.

Conclusion: The department failed to prove fraudulent availment of Cenvat credit. The duty demand and the penalties imposed on the manufacturer, the dealer, and the signatory were unsustainable and were set aside.

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