CENVAT credit on fabrication materials cannot rest on an undisclosed report and must satisfy natural justice.

CENVAT credit on iron and steel items used in fabrication of capital goods was disputed on the basis of a departmental verification report. Reliance on that report was held impermissible because it was not supplied to the assessee and no opportunity was given to rebut it, making the adverse finding contrary to natural justice. The text also notes that credit for similar use had been supported by earlier decisions, and the denial of credit was therefore treated as unsustainable.

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Issues: Whether CENVAT credit on iron and steel items used in fabrication of capital goods could be denied on the basis of a one-sided verification report not furnished to the assessee.

Analysis: The denial of credit rested substantially on a verification report prepared by the departmental officer. The report was not supplied to the assessee and the assessee had no opportunity to meet it. In such circumstances, reliance on that report for adverse findings was contrary to the principles of natural justice. The items were also stated to have been used in fabrication of capital goods, and the view allowing credit on similar use was supported by earlier decisions.

Conclusion: The denial of CENVAT credit was unsustainable and the appeal succeeded.

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