Cross-examination and corroboration are essential before sustaining Cenvat credit demand based on statements and unverified records.

Cenvat credit demand and penalties could not be sustained where the department relied on uncorroborated statements, an unidentified diary author, and alleged parallel ledgers, while denying cross-examination of the witnesses. The Tribunal held that statements recorded without allowing cross-examination could not be used to confirm the demand. It also found that a diary recovered from a partner's residence was inadmissible because the author was not identified or examined. The existence of two ledgers, without proof of discrepancy in the RG-23 records or a meaningful investigation into the alleged non-receipt of inputs, was insufficient to establish suppression. The demand, penalty, and confiscatory consequences were set aside.

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Issues: Whether the demand of Cenvat credit and related penalties could be sustained on the basis of uncorroborated statements, an unidentified diary author, and alleged parallel ledgers, when cross-examination of relied-upon witnesses was denied.

Analysis: The appeal turned on the evidentiary basis for the allegation that the assessee had availed credit without receipt of inputs. The Tribunal held that where cross-examination of the relied-upon witnesses is not permitted, their statements cannot be relied upon to confirm the demand. It further held that a diary recovered from the residence of a partner of the dealer was not admissible because its author was not identified and no statement of the author was recorded. The Tribunal also found that the existence of two ledgers, taken together, did not by itself establish suppression, especially when the total quantity recorded therein matched the inputs reflected in the assessee's records and no discrepancy was shown in the RG-23 records. The revenue also failed to conduct a meaningful investigation into the alleged non-receipt of the quantity reflected in the dealer's records or to establish the source of inputs used in manufacture of duty-paid finished goods.

Conclusion: The demand, penalty, and confiscatory consequences were not sustainable and were set aside in favour of the assessee.

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