Burden of proof in credit reversal disputes: uncorroborated statements cannot sustain duty demand without positive evidence.

A duty demand alleging wrongful credit on inputs said to have been used in exempted ADV tyre manufacture failed because the Revenue relied mainly on tentative lists, stock statements and uncorroborated officer statements rather than positive evidence of actual use. The Cost Auditor's certificate, cost audit report and supporting records, produced on the adjudicating authority's directions, were not displaced by contrary material, so the burden of proving wrongful availment of credit was not met. The main duty, interest and penalty demand was set aside, while the Commissioner's dropping of the balance demand was upheld because the Department showed no reliable basis to interfere with that finding.

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Issues: (i) Whether the demand of duty, interest and penalty on the footing that inputs were used in the manufacture of exempted ADV tyres could be sustained; (ii) Whether the Commissioner was justified in dropping the balance duty demand.

Issue (i): Whether the demand of duty, interest and penalty on the footing that inputs were used in the manufacture of exempted ADV tyres could be sustained.

Analysis: The demand was founded principally on tentative lists, stock statements and statements of officers, but the record did not disclose any specific finding or corroborative evidence showing that the disputed inputs were actually used in or in relation to the manufacture of ADV tyres. The Cost Auditor's certificate, cost audit report and supporting records were submitted pursuant to the adjudicating authority's own directions and were not effectively displaced by contrary material. Findings based on assumptions, derived figures and uncorroborated statements could not sustain a duty demand where the burden to establish wrongful availment of credit remained on the Revenue.

Conclusion: The duty demand of Rs. 78,57,625/-, together with interest and penalty, was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the Commissioner was justified in dropping the balance duty demand.

Analysis: The balance demand had been dropped on the basis of the material before the adjudicating authority, and the Department did not establish any sufficient basis to upset that finding. In the absence of reliable evidence contradicting the assessee's records and certificates, the order dropping the balance demand could not be interfered with.

Conclusion: The dropping of the balance demand of Rs. 24,53,668/- was upheld in favour of the assessee and against the Revenue.

Final Conclusion: The assessee succeeded on the duty demand, interest and penalty, while the Revenue's challenge to the dropped portion of the demand failed; the impugned order was therefore substantially set aside and confirmed only to the extent of the dropped demand.

Ratio Decidendi: A duty demand based on alleged use of inputs in exempted manufacture cannot be sustained without positive, tangible and corroborative evidence, and the burden to prove the alleged wrongful availment of credit lies on the Revenue.

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