Cross-examination under section 9D is essential before relying on witness statements to deny Cenvat credit and export rebate.
Where the department's case for denial of Cenvat credit and export rebate rested mainly on witness statements and alleged forged invoices, those statements could not be relied on without cross-examination under section 9D, and the resulting penalties also fell. The text further notes that, where finished goods were manufactured and exported under departmental supervision, payments were made through banking channels, and no alternative source for raw materials or reliable corroboration of non-receipt was established, the Cenvat credit and rebate claims could not be denied. On that basis, the penalties and recoveries were set aside and the Revenue's cross-objection was rejected.
Issues: (i) Whether the demand of Cenvat credit and allied penalties could be sustained on the basis of witness statements and alleged forged invoices without allowing cross-examination in terms of section 9D. (ii) Whether the assessees had actually received inputs and were, therefore, entitled to the Cenvat credit and consequential export rebate claims, and whether the penalties imposed could survive.
Issue (i): Whether the demand of Cenvat credit and allied penalties could be sustained on the basis of witness statements and alleged forged invoices without allowing cross-examination in terms of section 9D.
Analysis: The case of the department rested principally on statements of suppliers, transporters and connected persons. Cross-examination of the witnesses whose statements were relied upon was specifically sought but refused. In the absence of compliance with section 9D and the corresponding opportunity to test the evidence, the statements could not be safely relied upon. The denial of cross-examination was treated as a serious violation of natural justice, especially where the adjudication depended substantially on such statements.
Conclusion: The demand could not be sustained on the basis of those statements and the related penalties founded on them also failed.
Issue (ii): Whether the assessees had actually received inputs and were, therefore, entitled to the Cenvat credit and consequential export rebate claims, and whether the penalties imposed could survive.
Analysis: The finished goods were manufactured and exported under departmental supervision, payments for purchases were made through banking channels, and the department did not establish any alternative source for the raw materials or any cogent corroboration for the allegation of non-receipt of inputs. The alleged inflation of value and the supposed irregularity in documentation were not supported by reliable evidence after the unreliable witness statements were excluded. In that situation, the credit taken under the Cenvat scheme and the consequent rebate claims could not be disallowed, and the penalties could not stand.
Conclusion: The assessees were held entitled to the Cenvat credit and rebate claims, and the penalties and recoveries were set aside.
Final Conclusion: The impugned orders were set aside in full, the appeals were allowed, and the Revenue's cross objection was rejected, with consequential relief to follow in accordance with law.
Ratio Decidendi: Where the department's case rests substantially on witness statements, those statements cannot be relied upon unless the procedure mandated by section 9D is followed and cross-examination is afforded; absent reliable corroboration, allegations of fraudulent Cenvat credit and wrongful rebate cannot be sustained.
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AI Drafter ✕
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