Cenvat credit cannot be denied on theoretical norms or uncorroborated statements when invoices, records, and input use are proved.

Cenvat credit could not be denied merely on SION norms, theoretical input-output calculations, or uncorroborated transporter statements when duty-paid invoices, statutory receipt records, banking evidence, and use of inputs in manufacture were established. The documentary record sufficiently proved receipt and consumption of inputs, while the third-party statements lacked independent corroboration and effective cross-examination; the credit demand was therefore unsustainable. Personal penalties under Rule 26 also failed because they were purely consequential to the alleged wrongful credit availment and no separate independent basis for penalty was shown.

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Issues: (i) Whether Cenvat credit could be denied on the basis of SION norms, theoretical input-output calculations, and transporter statements without independent corroboration. (ii) Whether personal penalties under Rule 26 could survive once the credit demand itself was set aside.

Issue (i): Whether Cenvat credit could be denied on the basis of SION norms, theoretical input-output calculations, and transporter statements without independent corroboration.

Analysis: The applicable Cenvat scheme permits credit on duty-paid inputs received in the factory and used in the manufacture of dutiable final products, with the documents prescribed under the credit rules. The demand was founded largely on alleged mismatch with SION norms, theoretical consumption patterns, and third-party transporter statements. Such norms do not govern admissibility of credit under the Cenvat Credit Rules, and theoretical calculations cannot by themselves establish non-receipt of inputs or clandestine diversion. The record showed duty-paying invoices, receipt entries in statutory records, payment through banking channels, and consumption in manufacture. The statements of transporters, many of whom were not subjected to effective cross-examination, were treated as insufficient in the absence of independent corroboration, evidence of diversion, or proof of alternative procurement or money flow back.

Conclusion: The denial of Cenvat credit was unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether personal penalties under Rule 26 could survive once the credit demand itself was set aside.

Analysis: The proposed penalties were consequential to the alleged wrongful availment of Cenvat credit. Once the underlying demand itself failed for want of substantive evidence, the foundation for imposing personal penalty on the connected noticees disappeared. No separate, independent basis for sustaining the penalty was established.

Conclusion: The personal penalties were not sustainable and the revenue failed on this issue.

Final Conclusion: The impugned demand and the connected penalty proceedings could not be sustained because the allegations rested on assumptions, theoretical norms, and uncorroborated third-party material, while the assessee's documentary record established receipt and use of inputs.

Ratio Decidendi: Cenvat credit cannot be denied on the basis of theoretical input-output norms or uncorroborated third-party statements when duty-paid invoices, receipt in statutory records, payment through banking channels, and use in manufacture are established.

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