Cenvat credit demand cannot rest on untested third-party statements; cross-examination and corroboration are essential for sustainability.

CESTAT Chandigarh held that a demand of Cenvat credit, interest and penalties cannot be sustained where it rests mainly on third-party statements and the assessee is denied cross-examination. Statements recorded during investigation are not substantive evidence unless the statutory procedure under Section 9D of the Central Excise Act is followed. The Tribunal also noted that the documentary material produced by the assessees, including goods receipts, stock records, RG-23C Part I, banking records and monthly returns, was not properly considered, while the department produced no independent evidence of non-receipt of goods. On that basis, the demand and penalties were set aside.

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Issues: Whether the demand of Cenvat credit, interest and penalties could be sustained when the case rested primarily on statements of third parties without affording cross-examination and without independent corroborative evidence.

Analysis: The Tribunal noted that the demand was founded mainly on statements of the director and dealer/transport-related persons, but no opportunity of cross-examination was granted despite specific request. In such circumstances, the statements could not be relied upon as substantive evidence unless the procedure contemplated by Section 9D of the Central Excise Act, 1944 was followed. The Tribunal also found that the Commissioner (Appeals) had not properly considered the documentary evidence produced by the appellants, including goods receipts, statutory stock records, RG-23C Part I, banking records, and monthly returns, and that the department had not produced independent evidence to prove non-receipt of goods. On that basis, the confirmations of demand and penalties were held to be unsustainable.

Conclusion: The demand, interest and penalties were not sustainable, and the relief was granted to the appellants.

Final Conclusion: The adjudication failed for want of compliance with the statutory procedure governing use of statements and for absence of independent corroboration, resulting in complete relief to the assessees.

Ratio Decidendi: Statements recorded during investigation cannot be relied upon in adjudication unless the statutory procedure for their proof is followed and the assessee is given an effective opportunity to test that evidence by cross-examination; uncorroborated statements alone are insufficient to sustain tax demand and penalty.

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