Cenvat credit cannot be denied on uncorroborated transporter statements and check-post material when cross-examination is refused.

Recorded transporter statements and check-post material could not be used to deny Cenvat credit where cross-examination was refused and the statutory requirements for relying on such statements were not satisfied. In the absence of independent corroboration showing non-receipt, diversion, or substitution of inputs, the assessee's statutory records, banking trail, and duty-paid clearances remained unrebutted. On those facts, the demand for reversal of Cenvat credit and the consequential penalties were held unsustainable, and the impugned order was set aside.

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Issues: (i) Whether statements of transporters and other witnesses could be relied upon for denying Cenvat credit when cross-examination was denied and the statements were not shown to be admissible under the statutory scheme. (ii) Whether the demand for reversal of Cenvat credit and the related penalties could be sustained on the basis of check-post material and uncorroborated statements without independent evidence of non-receipt or diversion of inputs.

Issue (i): Whether statements of transporters and other witnesses could be relied upon for denying Cenvat credit when cross-examination was denied and the statements were not shown to be admissible under the statutory scheme.

Analysis: The proceedings rested substantially on transporter statements and check-post reports. The request for cross-examination was refused, yet the Department sought to rely on those statements to establish non-receipt of inputs. The statutory requirements governing use of recorded statements were not satisfied, and the adjudicating authority did not first determine admissibility in the manner required before denying cross-examination. In the absence of cross-examination and in the absence of independent corroboration, the statements could not be treated as reliable evidence against the assessee.

Conclusion: The statements were not admissible or reliable for sustaining the demand against the assessee.

Issue (ii): Whether the demand for reversal of Cenvat credit and the related penalties could be sustained on the basis of check-post material and uncorroborated statements without independent evidence of non-receipt or diversion of inputs.

Analysis: The assessee's purchases and receipts were reflected in statutory records, payments were made through banking channels, and finished goods were cleared on payment of duty. The Department did not produce independent evidence showing that the inputs were not received, were diverted, or were replaced by undisclosed alternate materials. Mere reliance on private records, transporter statements, and check-post reports, without corroboration, was insufficient to displace the documentary record and the accounting trail maintained by the assessee. On the facts found, the legal conditions for denying credit were not established.

Conclusion: The Cenvat credit demand and consequential penalties were not sustainable.

Final Conclusion: The impugned order was set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: Where the demand is founded on recorded statements and check-post material, denial of cross-examination and absence of independent corroborative evidence prevent those statements from being relied upon to disallow Cenvat credit.

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