Tangible evidence required for clandestine removal allegations; external investigation and assumptions could not sustain credit, rebate and penalty demands.

CENVAT credit, rebate recovery and penalty could not be sustained where allegations of bogus procurement and fictitious manufacture were based mainly on an external investigation. The record contained invoices, transport documents, toll-entry evidence, departmental verification reports and prior assessments of the supplying units, while the department failed to produce concrete corroboration that raw material was not received or that manufacture and clearance did not occur. Denial of cross-examination further weakened reliance on witness statements. The tribunal applied the settled principle that grave allegations of clandestine removal or wrongful credit must rest on tangible evidence, not inference or conjecture, and granted relief to the appellant.

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Issues: Whether the demands of CENVAT credit, recovery of rebate and imposition of penalty were sustainable where the case rested on allegations of bogus procurement and fictitious manufacture based on an external investigation, and whether the appellant was entitled to exemption-related relief.

Analysis: The allegations were founded on an investigation conducted at a different commissionerate and not on direct investigation at the appellant's end. The record included invoices, transport documents, toll-entry evidence, departmental verification reports and prior assessments of the supplying units. The material relied upon by the department did not establish with certainty that the raw material was not procured or that manufacture and clearance had not taken place. The denial of cross-examination further weakened reliance on witness statements. In the absence of concrete and corroborative evidence, the charges were treated as resting on conjecture rather than proof. The settled principle applied was that grave allegations such as clandestine removal must be supported by tangible evidence and not by inference alone.

Conclusion: The demands, rebate recovery and penalties were not sustainable and the appellant was entitled to relief.

Ratio Decidendi: Allegations of clandestine manufacture, bogus procurement or wrongful credit cannot be sustained on assumptions and third-party investigation alone unless supported by tangible, corroborative evidence establishing the disputed clearances or receipt of goods.

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