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Issues: (i) whether the demand of duty based on alleged clandestine removals could be sustained and whether the assessee was entitled to SSI exemption under Notification No. 8/2003-CE; (ii) whether recovery of Cenvat credit, with interest and penalty, could be upheld when the credit was only availed in books and reversed before utilisation.
Issue (i): whether the demand of duty based on alleged clandestine removals could be sustained and whether the assessee was entitled to SSI exemption under Notification No. 8/2003-CE.
Analysis: The demand rested on alleged clandestine manufacture and clearances supported mainly by statements and sales details collected during investigation. The Tribunal held that clandestine removal is a serious charge and can be proved only by tangible and corroborative evidence such as excess raw material procurement, excess electricity consumption, transport details, sale proceeds, and similar material. No such independent evidence was brought on record. The statements relied upon were not safely usable as substantive evidence in the absence of compliance with Section 9D and were also treated as having been retracted and insufficiently tested for voluntariness. The Tribunal further found that the clearances adopted in the show cause notice were unsupported and substantially higher than the assessee's own figures. Once clandestine removal was not proved, the basis for denying SSI exemption also failed.
Conclusion: The duty demand on alleged clandestine removals was unsustainable and the assessee was entitled to SSI exemption.
Issue (ii): whether recovery of Cenvat credit, with interest and penalty, could be upheld when the credit was only availed in books and reversed before utilisation.
Analysis: The Tribunal held that Rule 14 of the Cenvat Credit Rules, 2004 distinguishes between credit wrongly taken but not utilised and credit taken and utilised. On the facts found, the department did not establish any utilisation of the credit and did not dispute its reversal in the books before use. In such circumstances, mere book entry without utilisation did not justify recovery with interest. As the credit itself was not available after the relevant period and was reversed before utilisation, the demand could not survive, and the connected interest and penalties also fell.
Conclusion: The Cenvat credit demand, together with interest and penalty, was not sustainable.
Final Conclusion: The impugned order was set aside in full, with the assessee obtaining relief on both the duty demand and the credit-related demand.
Ratio Decidendi: Allegations of clandestine removal must be proved by independent and tangible corroborative evidence, and unutilised credit reversed before utilisation cannot be recovered under Rule 14 as if it were credit validly taken and used.
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