Cenvat credit claims for alleged paper input purchases without delivery; denial reversed as VAHAN checks and statements fell short

Whether Cenvat credit could be denied as fraudulently availed on paper transactions without receipt of inputs was determined against the Revenue, as reliance on VAHAN portal enquiries and limited owner statements was held insufficient to conclusively prove non-receipt, particularly when payments were through banking channels and no doubt was cast on their veracity; further, no discrepancies were shown in statutory records/returns or stock/accounting evidence to contradict receipt and use of inputs, and the evidentiary rigour under s. 36B was not met. The impugned order denying credit was set aside and consequential penalties were held unsustainable and quashed; appeals were allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether Cenvat Credit could be denied solely on the basis that vehicle numbers reflected on input invoices were allegedly non-existent or not goods vehicles as per VAHAN portal, despite admissions by supplier and recipient regarding actual supply, receipt, and use of inputs, and in absence of corroborative evidence of non-receipt.

(ii) Whether computer printouts/data extracted from the VAHAN web portal could be relied upon as admissible evidence without compliance with Section 36B of the Central Excise Act, and whether such non-compliance vitiated the demand founded on that material.

(iii) Whether penalties imposed on the noticees, including a director, were sustainable when the substantive allegation of fraudulent/irregular availment of credit (non-receipt of inputs) was not established on legally admissible and cogent evidence.

2. ISSUE-WISE DETAILED ANALYSIS

(i) Denial of Cenvat Credit based only on VAHAN-related vehicle discrepancies

Interpretation and reasoning: The Court found that the impugned denial rested on a single foundational premise: that certain vehicle numbers in invoices were not suitable for transporting bulky goods or were not traceable on the VAHAN portal. The Court treated this as insufficient, particularly because both the suppliers and the recipient admitted that the goods were supplied, received, and used in manufacture of finished goods cleared on payment of duty. The Court also noted that payments for the inputs were made through banking channels, cheques were encashed, and the show cause notice did not allege any flow-back of funds. Further, the Court found no discrepancies were pointed out in statutory and accounting records relating to receipt and utilization of inputs, and there was no supporting transactional evidence such as stock discrepancies or other corroboration to support non-receipt.

Conclusions: Vehicle-number anomalies, without independent corroboration and in the face of consistent banking and record evidence supporting receipt and utilization, could not sustain the allegation of paper transactions or non-receipt. The credit denial was therefore held legally unsustainable.

(ii) Admissibility and evidentiary value of VAHAN portal printouts without Section 36B compliance

Legal framework: The Court examined Section 36B of the Central Excise Act in relation to reliance on computer-generated evidence. It also considered the inclusive meaning of "document" (as discussed in the judgment) to determine whether printouts of digitally maintained data fall within documentary evidence requiring statutory compliance.

Interpretation and reasoning: The Court rejected the Revenue's stance that Section 36B was inapplicable because the information was obtained from a web portal rather than stored on a personal computer. The Court held that any information culled out from digital storage and reproduced in printed form is a computer printout/facsimile of digitally maintained records and therefore must satisfy Section 36B requirements. Since the prescribed legal requirements were not adhered to, the Court held the VAHAN-derived material lacked meaningful credibility and could not constitute a reliable basis to sustain the demand.

Conclusions: Non-compliance with Section 36B rendered the VAHAN portal printouts legally unreliable for sustaining the demand; reliance on such material, particularly as the sole basis, was impermissible.

(iii) Sustainability of penalties (including on a director) where the core allegation fails

Interpretation and reasoning: Having concluded that the evidence was inadequate and legally infirm to establish non-receipt and fraudulent availment of credit, the Court held that penalties imposed on the appellants could not stand. The Court also expressly accepted the applicability of the cited ratio (as applied in the judgment) to hold that penalty on the director was not leviable in the circumstances of the case.

Conclusions: Penalties were held unsustainable and were set aside along with the credit denial; the appeals were allowed with consequential relief as per law.

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