MODVAT credit allegation failed for want of reliable evidence of dummy unit or false supplier declarations.

An allegation that a unit was a dummy or fictitious concern created to secure MODVAT credit must be supported by credible evidence. The note explains that the Department failed to establish absence of manufacturing activity, did not effectively rebut documentary and oral evidence showing receipt of radiator parts and manufacture by the assessee, and produced no convincing proof that supplier declarations were false. On that evidentiary record, the charge of erroneous credit, reversal demand and penalty was treated as unsustainable because it rested on suspicion and conjecture rather than proof.

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Issues: Whether the allegation that the appellant was a dummy or fictitious unit created to secure erroneous MODVAT credit, and the consequential demand for reversal of credit and penalty, was substantiated by acceptable legal evidence.

Analysis: The record showed that the Department did not produce convincing evidence to establish that the appellant had no manufacturing activity or that complete radiators, rather than radiator parts, were received and cleared. The statements of the suppliers and the supporting documents indicated supply of radiator parts, the appellant's manufacturing activity was supported by records, and the Department did not effectively rebut the documentary and oral evidence or show that the suppliers' MODVAT declarations were false. In the absence of reliable proof, the allegation rested only on suspicion and conjecture.

Conclusion: The charge of erroneous availment of MODVAT credit was not proved and the impugned order disallowing credit, directing reversal and imposing penalties was set aside in favour of the assessee.

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