Modvat cannot be denied only the basis of statement recorded without providing assessee opportunity to cross examine evidences

Brief facts of the case:

M/s SM Energy Teknik & Electronics Ltd (Appellant No.1) was engaged in the manufacture of Industrial Machineries, classifiable under Chapter 84 of the Schedule to the Central Excise Tariff Act, 1985. On 12.04.1999, the office premises of the Appellant were searched by Central Excise officers. They also searched the office premises of two registered dealers viz. M/s Prakash Steelage Ltd and M/s Prakash Steel, both located at Mumbai. The said officers seized several records and documents of the Appellant and also recorded the statements of appellants, the said dealers and transporters.

A Show Cause Notice was issued, proposing demand of MODVAT Credit amounting to Rs.44,25,049.00 along with interest and to impose penalty of equal amount of MODVAT and to appropriate the amount already deposited by the Appellant No.1. It has also proposed to impose penalty on Shri Manohar Naik, Executive Director (Appellant No.-2). It has been alleged that during the period from April 1996 to November 1998, the Appellant No.1 had wrongly availed MODVAT Credit on the strength of invoices, without physically receiving the raw materials as mentioned in the said invoices. The Adjudicating authority confirmed the demand of MODVAT Credit of Rs.44,25,049/- along with interest and imposed penalty of equal amount of MODVAT Credit. He also imposed penalty of Rs.2,50,000/- on Appellant No.2.

The adjudication order was upheld by the Commissioner (Appeals). Aggrieved by the same, the assessee company and its director preferred an appeal before the CESTAT.

Contention of the Assessee:

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