At a guess (and it is a guess)...
1. If it was in perfect running order etc why was it in for repairs in the first place?
2. You say it was in perfect running order when it went in. Prove it.
3. Garage say it was knacked before they got it. Again Prove it (easier for them cos it's knacked).
4. What is the fault? Is it something that is subject to wear and tear in normal operation or something that is only likely to break if subjected to incompetence?
Was a condition report made on the vehicle when it was booked in? Mileage recorded? Photo's taken (after someone accused them of denting a vehicle my father in law now does a quick trip round the car with a digital camera when they come into his garage, takes less than 2 mins to do).
Assuming your a regular customer most reputable garages will at least talk about it and try to come to some agreement as they want the repeat custom if it's the first time that you have come through the door maybe not. At the end of the day it's going to end up as a 'you said' 'they said' argument
I would in the first instance talk to them, explain the facts and see what the reaction is. Next stage wold be trading standards and google to see if theres previous on it. Finally, if no resolution go to the small claims court. You do however have to give them a chance to put things right.
The vehicle, if booked in for work should be covered on their insurance.
This posting may have been helpfull, on the other hand probably not... Either way, I may have had drink when posting it in which case it's probably not as helpfull as it could have been
Work safe, and remember all technical problems can be resolved with a hammer, the trick is knowing where to hit it and how big a hammer to use (I often find it may also help to have a spare bit in the shed to replace the bit you have just mullered

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