Modvat credit on supplementary invoices barred where supplier's duty liability arose from mis-declaration and intent to evade duty.

Modvat credit on supplementary invoices is permissible under Rule 7(1)(b) of the Cenvat Credit Rules, 2002, but not where the additional duty was recoverable from the supplier because of fraud, suppression, misstatement, contravention of the law or intent to evade duty. Here, the input manufacturer faced allegations of short payment and mis-declaration with intent to evade duty, did not contest the notice, and paid the duty. On those facts, the statutory bar applied to the recipient, and the credit was inadmissible.

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Issues: Whether Modvat credit taken on the basis of supplementary invoices was admissible when the additional duty paid by the input manufacturer arose from allegations of mis-declaration and intent to evade duty.

Analysis: Rule 7(1)(b) of the Cenvat Credit Rules 2002 permits credit on supplementary invoices, but carves out an exception where the additional duty becomes recoverable from the manufacturer because of fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade payment of duty. The supplier had been issued a show cause notice alleging short payment of duty and mis-declaration with intent to evade duty, did not contest the notice, and settled the matter by paying duty. In those circumstances, the statutory bar under Rule 7(1)(b) applied to the receiver of the inputs.

Conclusion: The credit was not admissible and the disallowance was upheld against the assessee.

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