Fictitious supplier invoices and Cenvat credit: fraud invalidates credit, while recovery lies against the recipient who availed it.

A fictitious supplier's invoices were treated as invalid for Cenvat credit purposes because the supplier gave a false address and the transaction was found fraudulent. Mere possession of documents from a provisionally registered supplier was held insufficient, and a dealer was required to take reasonable precautions before passing on credit under Rule 7(2) of the Cenvat Credit Rules, 2002. At the same time, recovery of wrongly availed credit was to be pursued under Rule 12 against the manufacturer or producer who actually took and utilised the credit, not against the dealer on the facts recorded. The penalty of Rs. 2 lakhs was sustained.

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Issues: Whether invoices issued by a provisionally registered supplier found to be fictitious could be treated as valid for availing and passing on Cenvat credit, and whether recovery of wrongly availed credit could be fastened on the dealer.

Analysis: The supplier was found to have furnished a fictitious address and its proprietor's residential address was also not found to exist. On those facts, the transaction was held to be fraudulent, and fraud was treated as destroying the validity of the invoices for credit purposes. A dealer passing credit under the Cenvat scheme was required to take reasonable precautions under Rule 7(2) of the Cenvat Credit Rules, 2002, and mere possession of documents from a provisionally registered supplier was not enough. At the same time, Rule 12 of the Cenvat Credit Rules, 2002 was read as permitting recovery from the manufacturer or producer who had taken and availed credit on the basis of the dealer's invoices, not from the dealer in the circumstances recorded.

Conclusion: The invoices of the fictitious supplier were held invalid for Cenvat credit purposes, the dealer was held to have no right to pass on credit, and the demand could not be sustained against the dealer; recovery was directed to be pursued against the manufacturer or producer, while the penalty of Rs. 2 lakhs was sustained.

Final Conclusion: The appeal succeeded only to the extent of relief from recovery of the credit demand against the dealer, but failed on the validity of the invoices and the penalty.

Ratio Decidendi: Where the supplying entity is found to be fictitious and the invoices are therefore invalid, Cenvat credit cannot be claimed or passed on by a dealer, and recovery under the credit rules must follow the statutory path against the person who actually took and availed the credit.

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