Cenvat credit on duty-paying documents cannot be denied to the recipient because supplier duty is later questioned.

Cenvat credit taken on the strength of valid duty-paying documents could not be denied at the recipient's end merely because the supplier's duty was later alleged to be excessive. The proper course for any excess or short levy lay against the supplier under the applicable recovery or refund mechanism, not by disallowing credit to the buyer. In the absence of suppression or other wrongful conduct, the extended limitation period was unavailable, and penalty and interest could not survive once the credit availment was bona fide and supported by documents.

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Issues: (i) whether Cenvat credit could be denied on inputs received under duty-paying documents merely because the duty element on the supplier's final assessment was alleged to be in excess; (ii) whether the extended period, penalty and interest were sustainable on the facts.

Issue (i): whether Cenvat credit could be denied on inputs received under duty-paying documents merely because the duty element on the supplier's final assessment was alleged to be in excess

Analysis: The credit was taken on the basis of duty paid and reflected in the duty-paying documents. None of the recognised grounds for denial of credit was shown to exist, namely exclusion of the goods from the definition of inputs, non-use in manufacture, use in exempted goods, clearance as such, absence of proper duty-paying documents, or refund of duty to the supplier. The governing principle applied was that credit is to be allowed to the extent of duty shown and paid under the documents at the receiver's end, while any dispute about excess or short levy, if at all, lies at the supplier's end under the relevant recovery or refund provisions.

Conclusion: The denial of Cenvat credit was unsustainable and was set aside.

Issue (ii): whether the extended period, penalty and interest were sustainable on the facts

Analysis: The record did not establish suppression or any wrongful conduct. The credit was taken bona fide on the strength of duty-paying documents, and there was no basis to treat the availment as wrong or to attribute a statutory obligation on the recipient to inform the department about alleged excess duty paid by the input supplier. Once the extended period could not be invoked, penalty under the penal provision also could not survive, and interest followed the same result.

Conclusion: The extended period, penalty and interest were not sustainable and were set aside.

Final Conclusion: The appeal succeeded in full and the impugned order was set aside, resulting in complete relief to the appellant.

Ratio Decidendi: Credit taken on the strength of valid duty-paying documents cannot be denied at the recipient's end merely because the duty element is later questioned as excessive at the supplier's end; disputes regarding excess or short payment must be pursued against the supplier under the relevant recovery or refund mechanism, and absence of suppression defeats extended limitation, penalty and interest.

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