Bona fide Cenvat credit cannot be denied when input receipts are genuine and only the supplier later defaults on duty payment.

Cenvat credit cannot be denied to a bona fide recipient of inputs where receipt under duty-referencing invoices is undisputed and the supplier's later failure to pay duty is the only objection. Rule 7(2) of the Cenvat Credit Rules, 2002 was read with the Board's circular to mean that no recovery should be made from a genuine user when the transaction itself is not doubted. Applying that principle, the Tribunal held the denial of credit was unjustified and upheld the assessee's entitlement to the credit.

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Issues: Whether Cenvat credit could be denied to the recipient of inputs merely because the supplier later defaulted in payment of duty, where the recipient's transactions were genuine and the receipt of inputs under invoices was not in dispute.

Analysis: The relevant credit condition under Rule 7(2) of the Cenvat Credit Rules, 2002 was examined in the light of the Board's circular clarifying that no recovery should be made from a bona fide user of inputs when the genuineness of the transactions is not disputed and the supplier's subsequent failure to discharge duty liability is the only objection. The Tribunal also relied on its earlier view that credit cannot be denied when inputs are received under invoices showing duty particulars and there is no dispute as to receipt of the inputs.

Conclusion: The denial of Cenvat credit was not justified, and the issue was decided in favour of the assessee.

Final Conclusion: The revenue's challenge failed because the bona fide receipt of inputs under genuine invoices protected the credit from reversal merely on account of the supplier's default.

Ratio Decidendi: Where the receipt of inputs under duty-referencing invoices is undisputed and the buyer acts bona fide, Cenvat credit cannot be denied solely because the supplier later fails to pay duty.

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