Cenvat credit for bona fide purchaser upheld where goods were documented, received and used, with no proof of collusion.

Cenvat credit cannot be denied where goods are supported by transport and tax documents, are entered in statutory records, are used in manufacture, and the department fails to show non-receipt of goods or substitution of raw material. A purchaser who verifies invoices, transport papers and payment trail is treated as having taken reasonable steps; it is not required to verify the supplier's internal duty compliance. Penalties on the company and its Director require proof of deliberate contravention, collusion or personal involvement. The note states that, on these principles, credit was admissible and penal liability could not be sustained.

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Issues: (i) Whether the demand of Cenvat credit and Education Cess was sustainable where the inputs were received under invoices issued by a trading firm alleged to have passed on credit without duty paid mother invoices; (ii) whether the assessee had taken all reasonable steps and was a bona fide purchaser entitled to credit; (iii) whether penalty on the assessee-company and its Director was sustainable.

Issue (i): Whether the demand of Cenvat credit and Education Cess was sustainable where the inputs were received under invoices issued by a trading firm alleged to have passed on credit without duty paid mother invoices?

Analysis: The disputed consignments were supported by trade tax forms, GRs, bilty, ledger entries and bank payments, and the inputs were recorded in statutory records and used in manufacture of final products cleared on payment of duty. The department failed to establish that no goods were received or that any alternative raw material was used. In these circumstances, denial of credit could not be sustained merely on the allegation that the upstream trading firm had indulged in fraud.

Conclusion: The demand of Cenvat credit and Education Cess was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether the assessee had taken all reasonable steps and was a bona fide purchaser entitled to credit?

Analysis: The assessee received goods against invoices containing the requisite particulars, verified the consignments through transport documents and trade tax endorsements, and paid for them by cheque or demand draft. The order applied the principle that a buyer is required to take only those precautions within its control and is not expected to verify the supplier's internal duty compliance. On the facts, the transaction was held to be bona fide and the credit could not be denied for the supplier's alleged fraud.

Conclusion: The assessee had taken reasonable steps and was entitled to Cenvat credit.

Issue (iii): Whether penalty on the assessee-company and its Director was sustainable?

Analysis: No positive evidence established collusion, deliberate contravention, or personal involvement of the Director. Since the main demand itself failed and the department did not prove mens rea, fraud, or any actionable role justifying penal liability, the penalties could not survive.

Conclusion: The penalties on both the assessee-company and its Director were unsustainable.

Final Conclusion: The impugned order was set aside in full, and the appeals were allowed because the credit was held admissible and the penal demands lacked evidentiary support.

Ratio Decidendi: Cenvat credit cannot be denied to a bona fide purchaser who receives goods under apparently valid duty-related documents and takes reasonable precautions within its control, and penalties cannot be imposed without proof of deliberate involvement or collusion.

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