Wrongful input credit on paper transactions: invoice discrepancies, lack of proof of receipt, and penalty upheld.

Credit based on disputed invoices was inadmissible where the vehicle numbers in the invoices were themselves non-genuine and the assessee failed to prove actual transport and receipt of the inputs. Non-supply of the verification report did not vitiate the demand because the factual basis rested on the invoice discrepancies and the evidentiary burden shifted to the assessee. A post-use end use certificate did not establish contemporaneous receipt or movement of the scrap, and payment of duty on final products did not by itself disprove wrongful availment of credit. On these facts, penalty followed from the finding of a fraudulent paper transaction.

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Issues: (i) Whether non-supply of the verification report concerning vehicle numbers vitiated the demand for want of natural justice; (ii) whether the end use certificate established actual receipt and transportation of the scrap under the invoices; (iii) whether clearance and duty payment on the final product by themselves disproved the allegation of wrongful availment of credit; and (iv) whether penalty was justified.

Issue (i): Whether non-supply of the verification report concerning vehicle numbers vitiated the demand for want of natural justice.

Analysis: The invoices themselves showed vehicle numbers that were not genuine or were incapable of carrying the scrap described therein. The respondents did not dispute the discrepancy in the vehicle particulars and instead attempted to explain it by referring to a supposed practice of false number plates. In those circumstances, the factual basis of the demand was not dependent exclusively on the undisclosed report, and the evidentiary burden shifted to the respondents to establish actual transport and receipt of the goods.

Conclusion: Non-supply of the report did not, by itself, amount to violation of natural justice or invalidate the demand.

Issue (ii): Whether the end use certificate established actual receipt and transportation of the scrap under the invoices.

Analysis: The certificate was required by the import notification and evidenced post-use certification, but it did not show physical verification of receipt or consumption at the relevant time. The certificate was issued much later than the alleged use, and there was no other material showing that the issuing authority had verified actual movement or use of the specific goods covered by the disputed invoices. The respondents therefore failed to discharge the burden of proving actual delivery and receipt.

Conclusion: The end use certificate did not establish actual receipt or transportation of the scrap.

Issue (iii): Whether clearance and duty payment on the final product by themselves disproved the allegation of wrongful availment of credit.

Analysis: The plea that final goods were manufactured and duty was paid was not supported by cogent evidence showing that the disputed scrap was actually received and used. Mere references in appeal grounds or statutory records were insufficient once the genuineness of the invoices and vehicle particulars was under doubt. Payment of duty on final products did not, by itself, displace the finding that credit had been taken without receipt of inputs.

Conclusion: Payment of duty on the final product was not sufficient to negate the allegation of wrongful availment of credit.

Issue (iv): Whether penalty was justified.

Analysis: Once the invoices were found to be unsupported by actual receipt of goods and the credit was taken on a fraudulent paper transaction, the necessary ingredients for penalty were satisfied. The failure of the appellate authority to analyse the evidence and its reliance on inapposite precedents could not sustain deletion of penalty.

Conclusion: Penalty was justified.

Final Conclusion: The demand of credit, interest, and penalty was restored because the respondents failed to prove actual receipt of the inputs, and the appellate order was unsustainable.

Ratio Decidendi: Where invoices and vehicle particulars themselves show non-genuine transportation and the assessee cannot prove actual receipt of inputs, credit based on such paper transactions is inadmissible and penalty is warranted.

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