Bona fide purchaser protection: Cenvat credit cannot be denied for the supplier's irregular credit, and penalty fails.

Cenvat credit cannot be denied to a bona fide purchaser merely because the supplier is alleged to have availed irregular credit, where the buyer paid for the goods and there is no evidence of any flow back to the supplier. The CBEC circular indicates that reversal or recovery should not be pursued against the consignee in a genuine transaction and that action, where appropriate, lies against the manufacturer-supplier. Consistently, credit taken on duty-paid goods received under invoices cannot be denied absent fraud or suppression by the purchaser. On these facts, denial of credit was unjustified and the penalty could not be sustained.

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Issues: Whether Cenvat credit availed by a bona fide purchaser could be denied merely because the supplier had allegedly availed irregular credit, and whether the resulting penalty could be sustained.

Analysis: The payment for the goods was made by the appellant and there was no evidence of any flow back to the supplier. The CBEC circular clarified that reversal or recovery of Cenvat credit from the consignee need not be pursued where the transaction is bona fide. The circular also indicated that action should be directed against the manufacturer-supplier in appropriate cases. The prior Tribunal decision relied upon held that credit cannot be denied to a purchaser who received duty-paid goods on invoices, absent fraud or suppression by that purchaser.

Conclusion: The denial of Cenvat credit was unjustified and the penalty could not survive. The issue is decided in favour of the assessee.

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