Cenvat credit through prescribed dealer chain: penalty justified where a registered dealer wrongly claimed first-stage dealer status.

A registered dealer was found to have wrongly passed on Cenvat credit by projecting itself as a first stage dealer despite the goods having already moved through another registered dealer. The Tribunal rejected the plea of bona fide belief, holding that credit could pass only through the prescribed dealer chain and that the appellant should have complied with that restriction. Penalty was therefore justified, though the quantum was reduced on the facts of the case.

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Issues: Whether the appellant, being a registered dealer, was correctly treated as having wrongly passed on Cenvat credit by posing as a first stage dealer when the goods had already been routed through another registered dealer, and whether the penalties imposed on the appellant were liable to be sustained or reduced.

Analysis: The appellant received goods manufactured by one unit though the goods were sold to another registered dealer and thereafter routed by the appellant to a further dealer before reaching the manufacturer-user. In that chain, the appellant could not justify claiming the status of first stage dealer, and the explanation of bona fide belief was not accepted. The Tribunal held that, where credit was permitted to pass through only the prescribed dealer chain, the appellant ought to have complied with the restriction and the imposition of penalty was warranted.

Conclusion: The penalties were upheld in principle, but reduced on the facts of the case.

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