CENVAT credit turns on substance over procedure, but credit taken on original invoices without compliance was disallowed with interest and penalty.

CENVAT credit was allowed where duty-paid goods covered by genuine manufacturer's invoices were admittedly received through a depot, because the depot routing was treated as a procedural lapse and not a ground to deny substantive credit. However, credit taken on original invoices without compliance with the prescribed procedure for loss of the duplicate copy was disallowed, as the rule required intimation and satisfaction of the jurisdictional officer. On the wrongly taken credit, interest followed and penalty was sustained, though reduced. The credit demand relating to the depot movement was deleted, while the other credit disallowance and consequential interest and reduced penalty were upheld.

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Issues: (i) whether Cenvat credit on HR coils received through the depot could be denied merely because the goods were later transported from the depot, though the manufacturer's invoices covered the goods; (ii) whether credit taken on original invoices, without following the prescribed procedure for use of original copies, was admissible; and (iii) whether interest and penalty were leviable on the wrong credit despite payment before the show cause notice.

Issue (i): whether Cenvat credit on HR coils received through the depot could be denied merely because the goods were later transported from the depot, though the manufacturer's invoices covered the goods.

Analysis: The goods were found to have originated from the manufacturer under invoices issued in the appellant's name, and the subsequent unloading at the depot and redelivery from there was treated as an admitted factual sequence. The governing scheme required substantive eligibility for credit, while the invoicing route through the depot was only a procedural aspect. Since the authenticity of the manufacturer's invoices and receipt of the goods was not in dispute, denial of credit solely because the depot did not issue separate invoices was treated as a minor technical lapse.

Conclusion: The denial of credit of Rs. 30,22,774/- was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether credit taken on original invoices, without following the prescribed procedure for use of original copies, was admissible.

Analysis: The applicable rule permitted credit on the original copy only where the duplicate copy was lost and the jurisdictional Assistant Commissioner was informed and satisfied about the loss. Here, there was no intimation of loss, no permission, and no compliance with the prescribed procedure. The rule was applied strictly, and the Tribunal held that it could not add to or dilute the requirement by equitable considerations.

Conclusion: The denial of credit of Rs. 7,32,490/- was upheld against the assessee.

Issue (iii): whether interest and penalty were leviable on the wrong credit despite payment before the show cause notice.

Analysis: Since the credit of Rs. 7,32,490/- was held to be wrongly taken, the liability to interest followed under the relevant credit and excise provisions. The earlier view that payment before notice automatically excluded penalty and interest was not accepted in the light of the binding contrary precedent relied upon by the Tribunal. The penalty, however, was moderated having regard to the amount involved.

Conclusion: Interest and penalty were restored against the assessee, with penalty reduced to Rs. 2 lakhs.

Final Conclusion: The appeal succeeded only to the extent of deletion of the demand relating to credit of Rs. 30,22,774/-, while the disallowance of credit of Rs. 7,32,490/- and the consequential interest and reduced penalty were sustained.

Ratio Decidendi: Credit cannot be denied on a mere procedural lapse where the duty-paid goods covered by genuine manufacturer's invoices are admittedly received and used, but statutory credit taken contrary to a specific procedural condition for documentary proof is liable to be disallowed, with consequential interest and penalty.

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