Manufacturer's Duty to Verify Cenvat Credit Upheld, Penalty Set Aside

The Tribunal upheld the recovery of Cenvat credit amount but set aside the penalty imposed on the appellant, emphasizing the manufacturer's duty to verify the correctness of credit availed from registered dealers. The appellant was found ineligible for the credit due to the fraud committed by the dealer, with the extended recovery period invoked. The Tribunal ruled that the burden of proof regarding the admissibility of Cenvat credit rests with the manufacturer and exempted the appellant from penalty under the relevant rules and acts.

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Issues:
1. Alleged wrongful availment of Cenvat credit by the appellant based on higher credit passed on by a registered dealer.
2. Dispute regarding recovery of Cenvat credit and imposition of penalty on the appellant.

Issue 1: Alleged wrongful availment of Cenvat credit:
The appellant, a pressure cooker manufacturer, purchased brass rods from a registered dealer who had been passing on higher credit than the duty actually paid. The department alleged that the appellant wrongly availed Cenvat credit of Rs. 62,000 during the disputed period. Initially dropped by the Deputy Commissioner, the case was reviewed by the Commissioner (Appeals) who confirmed the Cenvat credit demand, interest, and penalty. The Commissioner held that the appellant failed to take reasonable steps to ensure only admissible credit was availed, despite the registered dealer passing on higher credit. The appellant contended that they had no knowledge of the fraud committed by the dealer and should not be penalized for it. The Departmental Representative argued that the appellant should have taken precautions to ensure correct credit was availed, as per Rule 9 (5) of Cenvat Credit Rules. The Tribunal held that the appellant was not eligible for Cenvat credit due to the fraud committed by the dealer, invoking the extended recovery period but setting aside the penalty.

Issue 2: Dispute regarding recovery and penalty imposition:
The Tribunal noted that the registered dealer had passed on higher credit than the duty paid, leading to the appellant availing the same. The Tribunal referred to a similar case decided by the Apex Court to emphasize that the burden of proof regarding the admissibility of Cenvat credit lies with the manufacturer. Applying this principle, the Tribunal held that the appellant was not eligible for the credit and the extended recovery period would apply. However, the Tribunal ruled that the appellant would not be liable for penalty under Rule 15 (2) of Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. Consequently, the impugned order confirming the Cenvat credit demand was upheld, while the penalty imposed on the appellant was set aside.

In conclusion, the judgment upheld the recovery of Cenvat credit but set aside the penalty imposed on the appellant, emphasizing the manufacturer's responsibility to ensure the correctness of credit availed based on invoices issued by registered dealers.

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