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Issues: (i) Whether cenvat credit was admissible when invoices were issued without actual receipt of goods; (ii) Whether equivalent penalty under Section 11AC was justified.
Issue (i): Whether cenvat credit was admissible when invoices were issued without actual receipt of goods.
Analysis: The record showed admissions by the supplier that only paper invoices were issued without supplying the goods. The quantities shown as received and consumed were found inconsistent with the nature and movement of the goods. On these facts, the credit was held to have been taken on fake invoices without physical receipt of the inputs, contrary to the Cenvat scheme.
Conclusion: The denial of cenvat credit was upheld in favour of Revenue.
Issue (ii): Whether equivalent penalty under Section 11AC was justified.
Analysis: The conduct was found to involve fraud and an intention to defraud the Revenue, since credit had been availed on invoices unsupported by actual supply of goods. In such circumstances, the ingredients for invoking penal consequences were held to exist, and no reduction in penalty was warranted.
Conclusion: The equivalent penalty was upheld in favour of Revenue.
Final Conclusion: The appeal failed in full, and the demand with interest and penalty was sustained.
Ratio Decidendi: Cenvat credit cannot be sustained on the basis of invoices unsupported by actual receipt of goods, and where such credit is taken fraudulently, equivalent penalty is attracted.
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