Cenvat credit and reasonable diligence: credit cannot be denied where invoices, records, and payment show bona fide receipt of inputs.

Cenvat credit on inputs purchased through a registered first stage dealer was not to be denied merely because the original manufacturer was later found non-existent. The buyer satisfied Rule 9(3) by receiving goods under apparently genuine invoices, entering them in statutory records, using them in manufacture, clearing final products on duty payment, and paying by cheque. The court noted that reasonable steps are assessed on the facts, and it is impractical to require verification of the dealer's internal records beyond the documents accompanying the goods. On those facts, bona fide receipt and due diligence were established, so denial of credit was unjustified.

---

---

Issues: Whether the assessee was entitled to Cenvat credit on inputs received under invoices from a registered first stage dealer when the original manufacturer was found to be non-existent, and whether the assessee had taken all reasonable steps within the meaning of Rule 9(3) of the Cenvat Credit Rules, 2004.

Analysis: The credit dispute turned on whether the buyer had taken reasonable steps to ensure that duty had been paid on the inputs. The assessee had received the goods under invoices issued by a registered dealer, entered them in statutory records, used them in manufacture, cleared the final products on payment of duty, and made payment by cheque. The authorities below found that these facts established bona fide purchase and due diligence. The Explanation to Rule 9(3) creates a deeming fiction where the buyer satisfies himself about the identity and address of the supplier, but even apart from that explanation, reasonable steps may be shown on the facts of the case. The Court held that it would be impractical to require the assessee to verify the internal records of the dealer or to investigate beyond the documents accompanying the goods.

Conclusion: The assessee had taken reasonable steps and was not liable to be denied Cenvat credit; the revenue's challenge failed.

Final Conclusion: No substantial question of law arose, and the denial of credit was not justified on the facts found by the appellate authorities.

Ratio Decidendi: Where a buyer of inputs purchases from a registered dealer, receives the goods under apparently genuine invoices, records them in statutory books, and pays by cheque, Cenvat credit cannot be denied unless the revenue disproves bona fide receipt and shows that the buyer failed to take reasonable steps under Rule 9(3).

---