Cenvat credit recovery cannot be fastened on a dealer absent statutory liability or proof of mala fide conduct.

Liability for wrongly availed Cenvat credit could not be fastened on a registered dealer under Rule 12, because the rule was treated as operating against the manufacturer rather than the dealer. The Tribunal also held that penalty was unjustified where there was no evidence of mala fide conduct, knowledge of the irregular passing of credit, or conscious participation in the underlying default. On those grounds, the demand and penalty against the dealer were set aside, and the Revenue's challenge failed.

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Issues: (i) Whether demand of wrongly availed Cenvat credit could be confirmed against a registered dealer under Rule 12 of the Central Excise Rules. (ii) Whether penalty was imposable on the dealer in the absence of mala fide or knowledge of irregular passing of credit.

Issue (i): Whether demand of wrongly availed Cenvat credit could be confirmed against a registered dealer under Rule 12 of the Central Excise Rules.

Analysis: The credit dispute arose from the dealer's role in passing invoices and credit, but the liability under Rule 12 was found to be directed against the manufacturer and not against a dealer. The earlier Tribunal order relied upon by the Revenue was held inapplicable because that case concerned a manufacturer, whereas the present respondent was only a registered dealer. The finding of the appellate authority that the demand could not be fastened on the dealer was accepted.

Conclusion: The demand was not sustainable against the dealer and was rightly set aside, in favour of the respondent.

Issue (ii): Whether penalty was imposable on the dealer in the absence of mala fide or knowledge of irregular passing of credit.

Analysis: The record showed that the dealer acted on invoices issued by another dealer who projected itself as the first stage dealer, and there was no finding of participation in the underlying irregularity or any conscious wrongdoing. In the absence of evidence of mala fide or knowledge of improper credit passing, penalty was held to be unjustified. The authority also noted that even in the cited earlier matter, penalty had been set aside where knowledge of irregularity was not established.

Conclusion: Penalty was not imposable on the dealer and was correctly set aside, in favour of the respondent.

Final Conclusion: The Revenue's challenge failed, and the order setting aside the duty demand and penalty against the dealer was affirmed.

Ratio Decidendi: Liability for wrongly availed Cenvat credit under Rule 12 cannot be fastened on a dealer where the rule contemplates recovery from the manufacturer, and penalty cannot be imposed absent evidence of mala fide or conscious participation in the irregularity.

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