Cenvat credit cannot be denied on allegations against an earlier supplier when receipt from the immediate supplier is proved.

Cenvat credit could not be denied where the assessee produced invoices, transport documents and an affidavit showing receipt of inputs from the immediate supplier. The Tribunal held that the relevant inquiry was the identity and role of the immediate supplier and the evidence of actual movement of goods, and that adverse material arising only from investigations against an earlier supplier was insufficient to defeat the claim. On that basis, the denial of credit and the penalties on both assessees were set aside, with consequential relief granted.

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Issues: Whether Cenvat credit could be denied and penalties sustained when the assessee produced invoices, transport documents, and other evidence showing receipt of inputs from the immediate supplier.

Analysis: The Tribunal held that the dispute had to be tested on the basis of the immediate supplier's role and the evidence of actual movement of goods. The second stage dealer acknowledged sale of the goods to the assessee and the record contained transport documents and an affidavit supporting delivery. Following the principle that the recipient of inputs is required to know only the identity of its immediate supplier, the adverse inference drawn solely from investigations at an earlier stage was found insufficient to dislodge the claim of receipt of inputs.

Conclusion: The denial of Cenvat credit was not justified and the penalties imposed on both appellants could not be sustained.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Cenvat credit cannot be denied merely on the basis of allegations against an earlier supplier where the recipient establishes procurement from the immediate supplier and actual receipt of inputs.

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