Excess CENVAT credit on inputs cannot be passed on above actual duty suffered; wrongful entries justify recovery and penalty.

A dealer or manufacturer removing inputs as such can pass on only the CENVAT credit actually available on those inputs, not a higher credit based on an inflated rate. Where the record showed that duty suffered on the inputs was 8% but credit was passed on at 12%, the conduct was treated as wrongful availment and passing of excess credit through manipulation of entries. The authority also held that the recipient failed to verify the duty actually borne, and the absence of wilful misstatement or suppression was not sustainable on those facts. Recovery and penalties were therefore justified, and the excess credit could not be defended as a mere accounting adjustment.

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Issues: Whether the respondents were entitled to pass on CENVAT credit at a higher rate than the duty actually suffered on the inputs and whether the penalties and recovery ordered by the adjudicating authority were justified.

Analysis: The available credit on the inputs was only the duty actually paid, and the first respondent, while removing the inputs as such, could not lawfully pass on credit at a higher rate. The record showed that the original duty suffered was 8% but credit was passed on at 12%, which amounted to manipulation of entries and wrongful availing and passing of excess credit. The second respondent also failed to take reasonable steps to verify the duty actually borne by the inputs. On these facts, the finding of no wilful misstatement or suppression was not sustainable, and the invocation of penal action was justified.

Conclusion: The appeal was rightly allowed in favour of Revenue, the orders of the Commissioner (Appeals) were set aside, and the demand, recovery and penalties were sustained.

Final Conclusion: Excess CENVAT credit passed on in contravention of the credit rules cannot be justified as a mere accounting adjustment, and penal consequences follow where the record shows wrongful availment and passing of credit.

Ratio Decidendi: A dealer or manufacturer removing inputs as such can pass on only the credit actually available on those inputs, and passing excess credit attracts recovery and penalty where the conduct shows wrongful availment and manipulation of records.

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