CENVAT credit survives supplier's reassessment where duty was actually paid and no fictitious payment was shown.

A recipient of inputs cannot be denied CENVAT credit merely because the supplier's duty liability was later reworked by excluding freight and insurance from the assessable value. Where duty was actually paid into the treasury and the payment was not shown to be fictitious or collusive, the recipient's credit entitlement remains independent of the supplier's separate refund or reassessment dispute. Observations in the supplier's case on the recipient's position were treated as general and non-binding. On that basis, denial of credit and the related penalty were not sustainable, and the recipient was entitled to credit of the duty actually paid by the supplier.

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Issues: Whether the recipient of inputs was entitled to avail CENVAT credit of duty paid by the supplier when the supplier's duty liability was later found to have been computed by wrongly including freight and insurance charges in the assessable value, and whether the consequent penalty and credit denial could be sustained.

Analysis: The duty paid by the input supplier had been collected and paid into the treasury on the clearances made under the area-based exemption regime. The earlier adjudication concerning the supplier had only held that freight and insurance were not includible in the assessable value and that excess duty, if any, was refundable to the supplier. That reasoning did not decide the independent entitlement of the recipient to credit in proceedings to which the recipient was not a party. The Tribunal relied on the principle that, so long as duty had been paid and the factual and legal basis for its payment was not shown to be fictitious or collusive, the recipient could not be denied credit merely because the supplier may have paid more duty than was ultimately found payable. The observations in the supplier's case on the recipient's credit entitlement were treated as general and non-binding for the present dispute.

Conclusion: The denial of CENVAT credit and the penalty could not be sustained; the recipient was entitled to the credit of duty actually paid by the supplier.

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