Cenvat credit on mismatched invoices fails where receipt of duty-paid inputs is not proved; extended limitation and penalties follow.

Cenvat credit was treated as inadmissible where corroborative evidence showed that the invoiced ship-breaking scrap did not actually move from the dealer and the buyer received goods different from those described in the invoices. The note states that the burden lies on the person claiming credit to prove receipt of duty-paid inputs and to exercise due diligence, and that this burden was not discharged on the proved facts. It further explains that bogus or mismatched invoices supported invocation of the extended limitation period and the related demand, while penalties were justified for participation in the wrongful availment, subject to reduction of the senior officer's penalty amount.

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Issues: (i) Whether Cenvat credit was admissible on the strength of invoices issued through the first stage dealer where the goods covered by those invoices were found not to have moved from the ship-breakers to the dealer and the goods received by the buyer were different from the invoiced goods; (ii) whether the extended period of limitation and consequential demand were invocable in the facts proved by the investigation; (iii) whether penalty was sustainable on the senior officer and the unregistered dealers, and whether the penalty on the senior officer required reduction.

Issue (i): Whether Cenvat credit was admissible on the strength of invoices issued through the first stage dealer where the goods covered by those invoices were found not to have moved from the ship-breakers to the dealer and the goods received by the buyer were different from the invoiced goods.

Analysis: The documentary trail and the surrounding circumstances showed that the ship-breaking scrap said to have been sourced by the dealer was not actually received by the dealer and that the appellant did not receive the same goods as those described in the invoices. The evidence relied upon by the Revenue included absence of movement of scrap across the Gujarat border, statements of transporters, mismatch in vehicle particulars, stock discrepancies, and the nature of the alleged ship-breaking scrap itself. The statutory scheme places the burden on the person taking credit to establish admissibility and to take reasonable steps to ensure that the inputs are duty paid. On the facts proved, that burden was not discharged.

Conclusion: Cenvat credit was not admissible and the disallowance was sustained against the assessee.

Issue (ii): Whether the extended period of limitation and consequential demand were invocable in the facts proved by the investigation.

Analysis: The finding that the credit was taken on bogus or mismatched invoices, coupled with the absence of proof of receipt of the duty-paid goods, justified the inference that the transactions were not genuine. Once the Revenue established a prima facie case of fraudulent availment, the onus remained on the assessee to rebut it, which was not done. In that situation, the demand was held sustainable for the extended period.

Conclusion: The extended period of limitation was rightly invoked and the demand was upheld.

Issue (iii): Whether penalty was sustainable on the senior officer and the unregistered dealers, and whether the penalty on the senior officer required reduction.

Analysis: The senior officer was found to have been concerned with the procurement process and the dealers were found to have aided and abetted the wrongful availment of credit. Penalty was therefore justified. However, the quantum of penalty on the senior officer was considered excessive and was reduced, while the penalties on the dealers were sustained.

Conclusion: Penalty was upheld in principle, but the penalty on the senior officer was reduced to Rs. 10,00,000/-; the penalties on the unregistered dealers were sustained.

Final Conclusion: The appeals failed on the core dispute regarding wrongful availment of credit and the invocation of extended limitation, with only a limited relief granted by reduction of one penalty amount.

Ratio Decidendi: Where the Revenue establishes by corroborative evidence that the duty-paid invoices do not correspond to the goods actually received, the person taking Cenvat credit must prove admissibility and due diligence, failing which credit, demand, limitation, and penal consequences are sustainable.

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