CENVAT credit on supplementary invoices is admissible in an inter-unit stock transfer where no sale exists.

CENVAT credit was held admissible on supplementary invoices issued by a sister unit in an inter-unit stock transfer, because the movement was not a sale. The differential duty had already been paid by the sister unit on price escalation, and Rule 9(1)(b) of the CENVAT Credit Rules, 2004 was applied on the basis that the bar on credit from supplementary invoices operates only where the underlying transaction is a sale. As the department did not dispute the stock transfer character of the transaction, the demand for duty, interest and penalty was held unsustainable and the lower orders were set aside.

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Issues: Whether CENVAT credit could be denied when the credit was taken on supplementary invoices issued by a sister unit in an inter-unit stock transfer, and whether the consequent demand of duty, interest and penalty could survive.

Analysis: The transaction was found to be an inter-unit transfer within the same company and not a sale. The differential duty had been paid by the sister unit on the price escalation and supplementary invoices were issued thereafter. Rule 9(1)(b) of the CENVAT Credit Rules, 2004, read with the pari materia rule considered in the Karnataka High Court decision, was applied on the footing that the embargo on credit on supplementary invoices is attracted only where the transaction is one of sale. Since the department did not dispute the stock transfer nature of the movement, the cited High Court ruling was treated as directly applicable and the Revenue's contrary reliance was held inapposite.

Conclusion: CENVAT credit on the strength of the supplementary invoices was admissible and the demand of duty, interest and penalty was unsustainable.

Final Conclusion: The order of the lower authorities was set aside and the appeal succeeded.

Ratio Decidendi: In an inter-unit stock transfer where there is no sale, CENVAT credit cannot be denied merely because it is taken on supplementary invoices issued after payment of differential duty.

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