Cenvat credit on supplementary invoices remains admissible for stock transfers, despite later payment of differential duty.

Cenvat credit on supplementary invoices was held admissible where differential duty arose from under-valuation but the goods were transferred between units by stock transfer, not sold. Rule 7(1)(b) of the Cenvat Credit Rules, 2002 was applied as a limited bar confined to cases where additional duty becomes recoverable due to fraud, collusion, wilful misstatement, suppression of facts or similar evasion-related defaults in a sale transaction. As the clearances were stock transfers, the restriction did not apply and the recipient unit was not denied credit merely because the supplier later paid differential duty. The demand for reversal was therefore unsustainable.

---

---

Issues: Whether Cenvat credit was admissible on the basis of supplementary invoices issued for differential duty paid on account of under-valuation, where the clearances were by way of stock transfer and not sale.

Analysis: Rule 7(1)(b) of the Cenvat Credit Rules, 2002 was examined in the context of supplementary invoices issued after payment of additional duty. The bar on credit was held to operate where the additional duty became recoverable from the manufacturer or importer on account of non-levy or short-levy by reason of fraud, collusion, wilful misstatement, suppression of facts, or similar contraventions, and the transaction was one of sale. On the facts, the goods were transferred between units by stock transfer, and the reasoning in the cited precedents was that the restriction in Rule 7(1)(b) does not apply to such stock transfers. The reasoning also followed the settled view that the recipient unit is not denied credit merely because the supplier later pays differential duty in such circumstances.

Conclusion: Cenvat credit on the supplementary invoices was admissible and the demand for reversal was unsustainable.

Ratio Decidendi: The prohibition on availing Cenvat credit on supplementary invoices under Rule 7(1)(b) of the Cenvat Credit Rules, 2002 is confined to cases arising from specified evasion-related defaults in a sale transaction and does not extend to stock transfers.

---