Deemed credit cannot be denied to a buyer by reclassifying inputs at the buyer's end when supplier declarations stand unchallenged.

Deemed credit under the relevant notification could not be denied to the recipient merely because the inputs were reclassified at the buyer's end, where the invoice declaration was the basis for the credit and the exclusion clause applied only if the supplier had failed to correctly declare particulars at clearance. Since proceedings against the supplier had been dropped and that order was not challenged, the allegation against the buyer could not survive. The denial of deemed credit was therefore unsustainable, and the connected penalty and interest also failed.

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Issues: Whether deemed credit could be denied to the recipient of inputs on the basis of alleged misdeclaration by the supplier and reclassification of the inputs at the buyer's end, with penalty and interest following therefrom.

Analysis: The notification granting deemed credit applied to the inputs as declared in the invoice, and its exclusion clause operated only where the manufacturer of the inputs had not correctly declared the invoice particulars at the time of clearance. The proceedings against the supplier had been dropped, and the Revenue had not challenged that order. In such circumstances, the allegation against the recipient could not survive merely by reclassifying the inputs at the buyer's end. The legal position that classification cannot be altered at the buyer's end also supported the assessee's claim.

Conclusion: Denial of deemed credit was unsustainable, and the penalty and interest based on that denial also could not survive. The finding was in favour of the assessee.

Final Conclusion: The assessee was entitled to deemed credit and the impugned adverse order was set aside.

Ratio Decidendi: Where the supplier's classification or invoice declaration is not successfully challenged, deemed credit cannot be denied to the recipient by changing the classification at the buyer's end.

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