Cenvat credit on supplementary invoices allowed for stock transfers; Rule 7(1)(b) bar applies only to sales.

Cenvat credit on supplementary invoices was held admissible where the underlying movement of goods was by stock transfer, because the bar on credit under Rule 7(1)(b) of the Cenvat Credit Rules, 2002 applies only to sales and not to stock transfers. Even though additional duty arose from alleged suppression or wilful misstatement, that did not attract the prohibition in a stock transfer transaction. The denial of credit was therefore set aside, and the consequential penalty and interest were also set aside for want of an independent basis.

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Issues: Whether Cenvat credit was admissible on supplementary invoices issued in respect of goods transferred by stock transfer, where additional duty became payable on account of alleged suppression or wilful misstatement, and whether penalty and interest could survive if the credit was admissible.

Analysis: The goods covered by the supplementary invoices were transferred on stock transfer basis. The governing rule prohibiting credit on supplementary invoices was held applicable only where the transaction is a sale. On stock transfer, that prohibition does not apply even if additional duty becomes recoverable because of fraud, suppression of facts, or similar reasons. Since the denial of credit was not justified, the consequential levy of penalty and interest also had no independent basis.

Conclusion: The Cenvat credit was admissible and the denial of credit was set aside. The penalty and interest were also set aside.

Ratio Decidendi: The bar on taking credit on supplementary invoices under Rule 7(1)(b) of the Cenvat Credit Rules, 2002 applies only to sales and not to stock transfers.

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