Cenvat credit on invoices from a non-existent supplier was denied, and extended limitation was upheld.

Cenvat credit under Rule 7(2) was treated as inadmissible where invoices were traceable to a non-existent supplier and the merchant intermediary's endorsement did not establish duty payment; the requirement of reasonable steps had to be assessed with reference to the actual supplier. On limitation, the extended period applied because the defect surfaced only after an alert circular revealed the supplier's non-existence, and disclosure of invoice details in returns did not prevent invocation of the longer limitation period. The note records that both the credit denial and the extended limitation were sustained.

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Issues: (i) Whether Cenvat credit was admissible when the credit was taken on invoices traceable to a non-existent supplier and the assessee relied on endorsement by a merchant intermediary. (ii) Whether the demand was barred by limitation.

Issue (i): Whether Cenvat credit was admissible when the credit was taken on invoices traceable to a non-existent supplier and the assessee relied on endorsement by a merchant intermediary.

Analysis: Rule 7(2) of the Cenvat Credit Rules, 2002 required the manufacturer taking credit to take reasonable steps to ensure that the inputs were duty paid. The decisive inquiry was directed to the actual supplier of the goods, not merely to an intermediary from whom the goods were routed. Since the credit was taken on the basis of invoices issued in the name of a supplier found to be non-existent, and the intermediary's documents did not themselves establish duty payment particulars, the assessee did not satisfy the requirement of reasonable steps.

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

Issue (ii): Whether the demand was barred by limitation.

Analysis: The Department became aware of the defect only after the alert circular revealed that the supplier did not exist. Mere reflection of the invoice particulars in the returns did not protect the assessee when the foundational fact was that the purported supplier was non-existent. On those facts, the longer limitation period was held applicable and the demand was treated as within time.

Conclusion: The demand was not time-barred and the finding was against the assessee.

Final Conclusion: The denial of credit and the invocation of the extended limitation period were both sustained, resulting in rejection of the appeals.

Ratio Decidendi: For Cenvat credit, reasonable steps under Rule 7(2) must be directed to the actual supplier whose duty-paid character is in question, and credit based on documents traceable to a non-existent supplier is inadmissible; in such circumstances, extended limitation may be invoked.

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