Cenvat credit cannot be denied merely because the supplier used a different assessable value, absent reassessment or mala fide intent.
Penalty under Rule 26 and Rule 27 was unsustainable where duty on inter-unit clearances was paid on self-assessment at a higher market value pending receipt of the CAS-4 certificate, because the variation in valuation did not by itself show evasion, contravention, or mala fide intent. The transaction was also revenue neutral, as the sister unit could have taken credit of the duty actually paid. Cenvat credit in the receiving unit could not be denied merely because the supplier had adopted a higher assessable value, since the goods were received under valid duty-paying invoices, used in manufacture, and there was no reassessment of the supplier's clearances. The credit demand, interest, and consequential penalties were set aside.
Issues: (i) Whether penalty under Rule 26 and Rule 27 of the Central Excise Rules, 2002 was sustainable where the assessee paid duty on inter-unit clearances at a higher market value instead of CAS-4 value pending receipt of the cost certificate; (ii) Whether Cenvat credit taken by the receiving unit could be denied on the ground that the supplying unit had adopted a higher assessable value and paid duty accordingly.
Issue (i): Whether penalty under Rule 26 and Rule 27 of the Central Excise Rules, 2002 was sustainable where the assessee paid duty on inter-unit clearances at a higher market value instead of CAS-4 value pending receipt of the cost certificate.
Analysis: The duty was paid on self-assessment and the higher payment arose because the CAS-4 certificate was received after clearance. The value could not be known with precision at the time of removal, and a variation in valuation, by itself, did not establish any evasion or mala fide intent. In the absence of reassessment or a finding that the assessee had contravened the valuation provisions with intent to pass on unlawful credit, the factual basis for penalty was not made out. The transaction was also revenue neutral, as the sister unit could take credit of the duty actually paid and use it on its finished goods.
Conclusion: The penalties under Rule 26 and Rule 27 were not justified and were set aside.
Issue (ii): Whether Cenvat credit taken by the receiving unit could be denied on the ground that the supplying unit had adopted a higher assessable value and paid duty accordingly.
Analysis: Credit under the Cenvat Credit Rules is linked to duty actually paid on goods received under valid duty-paying documents and used as inputs in manufacture. The invoices issued by the supplying unit contained the particulars required under the rules, receipt and use of the goods were not in dispute, and there was no reassessment of the supplier's clearances. The duty payment at the supplier's end was not open to challenge in the recipient unit's proceedings merely because the department believed a different assessable value should have been applied. Since the demand itself was unsustainable, the associated interest and penalties could not survive.
Conclusion: Denial of Cenvat credit was unsustainable and the credit demand, interest, and consequential penalties were set aside.
Final Conclusion: The common order was set aside in full and all the connected appeals were allowed with consequential relief.
Ratio Decidendi: Where duty has been actually paid on valid duty-paying documents and the supplier's assessment has not been reassessed, the recipient's Cenvat credit cannot be denied merely because the department considers a different assessable value more appropriate; likewise, penalty is not warranted absent a proven contravention or mala fide intent.