Cenvat credit on intra-company supplementary invoices upheld; Rule 7(1)(b) bar held inapplicable after settlement

Cenvat credit was treated as admissible on supplementary invoices issued between two units of the same company, because the clearances were an intra-company transfer rather than a sale to an outside buyer. The bar in Rule 7(1)(b) of the Cenvat Credit Rules, 2001 was held not to apply in that setting, even though the differential duty arose from suppression allegations and was later settled before the Settlement Commission. The operative effect is that credit on such supplementary invoices was sustained, with the Revenue challenge rejected, consistent with prior High Court decisions on similar facts.

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Issues: Whether Cenvat credit was admissible on supplementary invoices issued by one unit of the same company to another unit, and whether the bar under Rule 7(1)(b) of the Cenvat Credit Rules, 2001 applied where the differential duty arose out of suppression allegations later settled before the Settlement Commission.

Analysis: The credit was taken on supplementary invoices raised by the Madurai unit on clearances to the Chennai unit. The disputed duty had been paid and the matter was settled before the Settlement Commission. The decisive consideration was that the transaction was in substance a transfer between two units of the same company and not a sale to an outside buyer. In such a situation, the embargo in Rule 7(1)(b) was held not to operate. The view was supported by prior High Court decisions allowing credit in similar circumstances.

Conclusion: The credit was held admissible and the Revenue's challenge failed.

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