Cenvat credit protection for bona fide purchasers despite alleged fake invoices when receipt of inputs is properly recorded.

Cenvat credit cannot be denied merely because the inputs were alleged to have been purchased through fake invoices when the recipient maintained books of account and supporting records showing receipt of the goods. Where the buyer acted as a bona fide purchaser and took reasonable steps to verify the goods and their duty-paid character, it was not required to investigate the supplier's record chain. On that basis, the denial of credit was held unsustainable, and the demand and penalty were set aside with consequential relief.

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Issues: Whether Cenvat credit could be denied and recovered on the allegation that the inputs were purchased through fake invoices, despite the receipt of goods being reflected in the books of account and related records.

Analysis: The credit dispute was treated as covered by the principle that an assessee who is a bona fide purchaser and who has taken reasonable steps to verify the goods and duty-paid character of the inputs is not required to go behind the records of the dealer from whom the goods were procured. The transaction entries in the books of account and supporting documents were accepted as showing receipt of the disputed inputs, bringing the case within the settled position that credit cannot be denied merely on allegations against the supplying dealer when the recipient has acted with due diligence.

Conclusion: The denial of Cenvat credit was unsustainable and the demand and penalty were set aside.

Final Conclusion: The appeal succeeded, with consequential relief granted as per law.

Ratio Decidendi: Where the recipient of inputs acts as a bona fide purchaser, maintains statutory and accounting records, and takes reasonable steps to verify the inputs, Cenvat credit cannot be denied merely because the dealer chain is alleged to be tainted.

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