CENVAT credit cannot be denied to a bona fide recipient merely because the supplier failed to discharge duty.

CENVAT credit on inputs could not be denied merely because the supplier had not discharged duty, where the recipient manufacturer received goods under duty-paid invoices and acted bona fide. The Tribunal applied the settled position reflected in earlier decisions and the departmental circular that recovery from the consignee is not warranted in such circumstances. It also found that the basis for invoking the longer limitation period was not established on the recorded facts. The denial and recovery of credit, along with the connected demand, interest and penalty, were therefore not sustainable, and the impugned order was set aside.

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Issues: Whether CENVAT credit taken on inputs could be denied and recovered from the recipient manufacturer merely because the supplier had not discharged duty, and whether the demand, interest, and penalty could be sustained.

Analysis: The Tribunal noted that the goods had been received under cover of invoices containing duty particulars and that the supplier's failure to pay duty, by itself, did not justify reversal of credit where the recipient's transaction was bona fide. Reliance was placed on the settled position reflected in earlier decisions and the departmental circular, which recognised that recovery from the consignee should not be resorted to in such circumstances. The Tribunal also observed that the basis for invoking the larger limitation period was not made out on the facts recorded.

Conclusion: The denial and recovery of CENVAT credit were not sustainable. The impugned order was set aside and the appeal was allowed with consequential relief.

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