Cenvat credit on scrap from a registered dealer was upheld where duty payment and receipt of inputs were not disputed.

Cenvat credit on scrap purchased from a registered dealer was held admissible because the invoices were valid, there was no allegation that the goods were not duty paid, and there was no dispute that the inputs were received in the factory. Applying the principle under Rule 9(3) of the Cenvat Credit Rules, 2004, an assessee dealing with a first stage dealer is protected when acting with reasonable diligence, so the presumption against credit could not be sustained. The show cause notice was therefore unsustainable, the demand and penalty were set aside, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.

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Issues: Whether Cenvat credit taken on scrap purchased from a registered dealer was admissible, and whether the demand and consequential penalty could be sustained.

Analysis: The scrap was purchased on the strength of invoices issued by a registered dealer. There was no allegation that the goods were not duty paid, nor any allegation that the inputs were not received in the factory. In such circumstances, and in light of the settled requirement that an assessee dealing with a first stage dealer is discharged of responsibility when acting with reasonable diligence under Rule 9(3) of the Cenvat Credit Rules, 2004, the presumption against admissibility could not be maintained. The show cause notice was therefore unsustainable.

Conclusion: The Cenvat credit was held admissible, the demand was set aside, and the penalty could not survive. The appeal of the assessee was allowed and the Revenue appeal was dismissed.

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