CENVAT credit and cess recovery fail where invoice breakup alone does not prove wrongful passing on of the levy.

Recovery of cess, together with interest and penalty, was held unsustainable where invoices merely showed the levy separately and there was no evidence that customers had actually taken inadmissible CENVAT credit. Mere disclosure of cess in the invoice breakup did not, by itself, prove impermissible passing on of the levy or create a legal basis for recovery. The composition of the sale price was treated as a commercial matter, and the authorities could not rely on pricing structure alone to impose liability in the absence of proof of wrongful credit or any other actionable infringement. The demand and consequential penalties were therefore set aside in favour of the assessee.

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Issues: Whether the recovery of cess, along with interest and penalty, was sustainable on the premise that the assessee had passed on the cess to customers through dealer invoices and thereby enabled inadmissible CENVAT credit.

Analysis: The invoices produced showed the levies, including cess, separately. There was no evidence that customers had actually availed credit of cess on the basis of those invoices. Mere disclosure of the levy breakup in the invoice did not, by itself, establish an impermissible passing on of cess or authorise credit beyond what the CENVAT Credit Rules permit. The sale price composition was a commercial matter, and the authorities could not treat the inclusion of cess in pricing as a legal basis for recovery or penalty in the absence of proof of wrongful credit or any other actionable infringement.

Conclusion: The recovery, interest, and penalty were unsustainable and were set aside in favour of the assessee.

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