Cenvat credit cannot be denied for procedural lapses when receipt and use of inputs are proved by reliable records.
Where reliable records established receipt and use of petroleum coke, Cenvat credit could not be denied merely because of procedural defects such as invoice endorsement issues or transportation route irregularities. The documents, including invoices, lorry receipts, consignment notes, coastal cargo records and a Chartered Accountant's certificate, were treated as sufficient proof of actual receipt and accounting of inputs. On the penalty question, Rule 15(1) required wrongful credit and utilisation, and no independent basis for penal action was shown once the demand had been dropped. The credit was upheld and the penalty was set aside.
Issues: (i) Whether penalty could be sustained under Rule 15(1) of the Cenvat Credit Rules, 2004 when the demand itself was dropped and the alleged irregularity was only procedural; (ii) Whether the assessee was entitled to retain Cenvat credit on petroleum coke on the basis of the documents and evidence showing actual receipt and use of inputs.
Issue (i): Whether penalty could be sustained under Rule 15(1) of the Cenvat Credit Rules, 2004 when the demand itself was dropped and the alleged irregularity was only procedural.
Analysis: The penalty was imposed even though the adjudicating authority had accepted the assessee's factual case and dropped the demand. Rule 15(1) applies where wrongful credit is availed and utilized. No independent reasoning was recorded to justify penalty, and the findings did not establish the ingredients necessary for penal action.
Conclusion: The penalty was unsustainable and was set aside in favour of the assessee.
Issue (ii): Whether the assessee was entitled to retain Cenvat credit on petroleum coke on the basis of the documents and evidence showing actual receipt and use of inputs.
Analysis: The records, including commercial invoices, lorry receipts, consignment notes, coastal cargo documents and the Chartered Accountant's certificate, supported receipt of petroleum coke and its accounting in the books. The defects noticed were procedural, including invoice endorsement issues and transportation route irregularities. The substantive fact of receipt and use of inputs was proved, and procedural lapses alone could not justify denial of credit.
Conclusion: The assessee was entitled to the credit, and the revenue challenge to that finding failed.
Final Conclusion: The assessee succeeded on the penalty issue, and the revenue failed to show any infirmity in the allowance of credit. The common order was sustained only to the extent of allowing credit and was interfered with to the extent of penalty.
Ratio Decidendi: Where receipt and use of inputs are established by reliable records, Cenvat credit cannot be denied merely for procedural lapses, and penalty cannot be imposed under Rule 15(1) without proof of wrongful credit and utilization.
TaxTMI 
AI Drafter ✕
TaxTMI 
