CENVAT credit on supplementary invoices upheld where differential duty was interpretational, revenue neutral, and unsupported by independent proof of evasion

CENVAT credit on supplementary invoices issued by a job worker was held admissible because the differential duty arose from an interpretational valuation dispute, the transaction was duly recorded, and no independent material showed fraud, collusion, suppression or intent to evade duty under Rule 9(1)(b). The dispute was treated as revenue neutral, since duty paid by the job worker was available as credit to the recipient, and the recipient had no disqualifying mens rea. Settlement proceedings against the job worker could not, by themselves, establish mens rea against the recipient. On that basis, the extended period of limitation, demand and penalty were held unsustainable.

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Issues: (i) Whether CENVAT credit taken on supplementary invoices issued by the job worker was barred under Rule 9(1)(b) of the CENVAT Credit Rules, 2004 on the ground that the differential duty arose from fraud, suppression or intent to evade duty. (ii) Whether the demand, penalty and invocation of the extended period of limitation could be sustained on the basis of the settlement proceedings against the job worker.

Issue (i): Whether CENVAT credit taken on supplementary invoices issued by the job worker was barred under Rule 9(1)(b) of the CENVAT Credit Rules, 2004 on the ground that the differential duty arose from fraud, suppression or intent to evade duty.

Analysis: The transaction between the principal and the job worker was duly documented and reflected in the books. The valuation adopted by the job worker was found to be a business-linked formula and the dispute was held to be interpretational. The differential duty was paid suo motu with interest before the notice against the recipient, and the supplementary invoice was issued bona fide. The Court also treated the arrangement as revenue neutral, since duty paid by the job worker was available as credit to the recipient, and held that no independent material established fraud, collusion, suppression or intent to evade duty so as to attract the bar under Rule 9(1)(b).

Conclusion: The credit was held admissible and the objection under Rule 9(1)(b) failed.

Issue (ii): Whether the demand, penalty and invocation of the extended period of limitation could be sustained on the basis of the settlement proceedings against the job worker.

Analysis: The Court held that the settlement proceedings against the job worker could not be used to fasten mens rea on the recipient in the absence of an independent finding in the present proceedings. It further held that, because the dispute was revenue neutral and interpretational, the extended period was unavailable and the penal consequences under the invoked provisions could not survive.

Conclusion: The demand, penalty and extended limitation were held unsustainable.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief in accordance with law.

Ratio Decidendi: CENVAT credit on a supplementary invoice cannot be denied merely because the supplier later paid differential duty, unless the recipient's case is independently supported by proof that the additional duty arose from fraud, collusion, wilful misstatement, suppression of facts or intent to evade duty; in a revenue-neutral and interpretational dispute, extended limitation and penalties are not attracted.

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