Cenvat credit and penalty depend on proof of genuine receipt and transport of goods, with relief granted on supported invoices.

Cenvat credit may be denied where surrounding circumstances show doubtful receipt of duty-paid goods or implausible transport, including shortages, duty-free goods in the premises, and vehicle records inconsistent with carriage of the invoiced goods. Where transport capability and surrounding evidence supported genuine supply, credit was allowed on the remaining invoices. Penalties were not sustained against the supplier when the record showed supply of goods, receipt of payment, and transport arranged by the buyer. The director's penalty was not upheld in full and was reduced, with liability confined to the credit that stood denied.

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Issues: (i) Whether Cenvat credit was admissible on the disputed invoices where receipt of duty-paid goods and genuineness of transport were doubted; (ii) whether penalties on the co-noticees and the director were sustainable in the facts of the case.

Issue (i): Whether Cenvat credit was admissible on the disputed invoices where receipt of duty-paid goods and genuineness of transport were doubted.

Analysis: The shortage of inputs, the presence of duty-free goods in the premises, and the vehicle records created doubt about receipt of goods on certain invoices. Credit was denied where the vehicles were found incapable of transporting the goods and the transport was arranged by the assessee itself. However, where the vehicle was found to be capable of carrying the goods, and in respect of the invoices supported by the earlier Tribunal view and the surrounding circumstances, the benefit of doubt was extended to the assessee.

Conclusion: Cenvat credit was denied only for the invoices found unsupported by credible transport and receipt evidence, and was allowed for the remaining invoices.

Issue (ii): Whether penalties on the co-noticees and the director were sustainable in the facts of the case.

Analysis: Penalty was not warranted on the supplier where the record showed supply of goods, receipt of payment, and arrangement of transport by the buyer. The director's penalty was also not sustained in full and was reduced. Penalty was confined only to the extent corresponding to the credit that stood denied against the manufacturer.

Conclusion: Penalty on the supplier was deleted, and the director's penalty was reduced to Rs. 50,000.

Final Conclusion: The appeal resulted in partial relief to the appellants, with credit allowed on some invoices, credit denied on others, the supplier relieved from penalty, and the director's penalty reduced.

Ratio Decidendi: Cenvat credit can be denied where the circumstances show non-receipt of goods or implausible transport, but where evidence supports genuine supply and transportation, the assessee is entitled to credit and related penalty cannot survive.

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